The Texas Probate Web Site



The Whole Story in 3 Deep Breaths

                   ESTATE PLANNING & PROBATE

                           2nd Edition


                        Jerry Frank Jones
                            of Counsel

                       Ikard & Golden, P. C.
                     832 Congress, Suite 910
                         Austin, TX 78701
                           512 476 2929

                       ALL RIGHTS RESERVED

                        TABLE OF CONTENTS

2.   WILLS
11.  TAXES:  Introduction12.  INCOME TAX13.  THE BASIC TAX TRICKS
          a.   The By Pass Trust
          b.   The Unlimited Marital Deduction
          c.   The Generation Skipping Trust
          d.   The Irrevocable Life Insurance Trust
          e.   Transfers to Minors
          f.   Qualified Personal Residence Trust
          g.   GRITS, GRATS & GRUTS
          i.   CHARITIES


     a.   This area divided into two parts
          i.   Estate Planning  
               (1)  Disposition: Who gets what.
               (2)  Creditor: 
                    (a)  Protecting against decedent's creditors
                    (b)  Protecting against the beneficiary's
               (3)  Taxes: Minimizing the tax bite
               (4)  Asset co-ordination: 
                    (a)  Making sure the non probate assets pass
                         according to the plan, or
                    (b)  If they pass in a different fashion,
                         making certain that it is done
               (5)  Old age: Durable Powers of Attorney etc.

          ii.  Probate
               (1)  Post Death Administration
               (2)  Post Mortem Planning
               (3)  Administration of the decedent's estate

     b.   Estate Planning is divided into two Parts
          i.   Tax
          ii.  Non Tax

     c.   Probate is divided into two Parts
          i.   Tax 
          ii.  NonTax    

     d.   Property passes in 3 ways
          i.   By intestacy  (intestate succession)
          ii.  By Will
          iii. By non-probate assets (3rd party arrangements)

2.   WILLS

     a.   There are 4 types in Texas
          i.   Self-proving
          ii.  Attested
          iii. Holographic
          iv.  Nuncupative

     b.   Self-proving Will (The Cadillac)
          i.   Requirements
               (1)  In writing
               (2)  Signed by the Testator
                    (a)  18 years old or older
                    (b)  With testamentary intent
                    (c)  In front of the witnesses
               (3)  Signed by 2 witnesses
                    (a)  Over 14
                    (b)  In presence of the testator
               (4)  Self Proving Affidavit  attached signed by
                    (a)  Testator
                    (b)  2 witnesses
                    (c)  Notary
          ii.  Eliminates the need to find the witnesses

     c.   Attested Will
          i.   Same as above 
          ii.  But with no affidavit
          iii. Have to bring the witnesses to the courthouse to
               prove up the will

     d.   Holographic
          i.   Wholly in the handwriting of the Testator
          ii.  Can be self proved

     e.   Nuncupative
          i.   Oral
          ii.  Must be
               (1)  During last illness
               (2)  At his home and
               (3)  3 credible witnesses


     a.   If a person dies without a will they have died

     b.   If you die intestate, Sections 38 and 45 of the Texas
          Probate Code control the dispositon of your probate

     c.   Basic disposition
          i.   Community Property
               (1)  To your surviving spouse
               (2)  If you have kids by a prior marriage, then
                    your community  to all of your children.
          ii.  Separate property
               (1)  Descendants but no Spouse: All to your
               (2)  Descendants and Spouse
                    (a)  Personal property
                         (i)  1/3 spouse
                         (ii) 2/3 descendants
                    (b)  Real property
                         (i)  Life estate in 1/3 to spouse
                         (ii) Balance to descendants

     a.   IRC Section 2518 &Texas Probate Code Section 37A 
          i.   IRC Section 2518 says a "qualfied disclaimer" is
               not a gift.
          ii.  Probate Code Section 37A sets out the Texas law
               for complying with 2518

