ESTATE PLANNING TO PROTECT

THE SURVIVING SPOUSE

GLENN M. KARISCH

Ikard & Golden, P. C.

823 Congress Avenue, Suite 910

Austin, Texas 78701

(512) 472-4542/FAX (512) 472-3669

email: karisch@io.com

www.io.com/~karisch/ikard&golden.html

Copyright © 1997 By Glenn M. Karisch, All Rights Reserved

Originally Presented At The

21st ANNUAL

ESTATE PLANNING AND PROBATE LAW COURSE

June 4-6, 1997

Table of Contents

I. INTRODUCTION -- THE FOREST OR THE TREES?	1

II. MEET THE BRADYS	1

III. ETHICAL ISSUES IN PLANNING A MARRIED COUPLE'S ESTATE	2

A. Who is the Client?	2

B. Death Planning vs. Divorce Planning	4

C. Effect of Barcelo on Suits by Surviving Spouse	4

1. The Barcelo Decision	4

2. Does the Surviving Spouse Have Privity?	4

3. Drafting Engagement Letters After Barcelo	5

D. Client Communications	6

1. Terminating the Relationship at the End of Planning	6

2. Too Much of a Good Thing?	6

IV. FROM WHAT ARE WE PROTECTING THE SURVIVING SPOUSE?	7

A. Fiduciary Claims of Descendants and Remaindermen	8

B. Protection from Creditors	9

1. Tort Creditors of Deceased Spouse	9

2. Non-tort Creditors of Deceased Spouse	9

3. Creditors of Surviving Spouse	9

C. Incompetent Management of Assets	9

V. TRADITIONAL PLANNING TECHNIQUES AND SUGGESTED ALTERNATIVES	10

A. Will-Based Planning vs. Revocable Trust Planning	10

1. Will/Trust Contests	10

2. Fiduciary Claims	10

B. Funding the Bypass with a Formula Clause vs. a Disclaimer	10

C. Spouse as Trustee vs. Neutral Trustee	11

D. HEMS Income Distribution Standard vs. All Income to Spouse	11

E. Spray Power vs. Special Lifetime Power	12

1. Use of a Special Inter Vivos Power	12

2. Tax Effects of Using a Special Inter Vivos Power	12

a. Avoiding Support Obligations	13

b. Income Tax Effects	13

c. Gift Tax Effects	13

(1) Mandatory Income Distributions	13

(2) HEMS Income and Principal Distribution Standard	13

3. Summary: Proceed With Caution	14

F. Per Stirpes Distribution at Death vs. Special Testamentary Power	14

G. Family Limited Partnerships	15

1. The Law	15

2. Effects on Surviving Spouse as General Partner of Limited Partnership	16

H. Standard Fiduciary Powers and Duties vs. Special Powers and Duties	16

I. Exculpation Clauses	17

J. Conflict of Interest Clauses	17

VI. CONCLUSION	17

VII. APPENDICES	18

A. Appendix A -- Engagement Letter	18

B. Appendix B -- Transmittal Letter (For Drafts)	23

C. Appendix C -- Transmittal Letter (For Executed Originals)	25

D. Appendix D -- Disclaimer Trust Provisions	31

E. Appendix E -- Bypass Trust With All Income to Spouse, HEMS Principal

to Spouse and Special Testamentary Power	32

F. Appendix F -- Bypass Trust With HEMS Income and Principal to Spouse,

Special Inter Vivos Power and Special Testamentary Power	35

G. Appendix G -- Special Testamentary Power to Descendants and Charity	39

H. Appendix H -- Special Powers, Duties and Liability When Spouse is Trustee	40

I. Appendix I -- Conflict of Interest Provision	42

ESTATE PLANNING TO PROTECT THE SURVIVING SPOUSE

INTRODUCTION -- THE FOREST OR THE TREES?

When planning a married couple's estate, it is easy to focus on the tax issues involved and overlook important practical issues. While most clients would like to save taxes, if they really thought about it, most would probably say avoiding family conflicts and protecting the surviving spouse are higher priorities than tax savings. An estate planner's task is to elicit these wishes and draft documents which are the most likely to achieve their goals.

This paper discusses some of the ethical issues involved in planning a married couple's estate, examines some common estate planning techniques from the perspective of the surviving spouse and suggests alternative techniques which offer greater protection to the surviving spouse while still achieving some or all of the tax planning objectives.

MEET THE BRADYS

Here's the story of a lovely lady who was bringing up three very lovely girls. All of them had hair of gold like their mother, the youngest one in curls. It's the story of a man named Brady who was busy with three boys of his own. They were four men living all together, yet they were all alone until one day when the lady met this fellow, and they knew that it was much more than a hunch that this group must somehow form a family. That's the way they all became the Brady Bunch.

Mike Brady was widowed with three sons (all minors): Greg, Peter and Bobby. Mike married Carol, a divorcee with three daughters (also all minors): Marcia, Jan and Cindy. Mike and Carol had this 70ish idea that they could merge their families into one big, happy family, with all six children treated as the children of both parents.

Mike and Carol Brady came to see you in 1986 for estate planning. Things had been going quite well for the Bradys at the time, and it appeared likely that their combined marital wealth would probably exceed $1.2 million. Fortunately, they came in to see you, a young estate planning attorney, shortly after you returned from that year's Advanced Estate Planning and Probate Law Course, and you were equipped with several good estate planning ideas.

After your skillful explanation of the tax issues involved, and based on your energetic recommendation that they should take advantage of the tax savings afforded by credit shelter planning, Mike and Carol ask you to prepare wills for each of them with the following features:

•	A pecuniary outright marital gift with a residuary bypass trust.

•	The surviving spouse is executor and trustee, with Alice (the housekeeper) as successor executor and trustee until Greg reaches age 25 and with Greg as successor executor and trustee after he attains age 25.

•	The bypass trust authorizes the trustee not only to make income and principal distributions to the surviving spouse based on a health, education, maintenance and support standard, but also to make "spray" distributions to any descendant of either spouse based on the same HEMS standard.

•	Upon the surviving spouse's death, the property remaining in the bypass trust is distributed to the six children, or to their descendants, per stirpes.

When the Bradys come in to sign their new wills, Carol is a little concerned about all the complex tax and trust language in the will. Mike gives Carol a dirty look, and you are afraid that there may be an ugly scene. Quickly you smooth over the waters by explaining to Mike and Carol that these bypass trusts are just like outright dispositions, but with the added advantage of tax savings.

Seven years later, in 1991, Carol Brady calls you. She reports that Mike Brady has passed away (there were some nasty rumors about AIDS, but she assures you he had colon cancer) and that she needs to know what to do. The first thing you do is dig out your copy of Mike's will. Sadly, it doesn't look anything like your current wills. Still, it doesn't look too bad, and in due course you probate the will, file the tax return (there is no tax due because of the optimum marital deduction plan), fund the bypass trust and send Mrs. Brady on her way.

Now Mrs. Brady has come to see you again. (Funny, she doesn't look so bright and cheery now.) It seems that she is having trouble with her children. Ever since Mike died, she has been estranged from Greg and Peter. Bobby is the only one of Mike's children who is still on speaking terms with Carol, and he's a twenty-something year old who is jobless and still living at home. Peter is now a lawyer, and he's been peppering Mrs. Brady with letters demanding information and accountings. Mrs. Brady says she has decided that the whole tax savings thing isn't worth it, and that she just wants to undo the bypass trust and make a new will leaving everything to her daughter Jan. (After much prodding, you learn that Marcia (who has moved to Mount Shasta and changed her name to "Glistening Stone Under Falling Waters") and Cindy (who apparently has developed into something of an actress and dancer performing under the stage name "Sin-dee") have fallen into disfavor.) Mrs. Brady is especially interested in terminating the trust, since she lost a good deal of "her" money by investing in a failed fern bar called "Flowers and Friends."

What advice do you give Mrs. Brady?

ETHICAL ISSUES IN PLANNING A MARRIED COUPLE'S ESTATE

Let's turn the clock back to when Mr. and Mrs. Brady first came to see you about estate planning. What were the Bradys' estate planning goals? What effort did you make to discern if Mr. Brady's goals and Mrs. Brady's goals were the same? What did you do to assure that the plan you devised met the Bradys' goals? What steps did you take to protect yourself from later problems with the plan? What liability do you face as a result of preparing the Bradys' estate plan?

Who is the Client?

First, let's start with what appears to be a simple question: Who was your client when you prepared the Bradys' estate plan? Mr. Brady? Mrs. Brady? Both Mr. and Mrs. Brady? The Brady family? Most of us would probably say that our clients were both Mr. and Mrs. Brady. Hopefully we used an engagement letter which addressed this issue, although most of us probably would find few engagement letters in our 1986 estate planning files.

Identifying the client or clients can be tricky, especially when 20-20 hindsight affects the parties' recollection of the facts. The attorney-client relationship is governed by the law of agency and arises only upon the mutual consent of the attorney and the client. See Duvall County Ranch Co. v. Alamo Lumber Co., 663 S.W.2d 627, 633 (Tex. Civ. App. -- Amarillo 1983, writ refd. n.r.e.); Thompson v. Vinson & Elkins, 859 S. W. 2d 617, 621-23 (Tex. App. -- Houston [1st Dist.] 1993, writ denied). However, consent to establish an attorney-client relationship may be inferred from the conduct of the parties. Duvall County Ranch Co. v. Alamo Lumber Co., 663 S. W. 2d at 633. Assume for the moment that one of the Bradys' children attended the estate planning conference. That child's recollection of the meeting might convince a jury that an attorney-client relationship existed between the attorney and the child, despite everything the attorney may say to the contrary. In Vinson & Elkins v. Moran, ___ S. W. 2d ___, 1997 Tex. App. LEXIS 1498 (Tex. App. -- Houston [14th Dist.] 1997, no writ history), which was an estate administration case, the estate beneficiaries successfully established the existence of an attorney-client relationship with the executor's attorneys based on "beneficiary meetings" with attorneys and letters sent directly from the lawyer to the beneficiaries.

If an engagement letter is used, the identity of the client or clients should be expressly stated. For example, in the form engagement letter attached as Appendix A, the following language is used:

You, and you alone, are my clients. I owe no duty to your family members or to your potential estate beneficiaries.

This language may make things clear vis a vis the attorney and the persons he or she considers the clients, but it is only marginally helpful in defeating the claim of a family member who attempts to assert the existence of an attorney-client relationship. Should the attorney insist that a copy of the engagement letter be given to all potential estate beneficiaries? That seems extreme and is likely to be counter to the clients' best interests (since the clients may not wish to broadcast the fact that estate planning is occurring to all potential estate beneficiaries). However, if a potential estate beneficiary meets with the attorney and the clients at one or more of the estate planning conferences, then it is a good idea to provide a carbon copy of the letter to the potential beneficiary or, perhaps, a separate letter to the potential beneficiary.

In the vast majority of cases, both the husband and the wife will be the attorneys' clients. This multi- party representation, which practitioners in other areas of practice may shun, is the bread and butter of an estate planning practice. Thus, estate planning lawyers must live with the issues surrounding multi- party representation every day.

Rust E. Reid presented an excellent paper on multi-party representation at last year's conference. See "Ethical Problems in Multi-Party Representation in Estate Planning, Probate, and Fiduciary Matters," 1996 Advanced Estate Planning and Probate Course, State Bar of Texas. Reid points out that the most obvious (but not the only) problems presented in the representation of multiple parties have to do with communications -- (1) keeping client communications confidential and (2) keeping both clients reasonably informed.

Handling the problem with keeping client communications confidential is easy to solve, at least on the surface. An attorney cannot keep confidential information given by one client secret from the other client and still keep both clients reasonably informed. Therefore, both clients should agree that no communications between the attorney and either client will be kept confidential from the other. The form engagement letter in Appendix A includes the following language for this purpose:

Since there are two of you, the possibility of a conflict between you exists. You acknowledge and understand that, since I am representing both of you, no communication either of you has with me can be kept confidential from the other of you. If a conflict develops between the two of you, I may decline to continue to represent you.

In practice, the attorney is likely to run into problems where this tidy solution to the problem is challenged by messy facts. Assume, for instance, that the husband is the attorney's old college buddy and that this friendship is the reason the attorney- client relationship was established in the first place. If the husband shares information with the attorney which the husband assumes will be kept confidential (for example, news of an impending divorce), is the attorney going to keep that information confidential? Is the attorney in such a situation going to decline further representation of the friend?

