Texas law makes it clear that identifying probate property is a duty. It has to be done and the personal representative has to do it. But there are no set rules for how to identify property that the decedent owned or had an interest in. At a minimum, one must review the financial records that are available to identify assets and make reasonable inquiries with third parties that may know about the decedent’s assets.
Start With Non-Probate Property
To understand what property is probate property, it is helpful to start by considering what property is non-probate property. The principal types of non-probate property include property passing by contract, passing by survivorship, held in trust, and community property.
Exclude Property Passing by Contract or Deed
There are several types of property that pass by contract or deed. This means that the decedent took steps to name a beneficiary before he died. By doing so, the property is governed by contract or real estate law.
The proceeds of life insurance policies are not probate property if the decedent filled out a beneficiary designation for the policy during his lifetime. Life insurance proceeds are probate property if the decedent did not designate a beneficiary. This designation has to be made on a beneficiary designation form. In Thatcher v. Conway, 296 S.W.2d 790 (Tex. App.‒Beaumont 1956), the court confirmed that the beneficiary of a life insurance policy cannot be designated in a will.
The life insurance policy itself may be probate property. This involves policies that have a cash surrender value and that insure the surviving spouse. These policies are probate property.
Even though insurance proceeds paid on account of the life of the decedent are typically non-probate property, the personal representative may handle the collection of the proceeds for the beneficiary or have to assist the beneficiary in collecting the proceeds. The beneficiary should get a Form 712 from the insurance company. This form will indicate who the beneficiary of the policy is and the amount of the value of the policy. This helps the personal representative confirm that the policy and/or proceeds are non-probate property.
This is usually accomplished by filling out a beneficiary designation or pay-on-death designation form prior to death. This option is usually available for life insurance policies, retirement accounts, and employee benefit plan benefits. If a beneficiary is designated during lifetime, these assets and payments are non-probate property. They pass outside probate to the persons named by the decedent in the appropriate beneficiary designations. But these assets are probate property if there is no beneficiary designation or the designation is invalid.
Beneficiary Designation for Motor Vehicles.
While it is less common, a beneficiary designation can be added to title for motor vehicles. This is provided for in Texas Estates Code § 115.001 et seq. To do so, the decedent is to submit a Form VTR-121, Beneficiary Designation for a Motor Vehicle, to the Texas Department of Motor Vehicles.
The transfer takes place upon the decedent’s death if the beneficiary designation is valid and the beneficiary files an application for title within 180 days of the date of the decedent’s death. In this case, the vehicle is nonprobate property. Any security interest in the motor vehicle, such as a title loan, continues upon the decedent’s death.
Texas Estates Code § 115.105 also says that a beneficiary designation for a motor vehicle is also invalid as to any beneficiary that fails to survive the decedent by 120 hours. The transfer lapses and goes to the beneficiary’s surviving descendants in the nearest degree of kinship to the decedent who survived.
If the beneficiary designation is invalid or title is not obtained within 180 days, the vehicle is probate property. A beneficiary designation is not valid if it was revoked by the decedent during his lifetime. The beneficiary designation can be revoked by selling the vehicle during the decedent’s lifetime or by filing a new Form VRT-121 with the Texas Department of Motor Vehicles. It cannot be revoked by including language in a will.
Transfer on Death Deeds.
Real estate can also have something similar to pay-on-death designations. This is provided for in Texas Estates Code § 114.051. While it is not that common, real estate owners can execute a transfer-on-death deed to specify to whom the property passes on death.
Transfer on death deeds do not limit the owners ability to transfer or encumber the property during their lifetime. They do not impact the decedent’s homestead rights for the real estate or tax exemptions for the real estate. Transfer on death deeds also do not include a warranty of clear title. Texas Estates Code § 114.103(3)(d) makes it clear that there is no warranty even if the deed says there is one.
Any security interest in the property, such as a deed of trust or mortgage, continues upon the decedent’s death. Texas Estates Code § 114.106 says that the personal representative of an insolvent estate can enforce creditor claims against the real property that passes pursuant to a transfer on death deed as if the property was included in the estate. This allows the personal representative to reach this property; it does not obligate the personal representative to do so. If the personal representative does not bring suit within 90 days of a claim being submitted, the creditor can do so. The creditor has two years from the decedent’s date of death to do so.
Real estate subject to a valid transfer-on-death deed is non-probate property. A transfer on death deed is valid even if the beneficiary does not know of the deed, did not pay for the property, and did not accept the property during the decedent’s lifetime.
