Probate is the legal process where a court of law establishes the validity of a decedent’s will. The probate process includes the appointment of an administrator, receivership, ad litem, and accounting & inventory of the decedent’s belongings, paying off the decedent’s debt, and distributing the estate’s assets. Among other reasons, the advantages of probate include:

1. expediting creditors’ claims, 

2. court decides the outcome for contested matters, 

3. reduce expenses that would accrue outside of court, 

4. provide an opportunity for beneficiaries, and 

5. heirs to be heard.  

However, there are several reasons one would want to opt-out of probate. The disadvantages to probate are 

1. The length of time to close out a probate case, 

2. Probate can be expensive, especially when contested or a dependent administrator is appointed, and 

3. The probate process is public record and accessible to anyone to see the estate’s assets and liabilities. 

You may prefer a trust to satisfy specific anonymity needs. However, an alternative to trusts, and to avoid probate are 8 ways to transfer your assets to beneficiaries: 

1. Pay on Death (POD) Bank Account – Most banks have a POD form for you to fill out and submit to the bank. Upon your death, the bank requires proof of death, mainly a death certificate and beneficiary’s identification are satisfactory. On the form, you provide the beneficiary’s information. The beneficiary will receive all remaining funds in your account. Beneficiaries under a POD, do not have rights to your account unless stipulated. You are allowed to change beneficiaries at any time. The bank account may be temporarily frozen at the time of your death or by court order, especially if federal levies the estate tax and sufficient funds are paid for IRS taxes. Texas does not have an estate tax. Every bank may have different policies. Ask your bank if notification to the beneficiary is required as part of the procedure for POD. Generally, more than one designated beneficiary is allowed.

2. Transfer of Death Vehicle Registration – Texas allows vehicles to transfer to your designated beneficiary. The Department of Motor Vehicles provides a ‘Beneficiary Designation for Motor Vehicle’ form. This designation will not transfer ownership during your life or affect the interest or right of a secured or unsecured creditor or future creditor. If you file this form with the Department of Motor Vehicles, a will won’t supersede the ‘Beneficiary Designation for Motor Vehicle’ form. Once the form is filled out, it must be filed with an application for Texas Title and/or registration, fees paid, and valid ownership evidence to a county tax assessor-collector’s office before your (owner’s) death. Beneficiaries must survive the owner by 120 hours and title application is submitted no later than 180th day after the owner’s death. Beneficiaries can decline interest in the vehicle. After death, if the beneficiary accepts the vehicle, he/she is also accepting any liens on the vehicle. Similar to the owner filing the transfer of death vehicle registration, the beneficiary must also file a title application, pay the fees, provide a death certificate, and provide identification.  Here is the link to ‘Beneficiary Designation for Motor Vehicle’ form: https://www.txdmv.gov/sites/default/files/form_files/VTR-121.pdf 

3. Transfer on Death Deed (TODD) for Real Estate – TODD allows owners to keep ownership rights during his/her lifetime and allows owners to transfer ownership of the real property to the beneficiary after the owner’s death without a probate court’s involvement. TODD should explicitly state that title to real property will not transfer to the beneficiary until the original owner’s death.  TODD should also include the beneficiar(ies) name, legal description of the property, dated, signed, notarized, and recorded in the real property records where the property is located. After death, proof by death certificate and an affidavit of death must also be signed, notarized, and recorded. At any time prior to your death, you may terminate TODD or redesignate the beneficiary or beneficiaries. See our article on TODD vs. Lady Bird Deed for more information. Attorneys at Walter & Truong PLLC can draft and record the Transfer on Death Deed on your behalf. To speak to our attorneys, click here.

4. Tenancy in Common & Joint Tenancy – Two common concurrent ownership in Texas are joint tenancies and tenancies in common. These concurrent ownerships are similar but have distinctions with significant effects of inheritance. 

A tenancy in common occurs when two or more parties jointly hold an interest in the property. Concurrent ownership undivided interest and right to possess the property. This is the default Texas rule and is presumed if no explicit written language is stated in the deed. Each owner has the right to sell, devise, lease, or transfer their interest in the property. When an owner dies, his/her share will pass through a will or, if the concurrent owner dies intestate (without a will) the default under Texas Intestate estate code. 

