Estate Planning 101 What Individuals Need To Have In Place TODAY For TOMORROW A Presentation To Office of the Comptroller of the Currency Staff Pre-Retirement PlanningBy Norman A. Lofgren Gray, Reed & McGraw, P.C. Dallas, TX June 21, 2014

Gray Reed & McGraw, P.C. Our Constitution is in actual operation; everything appears to promise that it will last; but in this world nothing is certain but death and taxes. Benjamin Franklin 1789

Gray Reed & McGraw, P.C. Topics Control of Your Person Control of Your Person –Avoidance of Guardianship and Powers of Attorney –End of Life Issues Control of Your Property Control of Your Property –A Tax Primer –Incapacity –Lifetime Gifts –Disposition on Death Wills, Trusts, Alternate Methods Wills, Trusts, Alternate Methods 3

Gray Reed & McGraw, P.C. Control of Your Person GUARDIANSHIP GUARDIANSHIP –If you become legally “incapacitated” a court will appoint a guardian of your “person” Defined – Defined – –Minor –Adult who, “because of physical or mental condition, is substantially unable to provide food, clothing or shelter for himself of herself, to care for the individuals own physical health, or to manage the individual’s own financial affairs.” –Expensive process –Court supervision

Gray Reed & McGraw, P.C. Control of Your Person GUARDIANSHIP GUARDIANSHIP –Potential powers of guardian of the person Physical possession of the “ward” Physical possession of the “ward” Decision where ward lives Decision where ward lives Care, supervision and protection of ward Care, supervision and protection of ward Provide food, clothing, shelter, medical care for ward Provide food, clothing, shelter, medical care for ward

Gray Reed & McGraw, P.C. Control of Your Person GUARDIANSHIP GUARDIANSHIP –Priority of persons eligible to be guardian Person named in a “designation of guardian before need arises” Person named in a “designation of guardian before need arises” –Relatively simple document –Court will generally respect your choice if person suitable Spouse Spouse Next of Kin Next of Kin Other qualified persons Other qualified persons

Gray Reed & McGraw, P.C. Control of Your Person Techniques to Reduce Guardianship of Your Person and Control Own Circumstances Techniques to Reduce Guardianship of Your Person and Control Own Circumstances –Medical Decisions and Information Medical Power of Attorney Medical Power of Attorney Directive to Physicians (Living Will) Directive to Physicians (Living Will) HIPAA Authorization HIPAA Authorization Out of Hospital DNR Out of Hospital DNR

Gray Reed & McGraw, P.C. Texas Advanced Directives Act Governs Medical Powers of Attorney and Directives to Physicians Governs Medical Powers of Attorney and Directives to Physicians Common Features of Documents Common Features of Documents –Statutes provide forms of documents or requirements –All documents must be signed either in front of a notary or two witnesses –If witness alternative is selected Competent adults Competent adults At least one witness who is NOT At least one witness who is NOT –Designated by declarant to make a treatment decision –Not related to declarant by blood or marriage –Not entitled to any part of declarant’s estate –The attending physician or an employee of the physician –An employee (also officers, directors, partners) of health care facility in which declarant is a patient (some limitations on restriction)

Gray Reed & McGraw, P.C. Medical Power of Attorney Statutory Form in Texas Statutory Form in Texas Effective If You Are Unable To Make Own Medical Decision Effective If You Are Unable To Make Own Medical Decision Can Limit Agent’s Authority Can Limit Agent’s Authority Back-up Agents Back-up Agents

Gray Reed & McGraw, P.C. Directive to Physicians and Family or Surrogates (Living Will) Statutory Form In Texas Statutory Form In Texas Two different triggering situations Two different triggering situations –“Terminal condition” Incurable condition caused by illness or injury that will produce death within 6 months even with life sustaining treatment Incurable condition caused by illness or injury that will produce death within 6 months even with life sustaining treatment –“Irreversible condition” Condition, illness or injury Condition, illness or injury –Can’t be cured or eliminated, AND –Person unable to care for self or make decisions for self, AND –Without life sustaining treatment the condition, illness or injury is fatal

