The average family forty years ago consisted of couples on their first marriage with 2.5 children and a dog. Today, the average family is blended. Each family has a different story whether they are a couple on their second marriages with children from both or they are grandparents taking care of their grandchildren after a tragedy. Unfortunately the laws have not caught up with the modern definition of family. I had a client who was raised by her stepmother since the age of 1. The stepmom was the only mother the stepdaughter knew and vice versa. Even after the divorce the stepdaughter and stepmother’s relationship and closeness did not change. The stepmother died with her ex husband as her beneficiary and stepdaughter as contingent beneficiary.

By law, neither of the beneficiaries inherited. This is not what the stepmother intended as she wanted her estate to go to the only daughter she had ever known. She just had not made time to update her will. Another client who had children from a previous marriage did a form will online to save cost. She wanted everything to go to her husband for life and then to her children. The form will lacked the proper requirements, and a determination of heirship proceeding had to be filed doubling the filing fees. Texas law decided who and what shares her estate would pass, which was not the way she originally planned. In both scenarios, an experienced estate planner would have made the difference. Our firm focuses on blending your plan with your Brady Bunch.

Advantages and Disadvantages of Giving Lifetime Gifts
Gifts are defined as a completed transfer of property without full and fair consideration from one party (the “donor”) to another person or entity (the “donee”). There are several types of gifts. Direct gifts occur when Mom gives an outright gift of money or property of some value, for example, a car, to son. An indirect gift, for example would occur when Dad pays off Daughter’s car note. A gift can also be a “partial gift” whether it is a direct or an indirect gift. For example, Grandmother selling his or her home to grandson for less than fair market value is considered a partial sale and a partial gift. The “gift” would be the difference between fair market value and the actual sales price. In another example, if Joe lends money to Susan at no interest or at below market interest the imputed interest will be deemed a gift.
Annual Exclusion:
The gift tax rates are progressive, and begin at a 20% tax rate graduating up to 45% for gifts which exceed a cumulative total of $13,000 per person per tax year. This $13,000 is referred to as the “annual exclusion.” Each donor has the ability to give gifts up to the annual exclusion amount to an unlimited number of donees per year without triggering a gift tax.
For example, Mom gives a car worth $30,000 to Son, the taxable gift is calculated by taking the value of the gift less the annual exclusion, and in this case the calculation of the taxable gift is as follows:
$30,000 (fair market value of the gift) - $13,000 (annual exclusion)= $17,000 taxable gift
If Dad pays off Daughter’s car note of $18,000 then the calculation of the taxable gift is
$18,000 (value of the gift) - $13,000 (annual exclusion) = $5,000 taxable gift
If Grandmother sells her real property which has a fair market value of $100,000 for $60,000 to Grandson then the deemed gift would be calculated as follows:
$100,000 (fair market value of the gift) - $60,000 (sale price) = $40,000 (value of the gift) - $13,000 (annual exclusion) = $27,000 taxable gift
But Grandmother could sell the same real property to her 3 grandchildren B, C and D and the calculation of the taxable gift would be as follows:
$100,000 (fair market value of the gift) - $60,000 (sale price) = $ 40,000 (value of the gift) – [$13,000 X 3]* (annual exclusions for 3 donees) = $1,000 taxable gift
If Grandmother sells the real estate in fractional shares (in this example 1/3 for each of 3 years) to Grandson the calculation of the taxable gift is as follows:
$100,000 - $60,000 = $ 40,000 (value of the gift) – [$13,000 X 3]* (annual exclusions for 3 tax years) = $1,000 taxable gift
Gift Splitting:
Married couples can “gift split” which allows them to “double” their gifting ability. So Mom joined by her spouse can gift the same $30,000 car to son and the calculation of the taxable gift is as follows:
$30,000 (fair market value of the gift) – [$13,000 X 2]* (annual exclusions of Person A + spouse) = $4,000 taxable gift
Lifetime Exclusion:
In addition to the annual exclusion amount there is a lifetime exclusion equal to $1,000,000 for each donor. A donor in one tax year can gift this $1,000,000 in addition to the annual exclusion amount to an unlimited number of donees. Unlike the annual exclusion which is available every year, once a donor uses his or her $1,000,000 exemption it is gone.