     b.   A disclaimer is a legal fiction
          i.   The disclaimant (typically the child of the
               decedent) says for purposes of inheritance treat
               me as if I died before the decedent.
          ii.  Thus what I would have inherited goes to
               (typically the children of the disclaimant) those
               who would have taken if disclaimant had in fact
               died before the decedent.
     c.   Example: Mom dies leaving her estate to her 3 boys;
          further stating that if any of them predecease, their
          share shall pass to their children.  One of the boys is
          a fairly old wealthy stock broker; he concludes that he
          does not need his share and it would only cause more
          tax in his estate on his death.
          i.   He executes a disclaimer
          ii.  His 1/3 passes to his children
     d.   You can pick and choose: 
          i.   You do not have to disclaim everything
          ii.  For example: You can disclaim the Exxon stock but
               take everything else
          iii. You cannot do a horizonal disclaimer (a remainder
     e.   Consequences
          i.   There is 
               (1)  No gift tax as a result of the disclaimer 
               (2)  The property is not in son's estate when he
          ii.  This is better than son receiving the inheritance
               and then giving it to his children (that would be
               a taxable gift)
     f.   Requirements
          i.   Must be in writing
          ii.  Must be filed in the probate record
          iii. Copy must be delivered to the executor of the
          iv.  Must be within 9 months of the date of death
          v.   Must not have accepted the property.


     a.   A trust is
          i.   A legal entity
          ii.  Where legal title (that held by the trustee) is
               separate from the equitable title (that held by
               the beneficiary)

     b.   A trust has 3 actors
          i.   A grantor 
          ii.  A trustee
          iii. A beneficiary

     c.   Functions that trusts serve
          i.   Non-Tax
               (1)  Probate Avoidance (Living or Loving Trusts)
               (2)  Management
               (3)  Standby
               (4)  Spendthrift 
               (5)  Creditor protection
               (6)  Medicaid eligibility
               (7)  Flexibility
                    (a)  Timing
                    (b)  Allocation (Spray)
          ii.  Tax
               (1)  Qualifying minor's trust
               (2)  Irrevocable life insurance trust
               (3)  By Pass Trust (aka redit equivalent, credit
               (4)  Marital Dedution Trust
                    (a)  Qualified Terminal Interest Property
                    (b)  Qualified Domestic Trust (QDOT)
               (5)  Generation Skipping trust (GST)
               (6)  Qualifying SubChapter S Trust (QSST)


     a.   "Probate" has 2 aspects which are sometimes confused
          i.   1st: It is the process of proving a document is
               the last will of the decedent
          ii.  2nd: It is the process of administering the estate

     b.   Establishing the successors (the 1st aspect)
          i.   Establishing to the court (and the public at
               large) that the document is the last will.  
               (1)  This is sometimes referred to as "probating
                    the will."
               (2)  The public can look to the probate file to
                    learn who now owns the decedent's property
          ii.  If there is no will, then the successors are the
               intestate takers

     c.   Administering the estate (the 2nd aspect): The court
          appoints an executor or administrator who
          i.   Collects the assets
          ii.  Pays the debts
          iii. Pays the taxes
          iv.  Distributes the remaining estate to the

     d.   Probate is the wrapping up of the decedent's affairs,
          determining who his successors are and turning the
          assets over to them.


     a.   Any asset that does not pass under the will is a non
          probate asset

     b.   The typical examples are
          i.   Life insurance
          ii.  Annuities
          iii. Joint Tenancies with Right of Survivorship
          iv.  Community Property with Right of Survivorship
          v.   MultiParty Bank accounts
               (1)  Pay on Death
               (2)  Trust bank accounts
               (3)  JTWROS
          vi.  Deferred compensation arrangements
               (1)  IRA's
               (2)  Pension Plans
               (3)  Keoghs

     c.   These assets should be carefully coordinated with the
          i.   In most instances the Recommended Change of
               Beneficiary Form will track the will
          ii.  However,  with deferred compensation this may not
               be the case
               (1)  It is important, in most instances, to avoid
                    triggering recognition of the income upon
               (2)  Quite often this means the beneficiary should
                    be an individual and not a trust.
               (3)  It can be a trust under very limited


     a.   Will or Trust:  Which will best protect my estate?     

