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Welcome to the Texas Probate Web Site, your source for information on estate planning, probate and trust law in Texas.  This site is owned and maintained by Glenn Karisch of The Karisch Law Firm, PLLC, of Austin, Texas.  For older information, visit the legacy site at texasprobate.net.
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Monday
Feb282011

REPTL bills would make changes to trusts, guardianships and powers of attorney

Rep. Will Hartnett (R-Dallas) filed three bills supported by the Real Estate, Probate and Trust Law Section of the State Bar of Texas Friday.

The most significant is HB 1858, which is a new Durable Power of Attorney Act for Texas.  It would replace the current statutory durable power of attorney form for a new form with a disclosure statement and places for the principal to specify if he wants the agent to be able to create, revoke amend trusts; make gifts; create or change rights of survivorship; create or change beneficiary designations; and waive the principal's right to be a beneficiary of a joint and survivor annuity.  Most of the changes are based on the new Uniform Power of Attorney Act adopted by the National Conference of Commissioners on Uniform State Laws in 2006.  It replaced the old Uniform Durable Power of Attorney Act upon which Texas's current power of attorney statutes are based.  The new act is more specific about the agent's duties and responsibilities.

Will Hartnett, Author of HB 1835, HB 1837 and HB 1858HB 1837 would make numerous changes to Texas's guardianship statutes, including replacing the current 5% of income, 5% of disbursements method of determining guardianship compensation with a "reasonable compensation" standard. It also would permit a person with a physical disability only eligible to apply for the creation of a guardianship management trust (867 Trust).

HB 1835 makes mostly minor and technical changes to the Texas Trust Code. One change of significance to persons handling estates of 2010 decedents is an extension of the 9-month deadline for disclaimers to match the one in the 2010 tax act.

Jose Rodriguez, Author of SB 1192, SB 1196, SB 1197 and SB 1198Another REPTL bill -- making changes affecting decedents' estates -- is expected but has not yet been filed.

Update: On March 2, 2011, Rep. Hartnett filed HB 2046, which is REPTL's decedent's estates bill. Sen. Jose Rodriquez (D-El Paso), filed identical REPTL bills in the Senate on March 4, 2011:

  • SB 1192 -- REPTL power of attorney bill.
  • SB 1196 -- REPTL guardianship bill.
  • SB 1197 -- REPTL trust bill.
  • SB 1198 -- REPTL decedents' estates bill.

Thursday
Feb242011

Bill may codify "fraud on the community," at least in divorces

Rep. Senfronia Thompson (D-Houston) filed HB 908, which would add Section 7.009 to the Texas Family Code to define "fraud on the community" and require courts hearing suits for dissolution of a marriage to factor it into property divisions.  Even though it appears to apply only to suits for dissolution of a marriage, the bill interests probate lawyers because the concepts may bleed over into decedents' estates.

Senfronia Thompson, Author of HB 908Currently "fraud on the community" is an equitable concept developed in case law.  HB 908 defines fraud on the community to mean "improper conduct by a spouse to the detriment of the community estate."  It specifically includes a spouse "wrongfully conveying property out of the community estate," "wasting community funds or property" and "failing to provide an accounting of money transferred from the community estate."

This would broadly define the concept, at least as it applies in divorce cases. The bill provides that, before dividing the community estate in a divorce, the trier of fact must determine whether a spouse has committed fraud on the community.  It would appear to require this determination even if no one alleges fraud on the community.

If the trier of fact determines that a spouse has committed fraud on the community, the court is required to calculate the value by which the community estate was depleted as a result of the fraud on the community, determine the amount of the "reconstituted estate" (defined to mean the total amount of money that would have been in the community estate if the fraud on the community had not occurred), divide the value of the reconstituted estate between the parties, and award to the spouse that committed fraud on the community that portion of the estate that the spouse depleted. 

Chris Harris, Author of SB 817The bill says it applies to pending and future divorce cases.  However, the existence of the statute -- particularly the definition -- might influence fraud on the community claims in probate estates.

The bill has not yet been referred to committee.

Update:  Sen. Chris Harris (R-Arlington) has filed SB 817, which is the companion bill to HB 908.
 
Saturday
Feb192011

Michael Jackson's estate is working its way out of debt

Although singer Michael Jackson was more than $400 million in debt when he died, his executors report that his estate has generated more than $310 million since his death and that they have used $159 million to pay down the debt, according to a story in The Christian Science Monitor.

The information comes from an accounting filed by executors John Branca and John McClain reporting transactions through December 31, 2010. The Monitor quotes from the accounting: "Although there remain unresolved creditor claims, pending litigation and additional challenging business, tax and legal issues, and the estate is not yet in a condition to be closed, the executors have made substantial progress in reducing the estate's debt."

