Best Wishes, Linda!

At Karisch Jonas Law, we are fortunate to work with wonderful people.  Linda Sheridan, our office manager and legal assistant, has been with the firm for over 15 years, and she will be retiring at the end of the year.  Linda’s dedication, hard work, and commitment to the firm and above all to our clients have made her an important part of our firm. Linda has a special knack for keeping the office running smoothly, and many of our clients and colleagues have enjoyed interacting with her over the years.

We are sad to say goodbye to Linda and will miss her, but we are excited for her as she begins her next chapter of retired life.  Warmest wishes from all of us!

Glenn Karisch receives 2024 Bill Pargaman Distinguished Probate Attorney Lifetime Achievement Award

We are proud to announce that Glenn Karisch of Karisch Jonas Law received the 2024 Bill Pargaman Distinguished Probate Attorney Lifetime Achievement Award from the Real Estate, Probate and Trust Law Section of the State Bar of Texas (REPTL).  The award was presented to Glenn by his friend and former colleague Jerry Frank Jones at the Advanced Estate Planning and Probate Course in Houston. 

This award recognizes distinguished Texas probate attorneys who have made significant and sustained contributions to the Texas probate, estate, and trust law bar throughout their careers.  It is a great honor to receive the award, and all the more meaningful this year because it is the first year in which the award has been renamed after Bill Pargaman, a respected member of the Texas probate bar, and a dear friend of Glenn’s, who we lost last year. 

Glenn does not plan to rest on his laurels and is continuing to work as hard as ever to get good results for his clients and to support our legal community.

Avoiding falling off the 2026 cliff

Unless Congress changes the law, persons dying in 2026 or later will have only half of the pre-2026 tax-free amount before estate and gift taxes kick in.  How should estate planning lawyers approach this deadline with their clients? The closer the deadline comes, the greater the demands on lawyer time, CPA time and – probably most importantly -- appraiser time.

Can clients afford to wait until after the 2024 election? If the Republicans win the White House and both houses of Congress, then there is a good chance that the tax-free amount will not be cut in half.  There’s even a chance of total repeal of the estate tax.  Surely there is enough time for clients to wait for those results before implementing plans to address the possible halving of the tax-free amount. But if all clients wait, can everything for every client get done in one year or less?

Here are some guideposts to consider:

1. If married clients have taxable estates of $40 million or more, then working on a plan now and completing it in 2024 makes sense.  Unless there’s a total repeal, these clients are likely to have taxable estates. Planning now avoids last-minute jams and allows planning steps to be spread out if it is prudent to do so.

2. If married clients have taxable estates of $15 million to $40 million, have conversations now about the problem and basic planning options.  If the family circumstances are ideal, consider establishing family limited partnerships or similar entities and gifting options for descendants or trusts for descendants now, with fuller implementation following in 2025.

3. If married clients have taxable estates of $15 million or less, have conversations now about the problem and consider basic techniques such as annual exclusion gifts, but for most families it is too early to consider gifts to take advantage of the upper half of the tax-free giving range.  

4. Regardless of the size of the estate, if spousal lifetime access trusts (SLATs) are seriously being considered, start now so that there is more time to implement the plan and avoid the reciprocal trust doctrine.  SLATs are probably inappropriate for the majority of clients – especially those with more modest estates.

5. Appraiser capacity is going to be a problem.  Consider lining up appraisers for effective dates in early 2025 to get ahead in the queue.  Also, consider formula gifts based on appraisals not yet obtained.

QPRTs on the Rise?

As interest rates increase, QPRTs (qualified personal residence trusts) seem to be back on the table for clients with potentially taxable estates.  Here is a breakdown of some of the considerations for clients relative to a QPRT (see Treasury Regulation 25.2702-5).

The idea with a QPRT is that the grantor contributes a personal residence to an irrevocable trust.  The initial trust term is established on creation, typically at least 2 years.  The gift tax value that is reported on Form 709 in the year the trust is created is the fair market value of the residence on the date of the transfer, discounted by the value of the grantor’s occupancy term, based on the Section 7520 rate and the length of the trust.  There are excellent online calculators that can help with a rough analysis of a client’s situation (though the return preparer should double check the math by hand).  The longer the term and the higher the 7520 rate, the greater the discount.  The QPRT and any remainder trusts it creates are not GST-exempt (the grantor has the option of allocating GST exemption to the QPRT under the estate tax inclusion period (ETIP) rules, and might need to affirmatively opt out of automatic allocation, which is beyond the scope of this post).

