Which Assets Must Go Through Probate in Texas?
May 14, 2024
When a loved one passes away in Texas, determining which of their assets must go through the probate process can be confusing and overwhelming. Likewise, when you're building your own estate plan, it's helpful to know which of your assets will be subject to probate, because this can impact your planning decisions.
Probate is the court-supervised procedure of authenticating a last will and testament (if the deceased had one). The process includes locating and determining the value of the deceased's assets, paying final bills and taxes, and distributing the remainder of the estate to their rightful heirs. However, not all assets need to go through this process. Understanding which assets are subject to probate is crucial for a smooth administration of the estate.
In Texas, assets that are solely in the name of the deceased and do not have a designated beneficiary must generally go through probate. This includes:
Real Property: Real estate, including homes, land, and any buildings on the land, that the deceased owned solely or as a tenant in common, often requires a probate process to transfer ownership rights properly. For instance, if a person owned a house in their name alone or as a co-owner, that property would need to go through probate. However, if the property was owned jointly with rights of survivorship, it would pass directly to the co-owner without the need for probate.
Personal property: This includes assets like cars, boats, art collections, jewelry, and other tangible items owned solely by the deceased usually need to go through the probate process. An example includes a car titled only in the deceased's name. Without a designated beneficiary or joint ownership arrangement, such assets may need to be probated to transfer them legally to the heirs or beneficiaries.
Solo-owned bank accounts: Bank accounts that are solely in the deceased’s name without a payable-on-death (POD) designation require probate to access and distribute the funds. For example, a checking account in the deceased’s name only, with no POD beneficiary, cannot be accessed by heirs until it goes through the probate process. This can temporarily freeze assets relatives might need for expenses, emphasizing the value of properly designating beneficiaries.
Stocks and bonds: Stocks and bonds owned solely by the deceased, without a transfer-on-death (TOD) designation, also need to go through probate. This is because, like single owner bank accounts, there is no direct mechanism for these assets to pass to a beneficiary without probate. An example would be a portfolio of stocks solely in the deceased’s name, requiring the probate court’s authority to transfer ownership to the named heirs or legally determined beneficiaries.
Understanding what doesn't need to go through probate can be just as important. Assets that typically avoid probate include life insurance policies with a named beneficiary, retirement accounts such as 401(k)s and IRAs, assets held in a living trust, jointly owned property with rights of survivorship, and accounts designated as TOD or POD.
Understanding Payable-on-Death & Transfer-on-Death
Payable-on-death (POD) and transfer-on-death (TOD) designations offer a straightforward way for assets to bypass the probate process, providing a seamless transition of assets to beneficiaries upon one's death.
Essentially, POD allows bank account holders to name a beneficiary who will receive the funds in the account without the need for probate. Similarly, TOD designations can be used for investment accounts, including stocks and bonds, enabling these assets to be directly transferred to the designated beneficiaries upon the account holder's death. Not all stocks and bonds offer TOD designations.
These designations are valuable estate planning tools because they simplify the transfer of assets, ensure that specific individuals receive these assets, and reduce the time and cost associated with the probate process.
But it's also important to keep in mind to periodically review and update these designations to reflect any changes in your life circumstances, such as marriage, divorce, the birth of a child, or the death of a beneficiary. Failing to update these designations can lead to unintended consequences, such as an ex-spouse receiving assets or a deceased beneficiary's share being complicated to distribute.
What About Business Interests?
Business interests in Texas, such as ownership stakes in corporations, partnerships, or sole proprietorships, can also be subject to probate depending on how they are owned and managed. Here's how different types of business interests are typically handled:
Sole proprietorships: Since a sole proprietorship is indistinguishable from the owner, any business assets owned by the deceased sole proprietor would generally need to go through probate for distribution to heirs or beneficiaries.
Partnerships: The handling of a deceased partner's interest depends on the partnership agreement. Many partnership agreements include provisions that allow the remaining partners to buy out the deceased partner's interest, potentially bypassing probate for that portion of the estate. If no such agreement exists, the deceased partner's interest in the partnership may have to go through probate.
Corporations and LLCs: Shares in corporations or membership interests in LLCs (Limited Liability Companies) owned directly by the deceased will generally go through probate unless they are transferred upon death via a beneficiary designation or owned jointly with rights of survivorship. Some businesses may have buy-sell agreements that dictate what happens with the shares or interests upon a member's death, which could prevent those assets from going through probate.
For business owners (and everyone else, for that matter), it's crucial to engage in proper estate planning to ensure a smooth transition of their interests and assets upon their death. Tools like buy-sell agreements, trusts, and ownership structures with the right of survivorship can help avoid probate and provide for a more efficient transfer of interests to heirs or remaining business partners.
Enlist Skilled Representation Today
The laws governing estate and probate can be complex and vary widely from one case to another. Therefore, it's highly advisable to consult with a skilled Texas probate attorney to help guide you through the process, minimize complications, and ensure that your loved one's assets are distributed according to their wishes.
Seeking advice from a professional can offer comfort in challenging times by making sure all legal obligations are fulfilled, thus preventing typical errors that might hinder or complicate the probate procedure. Losing a loved one is already hard without the additional stress of legal doubts.
Working with a knowledgeable and empathetic probate lawyer like James P Peterson can bring clear understanding, reduce legal troubles, and guarantee that the assets of the deceased are allocated as they desire. In addition to estate and probate law, he's experienced in handling a variety of family law matters, so he can assist with any interrelated issues that may arise during the estate planning or probate process.
Contact his firm in San Antonio, Texas, to get the help you need. He also serves clients throughout the communities of Boerne and New Braunfels.