To see the docket sheet for this complex probate proceeding, go to the probate court's web site, click on the "Case Summary" link in the left column, and then enter "BP117321" in the Case Number field. To see Michael Jackson's 5-page will, click here.

Tuesday
Feb152011

Steve Akers' Heckerling Musings (2011)

Steve AkersSteve Akers of Bessemer Trust has published his summary of discussions and presentations at the 45th Annual Philip E. Heckerling Institute on Estate Planning held in January 2011. It is hard to imagine anyone more qualified to report on such an event than Steve. The 96-page paper goes beyond a mere summary to include general discussions of the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010 and its implications on estate planning.

Steve's summary is available here and on Bessemer's website.

Among the many topics covered is the possible clawback tax on gifts made in 2011 and 2012 if the tax-free amount is reduced in later years. Steve also summarizes the planning suggestions of prominent tax practitioners as well as their predictions about what will happen in 2012.

Monday
Feb142011

Two-year window for making gifts -- use it or lose it?

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 signed into law on December 17, 2011, creates an unprecedented opportunity for wealthy individuals to make tax-motivated gifts -- but only in 2011 and 2012. Individuals may give up to $5 million to loved ones (married couples may give up to $10 million) without having to pay gift tax. Prior to 2011, the most that could be given was $1 million ($2 million for married couples). While the law permitting gifts at this level may be extended beyond 2012, as things stand now the limit will revert back to $1 million in 2013.

Tax-free transfer amounts have never been this high


The lifetime tax-free amount for estate and generation-skipping (GST) purposes grew steadily from near $1 million in 2001 to $3.5 million in 2009.  During that same span, however, the lifetime tax-free amount for gift taxes was stuck at $1 million.

Because Congress failed to act in 2009 to extend the estate tax, Americans experienced a year of uncertainty in 2010.  In theory, there was no estate or GST tax in 2010, but there was the threat of retroactive imposition of the tax.  There was no uncertainty about the gift tax in 2010 -- the tax-free limit stayed at $1 million.  

The 2010 tax law reinstated the estate and GST tax for two years and set the lifetime tax-free amounts at $5 million.  This was unexpected, but at least had been discussed as a possibility.  What was completely unexpected was that the gift tax tax-free amount also would be bumped to $5 million. The gift, estate and GST tax-free amounts have not been "unified" this century.

Transfer tax rates have never been this low


The 2010 tax law also set the rate for the estate, gift and GST tax for 2011 and 2012 at 35%.  Rates have not been that low since the implementation of the current estate and gift tax scheme in 1981. In 2001, taxes were based on a sliding rate schedule which topped out at 55%.  The rate was gradually reduced to 45% in 2007 - 2009.  If Congress does nothing to change the law, the maximum rate will jump back to 55% in 2013. 

What will happen in 2013?


Unless Congress changes the law, in 2013 the gift tax, estate tax and GST tax-free amounts will fall from these unprecedented levels to $1 million (or approximately $1,100,000 for the GST). No one knows if Congress will extend the $5 million tax-free amount.  Many observers think it will be difficult politically for Congress to reduce the tax-free amount, so they speculate that we will never see tax-free amounts of less than $5 million.  However, most of these same observers were wrong when they predicted that Congress would act in 2009 to prevent a one-year repeal of the estate tax.

The smartest course may be to act now 


Since the lower tax-free amounts and the higher rates may return in 2013, the wisest course for persons who can afford it is to make gifts of up to the tax-free amount in 2011 or 2012.  The advantages include:

  • The ability to take advantage of the high gift tax exemption amount while it is available.
  • The ability to get not only the amount of the gift out of the donor's estate but also the appreciation on the property that is given between the date of the gift and the date of the donor's death.
  • Gifts may be made outright or in trust.
  • Gifts of illiquid assets, such as undivided interests and real property or limited partnership interests, may be given.
  • The effectiveness of the gift may be enhanced if it is made to a trust which is treated as a "grantor trust" for income tax purposes.

Possible concerns are:

  • As always, donors should not give away assets which they may need for their own use and support.
  • In order to be effective, the donor must give up control and use of the property.  While some restrictions may be placed on the use of the property by others, the gift must be irrevocable and complete.
  • The gifts must be made while the current law is in place (in 2011 or 2012).
  • There is some risk of a "claw-back" tax being imposed at the donor's death.  The claw-back tax will be the subject of a separate post on texasprobate.com.  While most observers think this is unlikely, many of the benefits of the gift will be achieved even if it happens.  Donors should understand this risk before making gifts under the new law.
  • A gift tax return must be filed and some or all of the donor's lifetime gift tax exemption will be used.  

The complexity of the new law and the dollars involved -- both the dollar amount of the gifts and the dollar amount of the taxes at stake -- mean that donors should consult with qualified estate planning counsel before acting.  For more information, contact Glenn Karisch at The Karisch Law Firm, PLLC.