These are some of the most frequently asked estate planning questions to help you better understand the estate planning process. While some of the answers to the questions which follow may not apply in your situation, you may find the answers to be informative nonetheless.

Once Your Will and/or Trust is Signed:

Q. Where is the best place to keep my signed original estate planning documents?

A. The best place is probably in a safe deposit box because it will protect the documents from theft, fire, accidental loss, and most other type of damage or harm. A potential problem, though, is getting it opened after your death.

If you decide to keep your estate planning documents in a safe deposit box, consider naming a family member or your Executor or trustee as a joint holder on the box. That should simplify matters following your death because someone will be able to get into the box without delay. Also, if you live in a flood zone, be sure to put the document in a water-tight plastic bag. As many shocked clients have learned, water damage caused by flooding can ruin the contents of a safe depositbox.

Another place to keep your original estate planning documents is with the attorney who drafted them. However, I have decided not to retain original documents because of concern over theft, fire, flood, storms, or other loss of the document. It would also be prohibitively expensive to store hundreds or thousands of original documents. Also, what would happen if I were to die or my lawfirm were to cease operations?

Many people keep their original estate planning documents at home in a secure place. If you have a safe at home, that can be a good place to keep them. Be aware though, when thieves enter your home and discover a locked safe, they often take the whole safe thinking they'll find cash and jewelry. The last thing they want is a file containing your estate planning documents, but that's one of the things they'll get if you keep them in your safe. Therefore, unless your safe is bolted to the foundation of your house, it may not be the best place to keep your originals.

Another option with regard to a Will is to deposit it with the county clerk's office. Taking this approach can be a great idea, except that you need to be sure your records at home clearly indicate where the original can be found. Moving to a different county or changing your Will can cause problems as well.

More people than you would expect keep original Wills and other estate planning documents in an air-tight plastic bag at the bottom of their freezers. Freezers are well insulated and heavy, and have a way of withstanding fires, hurricanes, and tornadoes. Also, they don't die or move away, and they are stolen far less frequently than in-home safes.

Q. If someone's Will is in a safe deposit box at a bank when he or she dies, how do you get access to it?

A. There are three ways to get the Will out of the box.

The easiest way is if another person is named as a joint holder of the box. That person can retrieve the Will with no problems or delays.

If no other person has access to the box, Texas law allows a spouse, child, grandchild or the Executor named in the Will to examine the contents of the box while in the presence of a bank employee. If a Will is found, the bank will be required to send it to the court. Note, though, some banks will give it to your lawyer and allow that lawyer to file it with the court.

Another option is to go to court to request that a judge order an examination of the box. If a Will is found, it will be sent to the court. This should be the option of last resort because it takes longer, requires the filing of papers with the court, and usually involves a lawyer and the associated legal fees.

Q. Should I give copies of my Will and other estate planning documents to my children and to the Executors of my estate?

A. For some people, their estate planning documents are as private as their income tax returns, and nobody is ever given copies. For other people, estate planning documents are no different than a spare key to the house, and every family member and Executor and/or trustee named in the documents is given a copy.

If you are the type of person who values your privacy, who does note specially trust your children, Executor, or trustee, or if you havewritten a Will or trust which does not treat all the childrenequally, then it may not be a good idea to hand out copies. Also, youmay have more money than your children expect, and depending on howyour Will or trust is written, giving them a copy may be letting themknow too much about your personal business.

Onthe other hand, if you have a fairly open relationship with all yourchildren, you regularly discuss finances with them, and you areleaving your estate to them in equal shares, then go ahead and giveeveryone a copy. Of course, if you decide to change your Will orrevocable trust, you should be sure to give all the same peoplecopies of the new documents. If you don't, then there may be somearguments following your death over which document controls thedisposition of your estate.

Q. Ihave a Will and I want to make a minor change. Is there a way for meto make the change myself without hiring a lawyer?

A. Yes,there are a few ways. One way is to make the change yourself bywriting an amendment to your Will (called a "codicil")entirely in your own handwriting. You should be sure to date and signthe new document and clearly state which section of your Will you aremodifying. When you write a codicil by hand, no witnesses or notaryare required. You could also type the codicil, but if you do, youwill need two witnesses to the signing.

Ofcourse, if the change is important and you want to be sure it's doneright, you should not try to make the change yourself, but insteadyou should hire a lawyer to prepare a codicil for you.

GuardianshipQuestions:

Q. Ifmy spouse and I die together, where would our children live for the first day or week or month until a judge can determine who will be their guardian? What if there are relatives we absolutely don't want them to live with, even temporarily?

A. Thereis no simple answer to your question because where your childrenwould live depends on when you die and where your children are whenyou die.

Forinstance, you and your spouse may be with your children when you bothdie, thereby leaving them without immediate supervision. Or yourchildren may be at day care, at school, or with a babysitter, andthat means the supervision they are receiving would soon be coming toan end. In these types of situations, it is likely that the policewill show up and take charge.

Thepolice would allow your children to be placed in the care of arelative or friend as long as they are convinced that person is notunfit to care for the children. The police can use the computer intheir car to obtain this type of information. For instance, arelative who has a criminal record would probably not be allowed totake the children.

Ifyour children are old enough to tell the police who to call, thepolice would likely do so and attempt to leave the children with theproper party. But if your children are too young to know phonenumbers, addresses, or even complete names, or if no temporaryguardian is available, then the police would take your children toChild Protective Services (CPS).

CPSwould care for your children until a suitable family member or friendis located. CPS may place your children in foster care, if necessary,until a judge determines who the permanent guardian will be.

Itmay be the case that your children are already in the care of arelative or close friend when you both die. In such a situation, thepolice and CPS may never get involved with the care of the children.Instead, the children would most likely remain with that family untila judge makes a determination as to permanent guardianship.

