Probate is often an expensive and time-consuming process. The last step of the probate process is to distribute assets to your loved ones, so they are waiting a long time before receiving the property you left them. For these reasons, many people have avoiding probate as one of their estate planning goals.
Avoiding probate can help reduce the cost to administer your estate. Also, the more property your estate does not own after your passing, the less fees or taxes you are likely to incur. However, the only way to truly avoid probate is not to own anything at the time of your death. Fortunately, you can accomplish this with careful estate planning. The following are options to reduce your need for probate or eliminate it altogether.
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Your real property is likely your most valuable asset. You can keep this asset out of the probate process by preparing a Transfer on Death Deed (TODD). This special type of deed allows you to name a beneficiary you would like to receive your property. However, what makes this deed different from others is that the beneficiary will not receive the property, or any ownership interest in the property, until after your death.
To effectuate a TODD, you must record the deed in the deed records office of the county where the property is located before your death. A TODD does not negatively impact your ownership rights. You can still occupy the residence, use it as you see fit, or even sell it if you so choose. A TODD can be prepared for any real estate, not just your homestead.
The beneficiary you name can be a person, like your adult child, an organization, a charity, or even a trust. Because the beneficiary automatically becomes the new owner at the time of your death, your estate no longer legally holds title to the property, so it can transfer outside the probate process.
The directive in a transfer on death deed trumps a contrary instruction in your last will and testament.
Lady Bird Deeds
Texas also has what is called a Lady Bird deed or Lady Bird Johnson deed. This is similar to a transfer on death deed. You effectively create a life estate for yourself so that you can continue to live in the property during your lifetime. You name a beneficiary who will automatically inherit the property at the time of your death.
Under a typical life estate, you give up certain rights to the property, such as the right to mortgage the property or sell it. This type of deed is sometimes called an enhanced life estate deed because you get the typical benefits of a life estate, but you also keep the right to revoke or change the deed during your lifetime. You can also mortgage or sell the property if you see fit. Lady Bird deeds are sometimes used to maintain eligibility for Medicaid and avoid estate recovery while keeping property within the family.
Muniment of Title
A muniment of title is a legal document that establishes a person’s legal ownership of real property. In Texas, you can probate a will as a muniment of title, thereby cutting down on the expense and process, if:
- The real property does not have any debts associated with it
- The will does not have a named executor
- The court determines there is no further need for administration of the estate
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Survivorship Community Property
Texas is a community property state for married spouses. One of the benefits of this arrangement is that spouses can sign an agreement to own property as survivorship community property. This means that when one spouse dies, the other spouse automatically receives their ownership interest in the property.
Joint Tenancy with the Right of Survivorship
Joint tenancy refers to the act of owning property with another person. While this type of ownership is usually for real estate, there are other types of assets that can be owned as joint tenants.
The phrase “right of survivorship” means that the surviving owner automatically absorbs the interest of the other owner(s) of the property after they die. Because the transfer of ownership is automatic, the decedent does not own the property at the time of their death, and the asset is not part of the probate estate.
Unlike with survivorship community property, you do not have to be married to the co-owner of the property as joint tenants with the right of survivorship. The other owner could be a different family member, a business partner, friend, or other individual or entity.
To have joint tenancy with the right of survivorship, you must enter into a written agreement. You must obtain the property at the same time, and all owners of the property must have an equal share.
Joint tenancy with the right of survivorship can be an effective way to own various assets and prevent them from being involved in the probate process, including:
- Real estate
- Financial accounts
- Personal property
Payable on Death Designations
Joint tenancy gives another person the immediate right to use the property. If you don’t want to transfer an immediate right to the person, another option is to use a payable-on-death (POD) designation or account. With this arrangement, you retain full control over the asset. You name a beneficiary who receives the property after your death.
For example, you may have a checking account at XYZ Bank. You name your adult child, Meghan, as your POD beneficiary. After you die, Meghan can claim the money in your bank account without the need for probate proceedings.
This type of designation can be used on a variety of financial accounts, including:
- Checking accounts
- Savings accounts
- Certificate of deposit accounts
- Individual retirement accounts (IRAs)
You can contact your financial institution to see if they offer this option.
Transfer on Death Registrations
Texas also allows you to complete a transfer-on-death registration for your vehicles. After your passing, the beneficiary you name automatically inherits the vehicle.
You can also create beneficiary designations to receive your assets after you pass away for various types of property, including:
- Life insurance proceeds
- Retirement accounts
- Bank accounts
- Business shares
- Savings bonds
A trust is a separate legal entity that is governed by a trust agreement that a grantor makes. The trustee must follow the directions in the trust for the benefit of named beneficiaries, which may also include the grantor.
The most common type of trust is a living revocable trust. This flexible type of trust can readily be changed or revoked by the grantor. The grantor determines how the trust assets should be managed during their lifetime and what happens to them after their death.
Because the assets are no longer part of the estate and are held by the trust, probate is not necessary. The trustee simply follows the directions in the trust.
Small Estate Affidavit
Finally, not all estates have to go through probate. If the value of your estate is $75,000 or less, your heirs may be able to use a small estate affidavit to claim your property. There is a similar mechanism for them to claim your vehicle, called an Affidavit of Heirship for a Motor Vehicle.
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Contact a Knowledgeable Estate Planning Lawyer for Help
While the methods discussed above may help you avoid probate, they may not all be appropriate for your situation. For specific advice about your individual situation, contact a knowledgeable Texas estate planning lawyer for help. Contact Warren & Migliaccio to start planning your estate today.