Reasons Why Out-Of-State Estate Planning Documents Should Be Renewed

Reasons Why Out-Of-State Estate Planning Documents Should Be Renewed

It is no secret that people are moving to Texas for numerous reasons ranging from less taxes and affordable housing to Texas being more business friendly. As a result, estate planning documents prepared in other states should be reviewed when moving to Texas – even if the documents were valid in the state of former residence. Since the laws of each state are different, estate planning documents should be reviewed by an attorney licensed in the state of new residence. The following are just a few of the many reasons estate planning documents should be reviewed when moving to Texas.

A. Wills

  1. Independent Administration:

It is easier (and generally less expensive) to probate a Will in Texas than many other states since Texas permits independent administration – the ability of the executor to act (i.e., pay debts, sell and distribute assets of the estate) without the permission of the court assuming the Will permits. Since many states do not permit independent administration, there is no provision that the executor can act independently potentially resulting in court supervision adding to cost and time to probate.

  1. Will signing requirements differ:

Although Texas recognizes the validity of a Will signed in another state if it was valid in the state where it was signed, Texas permits a Will to be “self-proved” if an affidavit is signed by witnesses and a notary at the time the Will was signed by the testator. Some states do not require a notary. As a result, a witness or notary may need to be brought before the court. Thus, it may be simpler and less expensive to have a Will prepared and signed in Texas.

B. Revocable Trusts

  1. Homestead exemption and creditor protection:

Many states do not give a property tax break on homesteads. As a result, revocable living trusts in many states do not address this. If a homestead is deeded into a revocable living trust in Texas, certain language that complies with Texas Tax Code is needed in the trust to retain the homestead exemption for lower property taxes. Furthermore, as a result of a bankruptcy court ruling and new law, additional language must be included to retain homestead creditor protection. Since this is unique to Texas, an out-of-state revocable living trust will likely need to be amended if the new Texas resident deeds his or her home to the trust.

  1. Jurisdiction:

Trusts usually indicate that the terms of the trust are governed by the laws of the state where the trust was signed. Since the laws of each state are different, the trust should be amended to reflect Texas laws to govern the terms of the trust. For example, most states are not community property states. Furthermore, even if one moves from one community property state to another, community property laws differ by state. Generally, income from separate property remains separate property in California although it would be considered community property in Texas.

  1. How long a trust can last:

Some states require a trust not last (after becoming irrevocable) more than 21 years after the life or life in being of a beneficiary at the time the interest is created (which is common law). Some states give an option to be held in trust to last up to 90 years. Texas now permits the later of the common law rule of 300 years. Some states have no time limitation.

C. Financial Powers of Attorney

Each state usually has its own language as provided by the laws of that state (although it is not required that you use statutory language for a financial power of attorney in Texas). Although similar from state to state, there are additional powers that could be included. For example, Texas permits various additional “hot powers” which range from giving the agent power to create or amend a trust to granting the agent the power to name a substitute agent.

D. Medical Power of Attorney and Directives to Physicians

Most states also have laws regarding healthcare and end of life decisions. Some states combine these powers under one document and the language differs. Texas has separate laws (and therefore usually two documents are signed) as to health care decisions and end-of-life decisions.

E. Elder law

  1. Ladybird Deed:

Texas is one of the only three states that permits an enhanced life estate (Ladybird) deed to protect a homestead from a successful claim for recovery of Medicaid benefits advanced (nursing home, drug costs, care at home, etc.). So, if one moving to Texas has inadequate long-term care insurance, assets or income, this should be discussed.

  1. Income cap:

If income is greater than the allowable limit for Medicaid eligibility, then a qualified income trust is often needed. The financial power of attorney should be revised so that this could be done by an agent if you no longer have sufficient mental capacity.

  1. Transfer penalty divisors differ:

Since long-term care Medicaid is “means-tested”, transfer planning is often considered. Transfer penalty divisors are based on the cost of care – which differs from state to state. Financial powers of attorney should be reviewed for those who cannot self-pay for care or those who want the ability to plan to preserve resources for governmental assistance.

  1. Certain irrevocable trusts:

The amount of control (if any) to be retained by the grantor who creates certain irrevocable trusts to protect assets from counting as a resource for Medicaid eligibility varies by state.

As a result of the foregoing and for many other reasons beyond the scope of this article, estate planning documents should be reviewed whenever you move to another state.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.

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