Youmentioned that there may be relatives you don't want your children tolive with, even for a brief period. The problem is that if the policedon't know how you feel, and if the relative otherwise checks out,the children may be placed in that person's temporary care.Unfortunately, it is too often the case that relatives want tocontrol the children's inheritance, and they know funds will beavailable if they are acting as guardians.

Youcould prepare a witnessed and notarized document stating yourintention regarding who you do and do not want to serve as guardian.In fact, that information is often contained in a person's Will. Butthe problem is that this document will probably not be available whenit's needed. Most people don't think to send their kids to school,daycare, or a friend's house with a copy of their Will or other legaldocuments, and even if they did, the police may not be inclined torely on the document's validity.

Ifthe police show up and several relatives or friends demand to takecare of the children, the police will most likely not make a choicebetween them, but will instead deliver the children to CPS. Aninvestigation will then be conducted by CPS to determine who is mostsuitable to take care of the children until a guardian is formallynamed by the court.

Youshould be sure to state in your Will who you want to serve as theguardian of your children in the event you and your spouse pass awaybefore your children are legal adults--age 18 in Texas. You can nameany person you want, and you can also provide a list of persons inorder of preference. You can even name two persons to serve, but theymust be married to each other.

Pleasenote the answer to your question may be different if you don't livein a large Texas city.

Gifts:

Q. What gifts can I make without having to pay gift taxes?

A. Everyyear, you can give any person you want as much as $19,000 without anygift tax consequences. This dollar amount is known as the annualexclusion, and it is now indexed for inflation. It will be increasingfrom time to time in $1,000 increments.

Ifyou are married, the amount you can give to each person doubles to$38,000 since the person receiving the gift can receive $19,000 fromeach spouse. Gifts can be in the form of cash, stocks, bonds, realestate, or anything else of value. Buying real estate or bonds in thenames of one or more other persons is the same as making a gift ofthat property to them. The value of the gift would be the amount ofmoney you spent to buy the property or the bond.

Youcan also make tuition payments for any person you choose, and thesepayments do not count toward the $19,000 annual limit. Payments youmake for medical expenses don't count against the $19,000 limiteither. However, if you make a tuition or medical payment, be sure topay the school, hospital or doctor directly, as a check made payableto a person which is used for tuition or medical care counts towardsthe $19,000 annual limit.

Ifyou want to give more than $19,000 to any one person, to the extentyour gifts exceed $19,000, you will use up a portion of your$13,990,000 lifetime exemption. This is the amount each person cangive away without having to pay gift or estate taxes. By way ofexample, if you give one of your children $45,000 this year, you canexclude the first $19,000 under the annual exclusion, and the other$26,000 will leave you with a remaining lifetime exemption of$13,960,000.

Keepin mind that if the gifts to any person exceed $19,000 during asingle calendar year, you will be required to file a gift tax returnby April 15th of the following year to report the gift. That is howthe IRS keeps track of how much of your $13,990,000 lifetimeexemption is still available. Once you have given away more than the$13,990,000 lifetime limit, you must start paying gift taxes. Theestate and gift tax rate is presently 40%.

Beforemaking large gifts, it is often a good idea to talk to an estateplanning attorney. Once gifts are made, you can't go back and dothings a better way. For instance, if you are planning to make reallylarge gifts, then it may be wise to create trusts for the benefit ofyour children. There are a number of important advantages to creatingtrusts, with few downsides.

Q. Whatare 529 accounts, and are they really as good as everyone seems tothink?

A. Yes,529 accounts may be that good. In fact, they may be one of the bestways--and many people think they are the best way--to save for achild's education.

Youhave a number of options when it comes to saving for college. Thereare Uniform Transfers to Minors Accounts, education IRAs, and prepaidtuition plans, to name a few. All the options have their advantages,yet 529 accounts seem to combine the best features of all of them tomake a fairly good investment vehicle.

Themain advantage is that the earnings and most withdrawals are incometax free. Even though you must use after-tax money to create theaccounts, all capital gains, dividends, and interest are generallytax free. Withdrawals are subject to income taxes only when they arenot used for tuition and other authorized expenses.

Anotheradvantage is that gifts to a 529 account not only qualify for the$19,000 annual gift tax exclusion, but you can even make five years'worth of gifts today and elect to treat them as being made equallyover a five year period. In other words, if a married couple withfour grandchildren can give as much as $190,000 to each grandchildright now, for a total of $760,000 to the four grandchildren. Eachgrandchild will be treated as receiving $38,000 per year for fiveyears.

Asfar as estate taxes are concerned, all amounts you contribute to theaccount will be excluded from your estate even though you are theperson controlling the account. However, you should note that if youelect to spread your contributions over five years for gift taxpurposes, and you die within that five year period, a portion of thegift will be included in your gross estate.

Youcan also designate a successor to yourself to control the accountshould you die before a grandchild goes to college.

Thereare a few downsides worth noting. Unlike some of the otheralternatives available for saving for college, 529 accounts don't letyou choose the investments yourself. All you can pick is the type ofinvestment portfolio the account will maintain. Also, if you usefunds in the account for non-qualified purposes, a 10% penalty willapply to the portion of the withdrawal which constitutes investmentgains.

Overall,529 accounts present you with an unbeatable combination of features.The accounts offer income tax free growth and withdrawals with nogift taxes, no estate taxes, retained control of the funds, andflexibility in the future should circumstances change.

Callyour broker or financial planner for details on how to set up the 529accounts.

Revocable and Irrevocable Trust Questions:

Q. Forwhom are living trusts most appropriate? What are the pros and cons?

A. Forstarters, while it is true that probate can be expensive andtime-consuming in some other states, in Texas, we have a streamlinedsystem of probate. As long as you hire a lawyer with experience inprobate court, you have a well-written Will, and nobody files alawsuit after your death, then probate is typically not so bad.