     b.   Trusts:  Greatest invention since sliced bread
          i.   Great Flexibility
          ii.  Excellent vehicle to accomplish many chores

     c.   Caveat
          i.   Living Trusts cannot solve all problems
          ii.  Living Trusts have been oversold
          iii. Living Trusts do not save any types of taxes

     d.   What are They
          i.   Dacey Trusts:   Lawyer avoidance
          ii.  Living Trusts:   Lawyer Control
          iii. Loving Trusts:  Marketing
          iv.  Legally: Typically they are trusts that are
               (1)  Revocable
               (2)  Intervivos (created during life)

     e.   Advantages and Uses
          i.   Avoids Probate 
          ii.  Provides Privacy (No inventory filed at the
          iii. Provides management of some or all Assets
          iv.  Provides Standby Management of Assets (When the
               Trust is coupled with a Durable Power of attorney)
          v.   Avoids the Possibility of Guardianship of the
          vi.  Avoids second probate in another state where real
               estate is owned
          vii. Can reduce risk of will contests [not avoid will
               contests completely]
          viii.     Segregates certain assets from probate
          ix.  May Defeat Elective Rights

     f.   Disadvantages
          i.   More expensive to set up
          ii.  Some expense to maintain during life
          iii. Some headache to maintain during life
          iv.  Transferring title:  "Like going through probate
          v.   Maintaining extra set of books on trust assets
          vi.  Filing second tax return on trust income &
               (Possible exception if "Self-Trusteed")
          vii. Homestead: Risk of loss
               (1)  Home possibly subject to creditors
               (2)  Possible loss of ad valorem homestead

     g.   Myths
          i.   Saves taxes
          ii.  Cheaper than a will and probate
          iii. Lawyers charge up to 11% of the estate for probate

9.   GUARDIANSHIPS.  Guardianships are established for minors and
     for incapacitated adults.

     a.   Generally guardianships are to be avoided.  They
          require greater lawyer and court involvement.  There
          are annual accountings and  there are bonds.  There are
          also restrictions on how the money may be spent as well
          as how it can be invested.

     b.   Minors
          i.   Until a person reaches age 18 their parents are
               their natural guardians.  
          ii.  However,  if a child directly receives an asset,
               neither the child nor the parent can sell or
               manage it until they are 18.  If it needs to be
               sold or otherwise managed, the parent will have to
               take out a guardianship of the estate.  
          iii. The best way to avoid a guardianship for a minor
               is to never name a minor as a direct beneficiary. 
               Not in a will, not on a life insurance policy, not
               on a bank account.    
          iv.  Instead,  provide that any asset passing to a
               minor shall instead pass to a trust or to a

     c.   Incapacitated Adults
          i.   The same issue can occur with incapacitated
          ii.  If an adult,  who cannot care for his own affairs
               is to be a beneficiary,  a trust should be
               established instead.

     d.   Is a Guardianship Ever the Right Answer  
          i.   Yes,  if there is no trustworthy person available
               to act as trustee or guardian (and the amount
               involved is not large enough to justify a
               corporate trustee), a guardianship may be the best
          ii.  The guardian and the assets will be bonded.  The
               activities are subject to court control.  The
               guardians activities will be monitored and
               reviewed annually.