The problems of keeping each client reasonably informed can be equally troubling. The client contact on an estate planning project is rarely equal. True, there are some cases in which a married couple comes to each planning session together. However, even in these cases there are likely to be telephone conferences with one spouse or the other. Also, the clients may participate unequally in planning conferences, and one client may understand the issues less than the other. Finally, one spouse may appear to dominate the other or make decisions for the other.

How does the estate planner assure that the estate planning document meets the wishes of both clients? One way is to rely more heavily on written communications (although this may in reality protect the attorney more than it protects the "quiet" spouse). Descriptions of strategic decisions involved in devising the estate plan can be included in engagement letters or transmittal letters. For example, the following language (from the form engagement letter attached as Appendix A) may be used to emphasize that meeting tax planning objectives meant sacrificing other objectives:

[Y]ou have indicated that you want your estate plan to include provisions designed to save your family estate and/or gift taxes. By including these provisions, you should recognize that (a) your estate planning documents are likely to be more complex than they would have been if tax savings was not an objective and (b) restrictions may be placed on your beneficiaries (including the surviving spouse) that may make it more difficult to fully utilize and enjoy the property free from interference by and/or liability to others. This will confirm that we have discussed these issues at some length and that you have decided that the potential tax savings to be gained from this plan take priority over these potential detriments.

This solution may succeed only in protecting the attorney, rather than one or both of the clients. Also, the attorney may be reluctant to discuss some strategies in such a letter. And, of course, there is always the risk that the description of the plan may deviate from the plan itself. Nevertheless, written communication of this sort is one way to attempt to assure that your clients know what they are getting into.

Death Planning vs. Divorce Planning

An estate plan that is an estate and gift tax masterpiece can be a disaster for either or both spouses if their marriage ends in divorce rather than death. See Robert H. Kroney and Thomas P. Goranson, "Estate Planning/Divorce Interface," 18th Annual Advanced Estate Planning and Probate Course (1994), State Bar of Texas. Hopefully we all cover this issue in our estate planning conferences. Even if the issue is discussed, it should also be covered in written form. The following language (from the form engagement letter attached as Appendix A) may be used:

In helping you with your estate plan, my objective will be planning for the death or disability of either or both of you; I will not be considering the effects of a possible divorce. Either or both of you may be adversely affected by your estate plan in the event your marriage ends in divorce. If you have any questions about how this plan may affect you in the event of a divorce, please consult with an attorney experienced in family law matters.

Effect of Barcelo on Suits by Surviving Spouse

A key reason why it is important to identify one's clients is the privity defense in legal malpractice claims. Privity is alive and well in Texas, as evidenced by the Texas Supreme Court's decision in Barcelo v. Elliott, 923 S. W. 2d 575 (Tex. 1996).

The Barcelo Decision

In Barcelo, the intended beneficiaries of an invalid trust brought a legal malpractice claim against the attorney who prepared the trust, alleging that the attorney's negligence caused the trust to be invalid. The Supreme Court held, in a split decision, that the attorney owed no professional duty to the intended trust beneficiaries because he did not represent them. Chief Justice Phillips writes in the majority opinion:

We believe the greater good is served by preserving a bright-line privity rule which denies a cause of action to all beneficiaries whom the attorney did not represent. This will ensure that attorneys may in all cases zealously represent their clients without the threat of suit from third parties compromising that representation. . . . We therefore hold that an attorney retained by a testator or settlor to draft a will or trust owes no professional duty of care to persons named as beneficiaries under the will or trust.

923 S. W. 2d at 578-9. [Emphasis added]

Thus, it seems clear under Barcelo that, if the attorney successfully establishes that the intended beneficiaries are not his clients, then the attorney owes no duty to such beneficiaries and he or she is off the hook for negligently preparing estate planning documents. Remember, however, that the beneficiaries may successfully prove that an attorney- client relationship existed between the attorney and themselves. See Vinson & Elkins v. Moran, ___ S. W. 2d ___, 1997 Tex. App. LEXIS 1498 (Tex. App. -- Houston [14th Dist.] 1997, no writ history).

Does the Surviving Spouse Have Privity?

The answer is not so clear when the attorney represents both spouses and the surviving spouse is a beneficiary. If an attorney-client relationship existed between the attorney and the surviving spouse, and if the estate planning documents were negligently prepared, resulting in a material harm to the surviving spouse (for example, if an intended QTIP trust fails to qualify for the marital deduction, resulting in unintended tax liability on the death of the first spouse to die), does Barcelo bar a malpractice claim brought by the surviving spouse?

One the one hand, one may argue that the policy arguments supporting Barcelo apply with equal force to a malpractice claim brought by the surviving spouse in his or her capacity as beneficiary. Barcelo's bright-line privity rule is intended to ensure that attorneys may zealously represent their clients without threat of suit from third parties. If the attorney must fear a suit by the surviving spouse as beneficiary, the advice he or she gives the testator may be affected. Also, while the attorney may have represented both spouses in preparing the estate planning documents, the surviving spouse was not "the client" for privity purposes vis a vis the will of the first spouse to die.

On the other hand, one may argue that, in entering into the attorney-client relationship with the attorney, the surviving spouse reasonably anticipated that the attorney would prepare both sets of documents in a professional manner. The Barcelo court seems to anticipate that beneficiaries who also are clients may have the requisite privity to bring a malpractice claim. In Vinson & Elkins v. Moran, supra, the beneficiaries overcame the privity barrier by proving to the jury's satisfaction that an attorney- client relationship existed between the beneficiaries and the attorneys.

There is no clear answer to this issue at this time. An excellent source of defensive arguments based on Barcelo is Joyce Moore's article entitled "Ten Foot Tall and Bullet Proof, or, What's Left After Barcelo? A Case Study" in the Advanced Estate Planning Strategies Course (1997), State Bar of Texas.

Drafting Engagement Letters After Barcelo

Consider again the following language from the form engagement letter attached as Appendix A:

You, and you alone, are my clients. I owe no duty to your family members or to your potential estate beneficiaries.

Does this language hurt the attorney's privity argument in a malpractice claim brought by the surviving spouse? If this provision was not in the engagement letter, the attorney might argue that, under Barcelo, the attorney-client relationship in question was between the attorney and the deceased spouse. This affirmative statement that both spouses are clients may actually do more harm than good.

How would a prospective client react to the following provision in an engagement letter?

You, and you alone, are my clients. I owe no duty to your family members or to your potential estate beneficiaries. In preparing [Husband]'s estate planning documents, I am representing [Husband] only and owe no duty to [Wife]. In preparing [Wife]'s estate planning documents, I am representing [Wife] only and owe no duty to [Husband].

Could one reasonably expect a client who reads this provision to sign the engagement letter? If not, isn't that a pretty good indication of what the clients' expectations are regarding professional duties owed to the surviving spouse?

On the other hand, the following language is not so offensive and may preserve a Barcelo privity argument in a suit by the surviving spouse:

Multi-party Representation. My representation of you in this matter requires me to represent each of you as clients at the same time. Of course, you could each retain your own attorney to prepare your estate planning documents, but you have indicated that you prefer to have me prepare estate planning documents for both of you. I am happy to do this, subject to the following conditions regarding multi-party representation:

1. Since there are two of you, the possibility of a conflict between you exists. You acknowledge and understand that, since I am representing both of you, no communication either of you has with me can be kept confidential from the other of you. If a conflict develops between the two of you, I may decline to continue to represent you.

2. When I am advising [Husband] and preparing [Husband]'s documents, [Husband] is my only client, and I owe no duty [Husband]'s family members or potential estate beneficiaries.

3. When I am advising [Wife] and preparing [Wife]'s documents, [Wife] is my only client, and I owe no duty [Wife]'s family members or potential estate beneficiaries.

This language is included as an option in the form engagement letter attached as Appendix A.

Client Communications

Has there ever been a paper addressing ethical issues which did not emphasize the importance of client communications? This paper is no different. As may be gleaned from the above discussion, a number of the ethical dilemmas which arise in representing a married couple in estate planning can be addressed, if not totally avoided, in an attorney's correspondence with the client.

Attached to this paper as Appendix A is a form engagement letter which addresses a number of these issues. Attached as Appendix B is a form of letter used to transmit drafts of estate planning documents to the clients for review. Attached as Appendix C is a form of letter used to transmit executed original estate planning documents to the clients.

Terminating the Relationship at the End of Planning

Note that these forms attempt to terminate the attorney-client relationship at the conclusion of the estate planning process. For example, the cover letter transmitting executed originals (Appendix C) provides:

7. My representation of you. Please read through the enclosed documents carefully over the next two weeks. If I have made any mistakes, or if there is something you do not like or understand, please call me, and I will clear things up. If I have not heard from you within two weeks, I will assume everything is the way you want it, and my representation of you in this matter will cease.

In this matter, you and you alone have been my client. I owe no duty to any of your family members or other possible beneficiaries. I have no continuing duty to update your plan or otherwise represent you. Of course, I look forward to working with you again in the future should you wish to hire me to help you with revising your estate plan or with another matter.

A speaker at the Advanced Estate Planning and Probate Course several years ago suggested this approach, including giving the client a couple of weeks to review the documents. In several years of using this language, the author has never had a client call back during the two-week period with a problem.

Terminating the attorney-client relationship is important so that there is no confusion about whether or not the attorney has a duty to keep the client informed of law changes and to update documents as necessary.

Too Much of a Good Thing?

It is easy to get carried away in client communications. Document assembly programs now make it possible to produce "understandable" abstracts of estate planning documents which can accompany the documents themselves. Living trust factories produce impressive binders and document descriptions which their customers obviously like. Estate planning attorneys understandably feel pressure to do likewise.

The goal in client communications should not be detailed descriptions of every aspect of the representation, but rather general discussions of the key points. A section-by-section description of each document presents the following potential problems:

•	The client may wonder why the documents were so "un-understandable" that a description had to accompany them.

•	The client may confuse the description with the document itself.

•	Discrepancies between the description and the document are inevitable. If this was not the case, then the document could be as simple as the description, and the description could be eliminated.

Thus, rather than a section-by-section description of the bypass trust, the following general description in the transmittal letter (Appendix B) gets the necessary points across:

[Each of your estate plans will include a] Will, which provides (among other things) for the creation of a "Bypass Trust" as a means to preserve the estate and gift tax credit of the first spouse to die. This credit, which currently is equivalent to $600,000 in assets, may allow the two of you to pass more of your combined marital wealth to your descendants or other estate beneficiary free of the estate tax. The Bypass Trust in each Will is funded by means of a formula. This formula contains language which is intended to maximize the amount of property passing into the Bypass Trust without causing there to be any tax due on the death of the first spouse to die. Funding of the Bypass Trust pursuant to this formula is mandatory on the death of the first spouse -- the surviving spouse has no power to choose whether or not to fund the Bypass Trust.

Another practice which may create some problems while solving others is the use of estate planning questionnaires. Before preparing and using a questionnaire, the attorney should ask himself or herself: What is the purpose of the questionnaire? It may be marketing tool. For example, in answering the questions, the potential client may convince himself or herself that estate planning is needed or give the attorney discussion points in the initial client conference which will help close the deal. Or it may be a tool for the attorney to use to better plan the estate. For example, it may include obscure questions which are easily missed in the initial client interview.

Whatever its purpose, the attorney should review the questionnaire for malpractice traps. Imagine, for example, that the attorney representing the Bradys used a questionnaire which asked the following [the Bradys' responses are shown]:

Please indicate which of the following are your estate planning goals and rate those goals where "1" is the most important goal and "10" is the least important goal:

3	Tax savings

4	Providing for my children

6	Providing for my grandchildren

1	Providing for the surviving spouse

5	Asset protection

2	Preventing family disputes

Now imagine that the plan the attorney came up with for the Bradys involved a bypass trust with the surviving spouse as the trustee and a spray power to the spouse and descendants based on a health, education, maintenance and support standard. If Mrs. Brady is sued by one of her grandchildren for breach of fiduciary duty, and if she digs out her copy of the questionnaire (or it is produced in discovery) and finds that providing for the surviving spouse and preventing family disputes were given the highest priorities, what position will the attorney be in?

FROM WHAT ARE WE PROTECTING THE SURVIVING SPOUSE?

Before examining several traditional estate planning techniques and possible alternatives, consider what evils lurk out there from which the surviving spouse should be protected. This paper focuses on three: (1) fiduciary claims of descendants and remaindermen, (2) claims of creditors and (3) incompetent management of assets. Of these three, the greatest emphasis is placed on protecting the surviving spouse from fiduciary claims.