Storiesyou read in the paper may lead you to believe otherwise. The heirs ofmulti-million dollar estates frequently fight it out in court for alarger inheritance. Also, bookstores carry dozens of books which talkat length about the delays and high costs associated with probate.

Evenso, living trusts are useful estate planning tools, and they do havetheir place in many people's estate plans. If you find any one of thefollowing benefits appealing, then a living trust may be appropriatefor you.

Benefit#1: No Court Involvement.When a person dies, most properties pass either under a person's Willor under a living trust. Some properties--such as life insurance,IRAs, and certain types of bank and brokerage accounts--pass directlyto named beneficiaries. If property passes under a Will, then theWill must be probated at the courthouse. Probate typically entailshiring a lawyer, filing a number of papers with the court, attendingone or more hearings, and providing a written inventory to the courtvaluing the properties which passed under the Will. (Note, though,the filing of an inventory can be waived under current Texas law, andinstead, the executor is permitted to file a document called"Affidavit in Lieu of Inventory" which states that aninventory was prepared and given to the estate's beneficiaries, butthat inventory does not need to be filed with the court.)

Somepeople don't want this type of involvement with the court, so theyopt for a living trust. By transferring all properties which wouldotherwise pass under your Will to a living trust, you can avoid thecourt entirely. For estates which don't owe estate taxes, there isusually less work for the lawyers, and that translates into reducedestate administration costs.

Benefit#2: Privacy.As mentioned above, when a person dies with a Will, an inventory mustbe filed with the court (unless an Affidavit in Lieu of Inventory isfiled, as discussed above). You may not want your friends, neighbors,or the media to be able to read a listing of what you own and what itis worth. After all, an inventory is a public record. With a livingtrust, your properties and their values are all kept private.

Benefit#3: Plan For Future Incapacity.You may be worried that one day you won't be able to manage your ownfinances, and you may want to name someone to handle these types ofmatters for you. You can address this potential problem with a powerof attorney or with a living trust. A power of attorney will usuallybe accepted by banks, title companies and the like, but there isalways the risk that an institution's legal department will rejectit. The same person who may be denied the ability to use a power ofattorney will likely be allowed to do anything he or she wants whenacting as trustee of a living trust.

Benefit#4: Harder to Challenge.If you are planning to disinherit one of your children orgrandchildren, you may be better off with a living trust becausethere is nothing filed at the courthouse. Also, it is a little harderto contest a living trust than a Will. Many people are interested indoing as much as possible to prevent a successful challenge to theirestate plan.

Benefit#5: Avoid Out-of-stateProbate.If you own property in another state, you can avoid a costly probateproceeding in that state by transferring the property to a livingtrust.

Beforeyou establish a living trust you need to understand the downsides,which include the following:

Disadvantage#1: Time-consuming to Set Up.Depending on how many different types of properties and accounts youown, it can take quite some time to switch everything over to thename of your living trust. Also, some financial institutions in Texasare not geared up to handle living trusts, so you can expect a littletrouble and frustration in getting the trust fully established.

Disadvantage#2: Complicated.Wills are usually shorter and simpler to understand than livingtrusts. Also, with a Will, you can sign it and forget about it. Butwith a living trust, you need to put your property into the trust andrun your life out of it for as long as you live. For many people,this downside outweighs all the potential benefits.

Disadvantage#3: Time-consuming to Revoke.A year after you set up the living trust, you may decide you don'twant it any more. At this point, you will need to return to everybank and brokerage house, and undo everything you had done toestablish the trust. You can expect more lawyers' fees too.

Disadvantage#4: Post-Death Costs Not Eliminated.If you have a taxable estate (which is generally an estate over$13,990,000), there will be a lot of work to be done after deathregardless of whether probate is required. Typically, there are taxreturns to file, trusts to establish, assets to value, and more.Avoiding probate will only marginally reduce the cost ofadministering a taxable estate.

Disadvantage#5: May Still Need to Probate Will.If you leave just one bank account or one piece of real estate out ofthe trust, probate will still be necessary. And probate takes aboutas long when there is one asset as when there are twenty.

Q. Whatis the difference between a Living Trust and a Bypass Trust?

A. ALiving Trust is a revocable trust created while a person is alive,whereas a Bypass Trust is typically an irrevocable trust created atdeath. A Bypass Trust can be created by a Living Trust or by a Will.(Yes, a Living Trust can create a Bypass Trust, but a Bypass Trustwould never create a Living Trust.)

ALiving Trust is simply an ownership arrangement where property isheld in the name of a "trustee" rather than in the name ofthe person who really owns the property. People almost always createLiving Trusts for their own benefit, with the goals of avoidingprobate, addressing the possibility of future incapacity, and keepingmatters private.

Normally,the person who creates a Living Trust names himself or herself astrustee and as beneficiary. Upon that person's death, all or aportion of the property which remains in the Living Trust passesaccording to the terms specified in the trust agreement.

BypassTrusts are most often created when a spouse dies in order to savetaxes when the other spouse passes away. When a married person diesand leaves everything to his or her spouse, that surviving spouse maythen be too wealthy to pass everything to their beneficiaries taxfree. Being "too wealthy" typically means the marriedcouple is worth over $13,990,000. The Bypass Trust is a way toshelter the first spouse's $13,990,000 exemption from taxation whenthe surviving spouse dies, thereby doubling the amount that can beleft tax-free to $27,980,000.

BypassTrusts do have non-tax benefits though, and for some people, savingtaxes is not the motivating factor in creating one. For instance,Bypass Trusts protect the trust property from creditors' claims, andthey allow the deceased spouse to direct where the trust propertypasses when the other spouse dies.