     a.   Testamentary Trusts: 
          i.   Any asset left to a minor in a will can be left to
               a trustee of a trust established in that will
          ii.  Any non-probate asset left to a minor can likewise
               be left to the trustee of a trust created in a
     b.   Uniform Transfers to Minors (Section 141.001 et seq ,
          Texas Property Code)
          i.   Any transfer to a minor can instead be made to:
               "...Grandpa as custodian for Wee
               Will Minor under the Texas Uniform
               Transfers to Minors Act."
          ii.  Such a provision can be 
               (1)  In a life insurance beneficiary designation
               (2)  As owner of a life insurance policy
               (3)  On a bank account
               (4)  On a stock certificate
               (5)  On a deed to real estate
               (6)  In a will providing that any bequest to a
                    minor shall pass to a custodian under the
                    uniform transfers to minors act.
          iii. Now custodianships last until age 21
     c.   Section 142 trust.  Section 142 of the Texas Property
          Code allows property of a minor collected by a court
          proceeding to be placed in a court created trust
               (1)  The trustee must be a corporate trust
               (2)  The trust must end at age 25 (unless the
                    person is incapacitated)
     d.   Guardianship Trust.  Section 867 of the Guardianship
          Code allows a probate court in a guardianship
          proceeding to create a trust for the benefit of a minor
          i.   The trustee must be a corporate trust
          ii.  The trust can continue until age 25
          iii. The trustee must make annual reports to the
               probate court.
     e.   Payment into the court registry
          i.   The probate code allows payment of liquidated
               claims into the registry of the court (the clerk's
          ii.  By this mechanism 
               (1)  A creditor can have his discharge, and
               (2)  The funds can be held without the need for
                    the costs of a guardianship
          iii. Someone can apply on behalf of the minor, to have
               the funds invested.
          iv.  At age 18 the minor can present his birth
               certificate to the court and collect the funds

11.  TAXES:  Introduction

     a.   There are 7 deadly taxes
          i.   Estate
          ii.  Texas Inheritance
          iii. Gift
          iv.  Generation Skipping
          v.   Income
          vi.  Capital Gains
          vii. Excess accumulations

     b.   There is a unified estate and gift tax system

     c.   3 numbers and a Spouse.
          i.   Unlimited Marital Deduction
               (1)  You can give to your spouse as much as you
                    want, during your life or on your death
               (2)  Donald Trump could have given Ivana during
                    their marriage $50,000,000 and there would
                    have been no tax.
               (3)  On his death, Bill Gates can leave his entire
                    estate to his wife and their will be no tax.
               (4)  These spousal gifts can be outright or in
                    special trusts (QTIP and QDOT)
          ii.  $600,000 ($192,800 credit equivalent)
               (1)  Using the tax tables, a taxable estate of
                    $600,000 will generate a tentative tax of
                    $192,800.  However, each United States
                    citizen has a credit of $192,800.  Thus -0-
                    tax is owed on such an estate.
               (2)  Or, a person can give away $600,000 of
                    taxable gifts and after using the credit will
                    have a -0- tax.
               (3)  Or a person can give away taxable gifts and
                    have a taxable estate, totaling $600,000
                    without incurring any tax.  For example, a
                    person gives away $200,000 of taxable gifts
                    during their life and dies with a taxable
                    estate of a$400,000.  There combination is
                    $600,000 and there is no tax.
          iii. $10,000: The present interest exclusion
               (1)  Each person can give away $10,000 each year
                    to as many persons as they wish.
               (2)  This is often expressed as $10,000 per donor,
                    per donee, per year.
               (3)  But it has to be a present interest.  It
                    cannot be a gift of a future right of
                    enjoyment.  It must be the present right to
                    enjoy a piece of property.  Not the right to
                    take possession after someone else dies.
               (4)  These gifts are not deducted from the
                    $600,000 amount set out in I above.
               (5)  For example, a husband and wife can give
                    $20,000 to each of their 3 children in 1995
                    ($60,000) and another $60,000 to their 3
                    children in 1996.

          iv.  $1,000,000
               (1)  Each person can give directly to their
                    grandchildren (or put into a generation
                    skipping trust) $1,000,000.
               (2)  Above that the maximum estate tax rate
                    (currently 55%) applies.
               (3)  This is on top of any estate tax that is
               (4)  As a result, generation skipping trusts never
                    exceed $1,000,000.
     d.   Turning $600,000 into a $1,200,000
          i.   Pop can have $600,000 at his death and incur no
          ii.  Mom can have $600,000 at her death and incur no
          iii. But, what happens if Pop has $600,000 and gives it
               all to Mom?

