This article is for educational and entertainment purposes only. This is not legal advice and should not be relied on as such. Every case is different. Consult a licensed professional in your state. Viewing this website or its content does not create an attorney-client relationship with Lyda Law Firm or any of its lawyers.
Written by: Maria Ortiz
This article is for educational and entertainment purposes only. This is not legal advice and should not be relied on as such. Every case is different. Consult a licensed professional in your state. Viewing this website or its content does not create an attorney-client relationship with the Lyda Law Firm or any of its lawyers.
Grieving the loss of a loved one is difficult, especially if you are left to endure a lengthy court proceeding relating to the deceased person’s estate. Even if an individual prepares a will, the individual’s estate is still subject to probate.
If you would like your relatives to avoid the hassle that comes with probating your estate upon your death, you should consider different strategies to avoid probate. In this post, we will answer three questions: (1) what is probate?; (2) what is the difference between a probate asset and a non-probate asset?; and (3) what are three strategies to avoid probate?
Probate is the legal process of distributing an individual's property upon that individual's death. If the individual prepared an estate plan, the property will be distributed according to the instructions provided in the plan. If the person did not have an estate plan, the person is considered to have died intestate, and Texas intestacy law will dictate who is entitled to receive the individual's property.
Not all property must pass through probate. Assets that are subject to probate are considered "probate assets," while assets that avoid probate are considered "non-probate assets."
Probate assets are assets that lack any sort of probate-avoiding characteristic, and thus must be distributed as part of a deceased person’s estate either under the terms of a will or by intestacy. Common probate-avoiding designations include beneficiary designations or transfer-on-death designations.
Probate assets can include:
Non-probate assets are assets that have some sort of probate-avoiding characteristic, such as a beneficiary designation, or assets that are placed in a trust.
Common non-probate assets include:
A probate asset can become a non-probate asset with proper planning. Three strategies are commonly used to convert probate assets to non-probate assets.
One way to ensure that your asset does not pass through probate is to designate a beneficiary for that asset. For example, if an individual opens a savings account, the bank managing the account will give the individual the opportunity to name a beneficiary for that account. The named beneficiary will then be able to take possession of the account upon proof of the individual’s death and will not have to wait for an executor to probate the individual’s estate.
Depending on your jurisdiction, you may also be able to transfer vehicles by making this type of designation. For example, in Texas a person can submit a Beneficiary Designation for a Motor Vehicle form to the Texas Department of Motor Vehicles. This form allows an individual to transfer his or her vehicle to another person upon death. Preparing this form can help ensure that the vehicle does not have to pass through probate.
Probate can be a long process subject to the court’s schedule and judge’s availability. If you know who you would like to receive your property, and the property is subject to a beneficiary designation, take action to ensure this property is a non-probate asset.
Using a beneficiary designation ensures that property transfers to another person upon death but allows the current owner to retain possession of the property during life. Now let’s discuss how a shared asset can transfer outside of probate.
Ownership of certain property can be shared under a legal status known as “joint tenants with rights of survivorship,” commonly abbreviated to JTWROS. This legal status allows multiple people to share ownership of the property. However, once one owner dies, the deceased owner’s interest automatically transfers to the other owner(s).
For example, let’s say that Bob and Mike, brothers, own a vacation home as joint tenants with rights of survivorship. Because the brothers share ownership of the vacation home, each brother owns a 50% interest in the home. However, once Bob dies, Mike will receive Bob’s 50% interest and become the sole owner of the home. Likewise, If Mike dies before Bob, Mike’s 50% interest will transfer to Bob, and Bob’s interest will increase to 100%.
In addition to real estate, financial accounts, such as savings accounts, can also be owned under the JTWROS status. Remember that this strategy affects current ownership. While a beneficiary designation allows for sole ownership of certain property during an individual’s life, JTWROS status allows for shared ownership during life. Therefore, if you would like to retain sole ownership of an asset, explore your options to designate a beneficiary of the asset. However, if you are agreeable to sharing ownership, consider becoming joint tenants with rights of survivorship.
Another way to avoid probate is to place your assets in a trust. This is commonly done by creating a revocable living trust, where an individual (grantor) puts his or her assets into a trust and appoints someone to oversee the trust (trustee). Because the trust is revocable, the grantor is still able to control the assets in the trust. Upon the grantor’s death, the assets in the trust will pass to designated beneficiaries. Because the assets will pass according to the terms of the trust, a probate proceeding is not necessary.
While a revocable living trust is an efficient way to avoid probate, the creation of this trust does not always eliminate the need for a will. The assets subject to the trust must be named in the trust. Therefore, if a grantor creates a trust and later acquires new property, the newly acquired property will not automatically be included in the trust. If the grantor does not have a will that covers the newly acquired property, this property must pass to the grantor’s heirs under the laws of intestacy.
For this reason, a revocable living trust is often paired with what’s known as a pour-over will. The pour-over will is essentially a catchall document that ensures that property acquired after the creation of the trust will not have to pass under the laws of intestacy.
If you are interested in discussing additional probate-avoiding strategies or would like to discuss these strategies in more detail, contact the Lyda Law Firm.
At Lyda Law Firm, we offer affordable flat rates for individuals and couples in need of an estate plan. If you need assistance in preparing or updating your estate plan, please contact us so we can assist you in planning for your future.
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