Primary Estate Planning Documents

Have you ever experienced some event—such as a financial windfall, a personal medical scare, or the death of a loved one—that made you wonder whether you have adequately prepared for your death or incapacity? For some Type A personalities, it may be a concern that causes you to wake up in a cold sweat. For others, it may just be a recurring thought that you push to the back of your mind as you continue with your busy day. Or perhaps you’ve dismissed the thought altogether by assuming that estate planning is only for wealthy folks with a long list of assets. No matter the case, please hear this: everybody can benefit from a basic estate plan. There’s no one-size-fits-all solution and every person’s circumstances are unique in some respect; however, a basic set of estate planning documents prepared in consultation with a knowledgeable attorney can help you direct where and who your assets go to, minimize family conflict, reduce or eliminate taxes, and prepare for possible incapacity.

This article isn’t meant to provide an exhaustive list of all estate planning options. You might have particularly unique circumstances or own assets of such significant value that you need to utilize more sophisticated estate planning techniques, such as specialized trusts or making lifetime gifts. Rather, the purpose of this article is to outline some the basic Texas estate planning documents that, when carefully drafted with proper legal counsel, could help you and your loved ones avoid a world of trouble down the road.

One final preliminary note: don’t make the mistake of drafting estate planning documents yourself. Many of the documents described below have statutory forms which are publicly available and can be downloaded off the internet. But ask yourself this: what happens if you make a mistake? Maybe the form you use is so old that laws have changed, it is missing a critical provision, you fill it out wrong, or you don’t know what a legal term in one of the documents means. Your error could completely frustrate the intent of your estate plan or cause other unintended problems, either during your lifetime or after death. Like most things in life, you get what you pay for, and the money spent to engage a knowledgeable attorney to draft your estate planning documents might be the best investment you ever make. It simply isn’t worth cutting corners, so swallow your pride, open your checkbook, and leave it to a trusted professional.

LAST WILL & TESTAMENT

A Last Will & Testament (“LWT”) is the foundational piece of an estate plan. Absent a LWT, your estate assets will pass to your heirs at law according to the Texas laws of intestacy. Like most people, you probably have no idea who your heirs at law are, or equally as troublesome, you assume that you know who they are. Why leave it to chance? Completing a LWT is your opportunity to direct where your assets go when you die and on what terms. It also provides the opportunity to determine who manages your estate as the executor. A LWT might also include testamentary trusts (trusts created within the LWT) which can provide for beneficiaries who are minors or otherwise incapacitated. After your death, the executor of your estate will probate the LWT. Probate is generally described as the process where a court hears evidence to validate a decedent’s death, verify the terms and validity of the LWT, and authorize the executor to administer the estate. I often hear people say that they don’t want a LWT because they want to avoid the cost and difficulty of probate. The truth, however, is that the probate process is far easier in Texas than just about any other state. If you name your executor as an “Independent Executor,” the court will have little to no oversight over the estate administration process once the initial probate hearing is completed. 

STATUTORY DURABLE POWER OF ATTORNEY 

A durable power of attorney is arguably the next most important part of a basic estate plan. A Power of Attorney is a document that enables the person executing the document (the "principal") to designate a holder of the power (the "agent") to act on the principal's behalf for financial and business matters. A Statutory Durable Power of Attorney (“SDPOA”) means that the power of attorney is based on a form provided by Texas statute and does not lapse because of time unless otherwise provided in the document. The SDPOA can be utilized for purposes of convenience, such as one spouse signing for another absent spouse to close a real estate transaction. More importantly, it can help avoid a guardianship in the event you are disabled or incapacitated. A SDPOA can be set up one of two ways: springing or effective immediately. A “springing” SDPOA means that the power of attorney only becomes effective upon your incapacity. Otherwise, the SDPOA would take effect immediately upon signing it. A person is "incapacitated" for purposes of an SDPOA if a doctor's examination finds that they are not able to manage their own finances and the doctor certifies so in written statement. Absent an SDPOA, a loved one would have to seek a guardianship for you, which is a legal process that involves significant time, cost, and court oversight.

