Alternatives to Probate
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Helping your family avoid probate is a commendable goal with practical benefits. This includes being able to cut back on delays and save on probate fees paid to the government so you can pass on more to your heirs.
While avoiding probate is more attainable than most may think, it requires a proactive approach and the right estate planning tools.
Our estate planning and probate team at Hendershot Cowart P.C. can help you understand probate alternatives and their implications so you can make informed decisions about your property and keep more of your estate in the hands of people who matter most.
Why Avoid Probate?
Probate is a legal procedure in which a court oversees the administration of a person’s estate upon death. This can include creating an inventory of assets, paying off debts and liabilities of the estate, filing a final tax return, partitioning land, and distributing remaining property to the appropriate heirs.
As a specialized legal process, probate comes with consequences. This can include:
- Costs associated with filing fees, publication of notices, and legal fees.
- Time-consuming legal procedures that can take anywhere from several months to several years.
- Assets, debts, and financial records becoming public record.
While it may be possible to bypass probate in limited circumstances after the fact (such as through a Small Estates Affidavit or an Affidavit of Heirship when someone dies without a will), opting for preemptive planning can ensure your property is distributed in a way that works for you and your beneficiaries, and that any tax considerations are addressed.
Every estate and family dynamic is unique, and some strategies used to avoid probate may not make sense for everyone. However, if avoiding probate is your desired end game, choosing the right techniques and structuring the estate correctly with the help of experienced counsel is critical.
Examples of Techniques to Avoid Probate
1. Creating a Living Trust
A living trust is an alternative to a last will and testament that places your property “in trust” to be managed by a trustee who distributes assets upon your death in accordance to your wishes.
The benefits of creating a trust is that it can allow your heirs to avoid the cost of probating a will. A living trust can also provide other benefits such as maintaining the privacy of estate assets, protection from creditors, and establishing long-term giving options to pass wealth to multiple generations. Additionally, trusts allow families to structure gifts in ways to protect so-called “spendthrift” children from spending all their inheritance at once. Trusts are also helpful to avoid probate when property is owned out of state.
If you choose to create a revocable living trust, it is important to re-title assets in the name of the trust. If you fail to make your living trust the record owner of your assets, property that remains in your name may still be subject to probate.
2. Creating a Life Insurance Trust
Life insurance benefits payable on death can be among the largest sources of money for beneficiaries. By establishing a life insurance trust, you can protect principle assets from taxes on interest and earnings and have options for using the money to cover various costs associated with:
- Beneficiary medical expenses
- Tuition for surviving children or grandchildren
- Property taxes or mortgage payments
- Caring for incapacitated heirs
- Supporting specific non-profits
3. Creating Community Property Survivorship Agreements
Under a statutory procedure created by an amendment to the Texas Constitution (Article 16, Section 15), Texas spouses can agree in writing that all or part of their community property belongs to the surviving spouse in the event the other passes way. When such an agreement is created, property passes automatically upon death without the need to probate.
Texas Estates Code § 112.052 outlines requirements for creating a Community Property Survivorship Agreement. Our attorneys can help you evaluate this option and whether it makes sense for you.
3. Designating Beneficiaries for Bank and Investment Accounts (Payable on Death)
In Texas, you can designate beneficiaries on important assets through the banks, brokerages, and institutions where you have your accounts, including your life insurance policies, pensions, and IRA / 401(K) plans, by adding a “Payable on Death” (POD) or “Transfer on Death” designation to those accounts.
Designating beneficiaries in this way can ensure those accounts pass directly to the named beneficiary (or beneficiaries) without the need to probate.
Texas does not currently allow securities such as stocks and bonds to be registered as Transfer on Death.
4. Transferring Real Estate
Texas allows Transfer on Death registration of real estate with Transfer on Death Deeds (TODD). A TODD must be signed and filed in the county where the property is located before death.
Real property can also be transferred outside of probate through a Life Estate Deed, which transfers property to beneficiaries while you are alive and gives you the right to occupy during your life, or a Lady Bird Deed, which is often using in long-term care planning. Both of these strategies have their own considerations that should be addressed with a lawyer.
4. Owning Assets Jointly
Holding property jointly can help keep certain assets out of probate, as it will allow the property to pass to your significant other upon death. You do not have to be married to hold property jointly or to have property pass to your partner upon death.
While joint ownership is a common method for protecting real estate in community property states like Texas, you must choose the right form of joint tenancy if your wish is to have your share of real estate pass to the other owner(s) upon your death. For example:
- In a joint tenancy with right of survivorship, when one owner dies, their share of the property is transferred to the other owner(s).
- In a joint tenancy, when one owner dies, their share of property passes to their heirs or the beneficiaries named in their will.
An attorney can help you understand the best options for co-ownership based on your situation and tax considerations.
Have questions about your estate plan and how you can avoid probate? Call or contact us online to speak with an attorney.
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