The most common stated goal of estate planning is to avoid probate. While a relatively straightforward process in Texas, probate can be somewhat costly and does require a time investment. Finally, when probating a will, that information becomes a matter of public record, all of which most people prefer to avoid. Whether or not your estate goes through the probate process will depend on the type of estate plan drafted and how your estate owns your assets.
How your estate owns your accounts has a big impact on your estate plan and the possibility of probate. This means that it’s important to regularly review your accounts and beneficiary designations to be sure that either your death or the death of a loved one hasn’t compromised an already established estate plan.
Assets with Beneficiary Designations
Assets with beneficiary designations (such as life insurance, retirement accounts, etc.) are generally considered non-probate assets in Texas. The reason for this is because the money in those accounts will be distributed at your death, according to the terms of the agreement and without a probate court’s involvement. For example, if you name a spouse as a beneficiary of a life insurance policy, on your death the proceeds will be paid to your spouse according to the terms of the insurance policy. There’s no need for the probate court to become involved.
One thing to keep in mind is that a non-probate asset can become a probate one in certain circumstances. Using the earlier life insurance example, say you have only named your spouse as the beneficiary of your life insurance policy. Yet, your spouse dies before you, and you never update your beneficiary designation. When you die, since your beneficiary is also dead, the proceeds become part of your estate, which must go through probate.
The best way to avoid this problem is to first have a back-up beneficiary designated and to update your non-probate asset beneficiaries every time there’s a change in your family, like a birth, death or divorce.
Naming a Payable-On-Death or Transfer-on-Death Beneficiary
Similar to the assets discussed above, some financial accounts will allow you to name a beneficiary via a pay-on-death (for cash accounts) or a transfer-on-death registration (for investments or stock accounts). Additionally, Texas allows for a transfer-on-death deed, which allows for the transfer of real property without going through the probate process.
These forms of beneficiary designation allow to you to keep ownership of your assets during your life but provide a way for that ownership to be automatically transferred at your death to your named beneficiary outside of probate.
Remember, just as with any beneficiary designation, this non-probate transfer can fail if your named beneficiary has pre-deceased you. So, make sure that you are reviewing and updating these designations as your family and life situation changes.
Joint Rights of Survivorship
In some cases, one method to avoid probate, is to add another person to account or property’s title so that it is owned jointly with rights of survivorship. This particular form of ownership means that at the death of the first owner, the surviving owner automatically owns the entire account or property without going through probate. For example, if you own a bank account with a child, and the account has rights of survivorship, when you pass away, ownership of the account is automatically transferred to your child, since they are the survivor.
Just remember, if you are relying on this method to avoid probate, and your co-owner is already deceased, you’ll be in the same boat as with any other beneficiary designation that fails. Based on the above example, if you are the surviving child of an joint owner survivorship account, and your parent has already died, then congratulations, you now are the sole owner of the account or property. And without further planning, this asset will have to go through the probate process at your death.
Transferring Assets to Your Revocable Living Trust
One reason trust plans have grown in popularity is the fact that at your death a trust does not go through the probate process and the details of your trust plan remain private, known only to your trustee and beneficiaries. If your estate plan includes a revocable living trust (RLT), the best method for avoiding probate is to ensure that you’ve transferred the ownership of your assets (bank accounts, real estate, life insurance policies) from yourself as an individual to your RLT. Like the other forms of estate planning, it is equally as important to review your assets regularly to ensure that your RLT is the owner of your property and accounts.
Inheriting Assets from Your Deceased Loved One
If you have inherited assets from a loved one, or you have recently acquired new assets of your own, you will need to address these new accounts or property in your estate plan. Depending on the size and nature of these new items, you may need to consider modifying your existing estate plan, or add an additional planning tool (such as a special trust). If you are able to name a beneficiary for any new accounts (either acquired yourself or gained through inheritance), be sure to name a new beneficiary as soon as possible.
Have you completed your estate plan?
If you began the estate planning process but did not finish it, or if you have discovered accounts or property that now need to be planned for, act now. Without an estate plan in place, the court will make all of your decisions for you, including:
- who will receive your money and property at your death,
- how much each person will receive, and
- when each person will be entitled to receive the assets (adults will likely receive their entire share right away).
We can guide you through the process.
Our team of experienced attorneys is here to help you review your accounts and property to ensure that you and your loved ones are protected. Give us a call today to schedule a virtual consultation. We can discuss the types of assets you own, what will happen to them when you pass away, and how you can leave a lasting legacy.
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Nielsen Law PLLC provides family focused estate planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information and to learn about our firm, please contact us.