During the initial trust term, the trust cannot hold any property other than the residence and a reasonable amount of cash to pay expenses.  The grantor has the right to live in the residence, rent free.  No one else may have the right to live there, other than the grantor’s spouse or dependent. 

After the term is over, the residence is transferred to one or more remainder beneficiaries (individuals or, more likely, trusts).  If the grantor wants to keep living in the residence, she must pay rent to the remainder beneficiaries (which is helpful because this further depletes the grantor’s taxable estate).  Using grantor trusts as the remainder beneficiaries will allow the rent to be received tax-free.

If the residence is sold during the initial trust term, the proceeds can be contributed to a new residence to be held in the QPRT within 2 years.  If no new residence is purchased or to the extent sale proceeds exceed the cost of the new residence, the QPRT converts to a GRAT (grantor retained annuity trust) and the trust must begin making annuity payments to the grantor.

If the grantor dies during the initial term, the residence is included in her estate at the undiscounted fair market value and the estate gets the exemption back that was used on the gift.  The ultimate outcome is basically no worse than if the plan hadn’t been undertaken, but the transaction costs and administrative inconvenience are wasted.

Some factors that might make a QPRT a bad choice: elderly or ill grantor, need for GST planning, lack of resources outside the trust to pay rent after the initial trust term, low basis of residence, low 7520 rate, uncooperative remainder beneficiaries.

QPRTs alone are not a good option for soaking up clients’ gift and estate tax exemption in anticipation of the potential exemption change in 2026.  The QPRT is designed to minimize the transfer tax cost associated with the transfer, and if a client has extra exemption they want to use before it’s gone, a simple gift to an irrevocable grantor trust will accomplish an estate tax freeze, allow the client to begin paying rent and shifting property out of the taxable estate right away, and allow the allocation of GST exemption while the client still has the hefty GST exemption amount available.  Much as we estate planners enjoy fancy techniques, sometimes simple still works best.

In other situations, especially when a client has used most or all of their exemption and they have a lengthy life expectancy, QPRTs can be efficient and relatively easy to administer.  If interest rates continue to rise and clients use their exemption on big leveraged gifts (or for post-2026 planning), we expect to talk about QPRTs a lot more.

308 Notices: Qualified Delivery to the Rescue

Often our clients are surprised to learn that when probating a will in Texas in an uncontested matter, an applicant is not required to give specific notice to anyone until after the will is admitted to probate.  Though the probate court must post notice that a will has been offered for probate, until the will is admitted to probate, no specific notice is required.

After a will is admitted to probate, under TEC section 308.002, a personal representative must give notice to the beneficiaries of the will.  Until the most recent session of the Texas legislature, the notice had to be sent by registered or certified mail, return receipt requested.  

In the past, proof of receipt by certified mail was the gold standard.  However, the mail “ain’t what it used to be.”  In more recent years, USPS delivery of certified mail is fraught with difficulties, and those problems have only worsened since the pandemic.  Sometimes letters are simply lost in the mail.  Many beneficiaries do not routinely go to the post office and can delay so long in signing for certified mail, the letters are returned unclaimed.  When we do receive the return receipt green cards, they are often unsigned, and many times they simply do not come back at all.  All of these issues may seem minor, but they regularly add administrative expense and cause lost time.

Timeliness is an issue because not later than the 90th day after the date of an order admitting a will to probate, the personal representative must file an affidavit stating that the required notices were given.  TEC 308.004(a).  Failure to timely file this affidavit is one ground for potential removal of an independent executor from their role as personal representative of the estate.  TEC 304.0035(a)(3).