Therefore, if Dad gifts a piece of real property with a fair market value is $1,039,000 to his 3 sons the calculation of the taxable gift is as follows:
$1,036,000 (fair market value of the gift) – $1,000,000 (lifetime exclusion) + [$13,000 X 3]* (annual exclusions for 3 tax years) = NO taxable gift
Qualified Transfers:
However, there are some transfers which, although they meet the definition of a gift, do not result in gift tax. These are referred to as “qualified transfers.” Qualified transfers are transfers paid directly to an educational institution or medical service provider on behalf of a donee. These “qualified transfers” are unlimited. For example, if a grandparent wanted to pay a grandchild’s tuition to Harvard Law School, a gift of the tuition to the grandchild would be considered a gift and taxable, but if the $100,000 tuition is paid directly to Harvard Law School there is no gift tax realized. A gift or monies paid directly to the medical services provider for medical expenses for a donee is not a taxable gift.
Unlimited Marital Gifting:
The tax code also provides for unlimited gifting between spouses during a marriage. Charitable gifts are also excluded from gift tax.
Estate planners often use these gifting strategies in the plans they develop for their clients in order to achieve client estate planning goals. However, besides the fact that the lifetime gift is out of the estate of a donor there is an emotional benefit and the pleasure giving a gift will bring the donor who sees the done reap the benefits of the gift. In order to reduce a donor’s estate and avoid estate taxation at death, planners may recommend a systematic gifting program to children or grandchildren to reduce the client’s estate.
For example, consider Great Aunt Tilly who is 80 years old, in good health, but has a $4,000,000 estate. In 2009 this estate is $200,000 over the estate tax exemption amount. Great Aunt Tilly has 10 nieces and nephews who are her heirs at her death. In this situation the planner may recommend that she gift the annual exclusion amount to each of the nieces and nephews for several years. The planner will usually put a goal on the estate tax reduction to a specific estate value. In this case, if Great Aunt Tilly were to write the 10 nieces and nephews checks for $13,000 annually she will have removed $130,000 per year (and any income, interest or dividends the $130,000 might have earned) from her estate. In four years she would have removed $520,000 from her estate and had some eternally grateful (not to mention more attentive) nieces and nephews. If Great Aunt Tilly is married her spouse could “gift split” with her for two years we could remove $260,000 per year from the estate accomplishing our estate reduction in one half the time.
Advantages:
The lifetime gifting works especially well in the case of appreciating property. If an asset which is producing a significant income stream or an asset that is appreciating rapidly is removed from the estate not only does the donor remove the asset but also the income or appreciation from the estate. So frequently, instead of gifting cash to the nieces and nephews in the above example, a different strategy might be to gift the family farm (on which the family raises chickens) which generates approximately $50,000 per year, to those same nieces and nephews. And if this family farm just happens to be alongside a new highway that is sure to be developed in the next few years, or they are drilling for oil on the adjacent farm, then all the better. If the fair market value of the farm is $120,000 at the time of the gift, but is expected to double in the next several years it would be advantageous to remove it from the estate by gifting it in undivided interests to the nieces and nephews at the lower value. The appreciation is then pushed off to the next generation. This is referred to as “freezing.”
One final advantage of a lifetime gift over a bequest at death is what estate planners refer to as the “exclusive” feature of gift taxes. This refers to the notion that if a donor makes a lifetime taxable gift to a donee and the donor then paid the tax, this gift tax would also be excluded from the donor’s estate. For example, if Mom gifted a car worth $30,000 to Son the gift tax would be calculated as follows:
$30,000 (fair market value of the gift) - $13,000 (annual exclusion)= $17,000 taxable gift
If the gift tax on $17,000 is $3,400 and donor chooses to pay the tax the $3,400 tax AND the $30,000 gift would be excluded from the donor’s estate. Below is a chart outlining the advantages and disadvantages of lifetime transfers.
However, the disadvantage of lifetime gifting include a loss of control of the assets by the donor. Therefore, there is no recourse if Person B or one of the nieces and / or nephews decides to bet the donor’s gift on red in Vegas, or if the nieces and nephews should decide to sell the family farm despite donor’s desire to the contrary.
 