Thereare some exceptions to the statements contained in this answer. Forinstance, Bypass Trusts are not always created at death. Some wealthypeople create them during life, and other people use their estate taxexemptions for different purposes rather than the creation of aBypass Trust. Also, in answering your question, I have assumed thatwhen you said "Living Trust," you meant the standard typeof revocable trust people across the country regularly create and notanother unusual type of trust which may be created while someone isliving.

Q. Whatis a Miller Trust, and how does it work?

A. AMiller Trust is a written trust agreement which makes it possible forpeople to obtain Medicaid nursing home coverage even though theyactually make too much money to qualify for Medicaid. Importantly,they are not actually called Miller Trusts anymore. Instead, they nowgo by the name Qualified Income Trusts.

Therule in Texas is that you must have both limited resources andlimited income in order to qualify for Medicaid coverage. These aretwo distinct tests that must be met, and if you don't satisfy both ofthem, then Medicaid nursing home coverage will not be available.

Thefirst of the two requirements--that you must have limitedresources--has nothing to do with Qualified Income Trusts. Basically,if you have more than $2,000 worth of assets, you are too wealthy toqualify for Medicaid no matter how little money you earn.

Cash,stocks, bonds, retirement accounts, non-homestead real estate, andother investments are included in the $2,000 figure, but yourhomestead (no matter how much it is worth), $2,000 of personalproperty, a burial plot, a small amount of life insurance, and a carare generally not counted.

Peoplewith more than $2,000 can give away properties or convert them intoproperties which are not counted. However, there is a 60-monthlook-back period. The look back period is a way to keep you fromgiving away all your property and then applying for Medicaid the nextday.

Also,there are rules which generally allow the spouse of someone trying toqualify for Medicaid to retain about $3,948.00 worth of property. Aspouse's property is not counted when determining the total value ofassets for the $2,000 resources test.

Thesecond of the two requirements--that you can earn no more than acertain dollar amount of income per month--is where Qualified IncomeTrusts enter the picture. Under current law, the monthly dollar limitis $2,901.00. People who earn more can't qualify for Medicaid unlessthey have a Qualified Income Trust.

Whatyou do is assign your income to the Qualified Income Trust, and thewording of the trust limits how much of the income can bedistributed. This way, a person who makes more than the monthly limitwill be treated as earning less than that amount, thereby satisfyingthe Medicaid income test. The trust can allow for certain payments,including insurance premium payments, other payments to support aspouse, and $75 each month for the beneficiary's personal needs.

Moneyremaining in the trust after those payments are made must be paid tothe nursing home for the beneficiary's care, with Medicaid picking upthe balance. With Qualified Income Trusts, people can get thegovernment to cover the portion of the nursing home costs that theycan't afford.

Lawyersprepare Qualified Income Trusts. Therefore, everyone who needs onemust first meet with a lawyer to discuss the specifics of the trustand all the other planning that goes with it.

Tolearn more about Qualified Income Trusts, search the internet for thewords "Texas qualified income trust." You can also call theTexas Department of Human Services at 888-834-7406 or visit theirwebsite at www.dads.state.tx.us. They have a summary of QualifiedIncome Trusts, and they also publish a "Medicaid EligibilityHandbook" which contains other helpful information.

Q. Whatare the tax advantages to setting up an irrevocable trust to own an insurance policy?

A. Althoughlife insurance is generally not subject to income taxation upon thedeath of the insured, it is subject to estate taxes if the insuredowns the policy (or has other ownership rights).

Owninga life insurance policy results in all or a portion of the insuranceproceeds being included in the insured's estate and therefore taxedwhen death occurs, thereby substantially defeating the purpose ofbuying the life insurance.

Whileit is true that life insurance which is received by a spouse is notsubject to estate or inheritance taxes because of the unlimitedmarital deduction (assuming the surviving spouse is a citizen of theUnited States), those same proceeds will be included in the spouse'sestate later on when he or she dies. Therefore, life insurance trustsare often a good idea even when there is a surviving spouse toreceive the proceeds.

Lifeinsurance trusts offer a number of significant advantages overoutright ownership. For starters, the trust will insulate theproceeds from the claims of creditors and from spouses in a divorce.

Also,life insurance trusts can be written to last for children's lifetimesand then pass without estate taxes to additional trusts forgrandchildren. This is a feature commonly referred to by estateplanning lawyers as "generation skipping planning." Yourchildren shouldn't be alarmed by the words "generation skipping"because you are not skipping them. Your children can serve astrustees of their trusts, and they can be given the power to makedistributions to themselves or their children according to fairlyliberal standards. Normally, trusts like the ones being describedwould allow your children to make distributions for their health,education, maintenance and support. And your children would be theones determining how much money it takes to maintain and supportthemselves. Even though the life insurance proceeds will be held in atrust, your children would not be prevented from using the trustfunds.

Custodial Account Questions:

Q. Icreated a Uniform Transfers to Minors Account for my son a few years ago, and it is now worth about $80,000. My son has no idea about theaccount, but I know he is legally entitled to the funds when he turns21 later this year. I realize it's not exactly legal to put the$80,000 back in my name, but I don't want him to get the fundsbecause I have a suspicion it will be spent in a matter of weeks. Isthere anything legal I can do to maintain control of the account andkeep him from having full access at age 21?

A. Thereare two realistic options available to you.

Forstarters, you could invest the $80,000 in a limited partnershipcontrolled by you. When your son reaches age 21, he will not receivethe $80,000, but instead will become the owner of a limited partnerinterest. As a limited partner, his rights can be severelyrestricted, thereby allowing you to control the funds for as long asthe limited partnership exists. The limited partnership agreement canbe written so that your son has no right to demand a distribution orveto your investment decisions.

Oneof the downsides to creating a limited partnership is that you areintroducing a bit of complexity into your life. Many people find thistype of business arrangement too complicated for their tastes. Also,the fees to set up a limited partnership can be costly. And once thelimited partnership exists, you will need to file annual income taxreturns to report the partnership's income to the IRS.

