Another important consideration with life insurance beneficiary designations concerns spouses who are not required to carry life insurance policies as part of their divorce settlement agreements but fail to substitute beneficiaries. For example, imagine husband and wife divorce in 2010. Following the divorce, husband forgets to name a different beneficiary in his life insurance policy. Under Texas law, if Husband forgets to change his life insurance beneficiary designation, his former wife probably doesn’t have a right to his benefits upon his death. Instead, his life insurance benefits would go to an alternate beneficiary. If Husband did not name an alternate, the insurance carrier typically pays the benefits to his estate. If he dies without a will, then his benefits are payable to his intestate heirs according to the state laws of intestate succession. If he dies with a will, his benefits are payable to his surviving heirs named in his will. It is important to make changes to your estate planning documents, your life insurance policies and your retirement policies to avoid these issues following divorce.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

You should speak with a property or an estate planning attorney to help you understand your legal rights and to make sure your written agreement complies with the state’s statutory requirements.

It is generally insufficient to create a deed that states your intent to hold property with your spouse with a right of survivorship. Instead, your attorney will most likely draft a separate agreement stating such and file it in the appropriate county clerk or recorder’s office. You should also be aware that although a written agreement signed by you and your spouse may allow the surviving spouse to have an unfettered ownership interest to community property at one spouse’s death, the agreement will not control who receives your property after the surviving owner dies. Instead, you must create a will to control the future disposition of your community property. If you fail to draft a will, the state’s rules of intestate succession establish the rights that heirs have to your property.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

Marital property ownership rights are important for estate planning purposes. In most community property states, communal owners each own half of their property and as such, they may freely dispose of their rights as they wish while they are alive or at death. At one spouse’s death, a community property owner may not have an automatic right of survivorship to the remaining property. However, in Texas, the Texas Legislature recognized the need for flexibility for planning purposes between spouses.

The Texas Legislature amended the Texas Constitution and the Texas Probate Code. The Texas Probate Code allows spouses to enter into agreements whereby a surviving spouse has a legal right to automatically own her deceased spouse’s community property upon his death. Spouses can enter into written agreements between them giving one spouse a survivorship interest to community property. To conform with the Texas Probate Code, a written agreement must bear the signatures of both parties and must identify the subject community property. The language within the agreement must specifically incorporate specific survivorship language giving a surviving owner a right to unlimited ownership of that community property at one owner’s death.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

Typically, unless you are going through or have gone through a divorce, you probably haven’t given much thought to the term “community property” or “equitable property.” If you are thinking about estate planning, you should understand what “community property” and “equitable property” really mean. Most states follow the common law regime of equitable property during divorce and for estate planning purposes. However, like a handful of other states, Texas is a minority community property jurisdiction.

Courts in community property jurisdictions consider that all property acquired during marriage as joint property of both spouses. Unlike equitable distribution jurisdictions, community property jurisdictions view spouses as equal owners of community property, regardless of how they hold title to their property.

In equitable distribution states, courts divide marital property and debts equitably, not necessarily equally. Spouses in community property jurisdictions own property acquired during marriage equally. Similarly, they are jointly responsible for their marital debts. However, in equitable distribution states, there is no presumption of equal ownership in divorce, and judges can divide marital assets and debts using an equitable methodology. In many cases, fault may play a big role in how courts ultimately divide marital property and debts in the absence of a property settlement agreement.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

According to the Texas Probate Code, adopted children have inheritance rights when their parents die intestate. An intestate parent is one who dies without a valid will. An adopted child has the same intestacy rights of inheritance as a natural or biological child. The Texas Probate Code sets forth the rules of succession to determine which heirs are entitled to receive an inheritance when a Texas resident dies without a valid will. Pursuant to the Texas Probate Code, an adopted child has a right to inherit from both sets of parents – biological and adoptive. However, a biological or natural parent does not have a legal intestacy right to inherit from the child she chose to give up to adoption.

The Texas Probate Code’s protection of adopted children is especially important as more and more children seek out their natural birth parents’ identities. Since Texas law allows adult adoptions, the Legislature addressed this by denying intestacy rights to adoptive adult parents and their adult children. In other words, an adopted adult does not have an intestate right to inherit from her adoptive parent. Conversely, an adoptive parent does not have an intestate right to inherit from his adopted adult child.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

According to the Texas Probate Code, stepchildren have few rights to inherit from their stepparents if they die without valid wills. A person who dies without a will is an intestate. An intestate’s heirs have a right of succession as determined by the Texas Probate Code. A stepchild does not have a right to either of his stepparent’s intestate property under the Texas Probate Code because the state does not consider him a legal relative. This is true even when a stepparent has a very close relationship or bond with his stepchild. It also applies to a child of a single parent who later marries and the new husband or wife raises his spouse’s natural child.

