Benefits Of Estate Planning During Lifetime And After Death In Texas

Key Takeaways:

  • Estate planning isn’t just for when you die. It can definitely benefit you during your lifetime.
  • Estate planning can be used to qualify for Medicaid so you are not bankrupted by the cost of long-term care or a nursing home, if you come to require either.
  • Estate planning can also help your loved ones avoid the Probate process, which saves you time, money, and stress, and also makes it so that Medicaid cannot try to reclaim assets from your estate (according to Texas law). One of the ways to do this is by utilizing a Ladybird Deed.
  • Wills are not generally enough when it comes to estate planning. An estate planning attorney can help you expand your estate plan to include other financial tools, such as trusts.
  • Trusts are another major way to bypass the Probate process and to protect your assets and your estate.

Yes, estate planning is very important while you live in addition to being important for when you die.

We can use an example to illustrate this point:

Let’s say your dad is in his eighties. He has $150,000 in his estate. You realize that he has become incompetent. That is, he has advancing dementia and is unable to take care of himself. He doesn’t remember when to take his vital meds, which could be deadly. He can’t cook for himself and sometimes goes without food. There would be a very serious risk posed if he were to fall and hurt himself.

In other words, your dad needs to go into a nursing home, where he can get the treatment and care that he needs to stay safe.

You quickly learn how Medicaid has a cap of $2,000 in countable assets. If you have any more than $2,000 in your estate, as your father does, then you don’t qualify for Medicaid.

What do we do now? Well, first we try to get him qualified for Medicaid.

Let’s say your dad has a living spouse, your stepmom, and she has a durable power of attorney. In that case, your dad can transfer $149,000 of his estate to your stepmom, to an account in her name alone.

In this scenario, even though the money is still in the family, and even though both your dad and your mom pretty much have joint access to the account, if your mom uses her power of attorney over your dad to transfer $149,000 of their $150,000 to an account in her name alone, dad qualifies automatically. This means that he doesn’t have to spend the $150,000, which he has worked hard his whole life to save up, on nursing home care. Instead, Medicaid is going to take care of most of it. There are many exceptions and exemptions to Medicaid’s financial restrictions.

In addition, we also offer probate services. This is another area of estate planning. Probate is a court process through which the court examines a person’s will and authorize a person to execute the will and terms.

In Texas, probate works a little differently than in other states. The only reason most people need probate in Texas is if they have real estate. The only reason real estate creates that need is title company verification. That is, when a title company offers title insurance to a seller, the title company is going to want to make sure that the seller really owns the property or has the right to transfer title to it.

We can use another example to illustrate this point.

Let’s say your dad has just died, and your mom is still alive. Their house is in both mom and dad’s name. Mom wants to sell the house so she can move to a senior community. So how does mom sell the house? Well, she is going to have to go through probate.

What that means is that she’s going to have to pay $5,000 to $6,000 for an attorney to handle a long court process—taking on average 9 months, but often more. Or she can pursue the other route: she can plan in advance. With the right estate planning, your mom and dad (and anyone else in their shoes) can utilize an estate planning tool to solve the probate problem.

If I were advising your parents, I would suggest signing up a ladybird deed. In a ladybird deed, your dad signs over his half of the interest in their house to your mom, so that technically he no longer owns any part of it. However, the deed also says he can reserve the right to live in the house until his death, and that he can also sell his half before his death, if he chooses to. It further states that if he dies, the whole house goes to your mom.

A ladybird deed completely eliminates the need for probate, and is all done in advance. This saves the whole family the time, effort, and expense of having to go through the probate process in addition to the other stressors of the death of a loved one and/or the sale of a house.

In addition, ladybird deeds have uses and implications for Medicaid. As touched upon earlier, if a person needs nursing home care or long-term care, it is virtually impossible to pay for it on your own without having Medicaid kick in. However, Medicaid has extremely low means tested qualifications: specifically, that the person must have $2,000 of countable assets or less. Without estate planning, you will be expected to spend down your countable assets to that amount before you can qualify for Medicaid.