Notonly that, but many people create a corporation or limited liabilitycompany to serve as the limited partnership's general partner. If youchoose to create this additional entity, the fees to form andmaintain the limited partnership arrangement will be even higher.

Aword of caution: Your son may be the type to hire a lawyer torepresent his best interests. If he does, it is possible--althoughhighly unlikely--that your son might sue you to recover any funds youhave placed in a limited partnership which limits his rights. Intheory, your son would have a compelling argument. After all, mostpeople would agree that receiving $80,000 in stocks and cash isbetter than receiving a limited partnership interest with all theassociated restrictions.

Anotheroption is to tell your son about the existence of the account butmake it clear that he would be making a huge mistake by not lettingyou continue to control the funds. If he puts up too big a fuss anddemands the money, you can modify your estate plan and completely cuthim out as a beneficiary of your estate. There is nothing illegalabout you managing your son's investments for him, assuming he hasthe right to ask for the money at any time.

Q. Iset up custodial funds in my children's names to pay their collegeexpenses, with me as custodian. The mutual funds I invested in havedone so well that the accounts far exceed what they'll need forcollege. Can I legally give money from these funds back to myself? Ifso, how?

A. No,even though there is nobody to stop you from giving the money back toyourself, doing so would be illegal. Gifts to custodial accounts areirrevocable.

Ifyou were to return the funds to yourself, your children would havethe right to sue you, and they would probably win. Of course, theywould probably never know what you did, and most kids don't sue theirparents (especially if they think there may be a lot more money tocome one day).

Fortunately,you can start spending the money in the custodial account on thingsfor your children which you may now be paying out of your own funds.For instance, if one of your children wants to spend the summerstudying in France or if one of your children needs a new car, usethe money in the custodial account to pay for these expenses, notyour own money.

TaxQuestions:

Q. Couldyou explain how stock values are "stepped up" as a resultof death? My father has a lot of stocks that he bought decades ago,and I'll be inheriting them when he dies.

A. Gettinga stepped-up cost basis on inherited stock allows you to save taxeswhen the stock is sold.

Forinstance, if your father bought a stock at $10 a share, and it is nowworth $100 a share, when he sells the stock, he will owe a capitalgains tax on the $90 the stock has appreciated. If your father givesyou the stock before his death, the gift will be valued at $100 ashare, but you will take his cost basis of $10 a share. That meansyou will owe a capital gains tax when you sell the stock.

Ifyour father waits to give you the stock until after his death, thestock will be valued in his estate at $100 a share, and you will havea new cost basis of $100. Your father's $10 cost basis gets"stepped-up" to $100 as a result of his death. This is trueeven if your father's estate is not required to file a federal estatetax return. When you later sell the stock, you will only owe capitalgains if the value of the stock is higher than $100.

Ifyour father is married, rather than leaving the stock to you, yourfather might leave the stock to his wife (presumably, your mother).In that case, your father and mother would probably own the stock ascommunity property, with each owning one-half of the stock. Upon yourfather's death, your mother will not only get a stepped-up cost basison your father's one-half of the community property stock, but shewill get a stepped-up cost basis in her half of the stock as well.This is a benefit which is generally available only in communityproperty states.

Thereare two exceptions worth noting. First, after your father's death, ifhis estate owes estate taxes, it is possible to value the stock sixmonths following his date of death. If the stock is worth less atthat time, you can use this lower value as a way to pay less estatetaxes. But if you do, the basis in the stock is also the lowervalue--not the higher date of death value.

Second,if you own $20,000 worth of stock that you purchased for $1,000 yearsago, you may be hesitant to sell the stock because you don't want topay capital gains taxes. Your idea may be to give the stock to yourfather, who is very ill and near death, and then have him leave it toyou when he dies, thereby getting a stepped-up cost basis. As youmight expect, the IRS doesn't like this, and there is a rule whichsays if your father dies within one year of being given your stock,then you receive the stock with your old cost basis. If your fathermakes it more than a year, then you do get the stepped up cost basis.

Q. Arelative recently died and left me some stock. How is the tax handledon this transaction? Do I pay the tax when I sell it? Her basis inthe stock was very low.

A. Whenyou inherited the stock, you received what is commonly referred to asa stepped-up cost basis. That means your relative's low basis in thestock is forgotten, and instead, your new basis is the stock's valueon the date of death.

Technically,your cost basis is the average of the stock's high and low tradingprices on the date of death, not the stock's closing price. If yourrelative died on a weekend or holiday, then a weighted average of thetwo nearest open market trading days is used to determine your costbasis. For instance, if your relative died on a Saturday, the averageof the high and low trading price on Friday is multiplied bytwo-thirds, and the Monday high and low average is multiplied byone-third. The two resulting numbers are added together to arrive atthe new cost basis.

Asa general rule, no taxes are due until you sell the stock unless yourrelative had a taxable estate, which in 2025 is an estate over$13,990,000. And when you do sell the stock, you will have ashort-term capital gain or loss if you sell the stock within one yearof your relative's death, or a long term capital gain or loss if youwait longer.

Note:there are several exceptions to the general rules in this answer.

Powerof Attorney Questions:

Q. Whatis the difference between a Medical Power of Attorney and a Directiveto Physicians?

A. AMedical Power of Attorney is a document that allows you to name anagent to make medical treatment decisions for you in accordance withyour wishes if you are not able to do so yourself.

ADirective to Physicians is a document that allows you to address whatkind of medical treatment you would like to receive if you ever facea terminal or irreversible medical condition. It is often referred toas the document where you tell the doctors to "pull the plug."Most people request that all treatments other than those needed tokeep them comfortable be discontinued or withheld so they can beallowed to die as gently as possible.