Gray Reed & McGraw, P.C. Directive to Physicians and Family or Surrogates (Living Will) Two choices if “terminal condition” or “irreversible condition” Two choices if “terminal condition” or “irreversible condition” –No treatment other than to keep “comfortable” –Use “life sustaining treatment” Medications Medications Artificial life support Artificial life support –Mechanical breathing machines –Kidney dialysis –Artificial nutrition and hydration

Gray Reed & McGraw, P.C. Directive to Physicians and Family or Surrogates (Living Will) Parents or legal guardian can sign on behalf of minor child Parents or legal guardian can sign on behalf of minor child Effective until revoked Effective until revoked May be revoked, regardless of declarant’s competency May be revoked, regardless of declarant’s competency –In writing –Orally –Defacing or destroying document

Gray Reed & McGraw, P.C. Directive to Physicians and Family or Surrogates (Living Will) Physician or health care facility that withholds or withdraws life-sustaining treatment in accordance with statute not civilly liable for that action unless there is a failure to “exercise reasonable care.” Physician or health care facility that withholds or withdraws life-sustaining treatment in accordance with statute not civilly liable for that action unless there is a failure to “exercise reasonable care.” Procedures for transferring care of patient where physician or health care facility refuses to follow patient’s directive Procedures for transferring care of patient where physician or health care facility refuses to follow patient’s directive Cannot withdraw or withhold life-sustaining treatment on pregnant patient Cannot withdraw or withhold life-sustaining treatment on pregnant patient

Gray Reed & McGraw, P.C. HIPAA Release and Authorization for Disclosure of Health Information and Medical Records Health Insurance Portability and Accountability Act of 1996 adopted by Texas in 2003 Health Insurance Portability and Accountability Act of 1996 adopted by Texas in 2003 –Provides for confidentiality of medical information –Health care providers very wary due to penalties Texas Durable Power of Attorney does not work smoothly with HIPAA rules Texas Durable Power of Attorney does not work smoothly with HIPAA rules Many “home grown” forms being circulated until Texas legislature enacts new legislation Many “home grown” forms being circulated until Texas legislature enacts new legislation

Gray Reed & McGraw, P.C. Out-Of-Hospital DNR Order Directs health care professionals acting in an out-of-hospital setting to withhold cardiopulmonary resuscitation and certain other life-sustaining treatment Directs health care professionals acting in an out-of-hospital setting to withhold cardiopulmonary resuscitation and certain other life-sustaining treatment –Without one of these, paramedics will institute life-sustaining treatment! Bracelet / Necklace ID’s available Bracelet / Necklace ID’s available

Gray Reed & McGraw, P.C. Out-Of-Hospital DNR Order Requirements Requirements –Signed by patient –Signed by physician –Two witnesses –Statement by physician instructing health care professionals and emergency departments not to initiate or continue certain life-sustaining treatment List procedures not to be initiated or continued List procedures not to be initiated or continued

Gray Reed & McGraw, P.C. Control of Your Body After Death Disposition of Remains Disposition of Remains Anatomical Gifts Anatomical Gifts

Gray Reed & McGraw, P.C. Disposition of Remains on Death Disposition of Remains on Death –Who decides? Priority: Priority: –Pursuant to written instrument –Surviving spouse –Adult Children –Parents –Adult sibling –Next of kin

Gray Reed & McGraw, P.C. Appointment of Agent to Control Disposition of Remains Permits YOU To Decide Who Controls Disposition Of Your Remains Permits YOU To Decide Who Controls Disposition Of Your Remains –Can avoid family disputes Special Instructions To Agent Special Instructions To Agent –E.g., cremation –E.g., “scatter ashes in lake” –E.g., celebration in Italy

Gray Reed & McGraw, P.C. Anatomical Gifts By Will Or “Other Writing” By Will Or “Other Writing” –Will –Driver’s License –Donor Card or Document (2 Witnesses) All Or Part Of Body All Or Part Of Body Parental Consent Required For Persons Under 18 Parental Consent Required For Persons Under 18

