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A trust is a legal entity set up during a beneficiary’s lifetime by a third party to ensure assets are spent in accordance with the person setting up the trust’s wishes. Trusts can also avoid certain tax consequences and the headache of the probate process. If you have set up a trust, you may be wondering if the terms of that trust are modifiable after it’s been signed on the dotted line. Changes in circumstance, such as a changed relationship with a beneficiary or a change in your financial situation, may spark reasonable questions about any trusts you have set up.

The short answer: it depends. If your trust is set up as a revocable trust, you can change the terms at any time. If your trust is set up as an irrevocable trust, it can’t be modified unless any and all relevant beneficiaries provide consent. There are different benefits to each type of trust, and different circumstances may indicate the need for one, the other, or a combination.

What is a Revocable Trust?

A revocable trust is also known as a living trust. The person who created the trust, or grantor, can change the terms of the trust at any time. Changed terms include changed requirements on asset management requirements and the removal or addition of beneficiaries, but the exact rules vary by state.

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In the event of an unfortunate health emergency, you may become incapacitated. If you are incapacitated, you will not be able to make the decisions needed to consent to and direct your own medical care. The law provides for a plan in this unfortunate event. But the law’s provisions may not be sufficient to ensure your plans are executed according to your wishes. Advance directives can help.

If you do not have any advance directives in place, someone may still be available to make health care decisions for you. If you are incapacitated in Texas, the following can still make decisions and consent to treatment for you: your spouse, your adult child or children (either a majority or one designated to make such choices by your other children), your parents, a person you identified to make decisions for you before you lost capacity, or a nearest living family member or clergy member. The priority goes in order from first to last. If relevant parties disagree, the judge of a Texas probate court will make that decision.

Types of Advance Directives

If this priority-ranked system sounds stressful and you’re worried your wishes will not be accurately carried out, consider putting advance directives in place. Some advance directives allow you to outline your care without the need to name a third party to make decisions for you. These include directives to physicians and family or surrogates, or living wills, out-of-hospital do-not-resuscitates (DNRs), and declarations for mental health treatment. In Texas, living wills lay out your requirements for life-sustaining measures in the event you have a condition certified by two physicians as terminal. DNRs give emergency medical professionals, who cannot follow living wills, instructions not to resuscitate you. And declarations for mental health treatment help you make advance decisions about the type of mental health treatment you would like to receive in a mental health emergency, such as medication and therapy, in the event a court declares you incapacitated.

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Estate planning is an integral part of life for all Americans, regardless of your age or the amount of financial assets you’ve accumulated thus far in your life. However, one of the most common misconceptions about estate planning is that once your estate planning documents have been drafted, you never need to revisit them. At McCulloch & Miller, we recommend all of our clients at least annually review their estate plan with an attorney to ensure that it continues to meet your needs, goals and current situation. Moreover, it is essential to take a look at your estate planning documents whenever you experience a major change in your life. It is for this reason that we’ve developed the Estate Planning Maintenance Plan.

What Is the Estate Planning Maintenance Plan?

The idea behind an estate plan is to create documents that will serve your interests regardless of what the future holds. However, over time, the circumstances of your life will change. The Estate Planning Maintenance Plan is a new program McCulloch & Miller, PLLC has rolled out to help current clients keep on top of their estate planning needs. The plan was designed for our existing clients in hopes of offering a cost-effective way for them to make sure their estate plan continues to serve them as well as it did when it was first created.

For the low annual cost of $500 (for individuals) or $750 (for couples), you will receive the following:

  • An annual consultation for an estate plan review;
  • Access to exclusive estate planning maintenance workshops;
  • Unlimited changes to durable powers of attorney [link to Power of Attorney Documents page];
  • Unlimited changes to medical powers of attorney; and
  • Timely updates on all relevant changes to the law that may impact your estate plan.

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Loved ones, family members, and parents of special needs individuals know they often need a unique approach in helping care for the special needs child or adult in their life. This approach is often augmented by help from government benefits established to make life easier for people with special needs, such as Medicaid and Social Security. These programs, however, become unavailable to individuals above certain asset thresholds.

To help preserve access to this much-needed medical and living expense coverage granted by the federal government, caretakers and financial providers for special needs individuals may wish to set up special needs trusts. In a special needs trust, a grantor names a trustee to administer the trust and a beneficiary, who is the special needs individual. Funds are distributed from the trust without impacting income eligibility for these government programs. Special needs trusts must not be used for living expenses or medical expenses already covered by Medicaid or Social Security, but can be used for supplemental expenses, such as job training or educational program tuition, and even luxury expenses and non-essential costs like vacations, hobbies, or home furnishings. The beneficiary never has direct access to the trust.

There are two main types of special needs trusts: first-party and third-party. The following summarizes the key differences between the two types of trusts. An estate planning attorney can help determine which type, if any, of these two trusts makes the most sense for your family.

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Individuals may wish to put some of their hard-earned assets toward charitable causes or organizations throughout and at the end of their lives. While charitable gifts and lump sum donations may seem generous, they can sometimes incur unexpected tax benefits that require caution. One way to charitably donate in a tax-savvy way is through establishing a charitable remainder trust. This can be especially wise for appreciable assets or sums large enough to exceed gift tax limitations.

What is a Charitable Remainder Trust?