Transfer on death deeds are invalid if they are revoked prior to the decedent’s death. A transfer on death deed can be revoked if the property is sold or disposed of before the decedent’s death (and according to Texas Estates Code § 114.102, the new deed is signed and recorded before the decedent’s death), by filing a subsequent transfer on death deed or recording an instrument to revoke the deed before the decedent’s death, or, if the decedent’s spouse is the beneficiary, if the decedent divorces the spouse prior to death. A transfer on death deed cannot be revoked by including language in a will or trust.
Texas Estates Code § 114.103 also says that a transfer on death deed is also invalid as to any beneficiary that fails to survive the decedent by 120 hours. The transfer lapses and goes to the beneficiary’s surviving descendants in the nearest degree of kinship to the decedent who survived.
Exclude Property Passing by Survivorship
There are several assets that pass by survivorship. This includes property that is held as joint tenants with rights of survivorship or where a survivorship agreement or community survivorship agreement has been executed.
Joint Tenancy With Right of Survivorship.
Joint tenancy property passes to the surviving joint owner upon death of the joint owner. In Texas, property is only held in joint tenancy if there is written evidence showing the decedent’s intent to hold the property as joint tenants. Merely having a joint account is not sufficient.
The Stauffer v. Henderson, 801 S.W.2d 858 (Tex. 1990) case provides an example. The decedent established a joint bank account with her sister and the decedent funded the account. The bank signature card did not say that the account was with “rights of survivorship.” This type of bank account is commonly referred to as a “convenience account,” as it is intended to be used by the survivor to pay for funeral or last expenses. The court concluded that the surviving husband was entitled to the funds in the account as the account documents did not include language to the contrary.
Property that is held jointly where there is no written evidence that it is intended to be passed to the survivor by rights of survivorship is probate property. Property that is held as joint tenants with rights of survivorship is nonprobate property. It is generally not subject to the probate process.
Texas Estates Code § 111.001 provides for survivorship agreements. These agreements allow joint owners of property to execute a written agreement to transfer the property to the surviving owner upon the death of a joint owner. Property subject to these agreements is also non-probate property.
Community Survivorship Agreement.
Texas Estates Code § 112.051 provides a right for spouses to create a similar survivorship agreement for community property. This written agreement is not created by taking title to the property as joint tenants. The agreement should include one of these phrases:
- “With right of survivorship,”
- “Will become the property of the survivor,”
- “Will vest in and belong to the surviving spouse,” or
- “Shall pass to the surviving spouse.”
This agreement may be revoked by the terms of the agreement or, absent revocation terms, by a written instrument signed by both spouses or signed by one spouse and delivered to the other spouse. It may also be revoked as to specific property by the sale or transfer of the property by one of the spouses.
After the decedent’s death, the surviving spouse can file an application with the court to validate the community property survivorship agreement. Texas. Estates Code § 112.101 sets out the requirements for this type of application. If there is any doubt as to whether such an agreement is valid, the personal representative should insist that the surviving spouse file this application with the court.
Texas Estates Code § 112.204 provides that third parties who purchase the decedent’s property and do not know of the survivorship agreement can obtain clear title. To prevent this from happening, the surviving spouse should file their agreement in the real estate records in any county where the decedent owned property within six months of death. This can help prevent a third party from acquiring clear title to property in error.
Add Back Jointly Held Account Balances
Jointly held bank and financial accounts belong to the parties in proportion to their net contributions to account. The net contribution is the sum of all deposits made to the account by the party, less all amounts paid to ur used by the other party, plus a pro rata share of any interest or dividends included in the current balance of the account. Texas Estates Code § 113.102 says that this ownership can differ if there is clear and convincing evidence of a different intent. Thus, the amount in the account that consists of the decedent’s net contributions is probate property.
The survivor can continue to use the property after the decedent’s death, but this does not mean they have a superior claim to ownership of the funds or assets in the account. The court in Stauffer v. Henderson, 801 S.W.2d 858 (Tex. App. 1990) provides an explanation for a joint bank account. The court explains that the joint account owner can insist that the bank honor a request for payment from the account, but the joint ownership does not establish the joint account holder’s right to the funds in relation to other claimants.
Because both parties can access the funds, either the estate or the other joint owner may consider transferring the account upon the decedent’s death. For the personal representative, this can help ensure that the estate has sufficient funds to carry out the probate process.
Add back Transfers to Former Spouses
Texas Estates Code § 123.151 addresses pay-on-death designations and property that passes by survivorship that transfer property to the decedent’s former spouse or to the decedent’s former spouse’s relatives. Generally, these transfers that are made prior to the end of the marriage are void. Because these transfers fail, property subject to the designation will typically be probate property.