While all three of these "evils" may be present in varying degrees in every planning context, the particular circumstances of each married couple usually make one predominate.

Fiduciary Claims of Descendants and Remaindermen

Most common estate planning techniques, including basic credit shelter and GST planning, seek to reduce estate and gift taxes. Achieving this goal directly benefits descendants and remaindermen, usually at the expense of the donor/testator and his or her spouse. It is crucial for the estate planning attorney to discuss this phenomenon with his or her clients in client conferences and in correspondence with the client. Most married couples with taxable estates who make it into an estate planner's office are going to opt for tax planning over outright bequests to the surviving spouse, but they should be given the choice of a simple "I love you" will.

If the surviving spouse is the trustee of a trust, he or she has fiduciary duties, unless he or she has a general power of appointment. See Westerfeld v. Huckaby, 474 S.W.2d 189 (Tex. 1971), and Wilkerson v. McClary, 647 S.W.2d 79 (Ct. App. -- Beaumont 1983). Clients need to be told in the planning phase about these duties.

To an estate planner, what constitutes a fiduciary duty and what it takes to breach such a duty may seem to be limited only by the imagination of a fiduciary litigator. One fiduciary litigator with whom the author is familiar recently listed these 15 fiduciary duties:

•	The duty of prudence;

•	The duty of loyalty;

•	The duty of impartiality;

•	The duty of good faith and fair play;

•	The duty to take possession of trust property;

•	The duty to segregate trust assets and not to commingle;

•	The duty to carry out the directions of the settlor;

•	The duty to keep beneficiaries informed and to account to them;

•	The duty to preserve and protect the trust property;

•	The duty not to delegate trust responsibilities;

•	The duty to keep accurate books and records;

•	The duty to make trust property productive;

•	The duty to review trust investments periodically;

•	The duty to uphold and defend the trust; and

•	The duty to investigate the acts and omissions of predecessor fiduciaries.

See Frank N. Ikard, Jr., "Administration of Community Property After a Spouse's Death," 1996 Advanced Estate Planning and Probate Course, State Bar of Texas.

Outright bequests to the surviving spouse eliminate all potential fiduciary claims against the surviving spouse. (The surviving spouse receiving an outright bequest may be an attractive target for a guardianship proceeding to wrest control of assets, but that is not a fiduciary problem.)

Often the primary goal of estate planning is to put the surviving spouse as close as possible to where he or she would be if an outright disposition had been used without crossing the line that makes the assets in the Bypass Trust includible in his or her estate. While that may be the goal, estate planners should resist the temptation to understate the distinctions between outright dispositions and trust dispositions when counseling estate planning clients. Bypass trusts are not "just like owning it outright," and clients should not be told this.

While potential fiduciary claims may be more likely (and obvious) when clients have children from their prior marriages, nuclear families are by no means exempt from family fights over money. The likelihood of a fiduciary claim seems directly proportional to the amount of property held by the fiduciary. Even in the most congenial family situations, the possibility of future conflict should be considered and addressed.

The fiduciary liability aspects of specific planning techniques are discussed below.

Protection from Creditors

The surviving spouse may need protection from creditors. Creditors come in many shapes and sizes:

Tort Creditors of Deceased Spouse

The surviving spouse's separate property is not liable for any of the deceased spouse's liabilities, whether or not the liability is based on a tort. Tex. Fam. Code §3.202(a). All community property is subject to the tort creditors of the deceased spouse. Tex. Fam. Code §3.202(d). Creative use of provisions in the Probate Code favoring the surviving spouse may help protect some community property from the tort creditors of the deceased spouse. See, e.g., Tex. Prob. Code Ann. §177(b) and 270 -- 293. Also, investing marital assets prior to the death of the first spouse to die in investments which are exempt from creditors' claims may afford some protection.

Non-tort Creditors of Deceased Spouse

The non-tort creditors of the deceased spouse cannot reach the separate property of the surviving spouse or the sole management community property of the surviving spouse. To avoid loss of creditor protection for the surviving spouse's sole management community property, such property either should not be listed on the probate inventory or the inventory should include a provision stating that the surviving spouse is not waiving his or her rights under Tex. Prob. Code Ann. §177(b). See Frank N. Ikard, Jr., "Administration of Community Property After a Spouse's Death," 1996 Advanced Estate Planning and Probate Course, State Bar of Texas.

Creditors of Surviving Spouse

If the surviving spouse is likely to have creditor problems, spendthrift trust planning should be considered. For example, a obstetrician may want his or her spouse to utilize a bypass trust/QTIP trust arrangement (perhaps funded with life insurance which pours over directly into one of the trusts) so that those assets will be beyond the reach of future tort claimants. The probability of harm from fiduciary claims for the doctor may be much lower than the probability of a tort claim.

When planning to protect the surviving spouse from possible creditors' claims, consider using a corporate trustee either as the initial trustee or as successor trustee. Theoretically there should be no less spendthrift protection for a beneficiary who is a trustee of the trust. However, as a practical matter, a creditor may have more luck busting a trust where the debtor is the trustee with a health, education, maintenance and support standard than where a trust company with broad discretionary powers is the trustee. Consider naming the surviving spouse as trustee with a corporate successor. The corporate trustee's powers can be different from the spouse's, and the spouse can be given the power to remove and replace the corporate trustee.

Incompetent Management of Assets

One spouse may wish to protect his or her spouse from incompetent management of assets. This incompetence could be in one of two forms: (1) the testator could worry about his or her spouse's ability to manage the assets (as trustee or otherwise) or (2) the trustee could worry about the incompetence of a third-party trustee.

If one spouse has handled a couple's financial affairs to the exclusion of the other, he or she may legitimately worry about the ability of the out-of- practice spouse to handle things. This may be an awkward issue to discuss with the couple, but it is important to get the issue out in the open. (Of course, it is a lot easier to write that in this paper than it is to do that in practice.)

If a spouse may be unable to handle the property, consider bypass trust/QTIP trust planning. If the spouse is named as trustee, review carefully the successor trustee and incapacitated trustee provisions of the instrument.

If a corporate trustee or other third party trustee is used, consider giving the surviving spouse the power to remove the trustee and appoint a successor.

TRADITIONAL PLANNING TECHNIQUES AND SUGGESTED ALTERNATIVES

Assuming that creditor protection, asset management or other priorities do not supersede protecting the surviving spouse from claims by descendants and remaindermen, what are some techniques that offer greater protection to the surviving spouse?

Will-Based Planning vs. Revocable Trust Planning

Does the use of a revocable management trust offer the surviving spouse greater protection from fiduciary claims? It depends upon when and where the problem is likely to arise.

Will/Trust Contests

Although not strictly a fiduciary claim, the probability of a will contest or trust contest could be a serious threat to the surviving spouse.

If a contest is expected, consider using a funded revocable management trust as the primary planning vehicle. (An unfunded trust accomplishes little or nothing in this regard if the will must be probated to pour over assets into the trust.) See Frank N. Ikard, Jr., "Drafting to Avoid Will Contests and Fiduciary Litigation," 1996 Advanced Drafting: Estate Planning and Probate Course, State Bar of Texas.

Whether the primary vehicle is a will or trust, an in terrorem clause should be considered.

Fiduciary Claims

Texas statutes and courts have recognized the validity of revocable trusts where the settlor also is the trustee and primary beneficiary of the trust and, in fact, has a general power of appointment. See Westerfeld v. Huckaby, 474 S.W.2d 189 (Tex. 1971), and Wilkerson v. McClary, 647 S.W.2d 79 (Ct. App. -- Beaumont 1983). If the settlor/trustee can terminate the trust at any time and pay the trust property to himself, then he effectively has no fiduciary duties. In that sense, a fully revocable trust is like an ambulatory will for fiduciary liability purposes.

The fiduciary problems with revocable trust planning are likely to arise when the first spouse dies. In the typical case, the husband and wife establish a single management trust while both spouses are living that splits into two or more trusts when the first spouse dies. Unless the surviving spouse has a general power of appointment over both such trusts (which is unlikely), the surviving spouse will owe fiduciary duties to remaindermen.

Thus, if you accept the premise that a "standard" revocable management trust splits into at least two trusts when the first spouse dies and that the surviving spouse has no general power of appointment over at least one of the trusts, while a "standard" will for a married couple makes an outright bequest to the surviving spouse, then the "standard" revocable management trust gives the surviving spouse less protection from fiduciary claims than the protection given by a "standard" will.

Of course, if a credit-shelter trust is going to be used with the spouse as trustee and, then the spouse is going to have fiduciary duties whether the trust is set up by will or by inter vivos instrument.

Funding the Bypass with a Formula Clause vs. a Disclaimer

Most credit shelter trusts are funded by means of a formula clause. The most common type of funding clause in Texas probably is the pecuniary marital deduction/residuary bypass clause (or, in cases where the marital deduction gift exceeds the bypass gift, a pecuniary bypass/residuary marital clause). Examples of formula-funded bypass trusts are attached as Appendix E and Appendix F.

Not all credit shelter trusts are funded by means of a formula, however. Treas. Reg. §25.2518-2(e)(2) permits the surviving spouse to disclaim property into a credit shelter trust and serve as trustee of the trust, so long as the spouse possesses no power to direct the beneficial enjoyment of the disclaimed property that is not limited by an ascertainable standard. An example of a simple disclaimer-funded trust is attached as Appendix D.

When comparing formula funding and disclaimer funding of the bypass trust, the formula funding approach has two distinct advantages:

•	The bypass trust is sure to be funded (in other words, all that good tax planning is not dependent upon the decision of a grieving widow or widower to disclaim); and

•	The surviving spouse can be given a special power of appointment over the trust.

However, from the surviving spouse's perspective, the first "advantage" of the formula clause method may be a huge disadvantage -- the surviving spouse cannot opt out of the tax-planned trust when the first spouse dies.

As is discussed below, a special power of appointment can be a huge disincentive for a potential remainderman to complain about the surviving spouse's actions as trustee. Since a disclaimer-funded bypass trust cannot include a special power of appointment, and since the decision to disclaim must be made within nine months of the date of death, the planner and his or her clients who are worried about a potential problem with descendants are forced to make a key choice in the planning process:

•	Should the disclaimer method be used so that the surviving spouse can opt out of the bypass trust entirely if problems appear likely to arise within nine months of death; or

•	Should the formula method, coupled with a special power, be used to guard against problems that may not surface until after the nine-month disclaimer deadline is long gone?

The disclaimer method is likely to become much more common if the unified credit is increased.

Spouse as Trustee vs. Neutral Trustee

One way to insulate the surviving spouse from fiduciary liability is to avoid making him or her a fiduciary. This may be particularly appropriate in second marriages.

If a trustee other than the spouse is to be used, and if the goal is protecting the surviving spouse, then a corporate trustee (with the spouse holding the power to remove the trustee and replace it with another corporate trustee) usually offers greater protection than another family member. Even if the family member is "loyal" to the surviving spouse (such as the surviving spouse's daughter in a second marriage situation), the loyal trustee's allegiance to the surviving spouse likely can be used against him or her by "disloyal" family members to gain an advantage in fiduciary litigation. A corporate trustee is more immune to such attack and hopefully can be kept in line by the surviving spouse's power to remove it and replace it.

HEMS Income Distribution Standard vs. All Income to Spouse

Does this sound familiar? In a bypass trust with the surviving spouse as trustee, the trustee is given the power to make principal and income distributions to the spouse based on a health, education, maintenance and support standard, taking into consideration other resources available to the knowledge of the trustee. Because of the compressed income tax rates applicable to trusts, the trustee's attorney and/or accountant recommend that all income be distributed to the surviving spouse so that the effective income tax rate is reduced. For ten straight years, all of the bypass trust income is distributed to the spouse, even though his or her own assets are sufficient to provide for his or her needs. This is a fairly common fact pattern, isn't it?

In the eleventh year, the remaindermen sue the surviving spouse as trustee, claiming various breaches of fiduciary duty. Plaintiff's Exhibit No. 1 is the trust accounting showing that, for ten straight years, all trust income was distributed to the surviving spouse.

A trustee has a duty to administer the trust in accordance with the trust instrument. See Restatement (Second) of Trusts §169; Bogert and Bogert, The Law of Trusts and Trustees § 583 (2nd ed. 1985); Texas Trust Code §113.082. When there are two or more beneficiaries of a trust, the trustee has a duty to deal impartially with them. See The Restatement (Second) of Trusts, §183. A trustee may be held liable not only for abuse of discretion, but also for the failure to exercise discretion. See State v. Rubion, 158 Tex. 43, 308 S. W. 2d 4 (1957).