Advantages and Disadvantages of lifetime transfers
Advantages Disadvantages
Assets out of the estate at death Loss of use of the asset
Appreciation and future of assets excluded from the estate at death
Loss of control of the asset
Income and future from the assets excluded from the estate at death
Not appropriate for donees who are special needs or require a more restrictive planning
Transfer or gift tax paid on the assets is also excluded from estate at death
Can be used with some advanced estate planning techniques to remove significant assets from the estate at death
*Gift tax calculations and the annual exclusions are simplified for purposes of the examples. Please consult a qualified estate planner before making any gifts or employing any of the techniques in this chapter.

The question has recently come up in our practice as to whether same sex parents can adopt in Texas, and also whether same sex adoptions from another jurisdiction will be recognized in Texas Courts. The Texas Family Code does not reference same sex adoptions. However, it would at least initially appear that under the code where it references those persons who have standing to bring adoption suits, that it may or may not be possible depending on the situation. Under those standing provisions, if one parent is the biological parent, then it is does not appear possible for the non biological same sex parent (often referred to as the “psychological parent”) to even have standing to bring a second parent same sex adoption (a stepparent however could). However, if neither parent is the biological parent, then it seems at least plausible that a same sex parent adoption could occur.
When a Codebook is silent as to a matter, generally looking to case law is the next step. Case law seems to indicate a more favorable position for same sex adoption. While there have only been a couple of cases on this matter, the holdings of the Courts have been in favor of second parent adoption. In re Hobbs, No. 01-04-01069 Houston (1st Dist), 2004 was the first leading Texas case on the matter. In this case and at least one other case, the facts are that a single lesbian woman adopted a child internationally, and after returning with the child, the adoptive mother and her partner filed a petition seeking parental status for a second parent partner. The Court granted the adoption. Several years later, the original adoptive mother tried to declare the adoption void after she and her partner had separated. The Court did not void the adoption and granted rights in the child to the second parent adopter as well.
It would also seem that Texas would recognize a same sex adoption granted by another state’s Court. There is a general full faith and credit rule in the law that states that a valid Court Order rendered by a court of competent jurisdiction shall be recognized by another court of a different jurisdiction, and that the Order will be given the full faith and credit as if the second jurisdiction had originally rendered the Order. One possible attack to this argument is that Texas does not have to recognize a foreign jurisdiction’s order if it is against the public policy of the state of Texas. Under both the Texas Family Code and the Texas Constitution it explicitly states that same sex marriage is against the public policy of the state of Texas. However, based on the trend of the Texas Courts, it does not appear that they are stretching this argument when handling same sex adoption cases. However, until there is further case law in the area or some kind of promulgated code provision that addresses same sex adoption, the Courts will decide the issue based on the facts of each individual case.

