Transfer On Death Deeds: Another Way To Avoid Probate

Reaching For A HomeCreating an estate plan isn’t just for the rich and famous. Every individual should have an estate plan that fits his or her specific needs. This includes planning for future incapacities with a financial power of attorney, a medical power of attorney and a directive to physicians (often known as a living will). Estate planning also involves making a plan to distribute your assets upon your death. The most common planning technique for your assets is a Will.

However, there are some lesser-known estate planning techniques that may be appropriate for your situation. For instance, one little known and rarely discussed technique is a transfer on death deed. You may be asking yourself right now, “Isn’t that what my Will is for?” Yes, your Will should address property ownership but in estates with limited assets, this deed may allow you to bypass probate altogether. But the follow-up questions are likely “Why would I need to designate my spouse as owner of the property after my death? We bought this house together, so when I die doesn’t it automatically become all his?”  The short answer is no.

Texas is a community property state. This means any property purchased during the marriage, no matter how it is titled, results in each spouse owning an undivided one-half interest in the property. So when you buy a house with your husband, you and your husband each own 50% of the house. Each spouse, therefore, has a right to dispose of his or her 50% of the community property in whatever way he or she sees fit. Often this means leaving your half of the community property house to your spouse, but that isn’t always the case.

If you DO want your spouse to inherit your share of the community property home after your death, Texas allows you to file a transfer on death deed that will effectively transfer title of the property to the surviving spouse when the first spouse passes without having to go through the probate process. If you are not married or would rather leave your share of the community property to another individual such as a friend, child or parent, the transfer on death deed will also accomplish your goals. The requirements for creating this type of deed are strict but if all the requirements are met, title to the property will automatically transfer to the designated beneficiary upon your passing. For a nominal fee, you may be avoiding a longer and costlier probate process – especially if your house or other real property is the only asset that requires probate action.

An estate plan is more than just a Will. Estate planning attorneys have an arsenal of tools at their disposal to help craft an estate plan to fit your needs and desires.

Three Safety Measures in Place for Surviving Spouses

Texas is a community property state. This means that all property amassed during the marriage is equally owned by each spouse, subject to certain exceptions. However, what happens when there is an agreement in place that divides up the marital property unevenly, or when all property owned at the time of passing was separate property held by only one spouse? Does the surviving spouse have any rights to the property or are they to be left with nothing?

While it is important to know the courts and Texas legislature have provided some safety measures to protect surviving spouses in situations such as these.  You must also be aware that a valid pre marital or post marital agreement can change your property rights preventing these safety measures from applying.

Safety measure #1: the Probate Homestead

The couple’s primary residence, if owned, is classified as their “homestead” and the surviving spouse may qualify for a Probate Homestead upon the passing of their spouse. In that case, the surviving spouse may live in the residence until his or her passing.  This is true even if it was the separate property of the spouse.  This is true even if the residence was left to another person in the spouse’s will. In effect, the surviving spouse has the right to live in the homestead until they pass and then the right of possession shifts to whoever has legal title to the home. The surviving spouse will have certain financial responsibilities if they wish to remain.  Additionally, the residence must meet certain statutory guidelines to qualify as a homestead, and there are ways that this privilege can be lost, so it is best to consult an attorney when faced with this situation.

Safety measure #2: Set-aside of Exempt Personal Property

Texas law allows you to set-aside a certain amount of personal property that will be exempt from creditors’ claims. The amount varies depending on whether the surviving spouse is single or has a family and is changed from time to time by the legislature. The statute also gives a detailed list of items that will qualify as personal property that can be set-aside – it does NOT apply to everything.

In the event that the spouse who has passed did not own all of the personal property items that the surviving spouse is entitled to in the set-aside, you can receive an “allowance in lieu of homestead or exempt property.” The allowance amount is less than the actual amount of the probate homestead and/or the set-aside of exempt personal property, but it is meant to ensure that the surviving spouse of even the smallest estate does not walk away with no ability to provide for their future.

Safety measure #3: Family Allowance

Finally, Texas law provides for a family allowance for the surviving spouse and minor children. This allowance is meant to be an amount sufficient for their support and maintenance for one year. The allowance is notwithstanding any other gifts or property inherited by will or through intestacy. There are many factors that are taken into account when calculating the family allowance; therefore it is generally best to consult an attorney with experience in this area.

