Wills, Powers of Attorney & Declarations of Guardianship: What's the Difference?
The organized life always includes a will that handles the disposition of your assets when you leave this world, as well as documents like Powers of Attorney and Declaration of Guardianship, which make provisions in case you become disabled. It’s never too early to create these documents to ensure that those who care for you are not burdened by unanticipated questions concerning your wishes.
Many people have questions about Wills, and what Wills do. This is understandable since most people do not have a lot of experience with them. Among the questions that we commonly hear are the following:
What is a Will?
Under Texas law, a Testamentary Will (commonly called just a “will”) is the legal document which allows you to make a number of decisions which will take place upon your death. Those decisions include disposing of your assets, directing how you wish your remains to be handled (such as burial or cremation), appointing who you wish to be the legal Guardians of any minor children that you have, appointing an Executor to manage your estate as it makes its way through the Probate process, and so on. A Testamentary Will takes effect upon the death of the Testator, that is, the person who made the Will.
What Are the Limitations on a Texas Will?
Your Will cannot dispose of any property which you do not own at the time of your death, for example:
1. Life insurance- unless you have named your estate as the beneficiary of your life insurance proceeds, your Will cannot direct where those proceeds will go. This is because you have already awarded those proceeds to your named beneficiaries on your life insurance policy, and so, those proceeds are not a part of your estate.
2. Pay on Death (POD) bank accounts—often, married people will have a joint bank account, with provisions for the account balance to be awarded to whichever one of them survives the other. These are typically referred to as “pay on death accounts,” or “joint accounts with the right of survivorship.” Just like with life insurance proceeds (discussed above), your Will is powerless to transfer these funds, because you have already made a decision where they should go upon your death - to your surviving joint bank account owner.
3. Retirement accounts - as part of these accounts, you can designate your estate as your beneficiary, and thereby allow your Will to determine where these monies will go upon your death. Most people do not do that, though. Instead, they designate a spouse as their primary beneficiary, and if that spouse does not survive them, then their children. In any case, these funds are, also, not part of your estate, unless you set-up your retirement account to name your estate as your beneficiary.
4. Property which you have already sold, given away, or transferred - if your Will mentions where you want some item of property to go, but you no longer own that property when you die, then your Will can have no effect on that item. This may happen with a car or a house owned by the person making the Will at some point in time, who designates someone to take over that asset when the Testator dies. If the Testator gets rid of that item of property before his or her death, then that provision of the Will has no legal effect. It is no longer the Testator’s property to give away.
What Are the Requirements of a Valid Will?
The law governing Wills - the Probate Code - is some of the most formalistic and unforgiving that we have today. If the precise formalities of drafting, signing, and witnessing a Will are not met, then the Will is not valid. If that happens, then your estate will be administered as though you never wrote a Will. Not only does that make it quite possible that your property will not be distributed like you wanted it to be, but also that your desires for the treatment of your body may not be followed, and that the administration of your estate will be considerably more expensive (and likely, take longer) than would have happened under a valid Will.
Having prepared many wills, we are quite familiar with what needs to be done in order to ensure that your Will is valid. Furthermore, we can arrange it so that the witnesses to the signing of your Will would likely not have to show-up in court to testify about that signing.
Once You have Made a Will, can you Later Change It?
It often happens that we have a Will prepared, and our life circumstances change, making the provisions of that Will inappropriate or undesirable. For example, this commonly occurs when a marriage ends after the Will is made, or when a new marriage is entered into after a Will is made. If your life circumstances or your intentions regarding the matters contained within your Will change, then your Will can be revoked, and a new one prepared. Revocation is usually (but not always) done by the preparation of a new Will, expressly stating that all prior Wills are revoked. That way, there is not a period in-between when the old Will is revoked, and the new Will is created. We will be happy to discuss this with you in your free 30-minute consultation.
How is your Will used upon your death?
The person who has a Will prepared is called the “Testator.” Upon the passing of the Testator, the Will becomes effective.
The person whom your Will appoints as your Executor usually retains an attorney to handle the legal proceedings (called “Probate proceedings”) involved with giving effect to the Will. In Texas, nothing happens regarding that Will until it is filed with, and accepted by, the Probate Court. Once that happens, the Texas Probate Court will issue what are called “Letters Testamentary.” That document is the Court’s formal authorization for the Executor to handle the estate of the deceased. This means that the Executor can gather assets, negotiate with the estate’s creditors, pay debts, submit an Inventory & Appraisement to the Court and the beneficiaries, and distribute assets to those beneficiaries. Without the court’s issuance of the Letters Testamentary, the Executor has no power to do any of that.
