Having a probate court wade through your estate can be time-consuming, stressful, and expensive. It can also be a public spectacle if disputes develop. Fortunately, there are numerous strategies to sidestep probate, preserve assets and ensure a smooth transfer to loved ones. If you live in Texas, you can implement five key tools to avoid probate. Here’s what you need to know.
A financial advisor can help you create an estate plan to preserve your assets for beneficiaries and avoid probate.
What Is Probate?
Probate is a legal process that settles a deceased person’s debts and distributes their assets. Local courts conduct probate using the person’s will or state inheritance laws in the absence of a will.
If the deceased person has a will, the executor they name initiates the process by filing a petition with a local probate court. A court judge will review the petition and, if everything is in order, issue “letters testamentary” (if there’s a will) or “letters of administration” (if there isn’t a will). This document grants the authority to the named person to act as the estate’s personal representative (often referred to as an executor or administrator).
Next, the executor notifies all known heirs and other interested parties of the person’s death. In many jurisdictions, a notice is published to inform potential creditors that they have a specific period (usually a few months) to file claims against the estate.
The executor then gathers and appraises the deceased person’s assets. Taking inventory may include real estate, bank accounts, investments and personal belongings. The estate is responsible for settling any outstanding debts, such as funeral expenses, medical bills, outstanding loans and taxes.
After resolving all debts, taxes, and administrative expenses, the executor distributes assets to heirs according to the instructions in the will. The executor also presents a summary of their activity to the court for approval.
Why Should You Avoid Probate?
Avoiding probate can be a goal for many individuals and families for several reasons, as it offers various benefits. Here’s a breakdown of seven common reasons to avoid probate:
Probate involves a series of legal steps, including filing documents, notifying heirs and creditors, appraising assets, settling debts, and distributing assets. This process can be time-consuming, often taking several months to complete. In complex cases or if there are disputes, probate can extend for years.
Avoiding probate can expedite the transfer of assets to beneficiaries. For example, assets held in a revocable living trust can be distributed almost immediately after the grantor’s passing without court approval.
Preserve the Estate
Probate comes with various costs, including court fees, attorney fees, appraisal fees, and executor fees. These expenses can significantly erode the overall value of the estate. Of course, other estate planning instruments involve costs. However, you’ll pay a fixed cost upfront for your estate planning tools (such as a trust) that bring a host of advantages and avoid uncontrollable probate-related expenses.
Probate proceedings are public, meaning that the details of the estate, including its assets, debts, and beneficiaries, are accessible to the public. This trait can lead to unwanted attention for the deceased’s family members and heirs. On the other hand, a trust remains private after the grantor passes away.
Losing a loved one is challenging enough without the probate process to exacerbate the emotional and financial strain. Probate requires beneficiaries to navigate legal complexities and disputes while remaining in the public eye. Avoiding probate is one way to provide peace and solace to your loved ones, allowing them to focus on grieving and healing without probate proceedings.
Distribute Assets Quickly
In some cases, beneficiaries may urgently need access to funds or assets. Probate can cause delays, inhibiting their ability to address immediate financial needs. Your beneficiaries may go months or years before receiving their portion from your estate.
Minimize the Risk of Disputes
Probate can sometimes lead to disputes among heirs or interference from outside parties. These risks lead to disagreements about the distribution of assets, conflict between family members and possible distribution of assets against the deceased’s intentions.
Control Asset Distribution
Some individuals have wishes for distributing their assets that they don’t state or clarify in their will. Moreover, they may not leave any sort of will behind, especially if they suffer an unexpected death. Unfortunately, probate court follows state laws if a person dies intestate (without a will). A firm estate plan takes those decisions out of a probate judge’s hands.
How to Avoid Probate in Texas
Fortunately, your estate plan can let you bypass probate in Texas with these five common tools:
Revocable Living Trusts
A revocable living trust is a legal entity you create to hold and manage your assets. The person who creates the trust (known as the grantor) appoints themselves as the initial trustee and beneficiary. This feature allows you to maintain control of your wealth while you’re alive. You also designate successor trustees and beneficiaries who will manage and receive the trust assets after you pass. Lastly, because trusts are not subject to probate, your trustee has sole discretion for distributing your assets.
Texas law provides two types of joint ownership. First, joint tenancy means an individual person or couple to transfer asset ownership to a designated person upon death. Joint tenancy can apply to various property types, including houses, vehicles, and bank accounts. The catch is that a joint tenancy is valid only if the other party has equal ownership of the property at the time you create the joint ownership.
Secondly, survivorship community property is for married couples in Texas. This tool designates each spouse as the surviving party upon the other’s death, allowing them full ownership of property.
Payable-on-Death (POD) Accounts
A POD account is a financial account (such as a bank account) where the owner designates one or more beneficiaries to receive the funds upon the owner’s passing. Setting up a POD account is typically a simple process with most financial institutions.
Beneficiary designations are available for specific types of assets, such as life insurance policies, retirement accounts (like IRAs and 401(k)s), and annuities. The asset owner specifies one or more beneficiaries for the particular account or policy. Then, when the owner passes away, the asset is distributed directly to the named beneficiary without probate involvement.
Transfer-on-Death (TOD) Deeds
A TOD deed is a legal document allowing an individual to designate who will inherit their real property (e.g., a house) upon passing. This tool allows the owner to retain control and ownership of the property during their lifetime. Like the other instruments on this list, the owner can change designations for beneficiaries at any time.
Avoiding probate in Texas is crucial for the timely distribution of assets, saving money and maintaining privacy. Methods like revocable living trusts, joint ownership, payable-on-death accounts, beneficiary designations and transfer-on-death deeds offer practical ways to bypass probate. By understanding these methods and consulting with a qualified estate planning professional, individuals in Texas can effectively bypass probate and ensure a smoother and more efficient distribution of their assets to their chosen beneficiaries. Doing so offers financial benefits and peace of mind for both you and your loved ones.
Tips for Avoiding Probate in Texas
- Avoiding probate in Texas is about using the right tools for your situation. For example, you might make a revocable living trust and purchase a life insurance policy with your spouse and children as beneficiaries. A financial advisor can help you create a structure for your assets based on your needs. If you don’t have a financial advisor yet, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Taxes are a constant, whether your assets go through probate or you place them in a trust. However, you can implement several financial strategies to lower your estate taxes in Texas.
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