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Death and Your Estate: Part 2

Death and Your Estate: Part 2

June 25, 2020

Hi everyone! Welcome back to Melissa Making Cents!

As a Financial Planner, I'm often asked questions about "stuff".  There is a lot that goes into question about "stuff"!  "Stuff" can come with baggage like taxes, and legal questions.   So my answer is always from the viewpoint of a financial planning professional, and I'm happy to refer my clients to an attorney or tax advisor for specifics on estate questions I'm not qualified to answer.  Estate planning can be complicated, and it's easier to fix any potential issues before you die.

In my last blog post, I talked about what happens to financial accounts after death. Today I’m going to cover what happens to tangible property, specifically real estate and personal possessions. Here we go!

Real Estate Passes Through a Will

Real estate, or the land and buildings that you own, is often the most valuable asset left behind. What happens to real estate after death depends on how the property is titled: or, in other words, who owns it!

Sole Ownership is Owned By One Single Person

Sole ownership refers to the scenario in which only one person owns the property. This might be the case if you own a house but are unmarried, or if you inherited a house from your parents. If sole ownership applies to you, when you pass away, the estate must go through probate, which is the legal process through which a court establishes the validity of your will, pays off your remaining debts with your assets, and then distributes whatever assets remain. The real estate will be distributed according to the terms of the will. If there is no will, then the real estate becomes “intestate", and distribution is determined by the laws of the state where you lived at the time of death. Usually, a surviving spouse would inherit the real estate, then any children. Within your will, you could also donate your real estate to a charitable organization.

Joint Ownership Means Multiple Owners in the Property

Joint ownership means that more than one individual own shares of the property. In a “joint ownership with rights of survivorship” arrangement, the surviving owner(s) will continue to own the property and inherit any shares from the deceased (thus avoiding probate).

In a "tenants in common" arrangement (otherwise known as joint ownership without rights of survivorship), there are multiple owners, but they own a specific percentage of the property and can pass on their shares to beneficiaries rather than to the other owners after death.  "Tenants in common" accounts could require the advice of a tax advisor or an attorney, especially in the case that there isn't an equal ownership percentage (ie: 50/50).   In a “tenants in common” scenario, the real estate must also go through probate.  

Community Property State Rules

Which States are Community Property States?

One additional consideration is that in certain states, like my home sweet home state of Texas, are “community property” states, which means that most real estate owned by a married couple must follow Texas community property law. The notable exceptions to this are for real estate that one spouse owned before the marriage; real estate acquired by a spouse during the marriage through an inheritance; and real estate awarded to a spouse for recovery for personal injuries. These exceptions mean that the real estate is categorized as “separate property,” so it does not follow community property law, unless it is commingled. With community property laws, upon one spouse’s death, the other spouse gets to keep his or her half of the estate and the deceased’s half would be distributed according to the will. 

Keep in mind that Texas does not impose a state inheritance or estate tax, so your beneficiaries will not be stuck with a hefty tax bill. You can also talk to your attorney about creating a Transfer on Death Deed (TODD) for your land or buildings. A TODD is a document that confirms your beneficiary for any physical real estate, avoiding the need for probate.

You can see how complicated this can get! This is the reason I suggest using an attorney to help you complete your estate planning documents, and keep up on any new or recent changes in estate law!

Most Personal Property Also Passes Through a Will

“Personal property” is a catchall term for movable property or belongings that are not categorized as land and buildings. Some examples of personal property include furniture, tools, vehicles, boats, artwork, collectibles, and jewelry. 

I'm sure I sound like a broken record by now, but the most important thing needed for distributing any personal possessions is--you guessed it--a will! If you want certain possessions to go to a specific beneficiary, such as bequeathing a favorite necklace to one of your children, it should be explicitly stated in your will. Another option is to write in the will that all possessions should be sold and the money gained from the sale should be distributed according to percentages outlined in the will (such as 50% for each of your two children). If personal items are not specifically listed out in the will, they are distributed through intestate succession. 

Community property laws also apply to personal possessions. Under Texas law, any personal property acquired during a marriage is considered community property. So your spouse would inherit your half of the estate after your death, unless you direct your portion would be distributed according to your will. But if your spouse outlives you and you do not have a will, your spouse would inherit all community property. If you have children from a previous marriage that you want to receive your property, I advise you to work with an attorney to develop a plan for distribution.

Vehicles Can Pass Through Beneficiary Designation in Texas

Vehicles are also a special case. For vehicles, Texas law enables you to designate a beneficiary through a “transfer on death” option. All you need to do is visit the DMV and submit an Application for Title to officially list your beneficiary. Then, the beneficiary must submit to the DMV the old title, a new Application for Title, and the death certificate in order to claim the vehicle within 180 days of your passing.

Plan Ahead -- and Create a Will!

Create a Will for your Family's Financial Future!

Sounds like a lot to remember, doesn’t it? Well, the good news is that there are professionals whose job it is to understand all of this! Consult early and often with a Certified Financial Planner, your accountant, and an attorney to get a full picture of your legal and financial situation, as well as to create a plan for distributing your estate in the future. The last thing you want to happen after your death is a prolonged process of distributing your estate, or an altercation among your relatives. If you are starting your own estate planning or would like to help a loved one begin theirs, please call or email to schedule an appointment with me.

Schedule a call with Melissa Cox CFP®

Until next time...this is Melissa Making Cents!

Melissa Anne Cox

CERTIFIED FINANCIAL PLANNER™  is also a College Planning and Student Loan Advisor in Dallas, Texas.

Read last week's blog post by Melissa Cox CFP

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