Choosing a Guardian for your Minor Children

Choosing a Guardian for your minor children is not an easy task.  In talking to friends, family and clients the primary reason for the delay in handling such an important affair is the simple fact that they struggle with deciding who to appoint.

Let's face it, the reality is, no one is going to be you.  It's hard to imagine anyone (other than you) would ever be good enough to raise your children. However, wouldn't it be better to at least have some control over this decision?  The only way to make sure your wishes are carried out is to execute a formal Guardianship either as a standalone document, or as part of your Will.  In Texas, you may appoint a single person as Guardian or a married couple as joint Guardians of your minor children.  The Court will uphold your choice of Guardian as long as it is in the best interests of your children and as long as the person chosen is not disqualified.  If you do not document your choices, then the Court will appoint a person to serve as Guardian of your children based on the guidelines set out in the Texas Estates Code. 

What should you consider when choosing a Guardian for your minor children?  There are no hard and fast rules, but when I discuss this issue with clients, I like to focus on several things:

1. First, does the person you wish to name share your same values?
2. Are they at an age that would allow them to care for your minor children now or ten years from now depending on how old your children are at the time?  
3. Do they have the financial means to support your minor children and if not, will you be able to make provisions for them in this area?  
4. Do your children have an existing relationship with this person?  
5. Will the transition to this person be the least disruptive choice for your children?
6. Is the person you are appointing willing to serve as Guardian of your children if the need arises?

Once you have chosen a Guardian and alternate Guardians, make sure you formalize this decision with the right legal documents.  Just like all of your other estate planning documents, you should review your choice of Guardian from time to time and at a minimum every five years.  

Four Documents Every College Student Needs

Many of you probably sent your children off to college this past fall. Before you left you stocked their refrigerators with food, made sure they had their books, health insurance card, transportation and their cell phone handy to call you in case of emergency.  What a lot of parents don't realize is if they do get that dreaded call from the hospital or need to access their child's bank account, they have no legal rights to do so unless the child has executed documents granting their parents these rights.  Every college student should have a minimum of four legal documents before they head out on their own:  1. Statutory Durable Power of Attorney. This document allows your child to designate an agent to act on their behalf in all financial matters.  This document may be executed so as to be effective immediately or only upon incapacity.  If your child has a financial account in his or her own name only, you as a parent will have no rights to access that account without this document.    2. Medical Power of Attorney. This document allows your child to appoint an agent to make medical decisions on their behalf if they are unable to make such decisions.  Typical decisions may include: operations, medication, procedures and life support (to the extent not addressed in the Living Will).  Your child may customize this document to meet any specific religious and/or philosophical beliefs that he or she may hold or to restrict the agent's decisions making power. 3. HIPAA Release.  In the event that your child becomes incapacitated, the HIPAA Release permits his or her doctors and other health care providers to provide the necessary information to enable the agents they designated in their Statutory Durable Power of Attorney and Medical Power of Attorney to begin acting on their behalf. The HIPAA Release is primarily meant to deal with recent legislative changes that prevent doctors and health care providers from disclosing personal and private health information to any third party without prior express consent.  4. Directive to Physicians and Family or Surrogates ("Living Will").  The purpose of the Living Will is to help your child communicate decisions about life-sustaining treatment.  It takes precedence over the Medical Power of Attorney.  This document may also be customized to meet specific religious and/or philosophical preferences/beliefs.  *For purposes of this article I am assuming a college student to be eighteen (18) years or older.

The Medicare Surtax

Most of us are aware of the new federal income tax and federal estate tax rates that were enacted this January and that took effect in 2013.  However, fewer are aware of the 3.8% Medicare Surtax on Net Investment Income ("NII") that was enacted as part of the Affordable Care Act.  This new Surtax applies to individuals, trusts and estates.  Whether this tax applies to you is based on two factors: 1) you meet certain minimum income level requirements; and 2) you have property that qualifies as NII.  

First, the Surtax only applies to individuals who meet the following Modified Adjusted Gross Income ("MAGI") levels: 1) Married filing jointly or Qualifying Widower with Dependent Child with MAGI greater than $250,000; 2) Married Couples filing separately with MAGI greater than $125,000; 3) Everyone else with MAGI greater than $200,000.  Once you determine that you meet these threshold income levels, then the analysis becomes whether you have property that meets the definition of NII.  The IRS provides the following examples, which are not exclusive, of property that it considers NII: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and businesses that are passive activities to the taxpayer (within the meaning of Internal Revenue Code ("IRC") Section 469). Excluded from NII are: retirement plan distributions, compensation income/salary, income on the exercise of compensatory options, and vesting of restricted stock.  Note, however, that these types of income are taken into account for MAGI, which could ultimately trigger the Surtax.  If you determine that you meet one of the MAGI thresholds and you have NII, then you may be subject to the Medicare Surtax.  For a married couple filing jointly with MAGI over $250,000, they will be taxed 3.8% on their NII.  For example, if the couple had $200,000 in salaries and $150,000 of NII for a total MAGI of $350,000, then $100,000 would be subject to the 3.8% surtax.  It is critical to understand if the Medicaid Surtax applies to you it is a surtax in every sense of the word -- meaning it is in addition to any income tax liability that has been assessed under other provisions of the IRC.

 

IRS Website - MAGI Computation

IRS Website - NII

*The computation of MAGI and application of the surtax to trusts and estates is not discussed herein.

Confessions of an Estate Planning Attorney

I feel like the heart surgeon you see outside the ER stealing a smoke on her break....what is my dirty little secret?  My estate planning documents, including my Will, are over 8 years old and outdated.  I advise all of my clients after they sign their estate planning documents to revisit their documents at least every five years (no matter what), but earlier in the case of: divorce, marriage, births, deaths, inheritance, changes in financial positions or other serious life changes.  In the last 8 years there have been births and deaths in my family, changes in the tax code and just a general re-thinking of how and who I want to administer my estate when I die.  I must admit this gives me immense anxiety when I think about the fact that should I die tomorrow, it would not be as seamless a process as it could be with an updated Will.  