The limited exception to the general rule that stepchildren cannot inherit from their stepparents absent a valid will is when a stepparent legally adopts his stepchild or promises to adopt the child but later does not. In the latter situation, if the stepchild can prove the existence of a valid oral or written contract promising to adopt him, he may inherit from his stepparent who died without a will.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

According to the Texas Probate Code, half-blood children have half the rights to an inheritance than children of the whole-blood. A half-blood child shares only one natural parent as the rest of his siblings. Thus, when a decedent dies intestate leaving a half-blood sibling and whole-blood sibling, the surviving whole-blood sibling has a full intestacy right to his estate as predetermined by the Texas Probate Code. However, his half-blood sibling only has a right to half that right.

An after-born child is one born after a parent created a will. In this case, the after-born child was probably not included in one or both of his parent’s wills. In this case, an after-born child may be able to inherit from his parent, depending on the specifics. As recommended by the Texas Bar Association, parents should amend their existing wills or revoke their existing wills and create new wills when they have additional children to ensure they incorporate them and allow them to receive an inheritance.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

As you know from the previous blog, a personal representative may also be responsible for filing a decedent’s final individual income tax return or Internal Revenue Service (IRS) Form 1040. You will also have to make sure you file an IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. As the personal representative appointed to administer an estate, you must also file a federal income tax return on the estate’s behalf.

The estate’s gross income includes everything owned at the decedent’s death using a fair market value in most cases. The federal tax definition of fair market value is the price a willing and reasonably informed buyer would pay for the specific item during an arms-length sale (not forced). The gross estate includes cash, investment securities, real property, personal property, trusts, business assets, retirement annuities, insurance proceeds and any other assets. The federal income tax definition of gross estate also typically includes non-probate property in addition to probate property.

You should make sure you speak with an estate planning attorney or certified public accountant to understand your federal income tax responsibilities as a personal representative appointed to administer an estate. You can contact our office, and we can help you determine whether your estate is complex enough to warrant hiring a certified public accountant or other tax professional. An accountant can help you find ways to reduce the estate’s tax liabilities by taking certain deductions. Keep in mind that all estates are not liable for federal estate taxes, and typically, only larger estates will have to pay them.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

Continuing our discussion of a personal representative’s federal income tax responsibilities on behalf of the estate, we will discuss what these responsibilities entail. As a personal representative, you will have to make sure you file all tax documents and forms in a timely fashion and pay any tax liabilities. You may also be responsible for filing individual income tax returns or the decedent’s final income tax return. You will have to comply with the strict deadlines imposed by IRS or request an extension of time. Once you fulfill your tax obligations, you can ask the IRS for a formal discharge of your tax responsibilities as a personal representative.

As an executor of an estate, you have a legal right to ask the Internal Revenue Service (IRS) for a prompt federal tax assessment. A federal tax assessment is a calculation of the estate’s total federal estate tax liabilities, usually based on the fair market value of the total property and assets within the estate. The gross total value of an estate does not include certain types of property owned solely by the decedent’s spouse or other third parties. It does not include lifetime gifts the decedent made or any other property which the decedent has no legal obligation or ability to control. It may also exclude certain charitable bequests and dispositions. Speaking with an estate planning attorney can help you understand your tax responsibilities.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

According to the Internal Revenue Service (IRS), a personal representative of an estate includes an administrator or executor appointed by a probate court or appointed by will to administer the decedent’s estate and distribute the property and assets within his estate. The personal representative also has specific federal and state tax liabilities and is responsible for paying creditors before distributing most of the estate’s assets. This three-part blog series covers a personal representative’s federal tax responsibilities required under the  Internal Revenue Code.

A personal representative must first apply for a federal tax identification number on the estate’s behalf. Once you receive the estate’s tax identification number, you must file an IRS Form 56, Notice Concerning Fiduciary Relationship, with the IRS. By filing this form, you are notifying the IRS of your appointment as the personal representative of the estate. Until you request a discharge, the form remains effective, and you remain a fiduciary of the estate for federal income tax purposes. If you are a personal representative, you must pay estate taxes on the estate’s behalf and you will be responsible for filing all of the estate’s tax returns. Because you are entrusted with fiduciary responsibilities, you may want to contact an estate planning attorney to help you comply with your legal responsibilities. Our office can help you understand your legal responsibilities. Note the IRS recommends that large estates or those valued at over $1 million seek professional tax advice from a certified public accountant or tax attorney.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.