The distinction between probate and nonprobate assets after the death of a loved one – or regarding your own estate planning – can be very confusing, but once you have a handle on the basics, you’ll feel more comfortable with the estate planning process and your related needs.
Whether you’re just getting started with estate planning, are ready to make some changes regarding the plans you already have in place, or have questions or concerns about your own inheritance rights, reaching out for the skilled legal guidance of an experienced Waco probate attorney is always in your best interest.
Probate Administration and Litigation
Probate administration refers to how assets pass from one person (the decedent) to another at the time of the decedent’s death. Probate assets go through the legal probate process while nonprobate assets bypass this hurdle, which helps to streamline things.
If an issue arises during the probate process, it can be resolved through probate litigation. Understanding the distinction between probate assets and nonprobate assets is key to effective estate planning and knowing one's inheritance rights.
The Cornerstone of Post-Death Asset Distribution
You work hard to provide for your loved ones into the future, or – on the flip side of things – you’re entitled to the assets and properties that your lost loved one intended for you to have, and recognizing the difference between probate and nonprobate assets is a big part of this.
Putting considerable effort into strategic asset distribution, including implementing beneficiary-based nonprobate assets, helps to smooth the transfer process, which, in turn, can save time and money while minimizing the risk that questions or ambiguities will arise.
Proper planning can protect your family from unnecessary legal complications. If you have questions about safeguarding your legacy, consult with a trusted estate planning attorney in Waco.
The Necessity of the Probate Process
If ensuring that your assets avoid the probate process is so beneficial, you may be thinking that the thing to do is avoid probate altogether. Estate planning law, however, is highly complex, and probate is the tool that ensures decedents’ estates are handled in accordance with the law, which includes all the following:
Validating the decedent's will, which involves verifying its authenticity
Ensuring that the estate is administered in accordance with Texas estate planning laws
Ensuring that the decedent’s debts and taxes are paid, which involves the court overseeing the settlement of all debts, including taxes
Ensuring that the decedent’s nonprobate assets are distributed according to the wishes expressed in their will – or according to the laws of intestacy in Texas when the decedent has no will
Ensuring that anything that isn’t addressed by other means, such as beneficiary designations, pass according to the decedent’s wishes
It’s also important to note that, if the decedent has minor children, their guardianship can be addressed in their will.
Assets that Are Subject to Probate
Those assets that are subject to probate include anything that is titled solely in the name of the decedent, that isn’t jointly owned, that doesn’t have a beneficiary designation, that isn’t included in a living trust, or that is not payable on death.
Prime examples include all the following that don’t have any of the necessary designations attached:
Bank and investment accounts, including stocks and bonds
Business interests
Real estate
Personal and household items
Vehicles, including cars, boats, RVs, snowmobiles, airplanes, and beyond
Anything that the decedent came to own prior to their death that wasn’t otherwise designated
Those assets that are categorized as tenants in common—in which two or more people own a specific portion of a single asset—also move through the probate process.
Whenever an asset is created according to this designation, the percentage that the individual owns can be bequeathed to another in their Texas will—unless joint tenancy with rights of survivorship applies, which is addressed below.
Distinguishing between probate and nonprobate items isn’t always straightforward. Ultimately, it depends on how the estate planning is addressed. Every case is unique to the circumstances involved, which makes working closely with a trusted Waco estate planning lawyer always advised.
Joint Tenancy with Rights of Survivorship
Any assets that are owned with someone else outright, such as bank accounts and real estate that have both spouses’ names on the titles, are considered jointly owned. Upon either party’s death, ownership of the entire asset is transferred directly to the survivor, and the probate process is not involved.
Because this transfer of ownership happens immediately upon death, the only way to avoid it is by naming a new owner prior to one’s own death.
Tenancy in Common
As mentioned, items that are categorized as tenancy in common assign a specific percentage of ownership to each owner, and each has the right to distribute their ownership upon death. Such assets, however, must be addressed in a will, which means they must go through the probate process.
The Role of Trusts in Estate Planning
Trusts are financial documents that designate a trustee who manages the assets and properties contained within, and these assets will be distributed to the named beneficiaries at the time specified in the trust, which often means upon the death of the person who set up the trust.
You can be the trustee of your own revocable living trust up until the point of your death or incapacitation – when the role will transfer to the trusted person you’ve named.
Revocable trusts are trusts that you can alter or scrap at any point during your lifetime. Irrevocable trusts, on the other hand, can’t be revised or dissolved once they are legally established.
These can be important tools for reducing tax consequences for those with very high assets, securing the ongoing financial care of dependents with serious disabilities, and protecting their eligibility for government benefits.
Beneficiary Designations
Those assets that have beneficiary designations bypass the probate process because the owner names the recipients to whom the assets will belong following their death. The kinds of assets that are most likely to have beneficiary designations include all the following:
Insurance policies
Retirement accounts, including 401(k) plans and pensions
Annuities and other financial tools
Both revocable and irrevocable trusts
While beneficiaries are very similar to heirs, there is an important distinction. Your heirs inherit from you through your will or through the state’s laws of inheritance. In the process of creating a will, you choose your heirs, and if you don’t have a will, your heirs will be determined according to state laws.