In the above hypothetical, it should be fairly easy for the plaintiffs to show that the spouse/trustee either abused his or her discretion or failed to exercise his or her discretion by paying all of the income to the spouse/beneficiary each year. It will be hard for the spouse/trustee to argue that he or she applied the standard stated in the trust instrument and decided each year that the amount of trust income precisely equaled the spouse/beneficiary's health, education, maintenance and support needs, taking into account other available resources to the knowledge of the spouse/trustee/beneficiary.

It is also likely that the plaintiff will be able to show that the spouse/trustee breached his or her duty of impartiality by distributing all income to himself or herself -- especially if the spouse also held a power as trustee to spray distributions to descendants on a health, education, maintenance and support standard.

It seems logical to favor an HEMS income distribution standard over a mandatory income distribution standard in the bypass trust. Usually the goal is to permit the bypass trust to grow by accumulating as much income as possible. While a mandatory income distribution provision is required in QTIP trusts, bypass trusts have the flexibility to permit accumulation of income.

On the other hand, if it seems fairly likely that all of the income will be distributed to the surviving spouse (as might be the case where a smaller estate includes bypass planning), why put the spouse/trustee in a position to possibly abuse his or her discretion or fail to exercise his or her discretion by imposing a health, education, maintenance and support standard on income distributions? If the trust described in the above hypothetical had an "all income to spouse" distribution provision, there would have been no breach of the duty of impartiality, no abuse of discretion and no failure to exercise discretion.

The sample bypass trust attached as Appendix F has HEMS powers as to principal and income. The sample trust attached as Appendix E has a mandatory income distribution standard and HEMS powers as to principal.

Spray Power vs. Special Lifetime Power

It is tempting to push for maximum flexibility when planning an estate. After all, the clients pay the estate planner to anticipate a wide variety of possible events and deal effectively with those events.

A traditional way to build in flexibility in bypass trust planning is to give the spouse/trustee the power not only to make income and/or principal distributions to himself or herself (limited by an ascertainable standard), but also to make HEMS distributions to the testator's descendants. In this way the surviving spouse can "spray" trust income or corpus to descendants without using up any of the surviving spouse's annual exclusion or unified credit.

Unfortunately, this spray power raises potential fiduciary problems for the spouse/trustee. Since the power is held by the spouse/trustee in his or her capacity as trustee, it carries with it a plethora of fiduciary duties -- the duty of impartiality and the duty of loyalty for starters.

Use of a Special Inter Vivos Power

Compare the spray power with a special inter vivos power of appointment. By giving the spouse the power to appoint trust property among descendants in his or her individual capacity as a beneficiary rather than as trustee, the spouse still has the ability to cause trust distributions to the descendants if she determines that this is desirable. Moreover, the spouse can exercise or not exercise the special power without fear of fiduciary liability.

When coupled with a special testamentary power of appointment (discussed below), a special inter vivos power of appointment can achieve a high level of flexibility while still protecting the surviving spouse.

Tax Effects of Using a Special Inter Vivos Power

Of course, using a special inter vivos power is not a desirable alternative if it carries with it significant adverse tax consequences.

Avoiding Support Obligations

The trust instrument should include a provision prohibiting the spouse from having the power to satisfy his or her support obligations from the trust. Having the power to use trust property to satisfy a spouse's support obligations (such as a parent's duty under state law to support his or her minor children) gives the spouse a general power of appointment to the extent the trust property could have satisfied the spouse's legal obligations. I.R.C. §2041; Treas. Reg. §20.2041-1(c); Rev. Rul. 79-154, 1979-1 C.B. 301. The power to satisfy support obligations creates a general power of appointment regardless of whether the power is held by the spouse in his or her fiduciary capacity as trustee (as would be the case if the spouse had the power as trustee to make spray distributions to her minor children in satisfaction of support obligations) or by the spouse in his or her capacity as beneficiary (as would be the case if the spouse had a special inter vivos power to appoint trust property to her minor children in satisfaction of support obligations). Thus, regardless of which approach is used (spray power or special inter vivos power), the trust instrument should negate the power to make distributions to satisfy support obligations.

The sample trust language attached as Appendix F contains a provision negating the power to make distributions in satisfaction of support obligations.

Income Tax Effects

Arguably, at least, distributions of trust income to descendants by a spouse/trustee using a spray power cause the trust income to be taxed to the descendants and not the spouse or the trust. See PLR 8939012. This may not be the result if the spouse/beneficiary instead exercised a special power of appointment to cause the same property to be distributed to the descendants. See I.R.C. §678(a)(1).

However, having the surviving spouse taxed on all of the income of the bypass trust even if he or she exercised a special power to appoint some of the trust property to her descendants is not necessarily a bad thing. It leverages the transfer tax advantages of the bypass trust in much the same way as an intentionally defective grantor trust.

Gift Tax Effects

Is the spouse's exercise of a special inter vivos power of appointment a taxable gift? If the trust contains an "all income to spouse" distribution provision, then the answer is pretty clearly yes. If, on the other hand, the trust contains an HEMS standard as to income and principal, then the answer should be no.

Mandatory Income Distributions

In Estate of Register v. Commissioner, 83 T.C. 1 (1984), the Tax Court held that a taxable gift occurs when the income beneficiary exercised a special inter vivos power of appointment over a portion of the trust corpus. The court reasoned that, since the beneficiary was entitled to all of the income of the trust for life, an exercise of the special power of appointment was a taxable gift under I.R.C. § 2511. See also PLR 9419007 and PLR 8825080.

HEMS Income and Principal Distribution Standard

Register was a case involving a trust with a mandatory income distribution provision. Does a taxable gift result when the beneficiary of a trust who is entitled to distributions based on an ascertainable standard (e.g., health, education, maintenance and support) exercises a special inter vivos power of appointment over the trust corpus?

In PLR 9451049, two sisters were beneficiaries of identical trusts. Each sister was entitled to HEMS distributions, and each had a special inter vivos power of appointment to appoint the property to a class of persons including the other sister. The sisters proposed exercising their special inter vivos powers of appointment in favor of each other with respect to the entire trust. (They did not like the remaindermen who would take in default of the appointment). The IRS ruled that the proposed exercise of the special powers would constitute a transfer of their right to receive HEMS distributions during their lifetimes under Treas. Reg. §25.2514-1(b)(2) and I.R.C. §2511(a). The Service said the value of the property interest to be transferred was readily ascertainable since, in theory, an ascertainable standard is (you guessed it) ascertainable.

However, in PLR 9451049, the taxpayers proposed exercising their powers of appointment with respect to all of the property in the trust. The author has found no case or ruling where the exercise of a special power with respect to a relatively small portion of a trust where the powerholder was an HEMS beneficiary resulted in a taxable gift.

In order to be a taxable gift, the exercise of the power would have to be a transfer of a right or interest in property. See I.R.C. §2511. As illustrated in PLR 9451049, a surviving spouse's right to receive HEMS distributions during his or her lifetime is a property interest capable (in theory at least) of valuation. If after exercise of the special power there remains in the trust sufficient income and principal to provide for the HEMS beneficiary's health, education, maintenance and support, then what property interest has been transferred? The answer should be: nothing! The powerholder still gets his or her HEMS distributions for life -- the property interest he or she held prior to the exercise of the power. Even if one assumes that exercise of the power in this situation constitutes the transfer of some property interest, the interest transferred is incapable of valuation and is a gift of a present interest (qualifying for the annual gift tax exclusion under I.R.C. §2503 as well).

The sample trust language attached as Appendix F contains an optional provision which prohibits the exercise of the power over property needed to satisfy the HEMS standard. This may cause confusion as to what trust property is subject to the power, especially if the surviving spouse resigns as trustee, an independent trustee is appointed successor trustee, and the surviving spouse then elects to exercise the power of appointment. Nonetheless, it should further insulate the surviving spouse from a claim that the exercise of the special power was a taxable gift.

Further comfort can be drawn (at least during the estate planning process) from the fact that the taxable gift occurs, if at all, when the power is exercised. If the power exists but is never exercised, there is no taxable gift.

Summary: Proceed With Caution

If a special inter vivos power of appointment is to be used as an alternative to a spray power, then:

•	Prohibit the exercise of the power to satisfy the spouse's legal obligations of support;

•	Consider limiting the power to property that is not necessary to satisfy the HEMS distribution standard (e.g., the optional language in Appendix F); and

•	Never, ever use the special inter vivos power with an "all income to spouse" trust, which leads to . . .

Important Caveat: These suggestions cannot be mixed and matched with impunity. Choosing certain options precludes other options. For example, choosing to fund the bypass trust with a disclaimer provision precludes using a special power of appointment. The planner must carefully review each plan to assure that it meets that particular client's needs.

The sample trust at Appendix F couples an HEMS income distribution standard with a special inter vivos power of appointment. Note that the sample trust at Appendix E has no special inter vivos power of appointment since, as a mandatory income distribution trust, exercise of the special inter vivos power would be a taxable gift.

Per Stirpes Distribution at Death vs. Special Testamentary Power

In some cases, a per stirpes distribution among testator's descendants at death is required by practical considerations. For example, in a second marriage, the wife may be willing for the husband to have use and control of the bypass trust while living, but upon his death, the wife may want to assure that the children from her first marriage get what is left.

In other cases, however, a mandatory per stirpes distribution scheme may be included when the clients would be better served if they gave each other special testamentary powers of appointment. No other device is as likely to squelch the verbalization of discord among descendants as is the creative use of a special power of appointment. Once becoming aware that he or she may be completely excluded from family wealth if he or she complains, it takes a real loathing to stir up trouble.

To be used effectively, the special testamentary power of appointment must be broad enough to permit disposition of the trust outside the circle of likely troublemakers. If the spouses have two children, and the surviving spouse has the power to appoint only to either or both children, the two children can gang up on mom or dad and effectively circumvent the special power.

One way to provide the necessary flexibility is to give the surviving spouse the power to appoint not only to descendants but also to charity (either one or more specified charities or charitable organizations broadly defined). This approach involves taking a significant risk, however. The charity and/or the Texas Attorney General may be entitled to receive notice of the probate proceeding under Tex. Prob. Code Ann. §128A, Texas Trust Code §115.011 or Tex. Prop. Code Chapter 123. For persons who have yet to have experienced it, it is difficult to overstate the frustration that can arise if a charity or, worse, the attorney general decides to get involved in your matter. While a disgruntled child ultimately is likely to be willing to reach a settlement based on economic self- interest, the attorney general's office often is not.

The author has discussed informally with personnel in the charitable trust section of the attorney general's office the question of whether or not the charity and/or attorney general is entitled to notice merely because of being named in the instrument as the possible beneficiary of the exercise of a power of appointment. Suffice it to say that, in the eyes of the attorney general's office (unofficially, of course), it is still an open question.

The sample trusts attached as Appendix E and Appendix F each have special testamentary powers of appointment in favor of descendants. Attached at Appendix G is a testamentary power of appointment in favor of descendants and charities.

Family Limited Partnerships

Family limited partnerships may be great vehicles for managing family assets and obtaining discounts for transfer tax purposes, but they can be a source of fiduciary liability for the general partner. When used for estate planning purposes, the surviving spouse often ends up as the general partner.

Does the general partner of a limited partnership owe fiduciary duties to the limited partners? The answer to that question is not simple.

The Law

Section 4.03(b) of the Texas Revised Limited Partnership Act ("TRLPA") provides that, except as otherwise provided in such act or in the partnership agreement, the liabilities of the general partner to the limited partners is the same as the liabilities of a partner in a general partnership.

Under the Texas Uniform Partnership Act ("TUPA"), it is clear that partners owed fiduciary duties to each other. See TUPA Section 21; Crenshaw v. Swenson, 611 S.W. 2d 886 (Tex. Civ. App. -- Austin 1980, writ refd. n.r.e. -- managing partner owes the highest fiduciary duty recognized in the law); and Watson v. Limited Partners of WCKT, Ltd., 570 S.W.2d 179 (Tex. Civ. App. -- Austin 1978, writ refd. n.r.e. -- general partner stands in the same fiduciary capacity to limited partners as a trustee stands to the beneficiaries of a trust).

However, in 1993 the Texas Revised Partnership Act ("TRPA") was enacted, which applies to all partnerships formed on or after January 1, 1994, pre-1994 partnerships who elect to be so governed, and all partnerships after December 31, 1998. TRPA Section 4.04 provides (1) that a partner owes a duty of loyalty and a duty of care to the partnership and the other partners, (2) that a partner does not violate a duty merely because "the partner's conduct furthers the partner's own interest," and (3) "[a] partner, in that capacity, is not a trustee and is not held to the same standards as a trustee."