MEDICAL POWER OF ATTORNEY & HIPAA AUTHORIZATION

The Medical Power of Attorney (“Medical POA”) allows a person to appoint an agent to make health care decisions on their behalf which that person could have made, but for his or her lack of competency. Per Texas law, the Medical POA only comes into play if “the principal's attending physician certifies in writing and files the certification in the principal's medical record that, based on the attending physician's reasonable medical judgment, the principal is incompetent.” In other words, you will always make your own medical decisions so long as you are competent to do so. If you are determined to be incompetent, then the Medical POA generally gives the named agent the ability to make any health care decisions in accordance with the wishes of the person granting the power, including religious and moral beliefs. It’s also important that the agent be well-informed of the principal’s medical information before making medical decisions on their behalf. That’s where the HIPAA authorization comes in. The HIPAA Authorization gives express authorization for medical professionals to disclose confidential medical information about a patient. It is sometimes included as part of the Medical POA or can be a separate document.

DIRECTIVE TO PHYSICIANS

The Directive to Physicians and Family or Surrogates (“Directive to Physicians”) is often referred to colloquially as a “Living Will.” This document allows a person to indicate their intentions regarding life-sustaining treatment should they become disabled and lack the legal capacity to make those decisions themselves. The Directive to Physicians considers two broad categories of medical conditions: “irreversible conditions" and "terminal conditions.” The person signing the directive is given the choice in each case to determine whether they want to continue or terminate life-sustaining treatment. The Directive to Physicians contains a number of very specific terms which are beyond the scope of this article and which must be read very carefully and fully understood before signing. There are two primary reasons someone might want to determine ahead of time that they do not want to be kept alive with life sustaining treatments. First, many people may not want to be kept alive with a life sustaining treatment when they lack legal capacity, there is no reasonable medical hope of recovery, and they would otherwise die without the life-sustaining treatment. Second, many people in that situation don’t want to incur the significant medical costs associated with being kept alive by a life-sustaining treatment. Either way, this document allows you to make the choice ahead of time rather than leaving it to an agent under a Medical POA or other family member, who may or may not possess the resolve to choose how you would have.

DECLARATION OF GUARDIAN FOR SELF

The Declaration of Guardian for Self provides a person the opportunity to designate a guardian of the person and/or estate for himself or herself in case the person later becomes incapacitated to the extent that a court supervised guardianship is required. As mentioned above, part of the goal with the basic estate plan is to avoid the need for a court appointed guardian by instead utilizing the SDPOA, Medical POA, or, in some instances, a revocable living trust. Regardless, this document can be helpful in the event a guardianship is necessary. Additionally, the Declaration of Guardian for Self may be used to specifically disqualify an individual who might otherwise have priority to serve as guardian under Texas law.

DECLARATION OF GUARDIAN FOR CHILDREN

When one parent of minor children dies, Texas law provides that the surviving parent is the natural guardian of the minor children. But what if both parents die? In that case, the Declaration of Guardian for Children can be critical. Parents completing the Declaration of Guardian for Children can provide who they want to be the guardian of the person/estate for their minor children. In naming the guardians, parents should take into account the age of the proposed guardian, the age and number of children, and whether the proposed guardian has the requisite health and financial ability to act as guardian. It’s important to note that the court will always consider what is in the best interest of each child before appointing a guardian. Nonetheless, the individuals named in the Declaration of Guardian for children, in the absence of other extenuating circumstances, are typically given priority.

CONCLUSION

Again, this is not meant to be a comprehensive outline of estate planning options. Part of the reason it is so important to work with a knowledgeable attorney is that they can explore a host of other estate planning strategies that may fit your individual circumstances. Here at First Financial Trust, we routinely work hand-in-hand with clients, their attorneys, and tax professionals to help develop and implement a well-tailored estate plan. If you’re not yet a customer of First Financial Trust, give us a call to see how we can help you start developing an estate plan that you can be confident in, providing peace of mind and financial stability for both you and your loved ones.