On the other hand, joint tenancy contains languages of a right of survivorship. Right of survivorship means when the concurrent owner dies, the surviving owner(s) automatically inherit the decedent’s share. Property does not pass through probate. 

Both concurrent ownership can be used for personal property, but are commonly used for real estate. To avoid probate, the deed must explicitly state the right of survivorship language.

Joint Tenancy is not for everyone. Once concurrent ownership is formed, it’s difficult to revert back to you. If you change your mind, you don’t have the right to freely take back the property. Another issue with joint tenancy is that you may need authorization for all concurrent owners to take out a mortgage, sell or transfer the property, etc. In the event that concurrent owner(s) are incapacitated, a court-appointed guardian will make the decisions for that person. Other reasons for not using joint tenancy include gift tax for amounts exceeding $15,000.00 and miss stepped up tax breaks for spouses who become concurrent owners of a spouse’s prior separate property. The IRS allows a surviving spouse to get a “stepped up tax basis” only half of a decedent’s property instead of the full property if the property becomes joint tenancy. 

5. Community Property – In Texas, 100% of community property automatically transfers to the surviving spouse except when the decedent has children outside of the marriage aka stepchildren. Then community property is shared with stepchildren.  To learn more about the Texas default rule for intestate succession for heirs, click here.

6. Community Property Survivorship Agreement – Under the Texas Estate Code Section 112 spouses may enter into an agreement at any time between themselves to designate the surviving spouse of the deceased spouse that all or part of separate property becomes community property. Texas requires specific language in the agreement to be enforceable. It must include the following:
   1. Be in writing
   2. Signed by both spouses
   3. The phrase: “with right of surviving”, “will become the property of the survivor”, “will vest in and belong to the surviving spouse”, or “shall pass to the surviving spouse.”

Texas Estate Code Section 112.052(d) states that a survivorship agreement may not be inferred from the mere fact that an account is a joint account or that an account is designated as JT TEN, Joint Tenancy, or joint, or with other similar languages. 

Further, Community Property Survivorship Agreement can be revoked by adding revocation terms to the agreement. If no revocation terms exist in the agreement, the default rule is that a revocation agreement must be in writing, signed by both spouses, or signed by one spouse and delivered to the other spouse. Specific property can be revoked. According to Texas Estate Code 112.054, a community property survivorship agreement may be revoked with respect to specific property subject to the agreement by the disposition of the property by one or both spouses if the disposition is not inconsistent with specific terms of the agreement and applicable law.

7. Life Insurance – Life insurance is a contract between you, the policyholder, and the insurance company. You pay the premiums during your lifetime in exchange for a lump sum payment to your named beneficiary. The beneficiary will receive the money after your death and may use that money for any purpose. This type of contract does not involve probate and the proceeds go directly to the beneficiary. There are a couple of exceptions for probate involvement such as when the estate is named as the beneficiary. This is done so the estate can pay off debts and taxes. This is suggested under specific circumstances and is not common

Another uncommon scenario is when the financial institution that provides the life insurance may need to show cause for not properly providing the payment to the beneficiary. 

There are two primary types of life insurance, term life, and permanent life. Term life is a certain duration of your life while a permanent life covers your entire life.

8. Gift – The first $15,000 you give per person as a gift is exempt from federal gift tax. This amount may change per IRS requirements. See https://www.irs.gov/businesses/small-businesses-self-employed/gift-tax for more details.

When you give a gift to someone, that gift is separate property, meaning it belongs to the person to whom it is given and is not shared with another person such as a spouse. There are no requirements to document gift giving (but it is suggested that you keep a written record of it in the event of a dispute in the future), however, once you give that item away generally, you cannot take it back. The exception is some items that require documentation in themselves such as transferring stocks & bonds, royalty, land, car, or boat for proof of ownership. These title transfers should be filed in the correct agency or entity in order to be documented. 

To learn more about probate and other transfer strategies, schedule a consultation with an Integrity Law Group PLLC attorney today. 

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