When you name someone as a beneficiary, however, you name the recipients of specific assets directly, and they become beneficiaries – rather than heirs. Both heirs and beneficiaries can be chosen, but heirs receive their distribution of assets through the probate process while beneficiaries receive theirs more directly.
To make the most of your estate planning options, contact an experienced Waco estate planning lawyer who can help you review your current designations.
Common Types of Beneficiaries
Beneficiaries break down into basic categories.
Eligible Designated Beneficiaries
Eligible designated beneficiaries are entitled to additional rights in relation to the accounts they’re attached to, and those who qualify include all the following:
The decedent’s spouse
Any minor children of the decedent
Any child of the decedent who has a disability or who is chronically ill
Any named beneficiary who is within 10 years of the decedent’s age
Designated Beneficiaries
The category of designated beneficiaries attaches to any living person who isn’t addressed above. This can include friends or members of one’s extended family, such as one’s parents or siblings.
Not Designated Beneficiaries
Not designated beneficiaries refer to beneficiaries that are entities rather than individuals. Common examples include charities, estates, and trusts.
Primary and Contingent Beneficiaries
A primary beneficiary is first in line to receive the benefits in question, while a contingent beneficiary is in place to receive the same benefits in the event that the primary beneficiary is no longer alive or cannot or will not accept the asset in question. Secondary beneficiary and contingent beneficiary are used interchangeably.
Factors to Consider when Assigning Beneficiaries
There are several points that are important to consider when assigning beneficiaries.
The Beneficiary’s Age
Named beneficiaries generally need to be at least 18 years old. The most streamlined approach to leaving assets to a minor is usually to set up a trust in their name and leave and designate the assets to the trust itself.
The Provision of Financial Support
Beneficiaries tend to be those who were financially dependent on the decedent or who benefited financially from the decedent. Prime examples include one’s spouse, one’s children, or members of one’s extended family.
An Insurable Interest
When a life insurance policy that includes a beneficiary is first created, the named beneficiary typically must have an insurable interest in the policyholder’s life.
This means that they have a legitimate reason to concern themselves with the policyholder’s well-being, such as one’s spouse or minor children. This highlights the importance of knowing the rules for designating beneficiaries for specific financial tools, such as some life insurance policies and pension funds.
Issues that Can Arise Regarding Beneficiaries
A great way to keep most – or in some cases, all – of one’s assets out of probate is by using beneficiary designations. There are, however, some issues that can arise and that are, therefore, important to consider.
Fixed Dollar Amounts vs Percentages
When designating beneficiaries, you may have the choice of assigning a percentage of the asset or a fixed dollar amount. If you want a fixed dollar amount to go to a beneficiary, it’s important to keep in mind that problems can occur if there are insufficient funds available at the time of transfer.
Further, if there are assets left over that aren’t assigned to another beneficiary, the additional amount will go through the probate process. By assigning percentage amounts, you ensure that the entire asset is accounted for.
Names Can Change
While Specific beneficiaries must be named, it’s important to remember that names can change due to marriage, divorce, and other circumstances, and that family members often share names.
While many instruments that assign beneficiaries require their names and social security numbers, not all do. In other words, it’s important to ensure that every name used is an accurate reflection of the person’s legal name and that each document is kept up to date, which a seasoned estate planning attorney can help you with.
Use of All My Children
When you use the term all my children when it comes to your beneficiaries, it can lead to confusion when the time comes for the assets to be distributed.
For example, if one of your children is no longer alive at the time, the matter of whether their assets should be distributed among your other children or should be divided among your child’s surviving children won’t be clear. This is yet another reason why being specific in relation to both primary and secondary beneficiaries is so important.
The Matter of Personal Heirlooms
When it comes to personal heirlooms, such as antiques and personal possessions, which can have significant financial and sentimental value, verbal promises aren’t legally binding.
If you want an heirloom or possession to go directly to a specific person – or your loved one wants a personal item to go directly to you – the matter must be specifically addressed in writing, which can be included in a will.
When established by will, however, the request is considered a suggestion that is very likely to hold. When, on the other hand, the matter is addressed in a handwritten memorandum that is witnessed and notarized just like a will, the bequest is legally binding.
When the heirlooms in question are quite valuable, such as artwork, jewelry, or antiques, including them in a revocable living will is likely to be a better option. This ensures that the pieces will go directly to their intended recipients with less oversight by the court.
An Experienced Waco Probate Lawyer Can Help
At the Law Office of Brett H. Pritchard, our clients benefit from a dedicated legal team that includes attorneys with extensive experience in Texas probate and estate planning. Brett Pritchard brings decades of legal leadership and trusted client service to every case, ensuring you receive attentive and knowledgeable support.
To learn how we can help, call us at 254-781-4222 or schedule your free consultation today.