A revocable trust-based plan avoids probate: One of the primary benefits of a revocable trust-based plan is the ability to avoid probate at death. However, to avoid probate, the client’s revocable trust must be fully funded with appropriate assets and any other assets must include a beneficiary. Funding a revocable trust typically involves re-titling real property, bank accounts, investment accounts, and entities into the client’s revocable trust. The funding process can be onerous depending on the type and volume of assets. For example, clients owning an interest in various private equity deals or non-family-owned entities may find that it’s either not possible or too complicated to re-title. But, when it comes to funding a revocable trust with the goal of avoiding probate, leaving out even one asset defeats the purpose and may result in probate. Therefore, it is important for clients to understand that if probate avoidance is a priority, they (along with the help of their advisors and estate planning attorney) must be diligent in re-titling existing assets and ensuring future acquisitions are titled in the revocable trust to the extent possible. Although the funding process may be burdensome for the client, we can often assist, in conjunction with their advisors, to alleviate some or all of the workload.
Probate and estate administration are the same thing: Probate is the statutory process in which (1) a decedent’s Will is validated by a court, (2) the named Executor is appointed by the court, (3) the decedent’s creditors are given an opportunity to recover unpaid debts, and (4) an inventory of the decedent’s probate assets is compiled. Completion of the statutory probate process is the first of several steps we must take when a client dies. Once the Executor has been appointed by the court, we move to estate administration, which largely consists of re-titling the decedent’s assets to the appropriate beneficiaries, which may include individuals, trusts or charities. Depending on how the decedent’s assets were titled and the type and number of assets, the complexity of this step varies greatly from client to client. However, it is vital to work through the estate administration and ensure proper re-titling, otherwise the probate accomplished nothing. Similarly, it is important for clients to understand that fully funding their revocable trust and bypassing probate does not necessarily mean they are going to avoid estate administration. The revocable trust that owns decedent’s assets will dictate where his assets pass at death, which typically involves re-titling to other trusts or named individuals. We strive to make both probate and estate administration as easy for our clients as possible, but there is generally a significant amount of time and work involved when someone passes away no matter how much planning took place during life.
Title on property in Texas dictates ownership: A common misconception is that title tells the full story on asset ownership for married couples. Texas is a community property state. This means that property acquired during marriage is owned equally by both spouses, with a few exceptions (mentioned below). For example, if a married couple acquires real estate during marriage with community funds, and only one spouse is listed on the deed, the other spouse has a 50% community property interest in the real estate. Likewise, if a bank account funded with community funds is titled in one spouse’s name and the other spouse has no signing authority, that spouse still has a 50% community property interest in the account. This fact can come as a surprise to clients both during the estate planning process and during probate and estate administration. Characterization of property as community or separate is often most important in a blended family scenario and could cause a multitude of issues if not understood. An exception to this community property presumption is if spouses have entered into a valid premarital or postmarital property agreement dictating the separate and community property nature of certain assets. Additionally, Texas law provides that property owned before marriage or property acquired during marriage via gift or inheritance, and certain personal injury awards, are separate property. We think it is important that all clients have a basic understanding of community and separate property laws in Texas to ensure that they are appropriately planning for incapacity and death.
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