In Texas, divorcing couples should consider how their divorce settlement agreements may affect their future estate planning rights. Family laws and probate laws overlap in many situations. In Texas, a surviving spouse has a right to certain community property and non-community property, including a homestead right to a life estate. If a divorce property settlement agreement contemplates otherwise, does a former spouse with a life estate right still have the legal right to live in the former spouse’s home? In most cases, the answer is “no.” Divorce typically extinguishes the rights that husbands and wives have to one another’s property after death. Because of the life changes that divorce brings, changing your estate planning documents is an important part of the divorce process. Speaking with an estate planning attorney about your divorce is a very smart decision and may help you save unnecessary time and frustration.

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

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.

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.

Estate Planning:  http://www.domain.com/estate_planning/estate-planning/
As previously mentioned, Texas law allows residents to exclude a broad range of personal property as exempt homestead property set-asides. Exempt personal property set-asides include any personal property of up to $60,000 per family or $30,000 for unmarried residents. This includes household furnishings, business property and tools, clothing, toys and books. Texas homestead exemptions include farming or agricultural equipment, some agriculture livestock and household pets and athletic equipment. The agricultural and farming exemption allows you to set-aside up to 12 cattle, up to 60 other livestock, domestic pets and 120 fowl. Texans may exclude up to two firearms as homestead set-aside property.

The homestead exemption does not distinguish between community and separate property. Thus, separate property acquired before marriage and separate property acquired by gift or inheritance during and after marriage is subject to the exempt treatment. Homestead property also includes community or marital property acquired by one spouse or both spouses during marriage. As such, if the homestead exemption attaches to any item of real or personal property, it does not matter when it was acquired. Thus, if you die with only community property, your surviving spouse may be able to inherit your entire estate as a surviving owner. As previously discussed, although most creditors cannot reach homestead and set-aside property, some secured creditors may be able to use them to satisfy their existing debts. Because of the homestead property exemption laws, understanding what your probate assets include and what creditors cannot reach is important, and we may be able to further explain the provisions.

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

Estate Planning:  http://www.domain.com/estate_planning/estate-planning/
According to the Texas homestead law and the Texas Probate Code, a surviving spouse has the right to live in exempt homestead property if she so chooses. If your surviving spouse decides to claim her homestead exemption and live in her homestead during her lifetime, your homestead estate cannot pass to your surviving heirs. Texas’ generous homestead laws also provide homestead exemptions to surviving spouses for personal homestead property. This means that if you created a will and left your personal and real property subject to the Texas homestead exemption to other heirs, your bequests may be invalid.

The Texas homestead laws classify homestead property as an “urban homestead” or “rural homestead.” Urban homestead property includes up to 10 acres of real property and improvements on the property. A rural homestead includes up to 200 acres of rural land and improvements.

Although most cannot, some creditors may be able to seek a forced sale of your homestead property to satisfy their debts or unpaid property taxes. However, other heirs or putative beneficiaries cannot force surviving spouses to sell their homestead property in their favor. The one exception to the homestead property exemption is if a surviving spouse abandons his claim by living elsewhere. Proving that a surviving spouse abandoned her claim is difficult, however.

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

Estate Planning:  http://www.domain.com/estate_planning/estate-planning/
Texas’ homestead laws provide residents with generous exemptions from creditors’ claims. If you live in Texas and owe money to a creditor, the state’s homestead laws strictly limit what a creditor can garnish, lien or collect from you. The state’s generous homestead allowance extends to probate administration. Spouses who survive their significant others have homestead property rights under Texas law. The Texas homestead laws allow surviving spouses to use their homestead property and insulate it from the reach of creditors. As such, in most cases, creditors cannot use a surviving spouse’s exempt homestead property to satisfy its debts. However, in limited circumstances, a surviving spouse’s homestead property can be used to pay off certain homestead debts, including unpaid taxes, mechanics’ or construction liens and some types of unpaid mortgage debts. Furthermore, a surviving spouse’s homestead property is not subject to distribution to other heirs and beneficiaries.

In addition to providing homestead property rights to surviving spouses, Texas law also gives surviving spouses the right to receive many different types of personal property for their personal use after their spouses die. Known as exempt personal property set-asides, under Texas law, a surviving spouse has an ownership right to most personal property, in addition to real homestead exempt property. If you are a surviving spouse, you should contact our office to understand your homestead and set-aside property rights under Texas law.

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

Charitable bequests are a common part of estate planning. But before you decide to leave money to an organization either be a bequest in your Will or a Charitable Remainder Trust, it’s important to do your homework and make sure your favorite “charity” is really a legal charity.

The Internal Revenue Service recognizes public charities and private foundations. Your estate can deduct the value of contributions to either type of organization on any federal or state estate tax return that is due. To ensure your charities are eligible organizations, you should check with the IRS, which maintains and regularly updates its list of exempt organizations. The IRS website has a searchable database. Make sure you know the IRS-assigned tax identification number for any organization you wish to give to, as well as the name of any affiliated group the organization reports to (tax exemptions are often issued in the name of a parent or umbrella group).

Working with a qualified estate planning attorney, you should also get in touch with the organizations that you intend to make bequests to. Many charities and foundations have an assigned planned giving officer who can provide specific information on how and where any gifts should be made. If your bequest is part of your Will, this person can serve as a contact point for your executor.

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

No one likes to think about it, but it’s a fact of life. At some point, we will all need to have our financial affairs in order because everyone passes away. Making decisions early will allow you to have some semblance of security that your loved ones will be taken care of and will go through less grief when it comes to your financial affairs. Here are five things you can do to get your financial affairs in order.

First, you should really consider having life insurance especially if you have young kids or own property. If you think you may have estate taxes when you pass away or you will a lot of debt, it makes good sense to have life insurance. Purchase it as young as possible so that you will get better rates.

Second, you need to make certain that you have a financial power of attorney who can make decisions about your finances in case you become incapacitated. For instance, if you were to end up in an accident and then in a coma, you will need someone who can handle paying your bills, selling real estate if necessary and handling the other financial affairs that may come up.

Third, make sure that you protect your children as much as possible by naming a guardian who can take care of them and manage any money or property that you are leaving to them. A qualified estate planning attorney can help you with this.

Another important component of planning your financial affairs is covering any funeral expenses up front. You can set up a specific kind of trust that will allow you to deposit funds so that your affairs are taken care of without burdening your family or loved ones.

Finally, make sure that you store all of your documents in a place where your executor can find it. This includes things like your will, trust documents, stock certificates, real estate deeds, bank account information and life insurance information.

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