Two weeks ago I received a letter from “M.E.” whose husband had become incapacitated. She wanted to sell the house and found out the law required both spouses to sign for the sale of the homestead. Fortunately, M.E. had been named as agent in her husband’s durable power of attorney and could sign for him as agent. Last week, “R.C.” wrote to say she was in the same situation but had not been named as agent, so the column discussed court-based options for her to gain the necessary authority.
The big issue here is how to empower your spouse to act for you in case you become disabled. The court option should be avoided when possible, in favor of voluntarily giving that authority to your spouse. The authority can be granted in a durable power of attorney, or as I suggested last week, can be achieved by using a living trust agreement.
Let me begin with a warning about trusts: they are not for everyone, and you should always consult with an experienced Elder Law attorney before you create a trust. Never rely on pre-printed form and never acquire a trust from a non-attorney salesperson. Trusts are powerful tools and should only be used when they are appropriate.
Creating a trust involves splitting up control of and benefit from assets. Control of the assets is vested in the manager of the trust (the “trustee”). The trustee’s job is to handle all the trust’s routine business – seeing to investments, paying bills. This is all done for the benefit of the trust beneficiaries. Typically, a married couple will create a trust, will name themselves as trustees, and will name themselves as the beneficiaries. A single person can do so as well. The trust creator (grantor) also names alternate trustees to act if the grantor becomes disabled, and should name alternate beneficiaries if the grantor should die.
In short, while the grantor is healthy and capable, the trust acts as an alter-ego. The grantor controls it and has full benefit from it. The trust’s important job begins if a grantor becomes disabled. For a married couple, if husband has a stroke and cannot sign his name, the trust agreement will have specified that wife continues as the sole trustee, and her job is to use the trust assets to care for both herself and her husband. For a single person, the alternate trustee becomes manager for the benefit of the single grantor.
If title to the house has been properly transferred into the trust before a grantor becomes disabled, and the successor trustee later decides it is time to sell the house, the trustee has the authority to sell the house. The disabled grantor’s signature is not required. The trustee can sell the house, and the net proceeds remain part of the trust estate. If a new house or condo is purchased, funds from the trust are used and title to the new property vests in the trust. This is all done under authority the grantor has voluntarily given to the trustee.
I am often asked “If I put title to my house into a trust, do I still get all my local property tax breaks?” The answer is “yes” so long as the terms of the trust properly reflect the provisions in the Texas Tax Code. You still get the homestead exemption and the 65+ exemption. This is one reason never to use a preprinted form for your trust – you would have to spend on taxes, over and over year after year, the money you may have saved on attorney fees when you used the form. The costs of doing things properly with a knowledgeable lawyer are far less than the penalties you may face if the trust is set up incorrectly.
Another desirable feature for your trust is homestead liability protection. If the trust is drafted correctly, your homestead retains all the protections from seizure that it enjoys while you own it individually. If you are in a car accident, get sued and have a large judgment entered against you, they cannot take away your homestead – even if it is in trust.
Paul Premack is a Certified Elder Law Attorney practicing estate planning and probate law in San Antonio.
Original Publication: San Antonio Express News, December 26, 2011