ARE YOU READY FOR AN EMERGENCY?

Here in the Texas Gulf Coast most people know to be prepared for severe weather: charge your phone and flashlights, fill up your tank with gas, stock up on food and water. In addition, you should keep your important documents accessible and safe during a storm, preferably in a fireproof and waterproof box that can be evacuated with you if needed. Weather events are scary, but with preparation, you can ride out the storm to recovery.

However, are you ready for a LIFE emergency? Life emergencies happen every day! I'm sure you know someone who was taken surprise by an unexpected health event or accident. Estate Planning doesn't always have to be about passing your estate when someone dies. As an Estate Planning attorney I hate to take calls from families begging me to do a Power of Attorney, only to realize that their loved one already lost consciousness and couldn't execute their documents. Estate planning is also about having a plan for disability or incapacity. Here's the three basic documents I recommend for disability planning that can be used to make decisions on your behalf if you can't make them yourself:

Durable Power of Attorney - a Durable Power of Attorney, or sometimes called a financial power of attorney, gives someone you designate the power to handle your business affairs such as paying bills, selling property, designating payable on death beneficiaries, or even giving gifts, accessing financial accounts or creating trusts. This can be effective immediately or upon incapacity. However, as soon as someone dies, this power goes away so it is very important that your Durable Power of Attorney is a part of a larger estate plan that involves a Will or a Trust.

Medical Power of Attorney - A Medical Power of Attorney allows someone to make medical decisions when you can't talk to your doctors or nurses. The Medical Power of Attorney is only effective upon incapacity, when you can't communicate for yourself.

Advanced Directive - Tells your Medical Power of Attorney what your wishes are for life-ending medical treatment decisions in the event of incapacity. Addresses Terminal conditions (conditions where the illness will likely kill you within 6 months, such as aggressive cancer) as well as Irreversible conditions (conditions where the illness lowers your quality of life, but not kill you, such as being in a coma).

Most of my clients argue that they don't need these documents because they're married and their spouse can just take care of them. While it is true the law gives the spouse the first priority to do a lot of powers, it is not true that the law allows the spouse to do everything. For example, it is NOT possible for a spouse to manage separate property on behalf of a disabled spouse without a Durable Power of Attorney. The spouse will need to get a guardianship which are costly and time consuming to obtain in an emergency.

I also firmly believe that parents should have these documents for young adult children because it is not obvious who the person should decide what to do in the even that a young person is disabled. Should it be the mother? The Father? What if the young person was estranged from their parents and really only trusts a friend or other relative? Having these documents in place clarifies the roles so that the person who should be making the decision can act when you're most vulnerable.

If you or someone you know is ready to get your plan in place, please CONTACT US at 713-568-9206 to set up a consultation for an estate plan that meets your needs!

Congratulations Natasha!

Congratulations Natasha Cabucio, JD on your four year anniversary at Chiang Law Firm, PLLC! Natasha started at Chiang Law Firm as a law clerk while she was still at the University of Houston Law Center. She has since graduated and grown into an essential part of Chiang Law Firm, serving clients in Estate Planning and Probate matters as our Senior Paralegal. We are very proud to have her on our team and wish her many more years at Chiang Law Firm!

WHY YOU SHOULD NEVER JUST ADD AN OWNER, AKA "PUT SOMEONE ON YOUR DEED"

Every couple of weeks I get clients who ask if they can add their Mom to the deed to their house, or Mom wants to add her Son/Daughter to the deed of the house. It can be any other person who isn't currently an owner and mortgagee, even including a spouse. I generally tell them the same thing: THIS IS A TERRIBLE IDEA, DON'T DO IT.*

Here's a short list of reasons why:

1. PROPERTY TAXES: The NUMBER ONE reason why people ask me to add a relative to a deed is so that they can take advantage of property tax exemptions that the person added are eligible to claim. However, it is not that easy. Every time you change the ownership of your house, you are going to have to re-file your property tax exemptions with the County Appraisal District. If you added your mom to the deed of your house thinking you're going to get 100% of her over 65 homestead exemption, you are wrong. At best you will only get 50% if there's only one other owner, less if there are two or more owners. Same for if you are elderly parents trying to deed the house to your child. If you and your spouse are over 65, you get the exemption. If the elderly parents add the son to the house, and worse, he doesn't even live with the parents and he has another homestead in a different county, then the parents will get the over 65 and homestead exemption on 66.66% of the house and the other 33.33% that the son owns will get NO exemptions because he doesn't declare that house as his homestead. As you can see, it becomes extremely complicated very quickly.
   