The probate homestead, set-aside of exempt personal property and family allowance, are measures the Texas legislature put in place to prevent a surviving spouse, and minor children, from being left without any means of support upon the passing of their spouse or parent. These safety nets can help, but nothing is better than a well-executed estate plan that provides for your loved ones needs after your passing.

Challenges of the Probate Homestead

Debbie Cunningham recently wrote an article for Headnotes, a publication by Dallas Bar Association, titled “Challenges of the Probate Homestead.” You can click on the link for the full article or continue reading below.

On the face of the issue, the probate homestead is quite simple and straightforward. Estates Code Chapter 102 provides clear direction on how to handle a decedent’s homestead. In summary, the surviving spouse has the right to occupy or use the homestead for the balance of his or her lifetime. The surviving spouse and children have the same rights in the homestead property whether it is separate or community property. Ownership of the property transfers according to the terms of a will or the laws of descent and distribution. The homestead is exempt from certain debts, but not secured debts on the property. Finally, the homestead may not be partitioned among the heirs during the lifetime of the surviving spouse as long as the spouse elects to use or occupy the property.

This right of occupancy is treated like a life estate. As such the surviving spouse must pay the expenses of upkeep, repairs, property taxes and mortgage interest. The title holder is responsible for the casualty insurance premiums and mortgage principal. This is all fairly straightforward when the titleholder and surviving spouse are either the same person or friendly parties, but that is not always the case. If the transfer happens according to the terms of a will and as part of a plan, all the parties may know their role and implement the process seamlessly.

When the homestead vests in someone other than the surviving spouse, the relationship of the parties can turn everything on its head. When the transfer is the result of the laws of descent and distribution, the blended family that once got along may find themselves on opposite sides of the issue. The decedent’s children will own part or all of a house that the stepparent has a right to live in for life. They receive an inheritance that cannot be occupied or liquidated and comes with financial obligations.

Things can be especially difficult in a scenario where there is a mortgage with escrowed taxes and insurance. Do the parties make separate payments to the mortgage company and trust the other party to be timely? Will the mortgage company accept partial payments from multiple sources monthly? Does someone make the payment and count on reimbursement? The surviving spouse may be a co-signer on the loan, which then causes concerns about the impact of late payments on a credit score.

The opposite may also be true. A surviving spouse who cannot afford to remain in the home may be content to await foreclosure and forced eviction. This could leave the children facing the loss of their inheritance or with additional financial obligations.

Furthermore, the right of occupancy and use is not limited to occupancy by the surviving spouse. Renting the property to a third party is an acceptable use that preserves the surviving spouse’s homestead rights. This may leave the title holders uncomfortable about the long term impact on the property, which leads to the issue of waste. Waste is defined as “permanent harm to real property, committed by tenants for life or for years, not justified as a reasonable exercise of ownership and enjoyment by the possessory tenant and resulting in a reduction in the value of the interest of the reversioner or remainderman.” Moore v. Vines, 474 S.W.2d 437, 439 (Tex. 1971). Thus renting and other activities may result in litigation allowing a court to determine if the surviving spouse’s actions or the actions of his tenants are harming the interest of the title holder.

There are numerous ways the parties could address these issues ahead of time. Specific provisions in pre- or post-marital agreements and wills could prevent most or all of these issues. Provisions such as assignment of all property costs to the surviving spouse or requiring an exchange of assets to prevent bifurcation of the homestead occupant and vested owners would help. Additionally, there are other vehicles to circumvent these issues, including but not limited to, life insurance. Insurance could cover ongoing costs of the property, allow for purchase of the property rights from either party or serve as the inheritance in lieu of the property.

As a final thought, I see many unanswered questions on the horizon due to the Windsor ruling. What happens if the currently unrecognized marriages of same-sex partners become recognized? These new surviving spouses will gain homestead rights, but may not have wills or agreements of any kind. If they do have cohabitation agreements, marital agreements or wills, they may not address this issue sufficiently or at all.

What Needs to be Done When a Loved One Passes Away?

When a loved one has passed those left behind are often at a loss for how to proceed.  What needs to be done?  When must it be done?  Can I delay the process to allow time to grieve?  Following are some general guidelines to help answer these questions for residents of Texas.  Since laws vary from state to state and change over time, you will want to consult an attorney to ensure you have information relevant to your situation.