     No tax on Pop's death: Pop leaves his entire estate
($600,000) to his wife.

          i.   He gets a marital deduction for his entire

          ii.  His Taxable estate is -0-
               (1)  Gross Estate                         $600,000
               (2)  Marital Deduction                   (600,000)
               (3)  Taxable Estate                         -0-   
               (4)  Tentative Estate Tax                   -0-   
               (5)  Unified Credit                      (192,800)
               (6)  Estate Tax                             -0-   

          iii. When his wife dies her taxable estate is
               (1)  Gross Estate                       $1,200,000
                    (a)  Husband's   600,000
                    (b)   Wife's      +600,000
               (2)  Marital Deduction                       -0-  
                    (no surviving spouse)
               (3)  Taxable Est                         1,200,000
               (4)  Tentative Estate Tax                  427,800
               (5)  Unified Credit                      (192,800)
               (6)  Estate Tax                           $235,000

          iv.  If instead the Pop would leave his first $600,000
               in a bypass trust for his wife the following would
               (1)  Gross Estate                        $600,000 
               (2)  Marital Deduction                      -0-   
               (3)  Taxable Estate                       600,000 
               (4)  Tentative Estate Tax                 192,800 
               (5)  Unified Credit                      (192,800)
               (6)  Estate Tax                              -0-  

          v.   When his wife dies her taxable estate is $600,000. 
               The other $600,000 is in a trust which bypasses
               her estate for tax purposes:
               (1)  Gross Estate                        $600,000 
               (2)  Husband                                -0-   
                    (a)   Wife's                         600,000 
               (3)  Marital Deduction  (no surviving spouse) -0-  

               (4)  Taxable Estate                       600,000 
               (5)  Tentative Tax                        192,800 
               (6)  Unified Credit                      (192,800)
               (7)  Estate Tax                             -0-   

     e.   Characteristics of the By Pass Trust (aka Credit
          Equivalent Trust or Credit Shelter Trust)
          vi.  The Surviving Spouse can be the Trustee.
          vii. The beneficiary during the life of the surviving
               spouse will be the surviving spouse
               (1)  She can receive all of the income;
               (2)  She can also be entitled to receive principal
                    for her health, education, maintenance and
               (3)  The trustee need not consider any other
                    resources she has available  (She can live
                    out of this trust and save her own estate if
                    she wants to);
          viii.     The trust is beyond the reach of creditors;
          ix.  On her death the balance can pass to their
               children or any other person or persons they
          x.   She can have a special power of appointment
               allowing her to redirect who gets the property on
               her death.


     a.   Basic Rule: All income is taxed all the time
          i.   While a person is living, that person reports his
               income and pays tax on it

          ii.  When a person dies, his estate reports all of the
               income from the date of death until the estate is
               closed (and pays tax on it)
          iii. When property is distributed from the estate, the
               beneficiary begins paying income tax on the income
               the property generates from the date it is turned
               over to the beneficiary.
               (1)  As a general rule, the property distriubted
                    to the beneficiary is not counted as income
               (2)  There is a limited exception that is beyond
                    the scope of this outline
     b.   Life insurance proceeds 
          i.   Are not income
          ii.  But may be a part of the decedent's gross estate
     c.   Basis
          i.   When you sell a capital asset, you pay tax on the
               difference between your basis and the net sales
          ii.  Basis is generally the purchase price
          iii. When an asset is given to you, you take your
               donor's basis
          iv.  On the other hand, if you inherit an asset, you
               get a step up in basis to date of death value.
          v.   Example
               (1)  Gift: Dad gives 100 shares of Exxon stock to
                    his son, it is worth $8,000 on the date of
                    gift but dad only paid $2,000 several years
                    ago.  Son sells the stock for $8,000.  The
                    gain (and reportable income) is $6,000
               (2)  Bequest: In his will, Dad leaves his Exxon
                    stock to his son.  On the date of dad's death
                    the stock is worth $8,000.  Son sells it for
                    $8,000.  As a result son has a gain of -0-
                    and a tax of -0-.
          vi.  Moral: Don't give your appreciated property away
               during your life


