Hi everyone! Welcome back to Melissa Making Cents!
In my role as a CERTIFIED FINANCIAL PLANNER™ in Dallas, I work with a lot of clients who are dealing with the estate planning process either for themselves or for family members. And something that comes up a lot during these conversations is “probate.”
Probate is a fancy word for the process in which a court legally recognizes a person’s death and manages the distribution of his or her estate. Most of the time, at least some of a person’s estate must go through the probate process. But the probate process won’t necessarily be the same for everyone, due to unique factors like what types of assets are within the estate, who the beneficiaries are, and whether or not there’s a will.
I’ve found that probate can be overwhelming for clients or their families who have never been through it before. And..if you google "celebrity probate" you will see horror stories from the rich and famous and what happens to mega-estates when you don't prepare. That’s why today, I’d like to talk in general terms about how probate works in my home state of Texas, as well as which assets within an estate must pass through probate. (Estate laws can vary from state to state, and I will suggest you contact an estate planning attorney to make sure your legal work is accurate for your state.)
In this post, I’ll cover the steps involved in probate if the deceased person (known as the “decedent”) leaves a will and also the steps involved if the decedent does not leave a will. Since not every part of an estate needs to go through probate, I’ll talk about those exceptions, too.
How the probate process works when there is a will
Where there’s a will, there’s a way!
The single most important component to ensuring a smooth probate process is having a valid, notarized, up-to-date will in place. This will reduce the chance of disputes when distributing the estate and also ensure that all assets are accounted for. It will also carry out the decedent's final wishes about who should receive what, rather than leaving it up to the court.
As part of the process of writing a will, the decedent must list an executor of the estate. The executor is the individual responsible for filing an application for probate in the county where the decedent lived at the time of death. The executor is ultimately the person who will manage the inventory and distribution of assets left in the estate.
Texas is home to 18 probate courts across 10 different counties. In most cases, Texas law requires that the executor files for probate within four years of the decedent’s passing. Before beginning the probate process with a filing, the executor should check with the county clerk to ensure that the court they are filing in is the correct one.
After the probate application is filed, the court publicly announces the filing and allows a two-week period for anyone to contest the will or administration of the estate, prior to the first hearing. When the two-week period expires, a Texas probate judge holds a hearing to formally recognize the decedent’s death, establish whether or not the decedent had a valid will, and then confirm the executor of the estate (if there was a will) to oversee the distribution of the estate.
Within the next 90 days, the executor prepares an Inventory, Appraisement, and List of Claims. The Inventory is a comprehensive list of all assets (and their value, or Appraisement) within the estate. The executor must also inform beneficiaries and creditors about the death and use assets from the estate to pay off any of the decedent’s outstanding debts (as outlined in the List of Claims).
Wills can be contested
Even after the executor starts the inventory process, a will can still be contested. Claimants have up to two years after the initial probate to dispute the will. Some possible reasons for contesting a will include a belief that the will was forged, a complaint that it was improperly executed, or a contention that the will was unduly forced by a third-party. A probate judge oversees the dispute and makes a ruling about who is entitled to receive assets from the estate.
When any debts are paid and disputes are resolved, remaining assets are distributed to the beneficiaries, as outlined in the will. The full timeline for completing probate differs based on the size of the estate and any potential complications with the will. For example, probate might only last for six months if there is a clear will and a simple estate. However, probate can also drag on for years if the will is contested or lost. The latter instance would require significantly more time and effort from the court. Another situation that can affect the timeline is if the will specifies that all tangible property (real estate, personal possessions, etc.) should be sold and that the beneficiaries should receive a specific percentage of the proceeds. The process of selling off the assets might further extend how long probate will last.
How the probate process works when there is not a will
The probate process is a little different if the decedent did not leave a will. First, since no executor was named, the court would appoint an administrator to provide an inventory of the decedent’s assets, appraise their value, notify creditors, pay off the decedent’s debts using assets from the estate, and oversee the distribution of the assets when beneficiaries are determined. In other words, the administrator would essentially perform the same duties as an executor.
When a decedent does not leave a will, that means the estate is “intestate.” The probate court would need to figure out who the beneficiaries are based on Chapter 201 of the Texas Estates Code. The laws of intestacy would also go into effect if the decedent left a will, but the executor of the estate did not file a probate application within the allotted four years after death.