In order to address the issue, we were increasing our use of waivers, but T-REP has come to the rescue with the new Qualified Delivery Method contained in SB 1373, which will become effective September 1, 2023.  SB 1373 amends the sections in the TEC requiring delivery by certified mail, including section 308, to allow for delivery by a qualified delivery method, which is defined as:

      Sec. 22.0295.  QUALIFIED DELIVERY METHOD. "Qualified delivery method" means delivery by:

                         (1)  hand delivery by courier, with courier's proof of delivery receipt;

                         (2)  certified or registered mail, return receipt requested, with return receipt; or

                         (3)  a private delivery service designated as a designated delivery service by the United States Secretary of the Treasury under Section 7502(f)(2), Internal Revenue Code of 1986, with proof of delivery receipt.

The changes to Section 308.002(d) apply to cases filed on or after September 1, 2023.

As of the writing of this post, the designated delivery services (called designated private delivery services, or PDSs in federal jargon) include specific services of DHL Express, FedEx, and UPS.  Not every delivery service by these three providers is authorized; only the specific services under each that have been approved may be used.  You can check the most recent list on the IRS website here: https://www.irs.gov/filing/private-delivery-services-pds

We’re looking forward to taking advantage of these new options and we hope they add a little extra efficiency for our probate clients.

Tailoring Hot Powers

When the statutory durable power of appointment form changed in 2017, one of the major changes was the introduction of “hot powers”, a list of powers that the legislature deemed so extensive that a principal needed to affirmatively indicate her intention to grant them.  An agent is not able to exercise one of the hot powers unless the principal initialed them.  The statutory hot powers include changing inter vivos trusts, making gifts, creating or changing rights of survivorship, creating or changing beneficiary designations, and delegating the agent’s authority to another person.

Durable powers of attorney require a careful balance: avoiding guardianship and allowing for straightforward management of legal and financial matters for an incapacitated individual is incredibly important, but the more authority granted, the greater the potential harm if the power is abused.  The hot powers are some of the most dangerous if abused, largely because most of them would allow an agent to divert property away from the principal’s estate plan: creating and funding a revocable trust with different beneficiaries from the will, for instance, or adding and removing beneficiaries of a retirement plan.

Consider customizing the hot powers to find a middle ground.  At Karisch Jonas Law, after taking into account the client’s individual situation, we might limit the “hot” gift-giving power to a list of approved individuals, or describe a restricted set of actions the agent can take with respect to revocable trusts. 

For (potentially) nonprobate assets such as bank accounts, retirement plans, and life insurance policies, in appropriate cases we often alter the two relevant powers as follows:

____ Create or change Eliminate rights of survivorship

____ Create or change a beneficiary designation only to be consistent with the following disposition: (list client-approved beneficiary designation language)

With these changes, the agent retains the ability to “clean up” assets that were not properly addressed in the estate planning process, such as a joint account with right of survivorship benefiting only one of several children.  By giving the agent the power to eliminate the right of survivorship, the principal allows the agent to make the necessary change to prevent an unintended gift from being made outside the will, but does not allow the agent to divert property away from the will.  (Of course, this solution does not allow the agent to engage in probate-avoidance planning by adding survivorship provisions to probate assets.) 

Similarly, if a life insurance policy from the principal’s first job names the principal’s former boyfriend and the principal never got around to changing the designation before becoming incapacitated, the agent would be able to amend the beneficiary designation to be consistent with provisions the principal approved in the durable power of attorney.

Using hot powers can be a powerful but dangerous addition to a durable power of attorney.  It requires careful consideration and an experienced estate planning attorney’s assistance.  In some cases, leaving the hot powers broad is the best approach (probate avoidance planning, for example), while in others, the powers should be wholly eliminated.  For the less clear-cut situations, at Karisch Jonas Law we think that creative drafting can help strike a balance between unwieldy black and white options.

Pending Legislation: Are Electronic Wills in Your Future?

This is part of a series of blog posts about legislation pending in Texas.

Are you ready for electronic powers of attorney?  How about electronic wills?  SB 1779, sponsored by Sen. Tan Parker of Flower Mound, would enact the Uniform Electronic Estate Planning Documents Act (UEEPDA) in Texas.  The bill includes an add-on (the Uniform Electronic Wills Act) which would permit electronic wills.  It is pending in the Senate Jurisprudence Committee.

UEEPDA was adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 2022 and is pending in three other states as well.  The Uniform Electronic Wills Act was promulgated by NCCUSL in 2019 and has been enacted in five states.