There are several questions that must be answered to determine what options exist and what proceeding is required.

  • Is there a will?
  • What type of property is owned?
  • Are there unpaid debts of the estate?
  • How much time has passed since the death of your loved one?

A standard probate proceeding may be preferred or required if there is a will, property such as a home or car is owned or debts of the estate exist.  However, it must be less than four years since the death of your loved one.  Texas allows for independent administration if the appropriate language is included in the will.  Independent executors can be appointed without the appropriate language if all of the beneficiaries agree to it.  If there is no language and no agreement then a dependent administration will be created.  The key difference between the two is the number of court appearances required.  The independent executor must only appear once where the dependent administrator must get court permission for every decision that is made.

If a will exists, real estate is owned and the only debts of the estate are a secured lien on the real estate then a muniment of title proceeding can be used.  This procedure is completed with one hearing and must be commenced within four years of the death of your loved one.  No executor or administrator is appointed because nothing is required except transfer of title to property.

If no will exists and property is owned but the estate is low in value, a small estate affidavit is a proceeding that can be used.  This requires two disinterested witnesses and all heirs join in the affidavit that is submitted to the court.  No executor or administrator is appointed.

If no will exists and property is owned or there are debts of the estate or and there is a question about who are the heirs, then a determination of heirship is the starting point.  There is no deadline for this procedure as there is with a standard probate.  The court will appoint an attorney ad litem if there are unknown heirs or heirs whose whereabouts are unknown.  If an administrator or executor is needed to handle the estate then this proceeding is filed in conjunction with one of the probate proceedings detailed above.

An affidavit of heirship can be used whether a will exists or not.  Two disintrested witnesses must swear to facts of the deceased’s life before a notary.  The affidavit is then filed in the deed records.  However, the affidavit does not become effective for five years.

In many cases, the death of a loved one will be followed by some type of legal proceedings. Some people feel a need to postpone any proceedings until some time to grieve has passed.  While others want to get the process over with so that grieving and then life can move forward.  The best way to ensure you loved ones have either option is with advanced planning.  An estate plan including a will provides the most control for those who are left behind.

Four Mistakes Many Executors Make

When it comes to handling the probate of a loved one it is easy to fall prey to these mistakes. These mistakes are made by surviving spouses, surviving children, surviving partners and other heirs but are easily avoided with a little planning and preparation.

1. Working with the wrong lawyer or law firm.

This mistake can be hard to avoid. You may have called the person who prepared the will or was recommended by a close friend or family member. This mistake can result in a lengthy probate process. This mistake may manifest itself in a lawyer that won’t return phone calls, a lawyer you don’t get along with or one who is working outside their area of expertise. You can avoid this problem by seeking a lawyer who regularly handles probate cases. Like any other business a lawyer should be able to provide references upon request. In today’s world of technology those references can show up as testimonials on their website, this allows you to prescreen the lawyer before you call.

2. Ignoring the probate proceeding.

Once your loved one dies it is your job to collect the will and get it filed in the probate court. There is no one to remind you to do this. There are potential consequences of delaying this step. In Texas, a will must be filed within four years of the death or it is only accepted for the limited purpose of transferring titled property. You could miss important tax filing deadlines for an estate that requires an estate tax return. A time delay can also make it harder to gather the assets and determine the debts.

3. Failing to maintain communication with all the heirs.

This can cause a rift in family relationships. A great deal of stress is created when you are an heir but cannot get any information on the status of the probate proceeding. This stress can lead to resentment, suspicions and a breakdown of family relationships.

4. Ignoring current and future tax consequences.

When handling a probate the executor is responsible for the final income tax return, an income tax return for income during the probate process and estate tax returns when appropriate. There are a number of decisions that must be made to determine what must be filed and missing a deadline can incur penalties. Not all estates will need all of these filings but a failure to understand what is necessary can deplete the assets of the estate.

While the job of executor can seem daunting, it can be a smooth process when handled in a timely fashion with the help of a qualified attorney.

What is a Probate Proceeding?

When a loved one has passed those left behind are often at a loss for how to proceed.  What needs to be done?  When must it be done?  Can I delay the process to allow time to grieve?  Following are some general guidelines to help answer these questions for residents of Texas.  Since laws vary from state to state and change over time, you will want to consult an attorney to ensure you have information relevant to your situation.

