Subtitle: How to Avoid Making a $400 Will into a Court Case!

Early in my practice, I saw a Will prepared by a husband and wife for the husband, as he was very ill.  It was one of those "internet based" Wills.  It was drafted poorly and signed improperly.  The Will is considered a separate instrument from the self-proving affidavit.  Unlike today's Wills--which allow the testator and witnesses to sign only once--the prior Wills required two signatures for a self-proved Will.  The testator and witnesses only signed the self-proving affidavit.  In addition to this problem, the self-proving affidavit's language was butchered.

Oh, we cannot leave out the fact that the marriage was common law, and surviving spouse had a stepchild!  

Result: lawsuit!  Over $20,000 was spent to defend the Will and get it admitted to probate.  

What was the real problem?  The refusal or, perhaps, fear of going to see an attorney to draft an estate plan.  Many clients just need a "simple Will," a durable power of attorney, and a medical power of attorney with directive to physicians (a "living Will").  These documents are not complicated, but the client gets the opportunity to ask questions and gain some knowledge and assurance that he has an adequate and effective estate plan.

Believe me, do not let your Google search make you think that you can practice law!

LLC or S-Corporation?  This question is a common one.  However, it is not even the right question!  LLCs and S-corporations are apples to oranges.  You can have both.

An LLC is a state law entity, a limited liability company.  It is governed by the Texas Business Organizations Code, a state law.  

An S-corporation is a federal income tax election made by filing Form 2553.  The "S" stands for Subchapter S of the Internal Revenue Code, the federal tax law.  You do not create an s-corporation by filing a document with the Texas Secretary of State.  Technically, you do not even "create" an S-corporation.  You make an S-corporation election.

The proper question is, "Should I create an LLC and make the S-corporation election?"  A state law corporation (filed by filing a formation document with the Texas Secretary of State), an LLC, and even a limited partnership can make an s-corporation election.  Yes, a limited partnership can be an S-corporation, because this status is an election.  An LLC and LP are eligible entities that can make an s-corporation election, if the requirements for an s-election are met.  This law is known as the "check-the-box regulations," and these regulations were actually implemented in the late 1990's!  Amazingly, the regulations still trip up other lawyers and even accountants today.

An LLC is the most common operating entity today.  An S-corporation is preferable for many small businesses, particularly those with a sole owner and employees.  An LLC with a sole member that makes an s-corporation election will then treat that sole member as an employee, if such employee is providing services on behalf of the LLC.  

Most of the time forming an LLC is the preferable entity.  Your next question is determining whether to make that s-corporation election for the LLC. 

Probate in Texas, compared to other states, particularly New York, California, and even Florida, is not as expensive and time consuming as one would think, IF you have a properly drafted Will with an independent executor.  Most estates will have some sort of probate involved with the process of transferring assets.

Let's take a step back and say what probate is.  Probate comes from a Latin word meaning "to prove."  With a Will, the applicant is offering a document to prove that it is the Last Will and Testament.  Without a Will, one has to prove who the heirs are.  A Will has no legal effect until the testator dies (yes, there is a statute that says that) and until the Will is admitted to probate.  That does not mean a Will must be probated.  There are two types of assets: probate assets and non-probate assets.

Probate assets are those that pass through the Will, or if there is no Will, then through the intestacy laws.  Probate assets include stocks, bonds, bank accounts, privately held company stock and businesses, real estate, vehicles, and other tangible assets.  Non-probate assets include life insurance and retirement accounts; each of these allow for the designation of a beneficiary for those assets.  Further, almost any probate asset can be made into a non-probate assets.  For example, stocks in an account and money in the bank can have payable on death beneficiaries or joint tenants with rights of survivorship.  Even real estate can get transferred by a transfer on death deed or a life estate deed.  Finally, a person can create a revocable living trust and transfer assets to it.  Any assets titled in the trust at death do not need to go through probate.

Now, should you arrange your estate to avoid probate?  For most of my clients, the answer is no.  For some clients, I do create living trusts and transfer the probate assets to it.  Who are these clients?

(1) Elderly clients who have no one to manage their affairs upon incapacity
(2) High net worth clients with assets and business to manage--beneficiaries should not have to wait until a court appoints an executor to manage these assets.
(3) Clients with real estate held out of state.
(4) Clients who want privacy in the administration of their estate.  Trust assets need not get reported on a probate inventory.

Of course, with the best of plans of men, invariably, a person with a living trust plan will have an asset not held in the trust at death.  To transfer that asset, what is required?  Probate!