Whether a person dies with a will (testate) or without a will (intestate), distributing assets to their heirs, beneficiaries, or distributees may be very simple or quite complex. Assets are either classified as real property or personal property. While real property is land and everything attached to the land, personal property includes bank accounts, investments, pensions, life insurance policies, and personal effects (clothing, furniture, jewelry). There are several procedures for distributing assets after death that vary in cost and complexity. In this article, we will examine the most common procedures and methods for distributing assets of a decedent in Texas.
The easiest method of distributing assets after death is by will substitutes. Will substitutes require planning during the decedent’s lifetime and transfer assets upon death to beneficiaries while avoiding probate. Some of the most common will substitutes include life insurance policies and pensions with beneficiary designations, property interests with right of survivorship, transfer-on-death deeds, enhanced life estate deeds, and revocable living trusts.
Life insurance policies and pensions usually include the option to make beneficiary designations. Beneficiary(ies) can be changed at any time and are revocable until death. Upon death, ownership of the decedent’s assets pass directly to the designated beneficiary. Generally, beneficiary designations preempt distributions outlined in a will and allow assets to be distributed outside of probate.
Other common will substitutes include right of survivorship agreements which allow the decedent’s interest to automatically pass to the surviving owner(s) outside of probate. Tex. Est. Code §§ 101.002, 111.001. Right of survivorship agreements are sometimes seen in joint tenancies concerning real property and bank accounts, and the law will not generally infer a right of survivorship agreement pertaining to assets held in joint ownership. Tex. Est. Code §111.001(b). There must be a written agreement signed by each owner, specifying their intent to have a right of survivorship. Tex. Est. Code §§ 112.052, 113.151 (West 2017). It is important to remember that incorporating a right of survivorship agreement in jointly owned property contracts will avoid probate and distribute assets at death.
Transfer on Death Deeds and Enhanced Life Estate Deeds
A transfer on death (TOD) deed is an additional tool to assist in avoiding probate. A TOD deed creates a future interest for the beneficiary, and must be executed and recorded during the transferor’s lifetime; however, the interest in real property does not transfer until death. Tex. Est. Code § 114.055 (West 2017). An enhanced life estate deed, otherwise known as a ladybird deed is commonly used to protect real estate from Medicaid recovery. This type of deed reserves a life estate for the grantor while vesting full ownership in the real estate to the grantees upon death of the grantor. Both a transfer on death deed and an enhanced life estate deed are revocable by the grantor prior to death.
Revocable Living Trusts
A revocable living trust also avoids probate by transferring assets to the trust and naming someone (a trustee) to manage the assets after death. The trust must be in writing and executed prior to death. An advantage of a revocable living trust is that the grantor has the ability to revoke, modify, or amend the trust at anytime during their lifetime. Likewise, the Texas Property Code requires all revocations, modifications, or amendments to be in writing. Tex. Prop. Code § 112.051 (West 2017).
Affidavit of Heirship
Affidavits of heirship are useful when a person dies intestate (without a will) and only owned real property. Theses documents make statements of fact concerning the family history, genealogy, marital status, and identity of the heirs of a decedent to prove heirship. Tex. Est. Code § 203.001 (West 2017). Affidavits of heirship are sworn and signed before a notary by two disinterested witnesses who are personally familiar with the decedent, then filed in the real property records in the county where the property is located. Affidavits of heirship may also be used in circumstances where the decedent left a will. In this instance, the will may be attached as an exhibit to an affidavit of heirship.
Small Estate Affidavit
Small estate affidavits are used when a person dies intestate and the total assets are minimal. To file a small estate affidavit with the probate court, the Texas Estates Code requires:
(1) the person died without a will;
(2) the total assets must be greater than any debt owed;
(3) total value of estate must be less than $75,000, not including the homestead and other exempt property;
(4) 30 days have elapsed since the date of decedent’s death; and
(5) no petition for the estate is pending or has been granted.
Tex. Est. Code § 205.001 (West 2017).
It is important to note that a small estate affidavit may not be used to transfer title to real property other than the decedent’s homestead. Other exempt property not included in the $75,000 threshold might include home furnishings, family heirlooms, some jewelry, clothing, athletic and sporting equipment, certain vehicles, farm animals, and household pets. Tex. Prop. Code § 42.002. The affidavit must be sworn and signed by two disinterested witnesses, each beneficiary who has legal capacity, and guardians or next of kin for minors and incapacitated beneficiaries. Tex. Est. Code § 205.002 (West 2017). It is important to note that despite being completely valid under the law, small estate affidavits are still not widely used because they are seldom accepted by large financial institutions.
Muniment of Title
Probating a will in Texas as a muniment of title can be a cost-effective alternative to a full estate administration, and is sometimes the only option when more than four years have elapsed since the death of the decedent. Muniments of title require the presence of a valid will, and are most often used when the estate consists of only real estate. Additionally, Texas law makes it difficult to probate a will after four years of the testator’s death. However, a will may be admitted as a muniment of title after four years from the decedent’s death if there is proof the applicant was not in default for failing to probate the will within the statutory period. Tex. Est. Code § 256.003. Probating a will by muniment of title allows the transfer of real property without appointing an Executor or Administrator. Texas courts admit a will to probate as a muniment of title if it is determined that there is no need for an administration of the estate, and if the testator’s estate does not owe any debts, except mortgages. Tex. Est. Code § 257.001 (West 2017). If the court determines an administration of the estate is not necessary, a muniment of title may be the best option.
Although a full administration of an estate is the most expensive and time-consuming method of distributing assets after death, Texas probate is fairly simple compared to other states. To initiate a testate estate administration in Texas, an application for the probate of a will must be filed with the appropriate county court within four years of the decedent’s death. Tex. Est. Code § 256.051 (West 2017). After the application is received, the court will conduct a probate hearing to determine the validity of the will and issue letters testamentary. A letter of testamentary will state the executor responsible for distributing the estate according to the decedent’s wishes. Intestate (where the decedent left no will) administrations are also straightforward in Texas, but are slightly more involved and complex than testate administrations.
As discussed, there are several methods and tools for distributing assets after death. Will substitutes tend to be the simplest because they specifically designate beneficiaries who will acquire ownership of assets upon death. Affidavits of heirship are best for decedents who died intestate and primarily owned real property. While small estate affidavits are ideal for those who died without a will and owned less than $75,000 in non-exempt assets, banks have been reluctant to accept them. Probating a will as a muniment of title may be the best solution when there is only real property involved or more than four years have elapsed since the decedent’s death. Despite the various options, time, and expense a full administration of the estate is the most certain method by which to ensure all assets in the estate are transferred to the beneficiaries or heirs. Each method of distributing estate assets has its advantages and disadvantages. Remember to consult with an experienced Texas probate attorney to assist with your estate planning or probate needs.
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