     a.   The By Pass Trust (illustrated above)

     b.   The Unlimited Marital Deduction (also explained above)

     c.   The Generation Skipping Trust
          i.   On your death you leave $1,000,000 in trust for
               your son and his children
          ii.  An estate tax is paid on your death

          iii. On son's death the generation skipping trust is
               not a part of his estate.
          iv.  There is no tax on the generation skipping trust
          v.   It does not matter that the trust has grown to
               $5,000,000 at son's death
          vi.  The trust assets are not subject to estate taxes
               again until your grandchildren die.

     d.   The Irrevocable Life Insurance Trust
          i.   Life insurance on the decedent's life is subject
               to estate taxes if
               (1)  the decedent had any incidents of ownership
                    at the time of his death. Examples of
                    incidents of ownership are:
                    (a)  the right to name the beneficiary
                    (b)  the right to withdraw the cash surrender
                    (c)  the right to borrow against the policy
                    (d)  the right to assign the policy
               (2)  The policy is payable to the estate of the
          ii.  If you avoid these two characteristics the
               insurance proceeds pass estate tax free to the
               intended beneficiaries
          iii. The usual methods are:
               (1)  have your children purchase the policy
                    (a)  This often does not work
                    (b)  Typical Problems
                         (i)  A child fails to make the payment
                         (ii) Only one child makes his share of
                              the payment
                         (iii)     A child dies and his children
                                   are minors
               (2)  You establish an irrevocable life insurance
                    (a)  you make a gift to the trust
                    (b)  typically the beneficiaries have the
                         right to withdraw their share of the
                         (i)  This is a Crummy power
                         (ii) it allows the gift to qualify for
                              the $10,000 present interest
                    (c)  if all goes well they do not exercise
                         their withdrawal rights
                    (d)  the trust buys life insurance
                    (e)  the trust pays the premiums with the
                    (f)  When you die the proceeds are paid to
                         the trust

                    (g)  The trust is then authorized to purchase
                         assets from your estate.
                    (h)  This gives the estate cash to pay taxes.
                    (i)  The assets sold to the trust can be
                         distributed to the beneficiaries.

     e.   Transfers to Minors
          i.   Qualified Minor's Trust
               (1)  Despite the requirement that the $10,000
                    annual gift exclusion must be a present
                    interest, if it goes to a qualified minor's
                    trust, it will qualify for the $10,000 annual
               (2)  The trust must
                    (a)  Have 1 beneficiary
                    (b)  The assets must be turned over to the
                         beneficiary at age 21
                    (c)  Be payable to the beneficiary's estate
                         if they die before age 21
          ii.  Custodial Accounts
               (1)  Texas has a new uniform transfers to minors
               (2)  It allows custodial accounts to continue to
                    age 21.

     f.   Qualified Personal Residence Trust
          i.   Transfer your home to a qualified personal
               residence trust
          ii.  Retain the right to live there for a fixed number
               of years
          iii. Then have it pass to your kids
          iv.  The tax charge is a fraction of the home's real
               value. For Example
               (1)  The house is worth $400,000
               (2)  You retain the right to live there for 20
               (3)  But you give the remainder interest to your
               (4)  The remainder interest, since it is 20 years
                    away is only worth about 12.5% of the total
                    value or $50,000
               (5)  $50,000 is the amount of the gift for tax
          v.   On your death, there is no additional tax; even if
               the house is now worth $1,000,000.
          vi.  The downside
               (1)  You have to out live the primary term
               (2)  And, unless you can work something out;  at
                    the end of the primary term, you will have to
                    move out.
                    (a)  You no longer own any interest in the
                    (b)  But you can rent the house or buy it