I see so many of my clients struggle with completing their estate planning documents.  Like me, they know it needs to be done, but the reality is that it can be overwhelming to sit down and think about your own mortality and to make serious decisions like, "who will raise your children if you can't do it?"  For a busy family, it just seems plain unreasonable to review 30+ pages of legal documents!  I am just as guilty of procrastinating.  The tasks of practicing law, raising three children and the day-to-day obligations of life have been roadblocks to updating my documents too.  However, recently I have seen too many instances in my practice where an outdated Will has caused a lot of problems for the surviving family during the probate process.  Some of them simply made the probate process more burdensome for their families and others made dispositions of property that the family knew the Decedent would not have wanted.  If only they had taken the time to update their Wills.  So, last week I committed to updating my documents and my husband's documents.  There are so many stresses in life that you have no control over - updating your estate planning documents is not one of them.  I will be glad to have put this stress to rest by the end of this week...at least for the next five years.  

DIY Wills - Why Not?

Many times at the end of a consultation or during a conversation with a friend I get the question - "Why can't I just use one of those online programs (e.g. Legal Zoom, etc.) to draft my Will and save money?"  As a mother of three and solo practitioner, I can appreciate the desire to save money.  However, as an attorney, the ease with which non-attorneys can misinterpret these "plug-in" online documents makes me very nervous.  It seems that you can purchase any legal document that you need online for the equivalent of a decent meal these days.  

While I agree it is essential that everyone have important legal documents in place, such as estate planning documents, I don't think this is an area where it is always prudent to look for the "best deal."  Most people believe that they have a "very simple estate" simply because they are not multimillionaires.  Unfortunately, whether you in fact have a simple estate is not entirely dependent on your wealth status.  Do any of your beneficiaries receive government assistance, or are they disabled?  You may need special trusts set up in your Will.  Do you have minor children?  You will need trusts and guardianship provisions.  Do you have religious and/or philosophical beliefs that you hold strongly and want to make sure your Agent under a Medical Power of Attorney adheres to?  Do you anticipate a Will contest?  Do you have out of state property?  These are just a few of the questions that could ultimately turn your "simple Will" into one that requires more attention.

In the State of Texas, probating a properly drafted Will is a very simple, efficient and time effective process.  Probating a Will that is not properly drafted could result in a very different scenario - including a loss of estate resources that would have otherwise gone to the beneficiaries and long and expensive "dependent administrations," to name a few.  The difference between these two could be as simple as the omission or inclusion of one wrong word in your documents.  Another area where I see non-attorneys make mistakes in these documents is misinterpreting the form questions that the online service is asking.  For example, do you understand the difference between an Executor and Trustee?  What about the roles of your Guardians for your minor children?  What about trusts for your minor children - how will these work? How do you customize your documents to meet religious and philosophical needs?  Are you including language that is against public policy in your Wills and Trusts?  Do you understand how to determine if you have a taxable estate?  Beyond drafting the documents, there is also the matter of the execution of the documents.  Again, this is an area where non-attorneys are susceptible to errors that could damage the integrity of the documents.  Do you need a witness and a notary?  Can you just use a notary?  Are there rules about who may serve as a witness on these various estate planning documents? 

Hopefully these questions will help you make an informed decision about which method is right for you and your family.  

Customized Business Documents - A Must for Any Successful Business

You filed your Certificate of Formation or Articles of Incorporation with the Secretary of State.  So now you are ready to do business, right?  Not so fast….

First, will you be doing business under the exact name that you filed with the Secretary of State in your Certificate of Formation or Articles of Incorporation?  If not, you need to file a D/B/A (“doing business as”) with the Secretary of State and with the county in which you are regularly conducting business.   Before you can file the D/B/A, you must do a search of the county database to determine whether the name you want to use is already in use by someone else.  This may save you from being a party to a lawsuit down the road.

Are you a co-owner in the business?  If so, there are many questions that need to be answered at the outset.  How will you share ownership?  What about voting rights?  What about capital contributions?  How will you make important decisions regarding the business when you disagree?  What type of tax elections can be made and will you make?  These are just a few of the issues that can be addressed in the Company Agreement of a Limited Liability Company, the Bylaws of a Corporation or the Partnership Agreement of a Limited or General Partnership. 

What happens if one of the owners dies becomes disabled or gets divorced (since Texas is a community property state, the non-owner spouse may have an interest in the business)?  Do the remaining owners have the first option to buy the departing owner’s interest? What if an owner wants to exit voluntarily from the business?  Do the other owners have the right of first refusal to buy the exiting owner’s interest?  How will the business and/or the remaining owners pay for the departing owner’s interest in any of these scenarios?  Will the business take out life insurance on each of the owners to cover the cost of a buy out in the event of death?  Will each owner take out life insurance on the other owners to fund the buy out?  These are just a few concerns that can be dealt with in a customized buy-sell agreement. 

So, before you start “doing business,” make sure you have all of your company documents in place.  In the end it will save you time, money and maybe even some friendships. 

Don't Use the "Form!"

Did you know that you can provide for your religious and philosophical preferences in your medical directives?  Yes, you can!  In your Medical Power of Attorney and your Directive to Physicians, you can provide detailed instructions regarding how medical care and end of life decisions should be carried out by your agents and your physicians.  This may be important for those practicing religions that do not allow for certain treatments, or that require end of life care.  Don’t use the “form” – make sure your documents meet your specific needs.