8 Ways to Legally Avoid Probate in Texas

Probate avoidance is a common goal in estate planning, and Texas offers several techniques to achieve this. Each technique has its own requirements under Texas law, and some are also subject to federal laws. Let's go through eight standard techniques used to avoid probate and review how it's done in Texas:

(Each of these techniques should be considered in the context of your overall estate plan and may have implications for taxes.)

1. Set Up Payable-on-Death (POD) Accounts

   • The Paperwork: Generally involves filling out a form provided by the financial institution.
   • Adding a POD Designation to a Joint Account: You can name a beneficiary who will receive the account's funds after the death of the last account owner.
   • Choosing Beneficiaries: Anyone can be named, including family members, friends, or organizations.
   • If a Beneficiary Dies Before You Do: You should name a contingent beneficiary or update the beneficiary designation.
   • If You Change Your Mind: You can change a POD beneficiary anytime.
   • Claiming the Money: Beneficiaries must provide proof of death and identification to claim the funds.
   • Texas Law: Governed by the Texas Estates Code, which allows POD designations on bank accounts.

   • Bank Accounts (Payable-on-Death Accounts)

     • Texas Law: Payable-on-death (POD) accounts in Texas are governed by the Texas Estates Code, which allows financial institutions to offer POD designations on accounts. The relevant sections include:
       • Texas Estates Code, Section 113.151-113.157 - These sections are part of the "Multiple-party Accounts" subchapter and address issues related to POD accounts, such as the rights of parties and beneficiaries.
   • Federal Law: Federal Deposit Insurance Corporation (FDIC) insurance limits may apply.

2. Name a Beneficiary for Your Retirement Accounts

   • Choosing a Beneficiary: Similar to POD accounts, but specifically for retirement accounts like IRAs and 401(k)s.
   • Required Minimum Distributions: Subject to IRS rules regarding when and how much must be withdrawn annually after reaching a certain age.
   • Texas Law: The Texas Property Code may govern aspects of retirement account transfers.
   • Federal Law: IRS rules on retirement accounts and ERISA guidelines for employer-sponsored plans.

3. Name a Beneficiary for Your Stocks and Bonds

   • Transfer-on-Death Registration: Allows stocks and bonds to be transferred to a named beneficiary upon death.
   • Registration of Government Bonds and Notes: U.S. Treasury bonds can be registered in a way that allows transfer on death.
   • Texas Law: Governed by the Texas Uniform Transfer on Death Security Registration Act.

   • TOD Securities (Transfer on Death Registration for Stocks and Bonds)

     • Texas Law: The legal framework for TOD registration for securities in Texas is provided under:
       • Texas Estates Code, Title 9, Subtitle C, Chapter 259 - Known as the "Texas Uniform Transfer on Death Security Registration Act." This chapter outlines the procedures for registering securities in transfer-on-death form.
   • Federal Law: Federal securities laws may apply.

4. Name a Beneficiary for Your Vehicles

   • Transfer-on-Death Registration: Texas allows for a TOD beneficiary to be named on vehicle titles.
   • Joint Ownership With Right of Survivorship: Co-ownership where the surviving owner automatically inherits the vehicle.
   • Special Transfer Procedures for Vehicles: Specific forms and procedures must be followed in Texas.
   • Texas Law: Governed by the Texas Transportation Code.

   • Vehicles (Transfer-on-Death Registration)

     • Texas Law: This is governed by the Texas Transportation Code. The specific provision allowing for the transfer-on-death (TOD) registration of vehicles is found in:
       • Texas Transportation Code, Section 501.0315 - "Beneficiary Designation."

         • Sec. 501.0315. BENEFICIARY DESIGNATION. (a) The owner of a motor vehicle may designate a sole beneficiary to whom the owner's interest in the vehicle transfers on the owner's death as provided by Chapter 115, Estates Code, by submitting an application for title under Section 501.023 with the designation. To be effective, the designation must state that the transfer of an interest in the vehicle to the designated beneficiary is to occur at the transferor's death.