The Comment of the 1993 Bar Committee accompanying the TRPA says that this section:

states specifically that a partner owes to the partnership and the other partners duties of loyalty and of care. These duties may not be waived or eliminated entirely in the partnership agreement, but they may be modified as described in the discussion of Section 1.03(b). Unlike the title of TUPA § 21, but like its text, Section 4.04 does not use the term "fiduciary." This section defines partner duties and implies that they are not to be expanded by loose use of "fiduciary" concepts from other contexts or by the rhetoric of some prior cases. Similarly, subsection (f) specifically states that a partner as such is not a trustee and is not held to the same standards as a trustee, thus further attempting to restrict reliance on the unfortunate language of prior law. The term "fiduciary" is inappropriate when used to describe the duties of a partner because a partner, unlike a true trustee, may legitimately pursue the partner's own self interest and not solely the interest of fellow partners or the partnership.

In M. R. Champion, Inc. v. Mizell, 904 S.W.2d 617 (Tex. 1995), the Supreme Court characterized the duties owed by one partner to the other as "a duty in the nature of a fiduciary duty." 904 S.W.2d at 618. The Mizell case arose under the TUPA prior to adoption of the TRPA, but the court cited TRPA Section 4.04, saying in a footnote that, although the statutory provisions were completely revised in 1994, the principles as they apply to the Mizell case had not changed.

Effects on Surviving Spouse as General Partner of Limited Partnership

Where does this leave the bereaved widow or widower who finds herself or himself as the general partner of a limited partnership?

First, if the limited partnership was established prior to 1994, if the partnership has not elected to be governed by TRPA, and if the partnership agreement is silent, then the general partner owes trustee-type fiduciary duties to the limited partners, and electing to be governed by TRPA may be in order.

If the limited partnership was established in or after 1994 (and most family limited partnerships fall in this category), or if the limited partnership has elected to be governed by TRPA, then it is likely that the general partner will be held to less than "the highest fiduciary duty recognized in the law." It is also likely, however, that the general partner owes some duties to the limited partners and that these duties include the duty of loyalty and the duty of care.

In his "Drafting Guide to the Family Limited Partnership," 4th Annual Advanced Drafting: Estate Planning and Probate Course, State Bar of Texas (1993), Thomas C. Baird suggests including the following language in the limited partnership agreement:

The General Partner will not owe a fiduciary duty to the Partnership or to any Partner. The General Partner will owe a duty of loyalty and a duty of care to the Partnership.

Does this language lower the duty of care imposed on the general partner even further?

As a practical matter, from the surviving spouse's perspective in his or her capacity as general partner, it doesn't matter -- the general partner owes some duty "in the nature of a fiduciary duty," and this is enough of a crack in the wall to inspire a disgruntled limited partner to complain of the general partner's self-serving actions is probably enough to force a jury issue on the breach. Thus, whether the standard is low or high, a standard of conduct still exists, and the faces the possibility of a lawsuit for the manner in which he or she manages the partnership. (Baird also recommends including alternative dispute resolution provisions in the limited partnership agreement, so perhaps this would play out in arbitration or mediation rather than court -- a prospect only slightly more appealing to the surviving spouse.)

Of course, just because the general partner owes duties to the limited partners is no reason to never use a family limited partnership as an estate planning device. Like all planning techniques, FLPs have their advantages and disadvantages. General partner liability is just one of the issues that has to be considered when an FLP is being discussed.

Standard Fiduciary Powers and Duties vs. Special Powers and Duties

A trust need not provide the same powers and duties for all trustees. It may be reasonable to provide that, at all times in which the surviving spouse is serving as trustee, the trustee has narrow powers and discretion with a broad waiver of duties and broad exculpatory language. The same trust could provide that, at all times that the surviving spouse is not serving as trustee, the trustee has broad powers and discretion with a narrow waiver of duties and narrow exculpatory language. When the spouse is serving as trustee, he or she would have only limited powers regarding distributions -- all limited by an ascertainable standard -- with a minimal duty of care. If the spouse ever resigns as trustee, the successor trustee can be given broader powers (if desired) and be held to a higher duty of care.

The draftsperson must not get carried away in waiving fiduciary duties, however. If the spouse/trustee has essentially no duties, he or she may hold a general power of appointment. For example, if all duties of loyalty (both statutory and common law) are waived, then arguably there is nothing to prevent the spouse/trustee from distributing the trust property to himself or herself. The trust instrument may not empower the spouse/trustee to transfer property to himself or herself, but if there is no recourse against the trustee for so acting, he or she may hold a general power for tax purposes and/or creditor protection purposes.

Attached as Appendix H is an example of a provision which could be inserted into a trust to better protect the surviving spouse while serving as trustee.

Exculpation Clauses

If the testator's highest priority is protecting the surviving spouse, then by all means use an exculpatory clause, at least with respect to those times during which the spouse is serving as trustee. Exculpatory clauses are valid in Texas but are strictly construed against exculpation. See Corpus Christi National Bank v. Gerdes, 551 S. W. 2d 521 (Tex. Civ. App. -- 1977, writ refd. n.r.e.), and Jewett v. Capital National Bank of Austin, 618 S.W.2d 109 (Tex. Civ. App. -- Waco 1981, writ refd. n.r.e.).

Frank Ikard's favorite exculpatory clause is used on Appendix H. This is not a one-size-fits-all exculpatory clause, however -- most testators will not wish to go this far in exculpating the trustee -- especially an outside trustee.

Conflict of Interest Clauses

If protecting the surviving spouse is a priority, then at the very least a good conflict of interest clause should be included in the will or trust. This clause makes it clear that, in the event of a conflict, the conflict is resolved in favor of the surviving spouse. This type of clause can go a long way toward solving unanticipated problems in the spouse's favor. For example, it may be enough to withstand an attack against the spouse/trustee based on no spray distributions being made to descendants from the bypass trust.

A conflict of interest clause is attached as Appendix I.

CONCLUSION

Where does all this leave poor Mrs. Brady? And where does it leave you and your malpractice carrier? Like most other unpleasant things in life, it leaves you older and wiser and hopefully in a position to avoid this mess the next time a Mr. and Mrs. Brady walks into your office.

By the way, by all reliable accounts the stars who played the Brady children all grew up to be fine, upstanding citizens. My hypothetical was just a way to focus attention on these issues and is not a reflection on those actors.

APPENDICES

Appendix A -- Engagement Letter

[Date]

Mr. and Mrs. [Husband's Name]

[Client's Address]

Re:	Agreement for Legal Services

Dear Mr. and Mrs. [Client Last Name]:

The purpose of this letter is to set forth the terms of my legal representation of you.

1. Scope of representation. You have asked me to help you with planning your estate. This representation will include the following:

a.	Drafting your estate planning documents based on the information you have provided to me. Your estate planning documents will include the following documents for each of you:

(1)	A will, which provides (among other things) for the creation of a "Bypass Trust" as a means to preserve the estate and gift tax credit of the first spouse to die. This credit, which is currently equivalent to $600,000 in assets, may allow the two of you to pass more of your combined marital wealth to your descendants or other estate beneficiary free of the estate tax. [Option 1: The Bypass Trust in each will is funded by means of a disclaimer by the surviving spouse. This method of funding permits the surviving spouse to wait until the death of the first spouse to die to decide to what extent the Bypass Trust is to be funded. The surviving spouse could choose to disclaim nothing, meaning that the surviving spouse would receive the entire estate and nothing would be placed in the Bypass Trust. Or the surviving spouse could decide to disclaim up to $600,000 worth of property, causing the property so disclaimed to pass into the Bypass Trust. Thus, the estate tax savings under each will is totally dependent upon the decision of the surviving spouse to disclaim or not to disclaim.][Option 2: The Bypass Trust in each will is funded by means of a formula. This formula contains language which is intended to maximize the amount of property passing into the Bypass Trust without causing there to be any tax due on the death of the first spouse to die. Funding of the Bypass Trust pursuant to this formula is mandatory on the death of the first spouse -- the surviving spouse has no power to choose whether or not to fund the Bypass Trust.]

(2)	A statutory durable power of attorney.

(3)	A durable power of attorney for health care.

(4)	A declaration of who you want your guardian to be if the need for one ever arises in the future.

(5)	A directive to physicians (often called a "living will").

b.	Providing you with instructions on how to coordinate your life insurance and retirement plan beneficiary designations with your estate planning documents.

c.	Sending these drafts to you and answering any questions that you may have.

d.	Preparing final drafts of the documents for signing.

e.	Supervising your execution of these final documents in my office.

f.	Sending you the completed, signed documents for your records.

2.	Excluded from representation. My representation of you is limited to matters described above, and I owe you no duty of ongoing representation in this or other matters. My duties to you under this agreement will end when I have sent you your completed documents and you have had two weeks to review them for accuracy. After that time, my representation of you will cease, and I will owe you no duty to update your plan or to notify you of law changes which may affect you. Any future representation is not a part of this engagement and will be covered by a separate agreement.

3.	Planning objectives. In helping you with your estate plan, my objective will be planning for the death or disability of either or both of you; I will not be considering the effects of a possible divorce. Either or both of you may be adversely affected by your estate plan in the event your marriage ends in divorce. If you have any questions about how this plan may affect you in the event of a divorce, please consult with an attorney experienced in family law matters. In addition, you have indicated that you want your estate plan to include provisions designed to save your family estate and/or gift taxes. By including these provisions, you should recognize that (a) your estate planning documents are likely to be more complex than they would have been if tax savings was not an objective and (b) restrictions may be placed on your beneficiaries (including the surviving spouse) that may make it more difficult to fully utilize and enjoy the property free from interference by and/or liability to others. This will confirm that we have discussed these issues at some length and that you have decided that the potential tax savings to be gained from this plan take priority over these potential detriments.

4.	Fees. I will perform the services described above for a fee of $[Flat Fee], which fee includes up to [Hours in Flat Fee] hours of attorney time. If this project takes more than this amount of time, you agree to pay for time in excess of [Hours in Flat Fee] hours of attorney time at the hourly rate of $[Attorney Rate] per hour of attorney time. I will keep track of all time that I spend on this matter, and all of that time will count this limit. This will include the time that I or other office personnel may have already spent discussing this matter with you, time that I or other office personnel spend talking to you on the telephone or in person, time that I or other office personnel spend talking to each other or to third parties (your advisors, other attorneys, etc.) about your matter, time that we spend doing research on your matter, time that we spend drafting, revising and reviewing your documents, time that we spend drafting and reading correspondence, and time that our attorneys or other office personnel spend supervising your execution of documents. It has been my experience that I and my staff have been able to prepare estate plans like the one you have indicated you want for the majority of my clients within this time frame. Therefore, I have priced my services so that the majority of my clients can get a fair price for their plans and have a good idea of what those plans will cost. If I exceed the time limit in your case, I will charge you a larger fee based on the hourly rate stated above. Reasons why the time limit may be exceeded are: the need to make more revisions than usual; the need to spend more time than usual explaining provisions or answering questions; and delay in providing me with requested information. We mention these reasons not to discourage you from asking questions or having your documents be just the way you want, but to explain to you the effect this may have on the fee I charge so that you are in a position to control costs if you wish to do so.

5.	Expenses. In addition to the fee described above, you agree to pay all expenses related to this matter. These expenses include, but are not limited to, postage, long distance telephone, photocopying, overnight messenger charges and filing fees. It has been my experience that, if there is only one overnight messenger charge and no long distance charges, the expenses associated with a plan such as yours will be approximately $[Flat Expenses]. Since these expenses usually are not known precisely until after you sign your documents, I probably will bill you the estimated amount stated above. This allows you to pay your bill in full and complete your business with my firm without having to wait a month or two to pay the expenses.

6.	Billing procedure. Payment for fees and expenses is due at the earlier of (1) the time you sign your documents; or (2) 45 days from the date of this letter. Please be ready to pay when you come in to sign your documents.

[Option 1:	7.	You are my clients. You, and you alone, are my clients. I owe no duty to your family members or to your potential estate beneficiaries. Since there are two of you, the possibility of a conflict between you exists. You acknowledge and understand that, since I am representing both of you, no communication either of you has with me can be kept confidential from the other of you. If a conflict develops between the two of you, I may decline to continue to represent you.]