There are several questions that must be answered to determine what options exist and what proceeding is required.

  • Is there a will?
  • What type of property is owned?
  • Are there unpaid debts of the estate?
  • How much time has passed since the death of your loved one?

A standard probate proceeding may be preferred or required if there is a will, property such as a home or car is owned or debts of the estate exist.  However, it must be less than four years since the death of your loved one.  Texas allows for independent administration if the appropriate language is included in the will.  Independent executors can be appointed without the appropriate language if all of the beneficiaries agree to it.  If there is no language and no agreement then a dependent administration will be created.  The key difference between the two is the number of court appearances required.  The independent executor must only appear once where the dependent administrator must get court permission for every decision that is made.

If a will exists, real estate is owned and the only debts of the estate are a secured lien on the real estate then a muniment of title proceeding can be used.  This procedure is completed with one hearing and must be commenced within four years of the death of your loved one.  No executor or administrator is appointed because nothing is required except transfer of title to property.

If no will exists and property is owned but the estate is low in value, a small estate affidavit is a proceeding that can be used.  This requires two disinterested witnesses and all heirs join in the affidavit that is submitted to the court.  No executor or administrator is appointed.

If no will exists and property is owned or there are debts of the estate or and there is a question about who are the heirs, then a determination of heirship is the starting point.  There is no deadline for this procedure as there is with a standard probate.  The court will appoint an attorney ad litem if there are unknown heirs or heirs whose whereabouts are unknown.  If an administrator or executor is needed to handle the estate then this proceeding is filed in conjunction with one of the probate proceedings detailed above.

An affidavit of heirship can be used whether a will exists or not.  Two disintrested witnesses must swear to facts of the deceased’s life before a notary.  The affidavit is then filed in the deed records.  However, the affidavit does not become effective for five years.

In many cases, the death of a loved one will be followed by some type of legal proceedings. Some people feel a need to postpone any proceedings until some time to grieve has passed.  While others want to get the process over with so that grieving and then life can move forward.  The best way to ensure you loved ones have either option is with advanced planning.  An estate plan including a will provides the most control for those who are left behind.

What Happens in a Property Transfer?

The death of a loved one can bring a great deal of stress and confusion into the survivor’s life.  What is to be done with the home, furnishings, financial accounts and pets?  Who is responsible and how does it get done?

When someone dies any property owned must be transferred to a new owner.  This transfer takes a variety of forms and which form depends in part on what the deceased owned.  Some property can be transferred with beneficiary statements.  While others require some legal step for the transfer to be complete.

When determining what proceedings are required the first question to ask is “Did the deceased have a will?”.  A will acts as the instruction manual for how the property owned at death should be transferred.  If there is no will, then the probate code provides the instruction manual.

The inquiry does not end here but returns to what type of property was owned.  If they own real estate, vehicles or other titled property, a legal proceeding will be required.  This may require a formal probate proceeding in the court or just an affidavit.  A probate lawyer can provide the necessary guidance as to which steps are required.

If they had financial or retirement accounts then beneficiary statements may be adequate.  Certain assets can be transferred with beneficiary statements and pass outside of the instructions of the will or the probate code.  Financial accounts are the most common asset to transfer this way.  When anyone opens a checking account, brokerage account, or IRA a beneficiary statement is completed directing that institution to pay the balance to a specific individual upon proof of death.  401ks and other retirement plans also require a beneficiary statement and can pass outside of the probate process.

To make the probate process as simple and smooth as possible for those you leave behind create an estate plan.  Review your will and powers of attorney periodically to ensure they still reflect your wishes.  Consult your financial institutions to check your beneficiary statements from time to time to ensure they still reflect your wishes.

Define Your Estate

The most basic definition of estate is everything you own.  This includes tangible items like a house, car, boat and furnishings.  It also includes intangible items like investments, bank accounts, 401K’s and IRA’s.  When defining your estate for planning purposes there are two categories of assets.  They are probate and non probate.  Probate assets are assets that come under the jurisdiction of the court at the time of your death.  Non-probate assets are those that do not come under the jurisdiction of the court.

