One of the first questions we usually get here at the Slaton Schauer Law Firm, PLLC is “what is probate?” Once we get further into the estate planning process, another common question is “why should we avoid probate?” We’ll take a look at both of these questions here.
Let’s start with a basic definition of probate. According to the Legal Information Institute:
[Probate is] the judicial procedure by which a testamentary document is established to be a valid will.
What if you don’t have a testamentary document, such as a will or trust? If you do not have any estate planning documents at all, the probate court would preside over the estate administration process.
It’s worth noting here that every asset does not necessarily need to be probated here in Texas. Property can be claimed with a simple affidavit if the overall value of the estate is $75,000 or less (excluding homestead and exempt property). We also have a simplified probate process in Texas for small estates. We even have an independent administration that is a more streamlined form of probate! The laws that govern transfer of inheritances in Texas are favorable compared to many other states.
We mentioned the estate administration process earlier. When you draw up a will, you’ll name a trusted person as the executor. This executor will admit your will to probate. Creditors are notified during this process, and they are given time to come forward to seek payment while the estate is in probate.
There is also a proving of the will. This is the appropriate time for someone to contest the validity of your will before the court. Acceptable grounds to contest a will include undue coercion, fraud, the incapacity of the testator, and improper execution.
Your executor will identify and inventory the assets and prepare them for distribution to the heirs; this process typically includes both appraisals and liquidations. Once everything is in order to the court’s satisfaction the estate will be closed. Finally the assets can be distributed to the heirs.
Now that we’ve discussed the probate process, we can see an obvious flaw: the sheer number of steps involved. All this takes time, and more time used means greater expense in the process. Probate will typically take at least six months to run its course, and no inheritances are distributed during this interim.
Expenses incurred during probate reduce the value of the estate before it is transferred to the heirs, which can cause a great deal of tension and stress. Another factor to consider is privacy. Probate records are available to the public, and they often contain a great deal of information about both the deceased person and where their property went.
How can we mitigate these downsides to probate? What if we could avoid the process entirely? Some types of asset transfers are not subject to probate. For example, property held in joint tenancy is inherited by the surviving joint tenant– meaning that the probate court is not involved.
Another example are “payable on death” accounts. These accounts have a designated beneficiary. This beneficiary cannot access the account’s funds while the primary account holder is living, but what about after the primary holder’s death? After the death of the primary account holder the assets would be transferred to the beneficiary without the need for probate, as the contractual beneficiary designation governs the transfer.
Let’s look at life insurance as a third example. Probate courts are not a factor when life insurance proceeds are being transferred, as these are another contractual relationship. One thing to keep in mind, however, is that your designated beneficiary may have to contact the policy provider; it has been our general experience that providers do not go out of their way to contact beneficiaries. Finally, distributions from inherited individual retirement accounts, which are also contractually governed, are not subject to probate.
Proactive Probate Avoidance
What’s the bottom line here? Although probate in the state of Texas is not as problematic as it is in other states, it can still be a stressful process. The estate administration process is typically more efficient if you use a living trust as the centerpiece of your estate plan. The will vs trust debate is a trade-off (or investment) of time and paperwork up-front to save a great deal of stress later. A will is relatively simple up-front, but will subject your heirs to probate. A trust requires more paperwork, but can entirely avoid probate.
How does a trust actually work? It’s based on three fundamental roles: the trustor, trustee, and beneficiary. When you create the trust, you are the trustor. You will act as the trustee while you are living, and you will designate a trustee to step in after you have passed away. You retain total control of the assets in the trust as long as you are living and have mental capacity. Your heirs are the beneficiaries of your trust. After you have passed away, your designated trustee will distribute the resources in the trust to your beneficiaries– outside of probate!
Trusts offer a great deal of flexibility in estate planning. You can include a spendthrift clause that will protect the principal from your beneficiary’s creditors. When you establish the trust, you can instruct the trustee to provide limited distributions over time to prevent reckless spending. This becomes particularly applicable when dealing with beneficiaries who struggle with addiction, gambling, or simply a lack of knowledge on money management.
Your trust can also lay out instructions in the event that you are either physically or mentally incapacitated. Many elders suffer from a loss of mental flexibility as they age, and you can name a disability trustee to help protect your interests and assets in the event that you become incapacitated.
Schedule a Consultation Today!
There is no single estate plan that is right for everyone, which is why there are so many tools and options available to your estate planner. Personalized attention is the key to a properly constructed plan! Here at the Slaton Schauer Law Firm, PLLC we’ll get to know you and your circumstances in order to provide our best advice for your individual situation.
You can schedule a consultation at our Austin-area office by calling us at 512-258-9455. Not ready to decide? Please feel free to browse our articles on intestate distribution, IRA and inheritance considerations, or 3 tips to plan your estate.