     g.   GRITS, GRATS & GRUTS
          i.   In all of these, the grantor retains an income
               right for a period of years.  At the end of that
               term of years the trust passes to the
               remaindermen.  As with the qualified personal
               residence trust, the gift is the value of the
          ii.  GRITS are out.  This is a grantor retained income
               trust.  It allowed the grantor to retain the
               income for a certain number of years.  These are
               no longer permitted.  It was too easy to
               manipulate the numbers with the result that the
               gift tax values were meaningless.
          iii. GRATS & GRUTS are in.  We can still use grantor
               retained annuity trusts and grantor retained
               (1)  GRATS allow the grantor to retain for a
                    specific number of years a fixed amount from
                    the trust each year (an annuity).  
               (2)  GRUTS allow you to receive for a specific
                    number of years a percentage of the value of
                    the trust.  The value of the trust is
                    recomputed each year.  
               (3)  As with Qualified Personal Residence Trusts. 
                    For these to work,  you must outlive the term
                    certain.  Therein lies the crap shoot:  The
                    longer the primary term, the less the gift
                    and its tax burdens.  However,  the grantor
                    has to outlive the primary term or the
                    benefits are lost.


          i.   Without question the hottest estate planning
               technique of 1995 is FLPs.  In all likelihood that
               will continue into the foreseeable future.

          ii.  How it works.  Interests in a FLP enjoy
               substantial discounts.  
               (1)  Commentators regularly and with confidence
                    report 20% to 40% discounts.  Some report
                    successes with IRS of up to 65%.
               (2)  The primary factors
                    (a)  The business is worth more liquidated
                         than as a going business
                    (b)  A critical factor is the amount of funds
                         that are periodically paid out to the
                         partners.  The more paid to partners,
                         the less the discounts that are

               (3)  The other discount factors are
                    (a)  Lack of marketability, and
                    (b)  Minority 
          iii. Advantages.  Satisfies the primary motivations of
               most clients
               (1)  A way to make gifts while retaining control.
               (2)  An arrangement that can be changed (amended);
                    versus an irrevocable trust.
               (3)  It is a relatively simple arrangement for
                    holding various family assets.
               (4)  There are no adverse income tax consequences
               (5)  There are estate and gift tax advantages as a
                    result of discounting (minority,
                    fragmentation and lack of marketability). But
                    it cannot be created for the purpose of
                    transferring property to family members at
                    less than FMV, Section 2703(b)(2).
               (6)  Limited Creditor Protection.  Creditors
                    cannot force the sale of the partnership or
                    its underlying assets;  they can only obtain
                    a charging order.
          iv.  Disadvantages
               (1)  Complexity:  Because of Chapter 14.  The
                    rules for FLPs are complicated and detailed.
               (2)  Cost:  Not only are the attorneys' fees the
                    typical source of grousing, but also
                    appraisers are generally needed.  And, in
                    some instances 2 appraisers are needed.  One
                    for the underlying assets, and then another
                    to appraise the FLP itself.
               (3)  Nothings for sure.  Although the current
                    climate is very favorable for these
                    arrangements.  The pendulum may swing in
                    another direction before the "plan matures."
                    See Attacks in 6(f) below.
          v.   Important Mechanics
               (1)  The partnership should be for a term of
                    years.  To avoid a dissolution and winding
                    up, the partnership should be for a term of
                    years.  By selecting a term of years, a
                    dissolution can be avoided without including
                    any "applicable restrictions."
               (2)  The partnership should avoid a dissolution
                    for lack of a general partner.  That can be
                    done by
                    (a)  Multiple general partners
                    (b)  Successor general partners
                    (c)  Or an entity as a general partner
                         (corporation, trust, LLC or even a
                         limited partnership)
               (3)  No partner can liquidate until the term ends. 
          vi.  Areas of Possible Attack.  At the present time,
               the reports of success are plentiful.  FLPs appear
               to be working very well.  However, IRS may
               successfully assert challenges to FLPs in the
               future.  The likely challenges are
               (1)  That the FLP was formed for Non-business
               (2)  That a term of Years is an applicable
                    restriction in and of itself
               (3)  That an all family member partnership cannot
                    avoid 2704.  That merely electing a term of
                    years is a restriction to be disregarded
                    under 2704(b)
               (4)  That allowing the remaining partners to
                    continue is an applicable restriction
               (5)  That a gift of a limited partnership interest
                    does not qualify for the annual gift tax

