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Many individuals – especially those with children – do not want to think about what would happen to their family if they passed away. Although many people have life insurance to cover the cost of raising a child in the event of their untimely death, they do not think about establishing a trust to hold the money for them. Despite the common misconception, trusts are not just for the rich. Rather, they are critical tools for young families and an important part of a comprehensive Houston estate plan. Below are some of the common questions that individuals have about life insurance trusts.

How Does a Life Insurance Trust Work?

Individuals will set up a trust as part of their overall estate plan, typically, when they are creating a will and naming guardians if they have minor children. A trust holds assets – including property and money – for the listed beneficiaries, and the individual creating the trust details how the assets should be utilized. Additionally, the person appoints a trustee to oversee the process and ensure the assets are handled as written.

In Houston and throughout Texas, living trusts allow property owners to use their assets during their lifetime while ensuring that their assets are securely transferred to their beneficiaries. The legal document is similar to a will in that it allows financial assets and personal property to be passed on to named beneficiaries. However, the terms of a will become effective after they die, whereas a revocable living trust becomes effective immediately. These trusts allow property owners to keep control of their assets while living even if they become incapacitated.

Establishing a legally binding living trust is crucial to ensuring that a person’s wishes are appropriately documented and carried out. The trust documents should list the property, the trustee, and the beneficiaries. The relevant property is transferred to the trust, giving the trust control over the assets. Trustees should designate a successor who will be responsible for effectuating the trustee’s wishes. These trusts are useful for controlling and transferring various types of assets, but it is incredibly helpful for property owners. Regardless of age, marital status, or wealth, living trusts are an inexpensive and effective way to reduce and eliminate the stress of distributing assets while maintaining control and privacy.

Not only do living trusts help individuals avoid probate and court control, but it also allows trustees to control the assets during their lifetime. The trustee maintains the ability to buy, sell, modify, or even cancel the trust. Further, revocable living trusts allow the trustee to efficiently transfer assets such as jewelry, furniture, clothes, and art into the trust.

On November 7, 2020, major news networks declared former Vice President Joe Biden the winner of the 2020 Presidential Election. With Biden’s election, there is likely to be a shift in many policies, from foreign diplomacy to tax incentives. One area that may soon be altered is an increase in the capital gains tax rate. What is this potential increase? Will it impact your Houston estate plan? And should you take action now before any new policy is put in place? Below are some common questions that Texans are asking in light of Biden’s election, specifically regarding capital gains tax considerations.

What is a Capital Gains Tax, and What Has Biden Proposed?

A capital gains tax is a tax on the growth of investments that an individual or corporation must pay when selling those investments. This means that the tax does not apply until an investment or stock shares are sold; however, capital gains taxes will incur every year until the investment is sold. The capital gains tax rate only applies to “long term capital gains,” which are assets held for more than a year.

With the recent election of Past Vice-President, Joe Biden, individuals are curious about how policies will differ after President-Elect Biden’s inauguration. As Biden has mentioned raising estate taxes and changing the taxation of capital assets upon death, many wonder if they should change their Houston estate plan now. While it is unclear what changes – if any – President-Elect Biden will make to estate tax exemptions and taxes, the issue is worth looking into for many families. Below are some of the most common questions individuals have about estate tax exemptions and what they should do.

What is an Estate Tax, and What Is the Current Estate Tax Exemption?

The federal estate tax applies to individuals who receive an inheritance from estates above a certain exclusion limit. In 2020, the estate tax exemption is $11.58 million per person and $23.16 million per married couple. This means if an individual receives less than $11.58 from an estate – or $23.16 if they are part of a married couple – they are not required to pay an estate tax. Currently, this exemption – which was doubled by the 2017 Tax Cuts and Jobs Act – is set to return to $5 million at the end of 2025, in what is called a sunset provision. It is important to note that surviving spouses are normally exempt from estate taxes.

Creating a Houston estate plan is critical to ensure an individual’s wishes are met after their passing. However, when estate plans include mistakes or are not done properly, they can cause major, costly headaches for loved ones. Below are some common pitfalls that individuals should avoid when drafting or updating their estate plan. Also, check out our eBook on the Top 15 Estate Planning Mistakes.

Not Naming Contingent Beneficiaries

A common estate planning mistake is not naming a contingent beneficiary on retirement accounts, trusts, and insurance policies. A contingent beneficiary is an individual who benefits from an estate plan if the primary, named beneficiary is deceased or unable to be located. If a contingent beneficiary is not named as a part of the estate plan – and the named beneficiary dies before the assets of the estate plan are distributed – the estate may be subject to Texas probate court, additional costs and delays.