Importantly, certain things are not counted as “countable assets.” For example, a house would not be counted, nor would a car. However, they will count any money you have in the bank. So, if you have $300,000 in the bank, then they’re going to count that. People therefore try to move money from their bank accounts or use other estate planning tools so that they won’t count that money.

However, Medicaid always tries to get its money back after the person dies. They say, “Okay, we gave you Medicaid premised on the idea that you were destitute, but you’re dead now and we’ve found that there’s a bank or somewhere else that you stored your money, and we want to get our money back because you’re not really destitute”.

To fight back against actions like this, the State of Texas created law that says that the only way Medicaid can try to get money from you after you die is to file a claim in your probate. With the ladybird deed, you have no probate, so Medicaid is not able to try to recover from you.

I can tell you a story about as client I am currently working with that illustrates exactly this problem and what can happen. My client’s mother was sick in her later years, and while she didn’t go to a nursing home she got some government assistance. After she died, they told him, “I know your mom didn’t have any money, but she owns a house, and we want $35,000 of that house because that’s how much we spent on her.” We knew Medicaid’s exemptions did not allow it to collect because one of Mom’s sons was totally disabled.

What Is A Will In Texas, And Is It Enough On Its Own?

A will is a notarized, attested document that explains to your survivors what you want done with your assets when you die. In my opinion, no, it is not enough in the State of Texas to simply have a will.

For most people, the bulk of their net worth is in their house (in real estate), and in their investments such as bank accounts, brokerage accounts, IRAs, 401(k)s. The money in your bank, the money in your IRA, and the money in your brokerage accounts is all completely and totally unaffected by your will.

You can write in your will, “I want Johnny to get the money I’ve got in First National Bank, and I want him to use it for his children’s education.” Well, if Johnny is not the named beneficiary on that bank account, Johnny is not going to get a dollar out of First National Bank, no matter what your will says.

So, much of most people’s liquid assets are not listed in their wills. Rather, they are processed through their IRA, 401(k) bank account, or similar third party.

The other significant part of most people’s estates is their home. With a ladybird deed, people can avoid probate by having the home go to people who are identified in the ladybird deed. That, in my opinion, is the wisest way to handle an estate in Texas: to make sure all of those beneficiary designations are up-to-date and to do ladybird deeds to transfer real estate.

What Exactly Is A Trust And What Are The Most Common Types Of Trusts That You Create For Your Clients?

A trust is a legal entity that holds title to assets, and deals with those assets according to a trust agreement.

The most common kind of trust I create for my clients is called a grantor trust. I’ll use myself as an example to explain exactly what that means.

Let’s say that I, Joe Michaels, create a revocable living trust along with my wife, and we put assets in that trust. At that point, we are what’s called the Trustors, the people who created and funded the trust. We are also the Trustees, the people who run the trust, as well as the Beneficiaries, the people who benefit from the trust, during our lifetimes.

When the first spouse dies, whether it’s me or my wife, the second spouse takes over as Trustor, Trustee, and Beneficiary. But what happens when the second spouse dies?

At that point, the document names a new Executor, who is now in charge of the estate. The Executor takes over the trust and either continues for a certain number of years or liquidates, depending on the instructions contained in the trust document.

Trusts can be modified and changed throughout the grantor’s lifetime. It is not onerous to make these changes: in fact, trusts are easy to change.

Furthermore, if you have a trust and you put your real estate in the trust, then you completely avoid having to go through the probate process, even without a ladybird deed. This is because the trust now technically owns the real estate contained within it. So while you may have died, the actual owner of the home—the trust—did not. It merely got a new Executor, as well as potentially new trustees and beneficiaries. This will allow the people named in the trust as beneficiaries to use your home or to sell the home and distribute those assets, depending on how the trust is written.

It should be noted that trusts, while they are very useful, are not completely without downsides.

The drawback to trusts is that if you acquire a significant amount of assets after the trust is created and particularly real estate, and you keep those in your name and you don’t place them in the trust, then you go through probate. There’s also the minor inconvenience of having to file a trust tax return every year.

Otherwise, though, trusts are very useful estate planning tools, and I regularly utilize them to help my clients.

For more information on Estate Planning in The State of Texas, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (281) 843-9723 today.