Themain difference between the two documents is that the Directive toPhysicians is where you actually express your own specificpreferences as to the use of life sustaining treatment, and theMedical Power of Attorney is where you name one or more persons tomake most medical decisions for you.

Withina Directive to Physicians, it is also possible to name an agent tomake medical treatment decisions for you in accordance with yourpersonal wishes if you do not also have a Medical Power of Attorney.Even so, most people go ahead and sign both a Directive to Physiciansas well as a Medical Power of Attorney, and they do not name an agentwithin a Directive to Physicians.

Q. IfI name someone to make medical decisions for me in a Medical Power ofAttorney, can that person later decide not to turn off the machineseven though I have signed my Directive to Physicians?

A. Ifyou have both a Directive to Physicians and a Medical Power ofAttorney, there certainly can be some overlap.

Forinstance, a decision made by your agent under a Medical Power ofAttorney may have the effect of ending your life within hours or dayseven though you may not yet have reached the point at which yourDirective to Physicians would have applied to your medical condition.

Insituations where there is overlap, Texas law states that yourattending physician and the agent you have named to make medicaldecisions must act in accordance with your directions. Presumably,this means that if your physician has determined you are in aterminal or irreversible condition, your Directive to Physiciansshould be honored. However, since the law is not as clear as it couldbe, it is a good idea to include a provision in your Medical Power ofAttorney requiring your agent to comply with a validly executedDirective to Physicians.

ProbateQuestions:

Q. Whichassets are handled outside of probate?

A. Thereare many different kinds of properties that may pass outside theprovisions of your Will.

Thelist includes life insurance, retirement plans, individual retirementaccounts, and annuities. When you purchased or set up these types ofassets and accounts, you were probably asked to fill out a formlisting the beneficiaries who will receive payments upon your death.These investments will pass to the named beneficiaries regardless ofwhether you have a Will. However, if you don't have a beneficiarynamed, if the beneficiary named is your "estate," or if allthe beneficiaries are dead, then those investments will be paid toyour estate and pass under your Will.

Certainbank and brokerage accounts will also pass outside your Will. Forinstance, payable-on-death accounts (sometimes called "POD"accounts) will be distributed to the named beneficiary. Additionally,accounts set up by one or more persons as joint tenants with rightsof survivorship will pass to the surviving account holder or holders.

Somebanks allow you to set up what they call trust accounts even thoughthere is no written trust agreement. These types of accounts willpass to a named beneficiary without going through probate as well.

Notall joint accounts pass to the survivor. When joint accounts are setup as tenants in common, the portion of the account that was owned bythe decedent passes under his or her Will.

Manypeople have decided to create revocable or irrevocable trusts as partof their estate plan. Virtually all such trusts are designed to passdirectly to persons or other trusts named in the document rather thanunder a Will.

Youmay find that most of your estate consists of non-probate property.Therefore, it is extremely important to coordinate the beneficiariesof all these properties to make certain your assets will bedistributed as you want when you pass away.

Q. Musta Will be probated if the estate is less than $13,990,000? Areinsurance proceeds included in that total?

A. Thereis no requirement that you probate a Will no matter how much theestate is worth. Wills need to be probated only if property is nottransferred by some other means.

Youare confusing probate with the filing of a federal estate tax return.Regardless of how the property is transferred at death, if an estateis valued at $13,990,000 or more in 2025, then a federal estate taxreturn must be filed. And yes, you must include proceeds of lifeinsurance owned by the decedent in computing the $13,990,000.

Theprobate process is primarily a method of changing title from thedeceased to the person or persons who inherit the property. Someassets require probate, such as real estate and bank accounts heldonly in the name of the deceased, while others do not, such as lifeinsurance policies or retirement plans payable directly to namedbeneficiaries.

Q. I'mnamed as the executrix of my father's Will. What do I do when hedies?

A. Thereare some steps you must take and other steps you may need to take.Exactly what you must do depends on the types of assets your fatherowns and the size of his estate.

Findthe Will.Locating an original Will can sometimes be difficult. Many peoplekeep their Wills in a safe deposit box, while others keep them athome or some other place else. It may be a good idea to talk to yourfather and find out where his is kept. If it's at the bank, be sureyou're authorized to enter the box, otherwise it may be harder to getthe Will out.

Hirea Lawyer.Most of the time, it's necessary to hire a lawyer. The judges in somesmaller counties allow people to represent themselves in probatematters, but you still may have trouble preparing all the necessaryforms that are required. It's safe to say, therefore, that lawyersmust be hired in the vast majority of cases.

ApplicationFor Probate.The first document your lawyer will prepare is an application forprobate. The original Will is filed at the court house along with theapplication and a filing fee. The application is usually severalpages long, and it describes certain facts about your father, hisWill, and his property.

TheProbate Hearing.After a mandatory waiting period of ten days, a probate hearing willbe held. Your lawyer will schedule this hearing for you. Under idealcircumstances, you can get your hearing two weeks after theapplication is filed. However, it often takes three weeks or longerto schedule a hearing because of the backlog in the courts and otherscheduling conflicts. In larger counties, the hearings are held in acrowded courtroom, and dozens of cases are heard one after another.In smaller counties, the hearings are often less formal, with thejudge often shaking your hand at the door to his or her office, andthen showing you to a chair right there in the office.

Testimonyand Order.At the hearing, your lawyer will ask you a number of routinequestions. Most of the time, the judge will then sign an orderadmitting the Will to probate. The order is a document which yourlawyer will have prepared and brought to the hearing. You will alsobe asked to sign the written document containing your testimony.

TheOath.After the hearing, you will need to sign an oath stating that youwill fulfill your duties as independent executrix of your father'sestate. The word "independent" means that you will not needto ask the court for permission to sell estate assets or to conductany other duties as executrix.