The laws of intestacy succession can be complicated. First, the court would need to determine which assets within the estate are categorized as “separate property” (owned only by the decedent) and which are “community property” (acquired during a marriage and therefore the property of both spouses). Heirship also depends on whether the decedent was married, if he/she had children, and if any of the decedent’s surviving children are also the spouse’s children. Here are a few of the different estate distributions that could happen, based on surviving family members and their relationships to the decedent:
When the Decedent Is Outlived By a Spouse
- Here’s the simplest scenario: when there is a surviving spouse, but no children, parents, or siblings, the spouse inherits everything.
- If a decedent is outlived by a spouse, and any of the decedent’s surviving two children are also the children of the spouse, the spouse inherits all of the community property as well as one-third of the separate personal property and the right to use any real estate for life. The children would be the beneficiaries of everything else.
- However, if the decedent is outlived by a spouse and the decedent also had two children who are not the children of the spouse, the spouse only keeps half of the community property, one-third of the separate personal property, and the right to use the real estate for life. The children would inherit any remaining assets, including the remaining half of the community property.
- So what happens if the decedent has a surviving spouse, but no children? If the decedent still has living parents, the spouse receives all community property and separate personal property, but only half of any separate real estate (real estate that is not categorized as community property). Parents would inherit everything else, such as the other half of the separate real estate.
- Finally, if the decedent has a surviving spouse and siblings, but no parents, the spouse inherits all community property and separate personal property, as well as half of any separate real estate. Siblings would inherit everything else.
When the Decedent Is Not Outlived By a Spouse
- To start again with the easiest scenario: a decedent who has children but no spouse would leave everything to the children.
- When there are surviving parents but no children, spouse, or siblings, the parents will inherit everything from the decedent. By contrast, when there are siblings but no children, spouse, or parents, the siblings are the sole beneficiaries.
- It gets a little more complex when there are both parents and siblings in the mix. If there is no spouse or children, but one parent and siblings, the parent would receive one half of the separate property and the siblings would equally share the remaining half.
Exceptions for Small Estates
There is one major exception to intestacy law in Texas. If the decedent did not have a will but the estate is worth less than $75,000, a person who would be entitled to the property (such as a spouse or child) can file the Texas Small Estate Affidavit. This form can be filed 30 days after the death, as long as other probate proceedings have not been started. The Texas Small Estate Affidavit will still need to go to probate court for approval, specifically the probate court in the county where the decedent resided.
If all of this sounds complicated, that’s all the more reason to prepare a will in advance -- no matter the size of the estate! Intestacy can drag out the probate process even longer and further deepen the court’s involvement in the distribution of the assets. A little foresight now can save a big headache later.
Just in case you were still on the fence about just letting your heirs to decided your property's fate... Check out this article from the Los Angeles Times about a probate case that has been active since 1925!
Probate is not required for all types of assets
At the beginning of the post, I mentioned that probate isn’t always required for your assets. Certain financial accounts don’t go through probate because they pass through beneficiary designations instead. These include retirement accounts, life insurance, annuities, and trusts. When setting up these financial accounts, you are usually required to list your beneficiaries and you can change them at any time.
As you can see based on everything I’ve shared so far, there are good reasons why some people try to have as much of their estate pass directly to beneficiaries rather than go through probate. And there are plenty of options to do this for different types of tangible assets, too! For example, if you set up a Transfer on Death Deed (TODD), your land and buildings would also pass to beneficiaries similar to financial accounts, avoiding the need for probate in settling real estate. There’s a similar option for your vehicles, which can be completed through the Texas DMV.
Personal possessions are still most likely to be distributed during the probate process, but this can also be avoided if they are set up through a trust. Trusts offer individuals greater control over how their assets (financial or tangible) should be distributed after their death, such as ensuring that younger beneficiaries only receive their inheritance after reaching a certain age. An attorney can advise you on the benefits of a trust and if it is the right option for you.
I’ve covered several of these types of situations in my previous posts about what happens to financial accounts after death and what happens to tangible property after death. But even if most of your estate would pass directly to beneficiaries rather than through probate, your work still isn’t quite done. It is important to always ensure that your beneficiaries are up-to-date so that your assets aren’t bequeathed to someone who has already passed away, or to someone with whom you may no longer have a good relationship.
Estate planning is important to avoid pitfalls
I know I’ve said this several times before, but it bears repeating: make sure you have a will in place. A will is the cornerstone of the estate planning process, especially when it comes to probate.
However, a good estate planning process involves not only a will and an attorney, but also a financial planner to ensure that all assets are accounted for. You don’t want to leave anything out of your planning and cause your family even more stress and grief after your passing. If you want to start the estate planning process for yourself or a loved one, please call or email me to schedule an appointment.
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.