Charitable remainder trusts allow people to donate to charitable causes while also generating income for themselves or another beneficiary in the meantime. First, the person who wishes to donate will place the assets—which can include cash and equity, real estate, and even business interests— into the charitable remainder trust. The assets will be paid to a beneficiary other than the charity, such as you or other named individuals like family members, for a certain period of time. This period of time is up to 20 years or the lifetime of the noncharitable beneficiaries. After that time frame, the remaining assets are transferred to one or multiple charitable causes or organizations. This transfer avoids the headache of probate.

There are two types of charitable remainder trusts: annuity trusts and unitrusts. An annuity trust will pay you or your other noncharitable beneficiary the same dollar amount of your choosing each year, regardless of assets or investments coming into the trust. A unitrust will pay a variable amount that is a percentage of the fair market value of the trust and will be recalculated each year.

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Even the most diligent of individuals may not anticipate a contest to their will’s validity when estate planning. Planning for your own potential incompetence or fights about your intention between family members can be upsetting and may even seem far-fetched. Unfortunately, planning for the worst-case scenario can help avoid major headaches in the probate process.

Why Can a Will Be Contested?

Understanding the ways a will can be contested can help in the planning process. Common objections can be, as noted above, that the will maker (or testator) was incompetent or was suffering a delusion. This can encompass a wide variety of circumstances, including dementia and Alzheimer’s disease, stroke, drug or alcohol use, an array of mental disorders such as schizophrenia and depression, and some physical ailments that implicate capacity.

In addition, objectors can claim undue influence or other outside factors like fraud and coercion or duress or mistake. Courts will consider all relevant factors when determining if undue influence is present, including circumstantial evidence that does not directly prove the fraudulent behavior but, taken as part of the whole story, indicate a problem existed.

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A common pitfall for many individuals and families in estate planning is thinking that the work is done when the original plan is created. Changes in finances, life circumstances, health, or even the economy and the law mean that estate plans should be updated and reviewed regularly. Failure to do so can result in unpleasant surprises when the time comes, such as assets that aren’t covered, a hefty tax bill, or beneficiaries or a will that doesn’t comport with your wishes.

For many individuals, this review occurs annually or even more often. People who review their financials quarterly, semi-annually, or annually should also review their estate plans while their financial picture is in front of them. A natural time to do this is while preparing and filing your annual taxes.

Every two to three years, and at minimum every five years, have an attorney formally review your estate plan. An estate planning attorney can consider any changes to your circumstances and determine if your plan still fits your needs. Your lawyer will also know if any changes in the law will impact your plans or your assets and recommend updates to make and ways to proceed. For example, changes to tax laws may necessitate a change in strategy to protect your assets for your future beneficiaries.

Individuals and families with up-to-date and comprehensive estate plans may think their work is done in protecting their assets. But many types of assets could use additional protection before death or incapacitation, which requires a more holistic strategy than many estate plans cover. And some individuals may need asset protection plans more than others, while everyone should have an estate plan in place. Asset protection strategies can protect your wealth from seizure or other losses. Asset protection and estate plans often coexist, but both sides need individual consideration and attention.

Why Do I Need Protection?

You may think your assets are relatively secure, but this can be a mistake. Even the most financially stable of individuals may fall into circumstances that lead to creditors at the door. And high net worth individuals or individuals in high-risk professions such as doctors and lawyers may be targets for lawsuits and scam artists, which can result in high damages awards or unwitting asset transfers without strategies in place to mitigate these losses and shield assets from these claims. Spouses and in-laws can also serve as surprising asset predators, especially if marriages dissolve and tensions become hostile, even if planning for that unfortunate possibility seems difficult to imagine. Finally, hefty taxes can be imposed on certain asset types by the government, which can be protected by certain trusts and a good tax strategy.

There are many types of powers of attorney (POA), and each covers different areas and has different purposes. Read on for answers to common questions about POA.

Can I Use a POA After the Principal Dies?

No. The person who gives the power of attorney is called the principal, and the person given the power is often called the agent. A valid power of attorney expires after the death of the principal, so the agent cannot act under the POA after the principal’s death.

If I am an Agent of a POA, Can I Stop the Principal from Giving Money Away?

Only financial—or durable—POAs allows the agent to make financial decisions for the principal. In this case, agents can be given the power to make gifting or donating decisions for the principal. But the agent also owes a fiduciary duty to the principal to act in the principal’s best interests. If stopping the principal from gifting or donating is contrary to the principal’s best interests, it may be possible for the principal or a third party to revoke the POA.

What Can I Do As a POA?

Medical POAs are authorized to make medical and treatment decisions for the principal. Financial or durable POA are authorized to make a wide range of financial decisions, including buying or selling property or assets, applying for benefits, managing a business, investing, or filing lawsuits on the principal’s behalf.

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Thanks to newly announced policies from the IRS, 2023 is shaping up to be a big year for estate planning. With several new opportunities for ultra-wealthy individuals to protect their assets, it is more important than ever to plan ahead and think about goals for the upcoming year. By planning, you can protect yourself from being double taxed and from facing penalties for failing to pay the required amounts.

In its recent press release, the IRS announced that it will implement several new policies that will allow ultra-wealthy individuals to protect more of their assets from taxes. The reason for the shift, according to tax law experts, is to account for annual adjustments in inflation. The reality, however, is that individuals that have been sitting with lower-value portfolios in 2022 can use the policies to their advantage and can begin developing more aggressive strategies heading into 2023.

One of the new policies will increase how much individuals can transfer to their heirs each year without being subject to federal taxes: in 2022, Americans could transfer $12.06 million, but next year the number will jump to $12.92 million. The IRS will also increase the limit on tax-free gifts next year, giving each individual a threshold of $17,000 per recipient instead of the current limit of $16,000.

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