PEACE OF MIND
LASCA ARNOLD PENDLEY
PROBATE, ESTATE ATTORNEY
The Bad News: When a person dies owning property in their sole name without a beneficiary, their loved ones will have to go through a court-supervised process called probate to transfer the property out of the deceased person’s name and into the name of intended beneficiaries or heirs at law.
Going through probate court may lead to various expenses, including fees for attorneys, executors, appraisers, accountants, court filings and other costs required by state law.
The Good News: Many costs can be reduced by avoiding probate altogether. It is that simple.
Here are three ways to avoid probate and its related costs.
• Name a beneficiary. The probate process applies only to accounts and property in a person’s sole name that do not have a beneficiary, payable-on-death or transfer-on-death designation at the time of their death.
Accounts and property with a beneficiary designation will be transferred to the designated individual immediately upon the owner’s death without any probate court involvement.
It is common to designate beneficiaries on these types of accounts and property: Life insurance policies and annuities; bank accounts; retirement plans; and real estate, in Texas through transfer on death deeds One word of caution: When someone is named as a beneficiary of an account or piece of property through a beneficiary designation, they will receive that account or property outright. This means it could be exposed to claims by the beneficiary’s creditors.
Naming a beneficiary also means giving up the ability to put restrictions on how the beneficiary uses the account or property they receive.
Lastly, naming a beneficiary does not help if you become unable to manage your affairs. The named beneficiary will only have access to the account or property at your death and not during your incapacity.
• Own accounts and property jointly. Probate can also be avoided for accounts or property you own if they are held jointly.
Similar to a beneficiary designation, joint ownership with rights of survivorship automatically transfers the deceased co-owner’s share to the surviving co-owners upon the person’s death without the need for probate court.
There are a couple types of joint ownership that you can set up to avoid having to go to probate court to transfer a co-owner’s interest: 1) Joint tenancy with rights of survivorship. A deceased co-owner’s interest in the property simply transfers to the remaining joint tenants (co-owners) upon the deceased co-owner’s death.
2) Community property with rights of survivorship. This form of ownership is used with property owned by a married couple in a community property state. At the first spouse’s death, the surviving spouse receives 100 percent ownership.
One word of caution: Most homes purchased by spouses are community property, but rarely are they held with a right of survivorship. Just because your deed states “husband and wife” or “married couple” does not mean there is a right of survivorship.
Without a specific right of survivorship, each spouse owns an undivided 50% of the property, and probate is required to obtain the deceased spouse’s 50%.
• Create and fund a revocable living trust. A final method to avoid probate and all its expenses is to create and fund a revocable living trust.
When you create a trust, you will need to transfer ownership of all your accounts and property to the trust or name the trust as the beneficiary. The process of transferring assets to a trust is called trust funding.
The accounts and property owned by the trust (or that become owned by the trust by beneficiary designation) are not probate assets and do not require probate court involvement.
While you are alive, you remain in control of all legal decisions pertaining to the accounts and property owned by the trust as the trustee and retain the enjoyment of those accounts and property as the current beneficiary.
After your death or if you become unable to manage your affairs, your named successor trustee will step in to manage and distribute the trust’s accounts and property according to your wishes.
This article is provided as a service of the Law Office of Lasca A. Arnold, PLLC.
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