           (b) The legal name of a beneficiary designated under this section must be included on the title.

           (c) The department shall transfer title of a motor vehicle to a beneficiary designated under this section for the vehicle if the beneficiary submits:

           (1) an application for title under Section 501.023 not later than the 180th day after the date of the owner's death or, if the vehicle is owned by joint owners, the last surviving owner's death, as applicable; and

           (2) satisfactory proof of the death of the owner or owners, as applicable.

           (d) A beneficiary designation may be changed or revoked by submitting a new application for title under Section 501.023.

           (e) A beneficiary designation or a change or revocation of a beneficiary designation made on an application for title of a motor vehicle that has not been submitted to the department before the death of a vehicle's owner or owners who made, changed, or revoked the designation, as applicable, is invalid.

           (f) The department may adopt rules to administer this section.

           Added by Acts 2017, 85th Leg., R.S., Ch. 586 (S.B. 869), Sec. 3, eff. September 1, 2017.

5. Name a Beneficiary for Your Real Estate

   • Can You Use a TOD Deed?: Yes, Texas allows Transfer on Death Deeds for real estate.
   • How It Works: The property automatically transfers to the beneficiary upon the owner's death.
   • Possible Drawbacks: Potential challenges, such as affecting eligibility for certain benefits or creating unintended tax consequences.
   • How to Prepare, Sign, and Record the Deed: Specific legal requirements must be met for the deed to be valid.
   • Three Ways to Cancel the Deed: Revocation, selling the property, or executing a new deed.
   • How the New Owner Claims the Property: The beneficiary must follow certain procedures after the owner's death.
   • Texas Law: Governed by the Texas Estates Code.

   • Real Estate (Transfer on Death Deeds)

     • Texas Law: The use of Transfer on Death Deeds for real estate in Texas is authorized under:
       • Texas Estates Code, Title 2, Subtitle E, Chapter 114 - This chapter, also known as the "Texas Real Property Transfer on Death Act," outlines the requirements and procedures for executing and revoking a Transfer on Death Deed.

6. Hold Property in Joint Ownership

   • Kinds of Joint Ownership: Joint Tenancy, Tenancy by the Entirety (not recognized in Texas), and Community Property.
   • Alternatives to Joint Ownership: Such as living trusts or TOD arrangements.
   • Texas Law: Community property laws are significant in Texas, affecting how property is owned by married couples.

7. Create a Living Trust

   • Advantages: Avoids probate, provides privacy, and can be more flexible than a will.
   • Creating a Valid Living Trust: Must meet specific legal requirements, including being properly funded and documented.
   • What Property to Put In: Typically includes property you want to pass outside of probate.
   • Taxes and Record Keeping: Trusts may have different tax implications and require ongoing management.
   • Amending or Revoking a Trust: Allowed under certain conditions.
   • Texas Law: Governed by the Texas Trust Code.

8. Special Procedures for Small Estates

   • Why Even Large Estates May Qualify: Texas has relatively generous thresholds for what constitutes a "small estate."
   • Claiming Wages and Other Assets With Affidavits: Simplified procedures for transferring certain assets without formal probate.
   • Simplified Court Procedures: Texas offers a simpler probate process for smaller estates.
   • Texas Law: Governed by the Texas Estates Code.

   • Small Estate Procedures

     • Texas Law: The procedures and requirements for the small estate affidavit process are outlined in:
       • Texas Estates Code, Title 2, Subtitle E, Chapter 205 - This chapter details the use of affidavits in lieu of formal administration for small estates.
     • Limitations and Inflation Adjustments:
       • As of this writing, the limit for the use of small estate affidavits in Texas is an estate with assets not exceeding $75,000, excluding the value of the homestead and exempt property.
       • Texas law does not automatically adjust this threshold for inflation. Any changes to this limit would require legislative action. Therefore, it remains static until the legislature amends the statute.