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  • WILLS AND REVOCABLE TRUSTS

    WHATS BEST FOR THE CLIENT?

    Thomas M. Featherston, Jr. Mill Cox Professor of Law

    Baylor Law School

    Intermediate Estate Planning, Guardianship and Elder Law Conference The University of Texas Law School

    Galveston, Texas

    August 11, 2011

    (The original version was prepared in 2000 and was updated in preparation for this course in collaboration with Jerry Frank Jones of Austin, Texas, whose input

    is greatly appreciated)

    Copyright 2011, Thomas M. Featherston, Jr., All Rights Reserved

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    TABLE OF CONTENTS

    I. INTRODUCTION ................................................................................................................... 1II. THE BASICS ........................................................................................................................... 1

    A. Definition ........................................................................................................................... 1B. Methods .............................................................................................................................. 1C. Revocable and Irrevocable Trusts ................................................................................... 2D. Tax Consequences ............................................................................................................. 2E. Settlor's Subsequent Death/Incapacity .......................................................................... 2

    III. THE USES OF THE REVOCABLE TRUST .................................................................... 3A. Providing for Current Management of the Estate ......................................................... 3B. Providing for Current Management of Certain Assets ................................................. 3C. Avoiding Possible Will Contest ........................................................................................ 3D. Defeating Marital Rights .................................................................................................. 4E. Providing for "Dead Hand" Control .............................................................................. 4F. Avoiding Probate Administration ................................................................................... 4G. Segregating Certain Assets from Probate Administration ........................................... 5H. Avoiding the Publicity of Probate. .................................................................................. 5I. Avoiding Ancillary Administration ................................................................................ 5J. Selecting the Situs of Certain Assets ............................................................................... 5K. Avoiding the Possibility of Guardianship ....................................................................... 5L. Modifying or Eliminating Duties ..................................................................................... 6

    IV. IMPLEMENTATION OF THE REVOCABLE TRUST ................................................. 6A. Retention of Control ......................................................................................................... 7B. Expressly Revocable ......................................................................................................... 7C. Revocation by Agent ......................................................................................................... 7D. Spendthrift Trust .............................................................................................................. 7E. After-Acquired Property .................................................................................................. 7F. Coordination With Probate and Nonprobate Dispositions ........................................... 7G. Trustee Powers and Duties ............................................................................................... 8H. The Non-Settlor Trustee ................................................................................................... 8I. Debts and Taxes ................................................................................................................ 9J. Rule Against Perpetuities ................................................................................................. 9K. Settlor's Needs and Wishes .............................................................................................. 9

    V. RULES OF CONSTRUCTION ............................................................................................ 10A. Will or Trust Law ........................................................................................................... 10B. Common Denominators.................................................................................................. 10C. Drafting Tips ................................................................................................................... 11

    VI. THE FULLY FUNDED REVOCABLE TRUST ............................................................ 12A. Record Title ..................................................................................................................... 12B. Initial and Ongoing Paperwork and Expenses ............................................................ 12C. Income Tax Returns ....................................................................................................... 13D. Settlor's Creditors ........................................................................................................... 13E. Settlor's Homestead Protection ..................................................................................... 14F. Survival of the Homestead.............................................................................................. 14G. Exempt Personal Property .............................................................................................. 16H. Family Allowance ............................................................................................................ 17

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    I. Probate Claims Procedures ............................................................................................ 17J. Real Estate Issues ........................................................................................................... 17K. P.C., P.A. and P.L.L.C. Ownership .............................................................................. 18L. L.L.C. and L.L.P. Ownership ........................................................................................ 18M. Accounting and Distribution .......................................................................................... 18

    VII. WHEN THE SETTLOR IS THE TRUSTEE .................................................................. 19A. Settlor as Trustee ............................................................................................................ 19B. Title to Trust Property ................................................................................................... 20C. Magic Wand Funding ..................................................................................................... 20D. Recordkeeping and Trust Activities .............................................................................. 20E. Settlor/Trustee's Incapacity ........................................................................................... 21

    VIII. THE STAND BY TRUST ............................................................................................... 21A. The Durable Power of Attorney .................................................................................... 21B. Chapter XII, Texas Probate Code ................................................................................. 21C. Statutory Power of Attorney Form ............................................................................... 22D. Authority of Agent .......................................................................................................... 22E. Limited Power ................................................................................................................. 23F. Pour-Over Will ................................................................................................................ 23

    IX. COMMUNITY PROPERTY IN THE REVOCABLE TRUST ..................................... 23A. Professional Responsibility ............................................................................................ 23B. Creation and Funding .................................................................................................... 23C. Distributions ................................................................................................................... 24D. Power of Revocation ...................................................................................................... 24E. Subsequent Incapacity of a Settlor ............................................................................... 25F. Effect of Divorce ............................................................................................................. 26G. Death of First Spouse ..................................................................................................... 27H. Survivor's Interests ........................................................................................................ 27I. Amending the Survivors Trust .................................................................................... 27J. Planning Considerations ................................................................................................ 27K. Community Property Basis ....

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