Powers of Attorney
According to a 2013 United States Social Security Administration report, more than 1 out of every 4 of America’s 20-year olds will become disabled at some point before their retirement. If you should suffer a disability which prevents you from being able to sufficiently make decisions for yourself, then someone else will need to make some decisions for you. If you have prepared a Power of Attorney ahead of time, then you will have chosen who you want to take care of you. If you have not created a Power of Attorney, then the Court will appoint someone to serve in that role, as your Guardian.
When a Power of Attorney is created, there is an option as to when it will go into effect. Some people want them to go into effect only if and when two doctors certify that they are disabled. Other folks want their Powers of Attorney to go into effect right away. There are pros and cons to each of those arrangements.
Different Powers of Attorney cover different things, such as medical care and estate management. We have prepared many of these.
Durable General Power of Attorney
This kind of Power of Attorney allows the person whom you appoint as your agent to take care of your business affair. This includes doing things like paying your bills, making decisions about your insurance and retirement investments, and dealing with governmental agencies (such as the IRS) on your behalf. Those are some of the more common powers granted in a Power of Attorney, but there are others that might also be granted, depending on the wishes of the person creating the Power of Attorney.
New Durable General Power of Attorney Form Used in Texas
The suggested form for these instruments was changed by the Texas Legislature in 2013. See Texas Estates Code Section 752.051. Over time the older forms may be less accepted by financial institutions and the government, as they become less familiar than the new form. If a Power of Attorney is not accepted, then it is not effective. So, if you have a Texas Durable General Power of Attorney prepared before 2013, it may be prudent to update it to the current form.
Medical Power of Attorney
The agent you appoint in this document may make medical decisions for you. This means that your agent may consent, or may refuse to consent, to medical treatment for you. He or she may also withdraw consent for those procedures. This includes the power to make decisions about withdrawing or withholding life-sustaining treatment. Unless you state otherwise, your agent has the same authority to make decisions about your health care as you would have had, with just a few exceptions. Your agent cannot, under a Texas Medical Power of Attorney, consent to: your commitment to a mental institution; Convulsive treatment; Psychosurgery; Abortion; and Neglect of Comfort care.
As with the Durable General Powers of Attorney, you may designate that the person whom you appoint as your agent to make medical decisions for you can make those decisions right away. But, most people choose to have their agent’s authority begin only when two doctors certify that they lack the capacity to make their own health care decisions. It can, sometimes, be problematic getting doctors to make that certification, out of fear of being later sued.
Declaration of Guardianship
Sometimes it becomes necessary for a court to appoint a Guardian for someone. This can happen when there has been no appropriate Power of Attorney made by a person before he or she has become disabled. It, also, can happen when someone whom you have appointed as your agent within a Power of Attorney fails or refuses to qualify to represent you; perhaps that person has predeceased you, or, maybe he or she is disabled; perhaps he or she feels unable to do a good job representing you. Or, maybe one of your relatives has sued to have that person removed as your agent, because your relative thinks that the agent is not doing a good job of representing you and your interests.
In any case, if a Guardian is deemed by the court to be necessary, then you can be in a position whereby you have previously designated your choice for Guardian. This is done in Texas by completing a document called a Declaration of Guardianship. Just as importantly, you can tell the court in that document who you do not want appointed as your Guardian. And, if you have done so, then that court cannot appoint that person as your Guardian under any circumstances.
Do you need to Have Estate Planning?
Every adult needs an Estate Plan, that is: a Testamentary Will, select Powers of Attorney, Declaration of Guardianship, and so on. Preparing those documents lets you plan in advance what you want to have happen if you become disabled, or when you leave this world.
On the other hand, planning in order to avoid Federal Estate Taxes is not necessary for most people. The 2014 Unified Estate and Gift Tax Credit (which is indexed for inflation) means that $5,340,000 is exempt from Federal Estate Taxation. That amount will increase in 2015. At the time of this writing, the exemption for 2015 is estimated to be $5,420,000. What this means is that only if your Gross Estate exceeds the applicable exemption amount will you need to Estate Plan for the purposes of avoiding or minimizing Federal Estate Taxes. And, the State of Texas, unlike some other states, does not have a state tax that applies to estates.
We will be happy to discuss the elements of your Gross Estate with you in a free 30-minute phone call.