UEEPDA is a standalone act which can be adopted without the electronic wills act.  Sen. Parker opted to include both uniform acts in his bill.  One of the most controversial provisions of the acts would permit remote witnessing of estate planning documents – there would have to be video contact between the principal and the witnesses, but the witnesses would not have to be in the physical presence of the principal.  That’s a bridge too far for some states, which allow electronic documents but require witnesses to be in the physical presence of the principal.

The Texas Real Estate and Probate Institute (T-REP) does not support the bill, but it has a version which Texanizes the uniform acts.  For example, it doesn’t provide for an entirely new self-proving affidavit for electronic wills; rather, it refers to the form and statutes already a part of Texas law.  T-REP also wishes to require witnesses to be in the physical presence of the principal.

At this point in the session, it is impossible to predict SB 1779’s likelihood of passage.

Execution Day: Practicalities of Signing Estate Planning Documents

After carefully drafting and explaining legal documents that reflect a client’s wishes for their disability and death planning, an estate planning lawyer faces a very important job that is often considered an afterthought – supervising the proper execution of the documents.  The COVID-19 pandemic highlighted how inflexible this requirement is; when most other parts of the process were able to successfully shift to remote collaboration, the documents still had to be physically signed, which led to plenty of creative solutions (how many of us had to parse dozens of blurry pages photographed by a cell phone camera to complete the temporary remote will-signing procedure?).  Clients are often surprised that signing the documents is such a rigid experience, so it helps to explain the formality early in the estate planning process.

The little things that can catch practitioners off guard are too plentiful to list, but the following are a few commonly-encountered hurdles to a smooth will execution meeting.

For wills, keeping track of which document is the original is crucial.  With an older document and black ink, it can be surprisingly difficult to determine whether a document is an original or a high-quality copy.  At Karisch Jonas Law, it is our practice to insist on the use of our preferred blue ball-point pen for every document signing; on the rare occasions that a contraband pen (even once a purple one!) is used, there is inevitably an issue with scanning, smearing, or legibility, so we have chosen to provide our own pens at the beginning of the signing meeting.

The 2017 legislative changes for durable powers of attorney included a requirement that the so-called “hot powers” must be specifically initialed in order to be effective.  That change meant that a client could not simply sign on the dotted line in most cases, because initials are needed throughout the document to make thoughtful selections.  Practitioners may disagree about the benefits of this change in format, but for most of us, the time needed to complete this document has significantly extended the signing meeting.  Previewing the options in the initial meeting, pointing out the optional language in the drafts, and designating the client’s previously-stated selections with stickers on the execution document can all help streamline the process while ensuring that the client is making informed decisions on this important document.

Clients are often thrown when they reach the first signature line bearing their full legal name: remembering how to write one’s middle name in cursive would prompt stage fright in anyone, especially with three legal professionals looking on.  It is helpful to remember that the signature requirement for a will under Texas law is quite forgiving: any mark made by the testator with the intent of signing the will can be adequate, and the testator may even direct someone else to sign for them.  In most cases, it is best for the client to sign their usual signature; if there is a question of forgery or the self-proving affidavit fails, it will be helpful for the signature to be recognizable to a third party who is familiar with the client’s handwriting.  For the notary, this is a different story, as the signed name on a notarial certificate must match the name listed on the notary’s commission.  A very wise legal assistant once counseled that the best approach here is to obtain a certificate based on the notary’s established signature to avoid the middle-name snafu mentioned above.

Announcing Karisch Jonas Law

Julia Jonas has become a partner of the firm, and the firm has changed its name to Karisch Jonas Law, PLLC.  Julia has 11 years of experience, is Board Certified in Estate Planning and Probate Law and is in charge of estate planning at the firm.  Glenn Karisch continues to actively work in estate planning, and also handles estate and trust administration issues and fiduciary disputes. Melissa Harvey has primary responsibility for probate and trust administration matters.

Karisch Jonas Law continues to be a full-service estate planning, probate and trust law firm.  Its attorneys have the experience and expertise to handle projects ranging from simple to complex. Consider the firm for your estate planning, probate and trust needs.