There are five (5) estate planning documents needed in Texas that every adult should have:
LAST WILL AND TESTAMENT
A will is a legal document that directs how your property will be distributed when you die, and can create trusts for the benefit of your spouse or children. A will allows you to name a person you trust to oversee the management and distribution of your assets. It also allows you to appoint a guardian to care for your minor children. Without a will, your assets will be distributed according to a statutory formula, which may conflict with how you would have liked for your assets to be distributed. Also, if you do not appoint a guardian for your minor children, a judge who does not know you or your family may have to make that decision for you.
DURABLE POWER OF ATTORNEY
A durable power of attorney gives you the power to appoint a trusted family member or friend as an agent to manage your finances if you are no longer capable of managing them yourself, such as if you become temporarily or permanently incapacitated. If you become incapacitated and do not have a statutory durable power of attorney in place, a court-ordered guardianship may be necessary. Guardianship is time-consuming and expensive, and can be avoided by creating a power of attorney.
MEDICAL POWER OF ATTORNEY
A medical power of attorney is a document that allows you to designate a trusted family member or friend to make medical decisions for you in the event you become unconscious or mentally incapable of making those decisions for yourself. Medical powers of attorney are not just for the elderly. Unexpected injuries or illness can occur at any age, so all adults should have one in place.
HIPAA, the Health Insurance Portability and Accountability Act, is a Federal law that sets rules and limits on who can look at your medical records or receive your health information. Covered entities that violate HIPAA face stiff penalties, which make them reluctant to share medical information with anyone but the patient, even close family members. A HIPAA authorization allows you to name an individual who can have access to your medical information so that your health care provider or insurance company have no reservations about sharing medical information with those whom you have authorized.
DIRECTIVE TO PHYSICIANS
A living will, or directive to physicians, is a document that allows you to instruct your physicians not to use artificial methods to extend your life in the event you are diagnosed with a terminal or irreversible condition.
There are other documents that may also be needed in Texas:
A living trust can accomplish the same objectives as a Will and Power of Attorney described above, and in some circumstances can be preferable. Establishing a living trust however, requires more work to set up at the time it is established and ongoing care to see that all assets are properly transferred to the trust. Establishing a living trust is sometimes preferred in order to avoid probate. Texas has a streamlined probate system and as a general rule it is a procedure which does not need to be avoided. However, probate is a process which takes time and is public record which some Texans choose to avoid through their planning with a living trust. Also, if you own property outside the State of Texas, ancillary probate will be required which can be expensive and time intensive.
DECLARATION OF GUARDIANSHIP IN THE EVENT OF INCAPACITY
This document is designed to prevent a probate court from appointing an institutional guardian in the event of later incapacity. The Declaration to Appoint Guardian is often executed contiguously with the Texas Medical Power of Attorney and Statutory Durable Power of Attorney. In many cases, the Medical Power of Attorney serves as guardian of the person and the Statutory Power of Attorney serves as guardian of the estate.
APPOINTMENT OF AGENT TO CONTROL DISPOSITION OF REMAINS
Texas requires that the agent be appointed in a written document. When an agent is not appointed, family generally controls the remains. The surviving spouse has priority, followed by various other family members, including any of decedent’s surviving adult children. If there are none, then priority goes to one of decedent’s surviving parents, followed by decedent’s surviving adult siblings, and finally, to decedent’s next closest heir at law. To appoint an agent, you must complete the required form.
AN IRREVOCABLE GIFT TRUST
An irrevocable gift trust is an irrevocable trust which is specifically structured so that gifts to that trust will qualify as a gift of a present interest and, therefore, will not be treated as taxable gifts and/or taxable gifts that have been strategically chosen to be gifted in trust for asset planning and/or tax purposes. The trust allows parents and/or grandparents, or other extended family members who want to provide for family members, to make gifts in trust for the benefit of the beneficiary and controlled by the trust agreement provisions and protected from the creditors of the beneficiary. This is commonly used in the estate planning of a Federal estate taxable estate.