Traditionally, when you die, your heirs have to go through a legal process of distributing your assets called probate. You are said to have died intestate if you die without a will. When this happens, a judge has to approve everything, and all of your assets are passed along according to state statute, not your wishes. This is a nightmare that can be avoided if you have a will.
With a valid will, probate is usually much smoother and more manageable. However, it still goes through the Probate Courts, which means all of the details are public record, you must have legal representation, and ultimately, a judge has the final say.
I used to think it was not a big deal to probate an estate, but recent experiences have changed my mind...
During the Pandemic, anything involving the courts became exceedingly difficult. Even now, backlogs in Probate Court remain an issue. From a legal perspective, probate is a comparatively simple process. Still, even so, it is foreign to most people and can add unnecessary stress to a grieving widow or widower at an inopportune time. Not only that, but the time it takes to probate assets ties those funds up, which can add financial stress. If a business is involved, ongoing operations or essential decisions can be affected while the estate settles. Finally, because probate is a public process, I believe this increases the chances of a bad actor affecting the outcome by exploiting a technicality or different interpretation of the language in your will.
But probate is not always necessary.
For one, it has become much easier to pass property and assets to heirs directly without going through probate. The most common example is an IRA or 401(k) plan, where you designate a beneficiary, and your beneficiary gets your funds directly transferred to them without going through your estate. Another example is your home. If you own your home jointly with your spouse, it can pass directly to them if it is titled Joint Tenancy With Right of Survivor (JTWROS). Bank accounts and investment accounts can be similarly titled.
Pro Tip: I did not realize this, but my longtime friend and estate attorney, Blair Norman pointed it out to me recently, you can designate a beneficiary on the title of your car. Go to www.txdmv.gov/forms and search for “beneficiary” if you are interested.
There is a good chance that you can avoid probate entirely using some of the tools mentioned. But suppose you have a more significant estate with more complex assets, like a closely-held business, partnerships, or out-of-state property. In that case, you may want to consider a revocable trust.
An estate attorney can set up a revocable trust to direct the disposition of your assets in place of probate. You then re-title your assets in the name of the trust so that the trust document controls the assets and specifies what happens to them when you die. While you are living, you are the trustee of your trust and control everything.
You can change your trust as necessary or even revoke the trust (hence the name). A successor trustee takes over whenever you deem it necessary or at your death to manage or distribute your assets according to the trust document.
As Benjamin Franklin famously said, “in this world, nothing can be said to be certain, except death and taxes.” Traditionally, you could count on probate as well. But more and more, we are finding ways to avoid it. If you want to discuss this further, don’t hesitate to reach out.
Those are my thoughts, have a great Thursday.
~ Rob