2. THE DUE ON SALE CLAUSE: If your house has a mortgage on it, the transfer might violate the due on sale clause. Most mortgages have a due on sale clause that says if there's a mortgage on the house, the owner can't sell the house without paying back the mortgage first. This makes sense because the bank wants to be able to get their money back if the owner stops paying, and the foreclosure is harder to do if one of the owners is not on the mortgage. The consequence of doing the transfer with this clause in the Deed of Trust is that the bank can accelerate the payment of the note and make it due immediately. This is a real problem if you expected to take the rest of the time to pay off the mortgage. This is in contrast if someone inherits a house after the death of an owner under a Will, Trust, or Transfer on Death Deed or even through the laws of intestacy. The law allows for inherited owners to assume a mortgage. Not so if the transfer was done while living.
   

3. FEDERAL TAXES: If you gift someone an interest in the property, it is likely worth more than $18,000, the limit for un-reported gifts to the IRS. You will have to file a gift tax return for the amount of the interest gifted. You won't have to file a gift tax if you don't give anything until you die as part of an inheritance under a Will, Trust, or Transfer on Death Deed.
   

4. NO STEP UP IN BASIS: If you gift someone an interest in property, say Mom gifts 50% of her house to her Son, he will not inherit a step up in basis on his half of the house when Mom dies. That means he will probably pay more capital gains taxes if he sells the house after mom dies than if he inherited the 100% interest in the house.
   

5. COMMUNITY PROPERTY RIGHTS MAY BE AFFECTED: If a Husband and Wife are transferring a part of their community property house to another person, the act of transferring the property, if done incorrectly, might convert the community property house into to separate property. This will impact how the heirs inherit at death since community property real estate and separate property real estate are passed differently if you die without a will.
   

6. THE HOUSE WILL NOT PASS TO THE OTHER OWNERS AT DEATH: The NUMBER TWO reason why people ask me to add someone to a deed is because they mistakenly believe that by adding someone to a deed that person will "automatically" inherit the house at death. Absent any other estate planning a surviving owner CANNOT "automatically" inherit real estate, even between spouses. You must "prove" that the surviving owner inherited the other half of the property using a Will, Trust, or other estate planning like a Transfer on Death Deed. If there isn't a Will, or other kinds of estate planning like a Trust or a Transfer on Death Deed, then the deceased person's share will be inherited by the intestate heirs at law. This can cause problems as the surviving owner will own 50% of the property and the deceased owner's heirs will own the other 50%. That means the surviving owner will need to get consent from all of the other heirs to sell the property. This can get extremely complicated and will require either a probate or a partition suit to resolve, especially if other family members have moved away, passed on, or even become estranged.

*Now, there might be good reasons to add someone to a deed. However in my 15 years of practicing law in Texas, the majority of my calls asking for a deed to add on someone would better served by using legal tools such as Trusts, Wills, LLC's or a Transfer on Death Deed.

Deeds are important legal tools. You should always consult with an attorney to discuss the consequences BEFORE you sign a deed to add someone as an owner. This is why I have a saying in my law firm that whenever a client calls and thinks that they want a deed, it is NEVER "just a deed." There's usually a number of issues that need to be addressed ranging from inheritances all the way to local property taxes and federal income taxes that need to be considered before coming up with the right strategy to reach a client's goals and minimize any downside.

If you or someone you know wants to do a transfer like this, please CONTACT US at 713-568-9206 to set up a consultation so our legal professionals can determine the right strategy for you!