[Option 2:	7.	Multi-party representation. My representation of you in this matter requires me to represent each of you as clients at the same time. Of course, you could each retain your own attorney to prepare your estate planning documents, but you have indicated that you prefer to have me prepare estate planning documents for both of you. I am happy to do this, subject to the following conditions regarding multi-party representation:

a. Since there are two of you, the possibility of a conflict between you exists. You acknowledge and understand that, since I am representing both of you, no communication either of you has with me can be kept confidential from the other of you. If a conflict develops between the two of you, I may decline to continue to represent you.

b. When I am advising [Husband] and preparing [Husband]'s documents, [Husband] is my only client, and I owe no duty [Husband]'s family members or potential estate beneficiaries.

c. When I am advising [Wife] and preparing [Wife]'s documents, [Wife] is my only client, and I owe no duty [Wife]'s family members or potential estate beneficiaries.]

8.	Termination of Representation. Either of us can terminate this relationship at any time for any reason by giving written notice to the other party. My representation of you will terminate immediately upon the giving of this notice by either party, except that, if you are involved in a court proceeding (such as a lawsuit or probate proceeding) at the time of termination and I am the attorney of record, my representation will continue until I am sure that my immediate withdrawal as your attorney will not jeopardize your interests in the proceeding. Upon termination by either party for any reason:

a.	You agree to pay my fees through the date of termination calculated at the hourly rate or rates stated above;

b.	You agree to pay expenses incurred through the date of termination; and

c.	You are entitled to the file I maintain on your matter if you request it, provided that I am entitled to photocopy the file contents at your expense prior to delivery of the file to you.

9.	Grievances. The State Bar of Texas investigates and prosecutes professional misconduct committed by Texas attorneys. Although not every complaint against or dispute with a lawyer involves professional misconduct, the State Bar Office of General Counsel will provide you with information about how to file a complaint. For more information, please call 1/800/932-1900. This is a toll-free phone call.

I look forward to working with you on this matter. If you want me to represent you, and if you agree to the terms of this letter, please sign one copy of this letter and return it to me. (The other copy is for your records.)

Very truly yours,

[Law Firm]

By:

Accepted and Agreed:

___________________________________

[Husband's Name]

___________________________________

[Wife's Name]

Appendix B -- Transmittal Letter (For Drafts)

[Date]

Mr. and Mrs. [Husband's Name]

[Client's Address]

Dear Mr. and Mrs. [Client Last Name]:

Enclosed are drafts of the following documents for each of you:

1.	A Will, which provides (among other things) for the creation of a "Bypass Trust" as a means to preserve the estate and gift tax credit of the first spouse to die. This credit, which is currently equivalent to $600,000 in assets, may allow the two of you to pass more of your combined marital wealth to your descendants or other estate beneficiary free of the estate tax. [Option 1: The Bypass Trust in each Will is funded by means of a disclaimer by the surviving spouse. This method of funding permits the surviving spouse to wait until the death of the first spouse to die to decide to what extent the Bypass Trust is to be funded. The surviving spouse could choose to disclaim nothing, meaning that the surviving spouse would receive the entire estate and nothing would be placed in the Bypass Trust. Or the surviving spouse could decide to disclaim up to $600,000 worth of property, causing the property so disclaimed to pass into the Bypass Trust. Thus, the estate tax savings under each Will is totally dependent upon the decision of the surviving spouse to disclaim or not to disclaim.][Option 2: The Bypass Trust in each Will is funded by means of a formula. This formula contains language which is intended to maximize the amount of property passing into the Bypass Trust without causing there to be any tax due on the death of the first spouse to die. Funding of the Bypass Trust pursuant to this formula is mandatory on the death of the first spouse -- the surviving spouse has no power to choose whether or not to fund the Bypass Trust.]

2.	A Statutory Durable Power of Attorney, which gives the person you name broad power and authority to deal with your property.

3.	A Durable Power of Attorney for Health Care (with Disclosure Statement), in which you give the person named in the power of attorney the authority to make health care decisions for your if you are incapacitated and unable to make the decisions yourself.

4.	A Declaration of Guardian, in which you name the person you want to be the guardian of your person and estate should the need later arise.

5.	A Directive to Physicians, often called a "living will," in which you indicate your wishes regarding medical treatment in the event of a terminable illness. In the Directive to Physicians, you name the person you want to make treatment decisions for you if you are unable to do so for yourself.

6.	Instructions on how to coordinate your life insurance proceeds and retirement plan benefits with your estate plan. It is important for these proceeds and benefits to be coordinated with the estate plan so that all of the goals of the estate plan are realized. You will have to contact your insurance companies and plan custodians or trustees to determine how to change the beneficiary, since each company has slightly different requirements.

Keep in mind that the above descriptions of your documents are included in this letter for your convenience only. These descriptions are summaries only and are not intended to make it unnecessary for you to read the documents carefully. You must read the actual documents carefully and be sure that you actually understand them. If there is a conflict between the terms of the documents and the terms of this letter, the terms of the documents will control.

Please read the enclosed documents carefully to make sure that they are correct and to make sure that they properly reflect your wishes. Pay particular attention to birthdates, the spelling of family member names, etc. -- it is easy for me to make a mistake on these items. Please call me if you have any questions. Also, please call me to provide missing information, if any.

Please contact me with your questions, corrections or changes, and please contact me to set up a time to sign these documents.

I look forward to hearing from you.

Very truly yours,

[LAW FIRM]

By:___________________________________

Enclosures

Appendix C -- Transmittal Letter (For Executed Originals)

[Date]

Mr. and Mrs. [Husband's Name]

[Client's Address]

Dear Mr. and Mrs. [Client Last Name]:

Enclosed are the following executed original documents dated [Signing Date], for each of you:

1.	Last Will and Testament.

2.	Statutory Durable Power of Attorney.

3.	Durable Power of Attorney for Health Care.

4.	Declaration of Guardian.

5.	Directive to Physicians.

Also enclosed is a set of copies of all of the documents, as you requested. I have kept a set of copies in my files. Finally, also enclosed are instructions on how to coordinate your life insurance benefits with your estate plan.

This letter discusses several points about your estate plan of which you should be aware. If you have any questions about any of the matters discussed in this letter, please call. I suggest that you keep this letter with your documents so that you may refer to it from time to time.

1. Revising your beneficiary designations. In order for your estate plan to be complete, you must coordinate the beneficiary designations on your life insurance policies with your will. Please refer to the enclosed instructions regarding beneficiary designations.

2. Safekeeping your estate planning documents. Your documents should be kept in a safe place, and the representatives named in your estate planning documents (executor and alternate executors, trustee and alternate trustees, guardian and alternate guardians, etc.) should know where to find them. A safe deposit box at a bank is a safe place, but your representative may have difficulty gaining access to your box after your death. Therefore, most people keep their documents elsewhere. A fireproof file or safe at home is an excellent place.

3. Copies of your documents. I have a copy of your executed documents in your file at my office. You may decide to keep an extra copy of the documents at your home or office, or you may decide to give a copy to one or more of your representatives. It is possible to use a copy of your will for probate purposes if the original cannot be found. However, there is no guarantee that a copy will be accepted by the court (since a presumption arises that you revoked the will if the original cannot be found), and the procedure for getting a copy admitted to probate is more troublesome and expensive. That is why it is important to take care of the original documents.

You do not have to give your representatives or alternate representatives copies of your documents, so long as they know where to find the originals if the need arises. In some cases, giving copies to loved ones may cause more problems than it solves -- it may make it awkward to make changes to your documents, and it may increase the risk of a challenge to your documents.

If you want to make more copies of your documents, please do not remove the staples in order to remove the documents from the manuscript covers for copying. Having more than one set of staple holes in your original documents increases the chances of someone thinking that your documents are falsified. If you do not want to go to the trouble of making the copies with the documents in the manuscript covers, I will be happy to make copies of my copies at our standard per-page copy fee.

4. Personalizing your estate plan with a letter or memorandum. Because your estate planning documents are drafted to be flexible and to meet technical legal requirements, they may seem cold and impersonal. Also, there may be matters of a personal nature that you wish to express that are not covered by the documents. Frequently a good way to handle this is to leave a letter or memorandum addressed to your representative. The two most frequent uses of such a letter or memorandum are: (1) to say to whom you want items of sentimental value to go when you die; and (2) to give greater guidance to the representative regarding how to take care loved ones (usually your children) after your death. While a letter or memorandum can be very useful, there are some important points to keep in mind:

a. Letter or memo about items of sentimental value. If you are using the letter or memo to tell to whom you want particular items of sentimental value to be given when you die:

(1) Always make it clear that you do not intend to change your estate planning documents in any way. Your estate planning documents were carefully prepared at some expense to dispose of all of your property efficiently and generally in accordance with your wishes. If you write a letter or memorandum after the date of your documents which is inconsistent with your documents, there is a risk that a court will deem that you have revoked, or canceled, your estate planning documents in whole or in part, and since the letter or memo may not meet the legal requirements for a will, the letter or memo will be considered invalid. Thus, your effort to make a relatively minor change to your will or other documents could result in invalidating the whole estate plan. Don't try to change your documents without the help of a licensed attorney. If you use a letter or memo to express your wishes about particular items of property, always start the letter or memo with this language:

"I am writing this letter or memorandum to express my wishes regarding the disposition of certain things that I own that have sentimental value to me. It is my desire that my executor and the beneficiaries of my estate will honor my wishes. However, notwithstanding anything in this letter or memorandum to the contrary, I am not changing or revoking my will in any way. If there is a dispute between or among the beneficiaries of my estate about the matters discussed in this letter or memorandum, then the terms of my will shall control and this letter will have no force or effect."

(2) Don't use a letter or memorandum to cover items of significant monetary value. If you wish to leave a particular item of property to someone, and that item has real monetary value (and not just sentimental value), you should get a lawyer's help and redo your will so that the item is covered. Obviously, it is more expensive and troublesome to do this, but the letter approach doesn't work well for items of value. This is because the will, not the letter or memorandum, legally controls disposition of your property. You are depending upon your loved ones to honor the wishes expressed in the letter or memo. If they do not wish to honor the letter or memo, the terms of the will control. Obviously, if something is more valuable, the person or persons who would get the item under the terms of the will are more likely to want to disregard your letter or memo.

(3) Changing the letter or memorandum. One of the real advantages of using a letter or memo for this purpose is that you can change it from time to time without a lot of trouble and expense. Keep the letter or memo with your estate planning documents. When you want to change it, write a new letter or memo and discard the old one. Since the letter or memo is merely advisory and not controlling, it does not have to be signed with all the formality of a will or trust agreement.

b. Letter or memo giving guidance to your representatives. If you are using a letter or memo to give guidance to your executor, trustee or designated guardian:

(1) Always make it clear that you do not intend to change your estate planning documents in any way. Your estate planning documents were carefully prepared at some expense to meet technical legal requirements and to provide your representatives with a great deal of flexibility to deal with unforeseen events. I think this flexibility is important. If you do not wish to give your representatives a lot of flexibility, your documents need to be changed to be more restrictive. You can preserve the flexibility of the documents and still give personal guidance to your representatives by using a letter or memorandum. To preserve the flexibility of your documents and to keep from unintentionally revoking them, you must make it clear that your letter or memo is advisory and not controlling. Start your letter or memo with this language:

"I am writing this letter or memorandum to give the executor, trustee and guardian of my minor children guidance on matters of interest to me. This letter or memo is advisory only and does not control or supersede my estate planning documents in any way. Notwithstanding anything in this letter or memorandum to the contrary, I am not changing or revoking my will in any way. I hope that my representatives will heed my advice, but they are free to use their best judgment on all matters in accordance with the terms of my will."

(2) Changing the letter or memorandum. One of the real advantages of using a letter or memo for this purpose is that you can change it from time to time without a lot of trouble and expense. Keep the letter or memo with your estate planning documents. When you want to change it, write a new letter or memo and discard the old one. Since the letter or memo is merely advisory and not controlling, it does not have to be signed with all the formality of a will.

5. Changing or revoking your documents. You should never mark on your estate planning documents in any way. These markings could be construed as your attempt to change or revoke the documents. The laws regarding wills and trusts are very technical, and it is likely that a change that you attempt to make without a lawyer's help will not have the effect you intend. Therefore, if you wish to revoke your will or another document, please contact me or another attorney.

a. Your will. If you wish to revoke your will, be sure to do it in a way that leaves no question as to your intent. For instance, cut up the document and discard it, or conspicuously mark through the writing on every page with a large "X". Obviously, consider carefully before revoking your will unless you have replaced it with another plan.