Non probate assets are most commonly created with beneficiary statements. Banks and other financial institutions have patrons complete beneficiary statements when they open new accounts.  Beneficiary statements are also completed for 401K and other pension and retirement plans.  Life insurance policies also require beneficiary statements. These statements direct the institution to transfer ownership of the account upon your death to a particular person, company, trust or other entity.

Probate assets are often titled items such as a house, car or boat. A legal procedure of some type is required to transfer ownership from one person to the next.  However, assets with beneficiary statements that are incomplete or where the probate estate is named as the beneficiary are probate assets as well.

Proper planning is the key to transferring both probate and non-probate assets.  The easiest way to ensure a smooth transfer of probate assets is with a will or trust.  These documents clearly identify who should have the ownership, use or access to the assets upon your death.  Non probate assets can be transferred more quickly since no legal procedure is required.  However, this transition depends on current, accurate beneficiary statements.

What Can Happen to Children if Their Parents Die Without a Properly Drafted Will?

Many of us embrace the do it yourself (DIY) lifestyle.  Why pay someone to do something you are fully capable of doing yourself?  In many cases this is wise money management but it can be a disaster in the making.  Consider the plight of Jane’s children.

Jane received a medical diagnosis that ensured her premature death.  She left behind four children (4, 8, 12, 15), a life insurance policy and a modest estate.  She desperately wanted to protect her children so she bought a book and prepared a will.

The book allowed her to create a legal will with the proper witnesses.  She appointed her sister as the executor and left her estate and life insurance policy to be equally distributed to her four children.  The book didn’t explain or she didn’t understand that children under 18 can’t own or manage property.  So the life insurance proceeds which normally pay directly to the beneficiary will be subject to a probate proceeding.

A court appointed guardianship will be required to manage the funds left to the children and the associated fees will reduce the money available for their care.  This will also delay availability of the funds for the care of the children.  If she had created a trust for the care of her children, the life insurance would have been paid immediately to the trustee and would be available for their care.

Jane did not appoint a guardian for her children.  The father of the older three has been out of the picture for several years.  The youngest was the result of a brief affair but her father has been an occasional visitor in her life.  Now the children may be separated because the biological fathers will have first priority in the custody consideration.  Even if the fathers don’t step up she has not left clear direction for who she would want to raise them.  Should it be her sister?  Her parents? The children’s paternal grandparents? The possibilities are endless and will now be analyzed by a judge instead of Jane.  Appointing a guardian would have provided an easy avenue for the children to stay together if their respective fathers had agreed.

Each of us leaves a unique signature on the world when we pass and your will should be tailored to the needs of the situation you will leave behind.  A consultation with an attorney is a simple pain free process that will allow you to prepare a will that addresses your needs and provides clear direction for those you leave behind.

Executor’s Role in a Probate Proceeding

The executor’s role is to ensure that the terms of a persons will are followed or if no will exists to ensure the estate is transferred in compliance with state law.  There are several steps in this process.

  • Identify the assets.
  • Collect or otherwise take control of the assets.
  • Identify the debts.
  • Pay debts.
  • Distribute any remaining assets.

Identifying the assets is essentially determining what is owned and making a list of those items.  This will include property, personal possessions, cars, investments and cash.  Identifying the assets will also require a general determination of value.  For example, a Monet painting will be handled differently than a painting by an unknown artist.

Collecting or taking control of assets will mean a variety of things. Anyone holding an investment or financial account will need to be notified of the death and the name of the executor. Real property such as the home of the deceased will need to be identified and secured.  However, if the intended beneficiary is occupying the home physical possession may not be necessary.

Identifying the debts is a two step process.  You must first determine who is owed money then you must classify the debts so that they will be paid in the correct order.  The state has provided categories to classify debt.

Debts are paid in the order or priority mandated by the State. In some cases the estate may be unable to pay all the debts. If there are not sufficient assets the executor begins paying those debts with the highest priority and continues until as many debts as possible are paid.

Once the debts are paid the executor must distribute any remaining property.  If there is a will the executor must distribute the estate according to its terms.  If there is no will the state provides guidelines for distribution of the remaining property.

The executor plays a very important role and should be selected with care.  You obviously want someone trustworthy. You will also need to consider the nature of your estate. If you have complex business or financial issues that the executor must deal with you need to appoint a person who is competent to handle those issues.  The executor is often a family member or close friend but large estates are sometimes managed by a corporate executor.