          The client should be cautioned that, as always, there
          is no guarantee that the hoped for discounts will
          occur.  But, because of the arrangements flexibility
          and revocability, if these devices fall out of favor
          the can always be changed. 

     i.   CHARITIES
          i.   If someone has charitable inclinations there are
               excellent opportunities
          ii.  If they do not have independent charitable wishes,
               they are not a particular useful device
          iii. The most common are
               (1)  Charitable annuity:  You get a sum of money
                    each month for your life; on your death the
                    remainder passes to the charity.
               (2)  Charitable Remainder Trust:  Like the
                    annuity, you get a sum of money each month
                    for your life.  On your death the remainder
                    passes to the charity. 
               (3)  Charitable Lead Trust:  The charity gets a
                    monthly sum each month for a specified number
                    of years.  At the end of that term, the
                    remainder passes to your beneficiaries (your
                    children or grandchildren for example)
          iv.  The advantages are
               (1)  a current income tax deduction for the value
                    of the charitable component of the transfer
               (2)  sale of appreciated assets are capital gains
                    tax free.
          v.   The problems.  At the forceful behest of the
               charities,  Texas now has 2 new laws.
               (1)   Charities can now sell charitable annuities
                    (Tex. Insur. Code Art. 1.14-1A).  They are
                    completely free of any regulation or
                    supervision.  They do not have to tell the
                    parishioner that the annuity is unsecured. 
                    They do not have to have any reserves such as
                    are required by insurance companies.  Their
                    salesmen do not have to have any training or
                    education.  Their money managers do not have
                    to have any training or credentials.
               (2)  Charities can act as trustees of charitable
                    trusts (Tex. Banking Code, Art. 13, Chapter
                    XI; VATS 342-1113).  They likewise are not
                    subject to any regulations.  They do not have
                    any reserve or minimum capitalization
                    requirements such as regular trust companies
                    have to have.  They are not subject to review
                    or inspection by the Texas Banking Commission
                    as are regular trust companies.
               (3)  To be a charity under these new laws,  the
                    organization merely has to obtain a 501c3
                    designation from IRS.  That is nothing more
                    than the filing of certain forms.  There is
                    little supervision or review as long as the
                    tax returns are properly filed.  The Texas
                    Attorney General has authority over 
                    charities, but has no means of reviewing all
                    of the charities in Texas.  In fact,  it is
                    unlikely that the AG's office will even be
                    aware that a charity exists until a problem
               (4)  We have already seen an increase in
                    activities in the charitable area.  The
                    suspicious believe that the same people who
                    were selling living trusts recently will now
                    move into the charitable area.


                           Prepared by
                        JERRY FRANK JONES

     The more of the following questions you can answer with yes,
the less your probate procedure will cost you:

     1.   Has the estate been planned?
     2.   Is the will up to date?
     3.   Is the will self-proving?
     4.   Is the fair market value of all of your assets less
          than $600,000?
     5.   Is there only one beneficiary of the will?
     6.   Are all of the surviving children also the children of
          the surviving spouse?
     7.   Are the bequests to the family made in the predictable
          and natural manner?
     8.   Did the decedent discuss and explain his estate plans
          to his family before his death?
     9.   Can the debts be resolved without delay or controversy?


     a.   Will
     b.   Trust
     c.   Durable Power of Attorney
     d.   Health Care Durable Power of Attorney
     e.   Designation of Guardian In Case of Later Need
     f.   Living Will (aka Directive to Physician or Natural
          Death Act Document)
     g.   Recommended Change of Beneficiary Designation
     h.   Anatomical Gifts Form
     i.   Burial Instructions

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Copyright 1998 by Glenn M. Karisch     Last Revised May 15, 1998