Your will includes language revoking earlier wills you may have made. This language is effective unless you are prohibited from revoking the earlier will by the terms of a contract or other agreement. This prohibition is very rare and is likely to arise only in cases where spouses previously made a joint, or mutual, will. Therefore, unless you are subject to an agreement prohibiting you from revoking an earlier will, any earlier wills were revoked when you signed your new will. You do not need to destroy your old wills, but it generally is a good idea to destroy them to prevent confusion after your death.

b. Your statutory durable power of attorney. If you want to revoke your statutory durable power of attorney, you should contact me or another attorney. The new statutory durable power of attorney forms are easier to use but harder to revoke. You should seek my advice or the advice or another attorney if you wish to revoke it.

c. Your health care power of attorney. To revoke your Durable Power of Attorney for Health Care, you may either sign a new Durable Power of Attorney for Health Care (which automatically revokes earlier powers) or inform your agent and health provider, preferably in writing, that you have revoked the power.

6. Updating your estate plan. You should have your estate plan reviewed by an attorney or other estate planning professional periodically to assure that it still meets your needs. Also, you should have your plan reviewed if any of the following occur:

a. The marriage, divorce, illness or incapacity of you or of any member of your immediate family.

b. The death of any member of your immediate family.

c. A significant change in your financial condition (positive or negative).

d. You move to another state or country.

e. The receipt of a large gift or inheritance.

f. You acquire property which requires special consideration and handling.

g. You change your mind about how to dispose of your property and/or who you want as your representatives.

Finally, you should have your plan reviewed if there is a significant change in the tax laws which may effect your estate.

7. My representation of you. Please read through the enclosed documents carefully over the next two weeks. If I have made any mistakes, or if there is something you do not like or understand, please call me, and I will clear things up. If I have not heard from you within two weeks, I will assume everything is the way you want it, and my representation of you in this matter will cease.

In this matter, you and you alone have been my client. I owe no duty to any of your family members or other possible beneficiaries. I have no continuing duty to update your plan or otherwise represent you. Of course, I look forward to working with you again in the future should you wish to hire me to help you with revising your estate plan or with another matter.

Thank you for allowing me to provide you with these services. Good luck, and please call if I can be of further assistance.

Very truly yours,

[Law Firm]

By:___________________________________

Enclosures

Appendix D -- Disclaimer Trust Provisions

3.	Disclaimer by My Wife. Should my wife disclaim all or any part of the property which would otherwise pass to my wife, the disclaimed property shall instead pass to my trustee, in trust, as the trust estate of the Disclaimer Trust, to be held, administered and distributed as follows:

a.	Distributions During Trust Term. During the term of the Disclaimer Trust, the trustee shall distribute to, or apply for the benefit of, my wife, so much of the net income of the trust as shall be reasonably necessary to provide for my wife's, health, support, education and maintenance in accordance with the standard of living which my wife enjoyed at the date of my death. In addition, during the term of the Disclaimer Trust, the trustee shall distribute to, or apply for the benefit of, my wife, so much of the principal of the trust as shall be reasonably necessary to provide for my wife's health, support, education and maintenance in accordance with the standard of living which my wife enjoyed at the date of my death.

b.	Special Provisions Regarding Retirement Accounts.	To the extent that the Disclaimer Trust contains any of the Nonparticipant Retirement Accounts or any interest that I held as participant in any individual retirement account, military retirement plan, qualified pension plan or profit sharing plan, or similar tax- deferred retirement account (collectively, the "Participant Retirement Accounts"), my trustee may draw benefits from such accounts in accordance with the provisions of Section 401(a)(9) of the Internal Revenue Code or may accelerate all or a portion of such benefits from time to time, in my trustee's discretion. The provisions of Section 113.109 of the Texas Property Code shall apply to the determination and allocation of principal and income with respect to any Nonparticipant Retirement Accounts or Participant Retirement Accounts held in trust.

c.	Termination of Trust. The Disclaimer Trust shall terminate upon the death of my wife. Upon termination, the remaining trust estate of the Disclaimer Trust shall be distributed to my descendants, per stirpes, or, if none of my descendants is then living, then to my heirs-at-law.

Appendix E -- Bypass Trust With All Income to Spouse, HEMS Principal to Spouse and Special Testamentary Power

3.	Pecuniary Exemption Equivalent Gift. If my wife survives me, I give to my trustee an amount equal in value to the Exemption Equivalent Amount as defined in this Will, in trust, as the trust estate of the Bypass Trust, to be held and administered as provided below. This gift is intended to pass the maximum amount possible without incurring any Federal estate tax on my estate by virtue of this gift, and any provision in this Will which may conflict with or fail of this intention shall either be disregarded or else shall be construed to accomplish this objective.

a.	Assets to be Used. My personal representative shall have the sole discretion to select the assets which shall be used to fund this Trust; provided, however, that any asset or the proceeds of any asset which will not qualify for the federal estate tax marital deduction shall be allocated to this Trust rather than to gifts which qualify for the marital deduction for federal estate tax purposes. In addition, my personal representative shall allocate to this Trust any property or interest in property which is subject to death taxation by a foreign country. Any asset selected for distribution in kind to satisfy this gift shall be valued at its fair market value on the date of distribution of the asset. To the extent possible, I request that my personal representative not fund this Trust with S corporation stock.

b.	Division into Exempt and Nonexempt Shares. If the amount of my GST Exemption allocated to the Bypass Trust is insufficient to make the GST Inclusion Ratio of the entire Bypass Trust equal to zero (0), then the Bypass Trust shall be divided into two separate and distinct trusts or shares, one (called the Exempt Share) with a GST Inclusion Ratio of zero (0), and one (called the Nonexempt Share) with a GST Inclusion Ratio of one (1)). If the amount of my GST Exemption allocated to the Bypass Trust is sufficient to make the GST Inclusion Ratio of the entire Bypass Trust equal to zero (0), then the entire Bypass Trust shall be considered the Exempt Share.

c.	Distributions of Income. My trustee shall distribute to or apply for the benefit of my wife all of the net income of the Bypass Trust in convenient installments no less frequently than annually.

d.	Distributions of Principal. At such intervals as it may determine, my trustee shall distribute so much of the principal of the Bypass Trust as shall be reasonably necessary to provide for my wife's health, support, education and maintenance in accordance with the standard of living my wife enjoyed at the date of my death, taking into consideration all other sources of principal and income available to my wife, including but not limited to other trusts benefitting my wife (it being my desire, but I do not direct, that no principal distributions be made from the Bypass Trust unless and until the other resources available to my wife to the knowledge of the trustee have been exhausted), and my trustee may choose to make all distributions from the Nonexempt Share rather than the Exempt Share without liability to any beneficiary of the Bypass Trust (whether current or future, whether contingent or vested).

e.	Special Provisions Regarding Disclaimed Property. The trustee of the Bypass Trust may receive property as part of the trust estate as a result of a disclaimer by my wife. The trustee shall hold, administer and distribute the disclaimed property constituting part of the trust estate as provided in this Article; provided, however, that the following special provisions shall apply with respect to any disclaimed property:

(1)	My trustee in its discretion may segregate all or any portion of the disclaimed property into one or more separate trusts or shares (separate and apart from the property passing into the Bypass Trust under Article and, if there are Exempt and Nonexempt Shares of the Bypass Trust, the trustee may further divide the separate trusts or shares permitted by this subsection into Exempt and Nonexempt Shares).

(2)	To the extent that the Bypass Trust contains any of the Nonparticipant Retirement Accounts or any interest that I held as participant in any individual retirement account, military retirement plan, qualified pension plan or profit sharing plan, or similar tax-deferred retirement account (collectively, the "Participant Retirement Accounts"), my trustee may draw benefits from such accounts in accordance with the provisions of Section 401(a)(9) of the Internal Revenue Code or may accelerate all or a portion of such benefits from time to time, in my trustee's discretion.

(3)	The provisions of Section 113.109 of the Texas Property Code shall apply to the determination and allocation of principal and income with respect to any Nonparticipant Retirement Accounts or Participant Retirement Accounts held in trust.

(4)	Notwithstanding any other provisions in this Will to the contrary, my wife shall have no right to direct beneficial enjoyment of, or power of appointment over, the disclaimed property or any separate trust or share containing any disclaimed property that is not limited by an ascertainable standard as provided in Treasury Regulations § 25.2518(e)(2).

f.	Special Power of Appointment. My wife shall have a special power of appointment over the trust estate of the Bypass Trust as described below:

(1)	Beneficiaries of Appointed Property. My wife shall have the power to appoint property to or for the benefit of any one or more of the following limited class of persons (the "Permissive Appointees"): my descendants. My wife shall not have the power to appoint property to my wife, to my wife's creditors, to my wife's estate, or to the creditors of my wife's estate.

(2)	Property Which May Be Appointed. My wife may appoint all or any part of the trust estate of the Bypass Trust; provided, however, that this special power of appointment is not exercisable with respect to any insurance policy on the life of my wife that is part of the trust estate, nor is it exercisable with respect to any separate trust or share which received any property as a result of a disclaimer by my wife.

(3)	Form of Appointment. My wife may appoint property directly to one or more of the Permissive Appointees, outright and free of trust, or my wife may appoint property in trust for the benefit of one or more of the Permissive Appointees. If my wife appoints property in trust for the benefit of one or more of the Permissive Appointees, my wife may specify the terms and conditions of such trust (including, but not limited to, naming the trustee and the distribution standards), so long as (i) the trust does not violate any applicable rule against perpetuities or other law restricting the period of time for which property may validly be held in trust and (ii) the ultimate recipients of such property are one or more of the Permissive Appointees.

(4)	No Lifetime Power. This power of appointment is a testamentary power only. It may not be exercised to be effective prior to my wife's death.

(5)	Testamentary Power. My wife may exercise this special power of appointment to become effective at my wife's death by including written instructions in my wife's will. The written instructions must specifically mention this power of appointment and must be consistent with the terms hereof. If my wife's will containing the written instructions is admitted to probate, and if the trustee determines that the written instructions in the will meet the requirements hereof, the trustee shall distribute the property so appointed in accordance with the terms of the written instructions.

g.	Distributions upon Termination of Bypass Trust. The Bypass Trust shall terminate upon the death of my wife. Upon the termination of the Bypass Trust, the trustee shall distribute all of the property which is subject to a validly exercised power of appointment by my wife in accordance with such exercise, and the trustee shall distribute that portion of the trust estate then remaining as follows:

(1)	Distribution to Descendants Trust. Any and all property remaining in the Exempt Share shall be distributed to my trustee, in trust, as part of the trust estate of the Descendants Trust, to be held and administered in accordance with the terms of Article 4 of this Will.

(2)	Distribution to Descendants. Any and all property remaining in the Nonexempt Share shall be distributed to my descendants, per stirpes, and if none of my descendants are then living, to my heirs at law; provided, however, that any property which would otherwise be distributed, outright and free of trust, to a person (including but not limited to one of my children) who is under the age of forty (40) years, shall instead be held by my trustee, in trust, as the trust estate of a Contingent Trust for such person, to be administered and distributed in accordance with the terms of Article 5 of this Will.