The bank or financial institution may not be aware of the divorce and may transfer the property to the ex-spouse. The bank or financial institution is liable to the estate for the transfer if it received written notice of the divorce. When timely written notice is provided, the bank or financial institution should deposit the funds into the registry of the probate court. This provides the court with an opportunity to ascertain who is entitled to the property.
Exclude Trust Property
Property held in trust is also non-probate property. This feature of trusts is one of the primary reasons for establishing a trust. The terms of the trust dictate how the property is handled. State law or a will do not.
Exclude the Surviving Spouses One Half Community Property
Non-probate property also includes most community property that is solely managed by a surviving spouse.
Community property is property acquired during marriage while residents of a community property state (such as Texas) that was acquired with community funds (such as wages earned during the marriage). For spouses that have been married for a long period of time, it is likely that most if not all of the decedent’s property is community property. Texas intestacy laws apply to the one half interest the decedent owned in the community property.
Separate property is typically property the decedent acquired before marriage or property acquired during marriage by way of gift or inheritance. The presumption is that property is community property. One has to clearly trace the origin of the property as an asset on hand before marriage to establish that it is separate property.
Community property is owned in equal undivided shares with the surviving spouse. Thus, one half of community property is non-probate property and one half is probate property. The personal representative is to continue to manage community property that the decedent managed during his lifetime and jointly managed property. The surviving spouse continues to manage the community property she managed during her lifetime.
Everything that Remains is Probate Property
Property that is not non-probate property is generally probate property.
As you can see from the description of non-probate property above, it is possible that there is no probate property remaining after the non-probate assets is accounted for. This is often the case if the decedent executed a trust and transferred all or most of his property to the trust during his lifetime. Probate may not be necessary in these cases.
But it is likely that there are some assets that would still require a probate, such as a house or other property that was not transferred to the trust.
Do you need an experienced attorney to probate assets in El Paso?
If you’re wondering whether or not you need an attorney to help you probate assets in El Paso, you should call a trusted probate attorney to help you understand your rights and options, as well as the difference between probate and non-probate assets. If the estate plan is large and/or complex, it’s probably a good idea to hire an attorney. Even if the estate plan is small and simple, if you are not on good terms with the deceased’s family, an attorney can help protect your interests regardless of the estate plan. Call the trusted probate attorneys at Krieg LLC today at (915) 292-4400for a a FREE consultation.
What are non-probate assets in Texas?
There are many types of property that are not included in a probate estate. Usually, these assets are distributed separately from the estate or they may be transferred outside of the probate court.
The most common non-probate assets are:
a. Property owned jointly with another person, such as a spouse, that automatically passes to the surviving co-owner by operation of law
b. Property transferred into joint tenancy by an owner who did not own any other real property. The survivor automatically owns 100 percent of the property.
What is considered estate assets?
Estate assets are the pieces of property or items that were owned by you and left to someone else in a will or passed to heirs after your death.
The will spells out what you have left and who you want to get it. The executor is the person who is named in the will and will manage the estate for the benefit of everyone named in the will.
Are non probate assets subject to estate tax?
Probate is an estate administration procedure. Non probate assets are any assets titled in the name of the decedent and owned solely by the decedent at the time of death. If a will exists, non probate assets are not subject to estate administration and are not part of the probate estate. Non probate assets are generally exempt from federal estate taxes. However, they could be subject to state estate taxes depending on the laws of the State where the decedent resided at the time of death.
If a will does not exist or if there are non probate assets which were not titled in the name of the decedent, then a proceeding in probate court is necessary to identify beneficiaries and to distribute such assets according to the desires of the decedent set forth either in a will that existed at the time of death or according to Texas intestacy laws.
What assets are not considered part of an estate?
There are several items that are not considered part of an estate:
1) Property owned by a surviving spouse or minor child.
2) Assets in the possession of an executor or trustee on the date the decedent died. It is highly unlikely that such assets would exist in this scenario.
3) Property owned by a revocable living trust, while held in the name of the grantor, at the time of death.
4) Property gifted to someone else, and not held in joint ownership with other parties.
5) Property owned by a corporation or other business entity. The executor or trustee would have to terminate the business entity to be able to distribute its property.
What counts as assets for probate?
What counts as assets for probate? In most cases, assets and property that qualify for probate consist of money, real estate and other tangible personal property.
Loads of people are confused and don’t understand personal property laws. They assume that anything they own is an asset and therefore subject to probate. That is why we wanted to share our quick take on what qualifies as assets that pass through a probate process.
If you’re interested in learning more, speak to an experienced Texas probate lawyer near you.