Gray Reed & McGraw, P.C. Control of Your Property A Tax Primer A Tax Primer –Federal Estate and Gift Tax No longer an issue for most people No longer an issue for most people Imposed on the fair market value of cumulative transfers (lifetime gifts and death) Imposed on the fair market value of cumulative transfers (lifetime gifts and death) 2014 law exempts $5.34 million per person (future adjustments for inflation) 2014 law exempts $5.34 million per person (future adjustments for inflation) Tax rate 40% Tax rate 40% Annual exclusion $14,000 per donor per recipient per year, increases periodically with inflation Annual exclusion $14,000 per donor per recipient per year, increases periodically with inflation Unlimited deduction for transfers for spouses (who are US citizens) Unlimited deduction for transfers for spouses (who are US citizens) Exemption is now “portable” as to first surviving spouse Exemption is now “portable” as to first surviving spouse 21

Gray Reed & McGraw, P.C. Control of Your Property (while alive) GUARDIANSHIP GUARDIANSHIP –If you become legally “incapacitated” a court can appoint a guardian of your “estate” Can be very expensive Can be very expensive Guardian must post bond Guardian must post bond Guardian supervised by court Guardian supervised by court

Gray Reed & McGraw, P.C. Control of Your Property (while alive) GUARDIANSHIP GUARDIANSHIP –Guardian of the Estate –Selection of guardian same as for guardian of the person –Potential powers of guardian Possession and management of all property of the ward Possession and management of all property of the ward Collect all debts of ward Collect all debts of ward Enforce all obligations in favor of the ward Enforce all obligations in favor of the ward Bring and defend suits by or against the ward Bring and defend suits by or against the ward

Gray Reed & McGraw, P.C. Control of Your Property (while alive) Techniques to Reduce Guardianship of Your Estate Techniques to Reduce Guardianship of Your Estate –Statutory Durable Power of Attorney –“Funded” Living Trusts [discussed under disposition of property after death] [discussed under disposition of property after death]

Gray Reed & McGraw, P.C. Statutory Durable Power of Attorney Statutory Form in Texas Statutory Form in Texas –New form 2014 –Old forms still valid Scope Scope –Broad –Narrow –Can provide for gift giving powers Effective Date Effective Date –On signing –On incapacity Back-up Agents Back-up Agents

Ways an Estate Passes Asset Passing by contract: Life insurance pension plans IRAs Annuities All other assets: Testate or Intestate Assets passing by law: Co-ownership with survivorship JTWROS Tenancy by Entirety Assets passing by trust terms: Trusts The Probate Process All other assets - creditors debts - taxes Prove will and administer and distribute assets To Beneficiaries by contract To Heirs and LegateesTo Survivor To Principal and Income Beneficiaries Gray Reed & McGraw, P.C.

Disposition of Property on Death Intestacy Intestacy Will Will Trust Trust Beneficiary Designation Beneficiary Designation Survivorship Property Survivorship Property

Gray Reed & McGraw, P.C. Will / No Will Dying Without A Will (“Intestate”) Dying Without A Will (“Intestate”) –Probate is generally MUCH more costly –State law decides who inherits your estate –No opportunity for tax planning / trusts Dying With A Will (“Testate”) Dying With A Will (“Testate”) –Texas has simplified probate –You decide who inherits your estate –Opportunity for tax planning / trusts

Gray Reed & McGraw, P.C. Intestacy Texas Probate Code determines who takes property Texas Probate Code determines who takes property Different results if community property or separate property Different results if community property or separate property Can be different results if children are not children of surviving spouse Can be different results if children are not children of surviving spouse Complex distribution scheme Complex distribution scheme

Gray Reed & McGraw, P.C. Wills General Requirements General Requirements –Written –Two Witnesses –Texas Self-Proving Affidavit with Notary Simplifies Texas Probate Appoints Guardian For Minor Children Appoints Guardian For Minor Children Must be filed in probate proceeding = terms of Will public Must be filed in probate proceeding = terms of Will public

Gray Reed & McGraw, P.C. Living Trusts Used With “Pour Over Will” Used With “Pour Over Will” Amendable / revocable while creator alive Amendable / revocable while creator alive If “funded” during lifetime of creator, can help avoid need for guardianship of the estate If “funded” during lifetime of creator, can help avoid need for guardianship of the estate Can Minimize Probate Can Minimize Probate –Can avoid multi-state probate (e.g., Destin Condo, Oklahoma farm) –Texas homestead can now be held by trust Terms Private (not filed in probate proceeding) Terms Private (not filed in probate proceeding) Useful Where Family Discord Useful Where Family Discord New provision in Texas law for using a “certificate of trust” to prove existence New provision in Texas law for using a “certificate of trust” to prove existence

Gray Reed & McGraw, P.C. Beneficiary Designations Beneficiary designation override Will and Trust provisions Beneficiary designation override Will and Trust provisions –Life Insurance / Annuities –IRA / 401(k) / 403(b) / Pension Plans / Etc.