Appendix F -- Bypass Trust With HEMS Income and Principal to Spouse, Special Inter Vivos Power and Special Testamentary Power

3.	Pecuniary Exemption Equivalent Gift. If my wife survives me, I give to my trustee an amount equal in value to the Exemption Equivalent Amount as defined in this Will, in trust, as the trust estate of the Bypass Trust, to be held and administered as provided below. This gift is intended to pass the maximum amount possible without incurring any Federal estate tax on my estate by virtue of this gift, and any provision in this Will which may conflict with or fail of this intention shall either be disregarded or else shall be construed to accomplish this objective.

a.	Assets to be Used. My personal representative shall have the sole discretion to select the assets which shall be used to fund this Trust; provided, however, that any asset or the proceeds of any asset which will not qualify for the federal estate tax marital deduction shall be allocated to this Trust rather than to gifts which qualify for the marital deduction for federal estate tax purposes. In addition, my personal representative shall allocate to this Trust any property or interest in property which is subject to death taxation by a foreign country. Any asset selected for distribution in kind to satisfy this gift shall be valued at its fair market value on the date of distribution of the asset. To the extent possible, I request that my personal representative not fund this Trust with S corporation stock.

b.	Division into Exempt and Nonexempt Shares. If the amount of my GST Exemption allocated to the Bypass Trust is insufficient to make the GST Inclusion Ratio of the entire Bypass Trust equal to zero (0), then the Bypass Trust shall be divided into two separate and distinct trusts or shares, one (called the Exempt Share) with a GST Inclusion Ratio of zero (0), and one (called the Nonexempt Share) with a GST Inclusion Ratio of one (1)). If the amount of my GST Exemption allocated to the Bypass Trust is sufficient to make the GST Inclusion Ratio of the entire Bypass Trust equal to zero (0), then the entire Bypass Trust shall be considered the Exempt Share.

c.	Distributions of Income. At such intervals as it may determine, my trustee shall distribute so much of the net income of the Bypass Trust as shall be reasonably necessary to provide for my wife's health, support, education and maintenance in accordance with the standard of living my wife enjoyed at the date of my death, taking into consideration all other sources of income available to my wife, including but not limited to other trusts benefitting my wife, and my trustee may choose to make all distributions from the Nonexempt Share rather than the Exempt Share without liability to any beneficiary of the Bypass Trust (whether current or future, whether contingent or vested).

d.	Distributions of Principal. At such intervals as it may determine, my trustee shall distribute so much of the principal of the Bypass Trust as shall be reasonably necessary to provide for my wife's health, support, education and maintenance in accordance with the standard of living my wife enjoyed at the date of my death, taking into consideration all other sources of principal and income available to my wife, including but not limited to other trusts benefitting my wife (it being my desire, but I do not direct, that no principal distributions be made from the Bypass Trust unless and until the other resources available to my wife to the knowledge of the trustee have been exhausted), and my trustee may choose to make all distributions from the Nonexempt Share rather than the Exempt Share without liability to any beneficiary of the Bypass Trust (whether current or future, whether contingent or vested).

e.	Special Provisions Regarding Disclaimed Property. The trustee of the Bypass Trust may receive property as part of the trust estate as a result of a disclaimer by my wife. The trustee shall hold, administer and distribute the disclaimed property constituting part of the trust estate as provided in this Article; provided, however, that the following special provisions shall apply with respect to any disclaimed property:

(1)	My trustee in its discretion may segregate all or any portion of the disclaimed property into one or more separate trusts or shares (separate and apart from the property passing into the Bypass Trust under Article and, if there are Exempt and Nonexempt Shares of the Bypass Trust, the trustee may further divide the separate trusts or shares permitted by this subsection into Exempt and Nonexempt Shares).

(2)	To the extent that the Bypass Trust contains any of the Nonparticipant Retirement Accounts or any interest that I held as participant in any individual retirement account, military retirement plan, qualified pension plan or profit sharing plan, or similar tax-deferred retirement account (collectively, the "Participant Retirement Accounts"), my trustee may draw benefits from such accounts in accordance with the provisions of Section 401(a)(9) of the Internal Revenue Code or may accelerate all or a portion of such benefits from time to time, in my trustee's discretion.

(3)	The provisions of Section 113.109 of the Texas Property Code shall apply to the determination and allocation of principal and income with respect to any Nonparticipant Retirement Accounts or Participant Retirement Accounts held in trust.

(4)	Notwithstanding any other provisions in this Will to the contrary, my wife shall have no right to direct beneficial enjoyment of, or power of appointment over, the disclaimed property or any separate trust or share containing any disclaimed property that is not limited by an ascertainable standard as provided in Treasury Regulations § 25.2518(e)(2).

f.	Special Power of Appointment. My wife shall have a special power of appointment over the trust estate of the Bypass Trust as described below:

(1)	Beneficiaries of Appointed Property. My wife shall have the power to appoint property to or for the benefit of any one or more of the following limited class of persons (the "Permissive Appointees"): my descendants. My wife shall not have the power to appoint property to my wife, to my wife's creditors, to my wife's estate, or to the creditors of my wife's estate.

(2)	Property Which May Be Appointed. My wife may appoint all or any part of the trust estate of the Bypass Trust; provided, however, that this special power of appointment is not exercisable with respect to any insurance policy on the life of my wife that is part of the trust estate, nor is it exercisable with respect to any separate trust or share which received any property as a result of a disclaimer by my wife.

(3)	Additional Restrictions on Exercise of Power of Appointment. My wife may not exercise this power of appointment during her lifetime to satisfy any of her legal obligations, including but not limited to any legal obligations of support. [Optional Language: In addition, my wife may exercise this power of appointment during her lifetime only with respect to that portion of the income or principal of the trust which is not necessary to provide for my wife's health, support, education and maintenance in accordance with the standard of living my wife enjoyed at the date of my death, taking into consideration all other sources of principal and income available to my wife.]

(4)	Form of Appointment. My wife may appoint property directly to one or more of the Permissive Appointees, outright and free of trust, or my wife may appoint property in trust for the benefit of one or more of the Permissive Appointees. If my wife appoints property in trust for the benefit of one or more of the Permissive Appointees, my wife may specify the terms and conditions of such trust (including, but not limited to, naming the trustee and the distribution standards), so long as (i) the trust does not violate any applicable rule against perpetuities or other law restricting the period of time for which property may validly be held in trust and (ii) the ultimate recipients of such property are one or more of the Permissive Appointees.

(5)	Lifetime Power. My wife may exercise this special power of appointment during my wife's lifetime from time to time by delivering written instructions signed by my wife to the trustee. The written instructions must specifically mention this special power of appointment and must be consistent with the terms hereof. If the trustee determines that the written instructions meet the requirements hereof, the trustee shall distribute the property so appointed in accordance with the terms of the written instructions. The trustee shall continue to hold any property not so appointed as the trust estate of the Bypass Trust.

(6)	Testamentary Power. My wife may exercise this special power of appointment to become effective at my wife's death by including written instructions in my wife's will. The written instructions must specifically mention this power of appointment and must be consistent with the terms hereof. If my wife's will containing the written instructions is admitted to probate, and if the trustee determines that the written instructions in the will meet the requirements hereof, the trustee shall distribute the property so appointed in accordance with the terms of the written instructions.

g.	Distributions upon Termination of Bypass Trust. The Bypass Trust shall terminate upon the death of my wife. Upon the termination of the Bypass Trust, the trustee shall distribute all of the property which is subject to a validly exercised power of appointment by my wife in accordance with such exercise, and the trustee shall distribute that portion of the trust estate then remaining as follows:

(1)	Distribution to Descendants Trust. Any and all property remaining in the Exempt Share shall be distributed to my trustee, in trust, as part of the trust estate of the Descendants Trust, to be held and administered in accordance with the terms of Article 4 of this Will.

(2)	Distribution to Descendants. Any and all property remaining in the Nonexempt Share shall be distributed to my descendants, per stirpes, and if none of my descendants are then living, to my heirs at law; provided, however, that any property which would otherwise be distributed, outright and free of trust, to a person (including but not limited to one of my children) who is under the age of forty (40) years, shall instead be held by my trustee, in trust, as the trust estate of a Contingent Trust for such person, to be administered and distributed in accordance with the terms of Article 5 of this Will.

Appendix G -- Special Testamentary Power to Descendants and Charity

f.	Special Power of Appointment. My wife shall have a special power of appointment over the trust estate of the Bypass Trust as described below:

(1)	Beneficiaries of Appointed Property. My wife shall have the power to appoint property to or for the benefit of any one or more of the following limited class of persons (the "Permissive Appointees"): my descendants and any charitable organization described in Section 170(b)(1)(A) of the Code. My wife shall not have the power to appoint property to my wife, to my wife's creditors, to my wife's estate, or to the creditors of my wife's estate.

(2)	Property Which May Be Appointed. My wife may appoint all or any part of the trust estate of the Bypass Trust; provided, however, that this special power of appointment is not exercisable with respect to any insurance policy on the life of my wife that is part of the trust estate, nor is it exercisable with respect to any separate trust or share which received any property as a result of a disclaimer by my wife.

(3)	Form of Appointment. My wife may appoint property directly to one or more of the Permissive Appointees, outright and free of trust, or my wife may appoint property in trust for the benefit of one or more of the Permissive Appointees. If my wife appoints property in trust for the benefit of one or more of the Permissive Appointees, my wife may specify the terms and conditions of such trust (including, but not limited to, naming the trustee and the distribution standards), so long as (i) the trust does not violate any applicable rule against perpetuities or other law restricting the period of time for which property may validly be held in trust and (ii) the ultimate recipients of such property are one or more of the Permissive Appointees.

(4)	No Lifetime Power. This power of appointment is a testamentary power only. It may not be exercised to be effective prior to my wife's death.

(5)	Testamentary Power. My wife may exercise this special power of appointment to become effective at my wife's death by including written instructions in my wife's will. The written instructions must specifically mention this power of appointment and must be consistent with the terms hereof. If my wife's will containing the written instructions is admitted to probate, and if the trustee determines that the written instructions in the will meet the requirements hereof, the trustee shall distribute the property so appointed in accordance with the terms of the written instructions.

Appendix H -- Special Powers, Duties and Liability When Spouse is Trustee

8.	Special Provisions When My Spouse is Trustee. At any time that my spouse is serving as trustee of any trust created under the terms of this Will, then, notwithstanding other provisions of this Will to the contrary, the following special provisions shall apply:

a.	Notwithstanding any provision in this Will to the contrary, in no event may my spouse exercise any power or take any action as trustee of a trust which would cause the trust estate of the trust to be includible in my spouse's estate for federal estate tax purposes. I specifically intent that all powers possessed by my spouse to consume, invade or appropriate property for the benefit of my spouse, my spouse's creditors, my spouse's estate or the creditors of my spouse's estate be limited by an ascertainable standard as provided in Section 2041(b)(1)(A). The terms of this Will shall be construed to be consistent with the provisions of this paragraph.

b.	Subject to the limitations expressed in Paragraph a. above, and to the extent permitted by law, I expressly waive each of the following duties as they might otherwise apply to my spouse when acting as trustee of any trust:

(1)	The duty of impartiality;

(2)	The duty of loyalty (it being my intention to waive the common law and statutory duties of self-dealing, including but not limited to the duties specified in Sections 113.052, 113.053 and 113.054 of the Texas Trust Code; provided, however, that I do not give my spouse, when acting as trustee of any trust, the authority to distribute property to herself for inadequate consideration, except as may be permitted as trust distributions under the terms hereof);

(3)	The duty of prudence;

(4)	The duty of good faith and fair play;

(5)	The duty to segregate trust assets and not to commingle;

(6)	The duty to keep beneficiaries informed and to account to the beneficiaries;

(7)	The duty to preserve and protect trust property;

(8)	The duty to keep accurate books and records;

(9)	The duty to make trust property productive; and

(10) The duty to review trust investments periodically.

c.	Subject to the limitations expressed in Paragraph a. above, notwithstanding anything to the contrary herein, my spouse, when acting as trustee of any trust, shall, to the greatest extent permitted by Texas law at the time this clause is construed, be exculpated from any liability whatsoever for any alleged abuse of discretion, tort, breach of fiduciary duty and/or breach of trust caused by any act or omission in the administration of my estate or any trust created under my Will. As a consequence, my spouse shall ever be held personally liable to any other person, firm or corporation for any damages directly or indirectly arising out of any act or omission committed in the administration of any trust created under my Will. In no event shall my spouse ever be liable for any punitive or exemplary damages for any act or omission committed in the administration of any trust created under my Will regardless of whether such act or omission constituted gross negligence, self dealing, bad faith, reckless indifference to my Distributees or intentional harm to my Distributees. This provision shall survive the administration of my estate and shall expressly apply to the administration of any trust created in this Will.

Appendix I -- Conflict of Interest Provision

10.	Conflicts of Interest. I realize that in the course of the administration of my estate, in the course of valuing and making distribution of estate assets, and in the course of administering any trusts established hereunder, certain conflicts of interest may develop between my wife and my descendants, between the various classes of beneficiaries or between the fiduciary in the capacity of personal representative and the fiduciary in the capacity of trustee, and the beneficiaries. In the resolution of any conflict of interest, I direct each fiduciary first to make a reasonable effort to determine the overall effect of the conflict in the administration of my estate and of the trust or trusts herein created and then to make reasonable efforts to resolve the conflict by mutual agreement of the respective beneficiaries. In the event that mutual agreement cannot be reached after such reasonable efforts, then my fiduciary shall resolve such conflicts in its sole discretion based upon the following priorities:

a.	My wife shall be favored at the expense of my descendants.

b.	Among my descendants, my children shall be favored at the expense of more remote descendants.

c.	Life tenants of any class shall be favored at the expense of remaindermen.