“Texas-sizing” Your Estate Planning documents

You have finished unpacking. The kids are in school. You have located the grocery store, the vet and the post office. What is next? On the list needs to go the “Texas-sizing” of your estate planning documents including your Wills or Trusts, Guardian Appointments, Durable Powers of Attorney and Directive to Physicians (Living Will). Although your Will from California will be a valid Will under Texas law, there are peculiarities to Texas law that save a lot of time and money should you pass away with a “foreign” Will. For example, in our law firm we have had to take depositions of Witnesses to Wills in places as far away as North Dakota, Alaska, Washington state and Maine. We have had to publish notices in papers all over the country to attempt to locate witnesses, attorneys who drafted Wills and people named in Wills without proper identification. If your Will contains a provision naming your best friend in Chicago as the Executor you may want to consider the burden of your best friend coming to Texas to probate your Will and consider instead naming your sister who lives in Texas. And by the way, Texas has what is called an “Independent Executor” who can dispose of your estate in an “independent administration” with minimal court supervision or control and usually very cost effectively, provided you make the executor “independent” in your Will. Unfortunately, many states do not have “Independent Executors” and so a foreign Will may not contain the requisite language and your estate may be burdened by the higher court fees, appearances and pleadings associated with a “dependent” administration.

Trusts are a little easier. Trusts are almost universal documents. However, many clients will forget to “fund” the trust once they move. So although your home in Pennsylvania was in the trust you took tile to your house in your individual name in Texas and forgot to move it to the trust later. The home will not be in the trust and your family will have to probate your foreign Will to get the house moved after your death, costing your family unnecessary time and expense. If it is not the home it may be the new checking account you opened when you moved here and it was easier to open it in your name than to worry about finding a copy of the trust which is a box somewhere! Worse, most attorneys will put in the trust a statement that the trust is to be governed by the laws of the state in which the trust is drafted. What if you had your trust prepared in New York and have moved to Texas? At your death your trust will be governed by the laws of New York. Not many of the attorneys in Texas are also licensed in New York. On several occasions I have had to hire lawyers in foreign jurisdictions to assist in the trust administration because a practitioner failed to update this provision of the Trust. We always “amend” the trust to provide that the trust will be governed by the laws of the state in which the Trustee resides. That way if the Trustee is your daughter in Ohio she can actually take your trust and administer it after your death with the assistance of a local attorney.

In addition, all of the ancillary documents such as the Guardian documents and the Powers of Attorney –are all state specific. I always tell my clients that your Declaration of Guardian for your minor children is the single most important document in your planning. There is nothing more frightening than the possibility that your children will go to foster care while the court decides which set of grandparents is “in the best interest of the child.” Each state has their own nomenclature and format and it is difficult (although not impossible) to get hospitals, banks and courts to recognize your “foreign” documents. Welcome to Texas, but once you unpack your estate planning documents call for a complimentary review with an estate planner. It will save your family additional grief, cost and expense if you should pass away.

No matter where you live, but especially if you live in Texas, and you are gay or lesbian in a committed relationship, you should know what will happen to your partner if something happens to you. Most important for same sex couples or life partners (even if “married” under the laws of another state) to know is that if they have not taken the time to properly plan their estates, primarily because they are not considered related to their partner, they will have none of the rights that a legally married couple has with regard to these issues. The issues are further complicated if the couple adopts a child, or if one of the partners has a biological child that they will raise together or if one or both of the partners has biological children from a previous marriage or relationship.

In my experience, same sex couples have many of the same concerns – will they have the right to visit their partner in the hospital when he or she is sick, who will have the right to make decisions for their partner when their partner is unable to make either health or financial decisions due to incapacity or illness, who retains custody of the child(ren), who can or will make funeral arrangements for a deceased partner and can they inherit property from their partner upon the partner's death. Through proper estate planning the answer to these questions is yes. Couples can agree to grant to each other many of the privileges, if not the "rights" that married couples have with regard to inheritances, the power to make medical decisions, burial decisions, hospital visitation, custody and guardianship rights to a child and fiduciary decisions for their partners. Using properly drafted advanced directives including a Statutory Durable Power of Attorney, Medical Power of Attorney, Agent to Dispose of Remains, HIPAA Authorizations, HCPOA and Declarations of Guardians, essential components to life partners planning, we can grant these “rights” to the life partner. With a properly drafted and executed Statutory Durable Power of Attorney and designation of an agent in the Medical Power of Attorney, a lesbian or gay adult can choose any person they want to make financial and/or medical and health care decisions for them in the event the they are unable to make them for themselves. If a person does not have these documents in place, then a hospital will look to that person's legal "spouse" or, in the event of no spouse, blood relatives for these decisions. In order for the medical personnel or hospital staff to recognize the rights of a same sex partner it is essential that same sex couples have properly executed Statutory Durable Powers of Attorney and Medical Powers of Attorney in which they designate their partner as their "attorney in fact" for financial, health care and other decisions.