LettersTestamentary.After your oath is filed, you will be able to order "letterstestamentary" from the county clerk. The letters will authorizeyou to close bank accounts and collect and claim other estate assets.You can order as many letters as you think you will need.

Notices.Within 30 days of receiving letters testamentary, you must publish a"notice to creditors" in a local newspaper. This noticelets creditors of your father's estate know where they may fileclaims to recover money they are owed. It must be published even ifyour father has no creditors. Certified letters must also be sent toall of the charities named in your father's Will. Proof that youperformed these tasks must be filed with the court as well.

Filethe Inventory.Within 90 days of qualifying as executrix, you must file an Inventorywith the court. The Inventory lists all the assets which pass underyour father's Will. (Note, though, that is now often possible to filean Affidavit in Lieu of Inventory with the court rather than filingthe Inventory.) Importantly, the inventory doesn't always listeverything a person owns, since you don't have to list assets thatpass directly to named beneficiaries. For instance, life insurance,retirement plans, some joint accounts, and many other properties aredesigned to pass directly to a named beneficiary. After the Inventoryis filed, the judge will sign an order approving the Inventory.

TaxReturns.Estates valued at over $13,990,000 must file a federal estate taxreturn within nine months of death. Taxes will be owed if the netestate exceeds that amount. The tax rate on assets over $13,990,000is 40%. You may also be required to file income tax returns for theestate. Often, the lawyer handling the estate will also prepare theestate and inheritance tax returns. However, few lawyers prepareincome tax returns.

Thisanswer assumes your father's Will was executed, witnessed andnotarized properly, and that it contains all the right language. Notall probate proceedings are as easy as this answer indicates. Forinstance, you may find yourself in the middle of a Will contest, oryour father's Will may have been written in another state, thuscomplicating the probate.

Onemore thing: Not all Wills need to be probated. You may find thateverything your father owns passes directly or automatically to namedbeneficiaries. If the only assets left are his household goods andother personal items, there is no need to hire a lawyer and gothrough probate.

Q. Foryears, I've heard that probating a Will in Texas is simple and can bedone by a lay person, but in response to a recent question on thesubject, you said the first step is to hire a lawyer. To clarify, cana lay person probate a simple Will in Texas without the need to hirea lawyer?

A. Theanswer to your question depends on where you live.

Indensely populated counties, the courts are extremely busy, and theyhave adopted policies of not allowing people to probate Wills withouta lawyer. But in smaller counties, the judges will often let peopleprobate Wills on their own.

Thecourts in the larger counties simply don't have the time to explainthe probate process to all the people who call asking for help. Moreoften than not, when people try to conduct a probate proceedingwithout a lawyer, forms are prepared incorrectly or not at all, andthe required court hearings are slowed to a crawl.

Courtsjustify this decision in a number of ways. Some courts say the"client" in a probate matter is the estate of the personwho died and not you, the Executor. You may be allowed to representyourself in a legal matter, but you cannot represent anotherparty--which is the estate in a probate matter--unless you are alicensed attorney.

Othercourts say that because many probate proceedings are notstraightforward or because witnesses may need to be deposed orcross-examined, a lawyer should be present. Judges are sometimesunwilling to let non-lawyers handle the representation and conductthe court hearing.

Q. Iwas told that a Muniment of Title could be used to settle an accountwith a brokerage house. I tried that approach with my wife's estate,of which I am the Executor. The brokerage firm would not accept theMuniment of Title because I was not appointed by the court to be theExecutor, and they wouldn't look at the Will at all, where my role islaid out. What did I do wrong?

A. It'shard to say what was done wrong. Wills are probated as muniments oftitle--which is a simplified way of going through probate--all thetime, and they usually work just fine.

Let'sreview the steps you should have taken in probating your wife's Willas a Muniment of Title. Perhaps you'll discover what went wrong asyou read through the process.

Youshould have started by filing the original Will along with anapplication for probate with the county clerk's office. Theapplication should have stated (among other things) that there is nonecessity for administering your wife's estate and that there are nodebts of the estate other than those secured by real estate. (You canprobate a Will as a Muniment of Title if there is a mortgage on yourhome.)

Aftera mandatory 10 day waiting period, you should have attended a hearingwhere you or another person would have testified before the courtabout certain facts relating to the decedent. Most people hirelawyers to prepare the paperwork and handle the scheduling andconducting of the hearing. In fact, most courts don't allow people toappear in court without a lawyer.

Assumingall went well at the hearing, the judge then would have signed anorder prepared by your lawyer directing that the assets owned by yourwife be distributed as provided in her Will. It would have beenadvisable to add language to the order specifying the name of thebrokerage firm, the account number, and the person or persons to whomthe securities must be distributed. The order should have alsocontained a provision waiving the requirement that you report back tothe court once the brokerage account has been distributed. Courtswill routinely waive this requirement, but you must remember to askfor the waiver.

Oncethe probate hearing was over, you should have ordered a certifiedcopy of the Will and the signed order from the clerk's office, andthen forwarded those documents to the brokerage house. They mayprefer for you to be the court-appointed executor of your wife'sestate, but when presented with a court order requiring them todisburse the account, they should do as directed.

Accordingto Texas law, the order admitting the Will to probate as a Munimentof Title is sufficient legal authority for banks, transfer agents,brokerage houses or other businesses holding assets of the estate topay those assets to the person or persons named in the Will.

OtherCommon Estate Planning Questions:

Q. Whatis a holographic Will, and how does it work?

A. A"holographic" Will is a Will that is written entirely inyour own handwriting.

Nowitnesses are required, and no portion of the Will may be typed. Ifyou type some or all of the words, or you incorporate other markingsor other documents into the text, you could inadvertently invalidatethe Will. The idea behind holographic Wills is that since the entiredocument is in a person's handwriting, there is no need for witnessesto sign it to establish its validity. Holographic Wills don't need tobe notarized either, but they do need to be signed.

