Avoid Texas Probate

A Texas Family Avoids an Estate Planning Nightmare

I met with a family from Garland, Texas today.  They were very emotional in telling me a story about a close family friend, Bob, spending his life savings on long-term nursing home care.  Bob has Alzheimer’s and no longer recognizes his family.  They estimated that Bob had spent around $400,000 thus far and that since his condition is worsening, they assumed that the remainder of Bob’s savings would be consumed by his nursing home expenses.

The family wanted to make sure that Bob’s situation doesn’t happen to them.  Their house is paid for and they have an IRA worth around $225,000 along with some savings and some stocks.  They know that they could not be forced to sell the home to pay for their nursing home costs, but that Medicaid can and will lien their home so that they can reimburse themselves for whatever nursing home expenses they pay on their behalves.

We introduced several options available to them and after discussions, we set up a Trust to protect their home and life savings from nursing home expenses. They were surprised how simple and easy it was to protect their assets. One of the key components, though, was their timing. You can’t set up the protections and expect them to work properly if you are on your way to checking-in to the nursing home.  The key is to get your Trust and planning in place while you are still relatively healthy.  It’s not really “planning” if you wait until you are on the doorstep of the nursing home.  In fact, it’s usually too late at that point.  

The family has the peace of mind of knowing that their assets, their home and their belongings are going to wind-up with their children and not go towards paying for nursing home expenses.  Few people have that luxury.  

They were also pleased to find out that since their assets are going to be placed in Trust, they are “doubly” protected from the probate process when they die.  In other words, the Trust avoids losing their assets to the nursing homes AND after they both pass away, their children won’t have to deal with lawyers, judges or courtrooms in order to have access to their parent’s accounts and things.  With their Trust, after the parents both pass away, their children will have access to their assets to pay for funeral expenses and to distribute their belongings and things without the need of lawyers or courts being involved in the process.  Even more peace of mind!


You, Me, and Trusts And Red Wagons: The Truth

I helped a man from Plano, Texas today.  He was in our office and wanted to know how Trusts work.  I gave him a quick demonstration using a little red wagon that I keep in our conference room.  The wagon represents the Trust entity itself.   I have several matchbooks that represent a family’s assets (house, car, bank accounts, savings accounts, etc.).  I placed the matchbooks inside the wagon (to represent the re-titling and trust ownership of the assets) and rolled it around the conference room floor to emphasize the mobility and portability of the Trust.  I explained that as long as the assets are inside the trust, they are protected from predators like lawsuits, Probate and the claims of Nursing Homes.  Then I took some of the matchbooks out of the wagon and placed them on the table to demonstrate how the owner maintains control over the assets.  I also indicated, though, that once the matchbooks (assets) were outside of the wagon, they were no longer protected from lawsuits, probate and Nursing Homes.  In the bed of the wagon is a set of instructions that lets everyone know how the trust is to be operated.  I closed my demonstration by explaining to my newest client that trusts aren’t just for the rich anymore.  They are for anyone that wants to protect assets for their families.

That’s a very simple explanation of Trusts.  They can be very complicated but the basics remain the same:  protection and control of family assets.

What Texans Should Know About Probate

I got a call from a Dallas couple today.  They asked a few questions that I thought I would share.  They had heard about Probate and how it should be avoided, but, they really didn’t know what Probate was.  So here’s what I told them:

Probate occurs whenever someone dies owning assets in their individual names.  An estate can go through probate with a Will and without a Will.  The main objective of probate is to change the title of assets from the deceased person to his heirs or beneficiaries.  The title of assets is generally held in the owner’s name. When the owner dies, his assets are frozen and cannot be transferred without the names on the titles being changed.  The probate court is almost always the only body that can change the title of assets from someone that has passed away.  In addition to changing the title, the probate court resolves disputes amongst claimants, approves payment of creditors, inventories assets, and distributes the assets with good legal title to the heirs or beneficiaries named in the will. If there is no valid will, the assets are distributed according to the Texas law of descent and distribution.  There are lots of disadvantages to Probate.  First, probate can be a long and painstaking process. Probate can take from several months to several years to complete.   Another major drawback of probate is that its proceedings and filings are a matter of public record. The probate court records that list your assets and their values and who receives your assets may be open to the public during the probate process and forever after.  And, once they are part of the public record, they find their way to the Internet.   This leaves the surviving spouse or other heirs vulnerable to financial scam artists who may have access to information relating to the surviving spouse’s and other beneficiaries’ inherited assets.

Probate will occur not only in the state in which you reside at the time of your death, but also in every state where you own real estate.  And, in some cases, the probate court may require your executor or administrator to post a financial bond to ensure that he fulfills his duties. Many states’ laws set the fee attorneys and executors can charge. They require that fees be a fixed percentage of the estate.  Using this method, fees can range anywhere from three percent to ten percent or more of your family’s gross estate.  In Texas, we have a vague “reasonableness standard”.  As a result, we sometimes see people paying a lot more than they should for the services that they receive.

What Many Texans Don't Know About Trusts and Avoiding Probate

We often have clients that want to avoid Texas Probate. They can often do so by utilizing a Revocable Living Trust and re-titling their assets in the name of the Revocable Trust.  But what a lot of people don’t know is that some assets, like IRA's, annuities and life insurance, by their nature, don’t need to go into a trust to avoid probate.   These types of assets and a few others are established as payable to pre-determined beneficiaries. In other words, the beneficiary is designated at the time the account is established. Provided that the beneficiaries have been properly designated, it isn’t necessary that a Trust hold their titles.

There are other types of assets that do not have to be transferred to a Revocable Living Trust so that probate can be avoided.

1. Personal Items and Effects.  Since your personal belongings are not titled (i.e. there is no deed like you would have with real estate assets, or certificate of title like a motor vehicle would have), family members usually divide personal effects amongst themselves after the death of a loved one without the involvement lawyers, judges or the court.

2. Checking and Savings Accounts.  By giving an adult child signing authority upon your checking account, after the last spouse passes away, that child can have immediate access to the account so that he or she can pay for funeral expenses, close the account, and divide the funds between your heirs.  All of this can be done without the involvement of lawyers, judges or the court.

3. Vehicles.  If the person you want to ultimately receive ownership of your car provides the Will or a photocopy of the Will to the Texas Office of Motor Vehicles, they will transfer the title after death without court intervention.

If your goal is to make things easy on your spouse and your children, and/or to set things up so your family doesn't have to deal with lawyers or judges or participate in the lengthy and costly court probate process, then the assets that would typically require court involvement must be in a trust.  These types of assets include real estate, mineral interests, stocks, Certificates of Deposit, ownership in limited liability companies or corporations, other business interests, and non-IRA investments.

Since many people have a large portion of their estate in retirement accounts, it's fairly easy to avoid probate by retitling the family home and other probate assets to your trust.