In the early days of my practice there were countless incidents of parents, children, brothers and sisters intentionally excluding the life partner from the decision making and even the funeral or memorial services. It was as if the partner did not exist. Thankfully, I see far less of that now from family members. Of course, although societal acceptance seems to have improved there are times when it becomes obvious that some people or institutions have not moved into the twenty first century (or even the nineteenth). Sometimes we just can’t overcome the bigotry and ignorance. Remember the Langbehn - Pond case, where the hospital in Miami denied visitation to the partner of a tourist who had a heart attack on a cruise and then later died, (even though in this case she actually had a properly executed health care power of attorney)? Although most estate planners will tell you that this case was an exceptional case it does worry us and, if
anything, this case makes us more determined that our lesbian and gay clients have the best quality documents and that they are prepared to defend the rights granted in the documents.

But, as you can tell, preparedness in estate planning is as much about planning for disability or incapacity as it is about death. In death, if a person dies without a Will it is known as an “intestate” succession and the State in which you die and / or own real property determines how the deceased’s property is distributed pursuant to a predetermined set of rules. While intestacy is not an ideal situation, the order in which people inherit from an intestate succession is designed to give the decedent's surviving spouse, then children, then parents, then brothers and sisters priority over everyone else. In Texas, when a person dies survived by a partner to whom they were not legally married (either gay or straight), then the partner has no intestate inheritance rights at all, and the Decedent's property that is subject to the intestate succession may be inherited by blood relatives that the person hasn't seen or spoken to in years instead of by the loved one they have chosen to spend their lives with. We had a case recently in which over a million dollars went to a first cousin who the deceased had not seen in over 30 years instead of to the children she had raised with her partner.

But this too can be avoided with proper planning. If a decedent (gay or hetero) engages in estate planning before their death and executes a Will or a Revocable Living Trust leaving their property to their partner, then the chance of the "wrong" person inheriting through intestacy is eliminated. Part of the problem may also be solved by owning property as joint tenants with rights of survivorship, using Pay On Death Accounts, and making sure that the beneficiary designations on life insurance and retirement accounts are properly completed. But these steps should be done as part of an entire estate plan, in conjunction with a Will or Revocable Living Trust, not relied upon as the estate plan. A properly drafted and executed Will or a Revocable Living Trust, (and/or properly structured joint ownership of property or beneficiary designations) is essential for same sex partners to inherit each others property upon death.

This is the good news. Unfortunately, for Federal estate and gift tax purposes, there is nothing that can be done to match the incredible value of the marital deduction in which a spouse may give an unlimited amount of property to their spouse tax free, either during life or at death. This marital deduction is not yet available to same sex marriages. However, an advanced estate planning attorney will be able to suggest some alternative tax reduction strategies for same sex couples. Some of these suggestions might include using some or all of your lifetime gift exemption (currently up to $1 million dollars), your annual exclusion amount (currently $13,000 dollars), paying for a partner's education and / or medical bills directly, or using a Grantor Retained Annuity Trust (GRAT) or a charitable trust. But currently, unless a person has at least $3.5 million, the estate tax is not necessarily something that you should be concerned with at this time (although most planners agree that with the deficit that the estate tax exemption will go down in the future).

Maybe under the current administration the “fight” over gay marriage will be resolved and many of the rights granted to married couples will be available to partners in same sex marriages. Regardless, same sex couples should take the steps necessary today to engage in proper estate planning to protect both themselves and their loved ones.