The Importance of Planning Your Estate

by Nancy G. Elliott

There are many reasons why you should plan your estate. Some of these reasons center around having peace of mind in knowing your debts will be paid and that your loved ones will share in the "fruits of your labor." From the survivors’ standpoint, death confronts them with bereavement, with the need to readjust emotionally and financially, and often with an unknown future. Death is not only a personal issue but a legal one as well.  For purposes of this article, the phrase "plan your estate” shall mean preparing and executing your last will and testament. Many times, people do not take the opportunity to plan their estates because they are uncomfortable discussing or thinking about dying. Other reasons for delay include believing because they are too young, thinking they are invincible, or feeling that their estates are so small there is no real need to bother formalizing estate plans or incurring the expense of having last wills and testaments prepared. Hopefully, common sense dispels these notions; however, such is not always the case.  Rest assured that if you do not take the time to plan your estate, the State of Texas, through its intestacy laws, has devised an estate plan for you. The only problem is that on most occasions the intestacy plan devised by the Texas legislature is not how you would have wanted your estate to be distributed.  In order to understand how the assets of a deceased person who dies intestate (without a will) pass, it is first necessary to understand that an estate may consist of both real estate and personal property. Real estate includes land (and all improvements located on the land) as well as oil, gas and other mineral interests under the surface of the land. Personal property is all property other than real property, including cash, financial accounts, insurance policies, retirement accounts, employee benefits, personal effects, motor vehicles, household furnishings and stocks and bonds.  In Texas, property is further characterized as separate or community. Separate property is that property which is owned before marriage or acquired during marriage by gift or inheritance. Community property is all property, other than separate property, which is acquired by either spouse during marriage. Each spouse owns a 50% undivided interest in community property. Therefore, in Texas, you can have an interest in separate real property, separate personal property, community real property and community personal property. If you die intestate, the intestacy laws determine your heirs and how your property will be distributed, taking into account whether the property is community or separate.  Common examples of how the intestacy laws work are as follows:  EXAMPLE ONE: Assume that a Texas family unit consists of a husband, wife and two minor children. Also assume that the husband and wife have a home that is community property, the husband inherited some separate personal property and the husband dies without a will.  Intestacy outcome: The wife receives all of the husband’s interest in all community property. The wife inherits only 1/3 of any separate personal property and a life interest in 1/3 of any separate real property. The children inherit the other 2/3’s.  EXAMPLE TWO: Assume the same fact of Example One, except that the two minor children are from the husband’s first marriage. In 2000, blended families in the United States numbered 5,200,000.  Intestacy outcome: The wife retains her 50% interest in community property she owned prior to the husband’s death and the children inherit their father’s 50% interest in the community property. In other words, the children and the wife own the home as tenants in common. The wife inherits only 1/3 of any separate personal property and a life interest in 1/3 of any separate real property. The children inherit the other 2/3’s. If there is any animosity between the wife and the children, conflicts or disputes will most likely arise.  Further problems associated with Examples One and Two can arise involving the minor children. In Example One, the wife will automatically become the guardian of the minor children. In Example Two, the husband’s ex-spouse will become the guardian of the minor children. In either example, since there are minor children who receive property from the husband's estate, a guardian of the estate of the children has to be appointed by the Court and it is an ongoing proceeding. A guardianship lasts until the children reach majority. This appointment of guardianship can be very expensive, especially if the children are very young at the time of the husband's death.  From the limited information provided in this article, you can begin to realize that dying without a last will and testament can cause many unwanted results. You not only risk tying up assets for an undetermined period of time, but also incurring unwanted, avoidable financial as well as emotional costs. By having a last will and testament, you dictate how your property will be distributed. Additionally, by having a last will and testament you can avoid legal pitfalls, choose an executor for your estate, name a guardian for your minor children, and establish trusts. And last but not least, a last will and testament can minimize estate tax liability and probate related costs by providing for independent administration. Do not procrastinate any longer! A last will and testament is not as complicated or as expensive as you might think and the rewards definitely outweigh the risks of dying without a last will and testament.  This article is submitted by Nancy G. Elliott, an attorney and co-owner of the law firm of Yarbrough & Elliott, P.C., located at 1420 W. Mockingbird Lane, Dallas, Texas. The information provided in this article is for general informational purposes only and is not a substitute for legal advice regarding your individual estate planning needs.