Texas Veterans Benefits: Who Qualifies?

Under the Department of Veterans Affairs (VA) current framework, only individuals deemed a “veteran”, may be eligible for VA benefits. Assuming the member met the active service requirement, the VA relies on the individual’s character of service designation (COD) to determine whether a former service member was separated from their branch “under conditions other than dishonorable.” Despite their service, the VA consistently denies these soldiers access to necessary services and benefits. Under this framework, the VA fails to recognize hundreds of thousands of former members of the Armed Forces as veterans. This regulatory scheme has left many Texas veterans without VA benefits, such as service-connected benefits and the VA pension.

The Department of Defense provides service members with a discharge status which may be honorable, general under honorable conditions, uncharacterized, other than honorable (OTH), bad conduct (misdemeanor), bad conduct (general court-martial), dishonorable. Traditionally, the VA requires a COD for service members who received an uncharacterized, OTH, or bad conduct (misdemeanor) discharge. Historically, the VA denied benefits to service members who received Other Than Honorable (OTH) or Bad Conduct discharges. The VA would consistently find that these veterans engaged in “persistent or willful misconduct.” The VA would fail to find that the COD was “under conditions other than dishonorable.” However, many of these service members served in active combat and received these CODs due to their physical and mental wounds.

During these unprecedented times, Houston residents have many questions about a potential COVID vaccine and whether it will be covered by Medicare. Medicare is a national health insurance program that provides insurance for Americans 65 or older and some younger individuals with a disability. Similarly, Medicare Advantage is a type of health insurance plan that provides Medicare benefits through a private-sector health insurer, rather than the government. In Texas, over 4 million people rely on Medicare for their health needs. Because of this, it is important to know whether individuals with Medicare will have to pay out of pocket for a COVID vaccine – something many cannot afford – or whether it will be covered by Medicare. Those with questions about what Medicare covers can reach out to a Houston estate planning attorney for assistance.

Good and Bad News About The CARES Act

The CARES Act provides that if a COVID-19 vaccine becomes available, Medicare is required to cover the cost under Part B. Ordinarily, Medicare Part B helps to pay for doctor visits, preventive services, and vaccines such as the flu and pneumonia shots. Additionally, Medicare Advantage plans are required to include the basic coverage offered by Medicare Parts A and B, meaning a COVID-19 vaccine would also be covered for those with Medicare Advantage plans.

Over 70 million Americans receive Social Security and Supplemental Security Income, or SSI, benefits. Therefore, the changes that happen to Social Security – like a cost of living adjustment – are critical for a significant portion of the population. However, many individuals do not know the specifics about social security and its benefits. Below are commonly asked questions about social security benefits and why an elder law attorney may be useful for those thinking about taking social security benefits.

What Are Social Security Benefits?

Social Security helps older Americans, disabled workers, and families where a spouse or parent has died. For retired Americans who received Social Security, these benefits replace a percentage of their pre-retirement income. Put simplistically, the higher lifetime earnings an individual accrues, the higher benefits they will receive. However, the amount an individual will receive every month depends on their earnings, and when they choose to start taking benefits. If an individual starts to take benefits at retirement age – which is currently 66 years and 2 months – the percentage of their pre-retirement earnings they receive is lower than if they start benefits after retirement age.

It can often be disheartening when a loved one begins to wander, when they cannot remember their name and meander away from their home. Wandering is a risk associated with many conditions, including Alzheimer’s and dementia. Warning signs include forgetting how to get to familiar places, trying to “go home” when a person is already at home, and acting as if doing a chore, but getting nothing done. When this occurs, it can often become overwhelming and anxiety-inducing for caregivers. There are steps loved ones and caretakers can take to ensure their elderly loved ones are safe and constantly cared for as they wander. A Houston estate planning attorney can help families confront this difficult issue.

Make Sure the Person Always Carries Identification

While this will not prevent wandering, it helps ensure a lost loved one will be returned home. However, as a person can remove an ID from a wallet, giving an elderly loved one medical ID jewelry – like a bracelet or pendant – could help a loved one return safely in case they accidentally wander far from home.

Planning ahead and creating a will is important; however, unexpected events can often occur, causing people to reevaluate their will, as well as their Houston estate plan. One such instance is when a will’s executor passes away before the will’s creator, called a testator. This raises the question of who will execute the will. Unfortunately, this is somewhat common, and Houston residents often have questions about the next steps when this situation occurs.

What Happens If the Executor Passes Away?

The executor’s role includes distributing the will’s assets after the testator’s death. However, if the executor precedes the testator in death, there is no person to distribute the person’s assets. Therefore, the court will step in and determine who has the authority to act on the testator’s behalf.

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