Gray Reed & McGraw, P.C. Survivorship Property Property owned with survivorship provision will override Will and Trust provisions Property owned with survivorship provision will override Will and Trust provisions –JTWROS (Joint Tenants With Right of Survivorship) –Needs to be in writing under Texas law POD / TOD POD / TOD –Accounts may have a “pay on death” or “transfer on death” designation

Gray Reed & McGraw, P.C. Personal Checklist -1 DO YOU KNOW WHERE YOUR KEY ESTATE PLANNING DOCUMENTS AND OTHER CRITICAL LEGAL DOCUMENTS ARE LOCATED? DOES YOUR SPOUSE KNOW? DO YOUR CHILDREN KNOW?

Gray Reed & McGraw, P.C. Personal Checklist -2 Last Will and Testament (or Living Trust with Pour Over Will) – –Charitable Gifts Durable Power of Attorney Directive to Physicians (“Living Will”) Medical Power of Attorney HIPAA Authorization Designation of Guardian Before Need Arises Appointment of Agent to Control Disposition of Remains Anatomical Gifts

Gray Reed & McGraw, P.C. Personal Checklist -3 Birth Certificate Social Security card Marriage License (Marriage Certificate) Citizenship Documents

Gray Reed & McGraw, P.C. Personal Checklist - 4 Insurance Policies – –Life BENEFICIARY DESIGNATIONS – –Health – –Disability – –Property – –Burial

Gray Reed & McGraw, P.C. Personal Checklist - 5 Bank Account Information – –Locations – –Account Numbers – –How are accounts held JTWROS POD / TOD – –Passwords – – Electronic Medical Records now in the “Cloud” – –Safe Deposit Boxes (and keys)

Gray Reed & McGraw, P.C. Personal Checklist - 6 Deed(s) to Real Estate and Mineral Interests Automobiles – –Titles – –Insurance Tax Returns – –Income Tax (last 3 years) – –Gift Tax (all)

Gray Reed & McGraw, P.C. Personal Checklist - 7 Military Discharge/Retirement Documents – –DD-214 – –Retirement eligibility (reservists) – –Retirement elections – –Disability determinations

Gray Reed & McGraw, P.C. Personal Checklist - 8 Disability Claims (if any) Burial Property Certificate of Ownership- Prearranged funeral arrangements Death Benefits from Employer

Gray Reed & McGraw, P.C. Personal Checklist - 9 Investment Information – –Account Numbers / Passwords – –Locations – –Beneficiary Designations (IRA, 401(k), etc) – –POD / TOD Debts – –Loan Documents (Promissory Notes, Deeds of Trust, Security Agreements)

Gray Reed & McGraw, P.C. Personal Checklist - 10 Funeral Preferences – –Obituary – –Burial or Cremation – –Location for interment of remains – –Headstone inscription

Gray Reed & McGraw, P.C. Personal Checklist - 11 Funeral Preferences – –Service Preferences Scripture Location Clergy Flowers Pall Bearers Music Charities to receive donations Military Honors

Gray Reed & McGraw, P.C. Personal Checklist - 12 Family / Personal Information – –Date of Birth – –Place of Birth – –Parents and Grandparents Names Residence Dates of Death – –Siblings – –Education Institutions, degrees, dates

Gray Reed & McGraw, P.C. Personal Checklist - 13 Family / Personal Information – –Marriage(s)/Divorces Spouse’s name Date of Marriage Location Date of Divorce Date of Spouse’s death

Gray Reed & McGraw, P.C. Personal Checklist - 14 Family / Personal Information – –Children / Grandchildren Names Dates of Birth Dates of Death Location Marriages – –Employment History

Gray Reed & McGraw, P.C. Personal Checklist - 15 Family / Personal Information – –Military Service Branch Dates Highest Rank Duties (e.g., pilot, infantry, submarines) Notable Achievements (e.g., commanding officer USS Enterprise) Combat Service Decorations