Mostlawyers would tell you it's a bad idea to write your own Will becauseyou can easily create ambiguities and other defects that can lead tolitigation following your death. This is especially true in secondmarriage situations when one or both spouses have children from priormarriages or relationships.

Ifyou decide to write your own Will, you should be sure to say in theintroductory sentence that it is your Will, and that you are revokingall prior Wills. If you don't revoke all prior Wills, yourhandwritten Will and any other Wills that have not been revoked willbe looked at together to determine who inherits your estate. As youmay expect, problems arise when the various documents conflict.

Besure to identify each bequest clearly and to give away all of yourproperty. A frequent problem with handwritten Wills is that they listsome accounts and properties, but then leave out others. Propertythat you don't mention in your Will passes to your heirs asdetermined by our legislators in Austin. Your heirs may not be thesame persons named in your Will. Also, going to court and figuringout who your heirs are can be an expensive and time-consuming matter.

It'soften the case that handwritten Wills don't name an executor, and theones that do may fail to state that the executor should serve as an"independent" executor. Failure to name an "independent"executor could result in an administration of your estate which isfully court supervised, expensive, and lengthy.

Anotherimportant provision that is often left out of a holographic Will is awaiver of bond. When you don't request a waiver, the judge canrequire that your executor post a bond. Sometimes, it's not possibleto even get a bond, and if your executor can get one, it willundoubtedly be expensive.

Lastly,it should be noted that handwritten Wills are almost always moredifficult to probate than typed Wills because courts require twowitnesses who are familiar with your handwriting to testify that theWill was, in fact, written by you.

Q. I'vemoved to Texas from Florida, where I had a simple Will with mydaughter as the only beneficiary. Do I need to get a new Will made inTexas?

A. Yes,you should prepare a new Texas Will.

Whileit is true that Texas recognizes the validity of a Will executed inFlorida, your daughter will have an easier time probating your Willif you have a new one prepared using correct Texas language.

Forinstance, there is almost no chance your Florida Will names yourdaughter to serve as the "independent executor" of yourestate. In fact, she is probably called your "personalrepresentative" which is the lingo used in Florida. Being anindependent executor means she will not be supervised by the court,the preferable way to administer an estate. If you don't state inyour Will that your daughter will be your independent executor, shecan still make a special request to the judge after your death askingthat she be allowed to act independently, but there is no guaranteethat her request will be approved.

Also,the end of your Will should have what is called a "self-proving affidavit" which is a long statement discussing the signing ceremony. Texas has its own unique form of "self-provingaffidavit" and it is different from the one used in Florida. Itis possible that the judge will refuse to recognize Florida's "self-proving affidavit" thereby causing your daughter unnecessary delays and expenses.

Q. My sole assets are a car, personal belongings and a savings account with less than $75,000 in it. Do I need a Will?

A. Youwould think there's a simple yes or no answer to your question. Butas with so many other legal questions, the answer is: maybe, maybenot.

Withregard to your bank account, you can set it up so that it passes toone or more persons who are named as the beneficiaries. This type ofaccount is normally called a "payable on death" or"transfer on death" account. Most, if not all, banks allowtheir customers to establish this type of account.

Ifthe persons you have named are alive when you pass away, all theywill need to do is present the bank with a death certificate, andthey will be given the money. However, if you die without havingnamed a beneficiary or if all of the beneficiaries you have named diebefore you, then some sort of probate will be needed.

Inthat situation, if you die without a Will, your estate would probablybe small enough to qualify as a small estate. That means the normalprobate process could be simplified by filing a Small EstateAffidavit. The Affidavit will list the properties you owned, and itwill state who your heirs are under Texas law. Once an orderapproving the Affidavit is signed by a judge, your heirs can claimthe money by presenting a certified copy of the order to your bank.

Ifyour estate does qualify as a small estate, but you have a Will, thenyour heirs can't file a Small Estate Affidavit. Instead they musttake the more expensive route of probating your Will. So, dependingon the expected size of your bank account, you may be doing yourfamily a disservice by having a Will. Wills that transfer propertymust be probated, and in nearly all situations, that means hiring alawyer and paying court costs and other fees.

Also,a Small Estate Affidavit will not be available if your savingsaccount contains more than $75,000 upon your death. In such a case,it would be necessary to conduct a formal probate, and having a Willwould make the probate process far simpler than not having one.

Asfar as your car is concerned, it can be transferred at death withoutthe need for probate by completing a Form VTR-262 "Affidavit ofHeirship for a Motor Vehicle." Your heirs can obtain this format any county court annex or online at www.dot.state.tx.us. ThisAffidavit will establish that the car was owned by you, and thepersons who inherit your estate will need to sign it. When completingthe form, your heirs might also be asked to provide otherdocumentation such as a certificate of title, release of lien,affidavit of physical inspection, bill of sale and/or proof ofliability insurance.

Theproblem with letting your heirs simply use the VTR-262 form is thatthe car may not be passing to the person or persons you would want.For instance, if you have two children, but you want your car to goto only one of them, then you may want to execute a Will which namesthe one child who will get the car.

Your personal property does not have title, so it's not necessary to probate a Will in order to validly transfer ownership to your heirs. It's unfortunate, yet true, that personal belongings are available on a first come, first serve basis to your children, friends and neighbors. You may want to limit the number of people who have keys to your residence and also make a list of who gets what particular items. But don't forget, it's often a free-for-all following a person's death.

Note, however, that if you have minor children, my answer would be yes, you need a Will. With a Will, you could name guardians as well as aperson to serve as trustee or custodian over the children's inheritance.

So, if you set your bank account up properly, if your car will be passing as you would want, and your beneficiaries are all adults, then you don't need a Will. On the other hand, it can't hurt to have one just in case it's needed.