What I Consider Your Three Options

Hello, friends. I wanted to take the time today to tell you about the three different options that are available for your estate planning in Texas. The first option is not the one that I would recommend.

The First Option is to Not Do Anything.

The state does have a statute of dissent and distribution. This statute will direct exactly how your assets are distributed. It doesn’t always work out the way you want, and it can have bad consequences in certain types of situations. Number one, if you have a special needs child, they could potentially lose their benefits because they’re inheriting something from you. Also, if you’re in a second marriage situation, the way that the estate is distributed may not be the way you want. Plus, your current spouse may wind up in a situation where they do not have sufficient control of the assets to be able to continue to provide for themselves in the way you intend and the way you have planned along with your family. That can create additional tensions in a second-marriage situation. Additionally, when you don’t have a will or trust or any other plan, the probate process is more cumbersome and gets more complicated. If you die without a will, then probate starts with the application to probate the estate. Then after that, we would go ahead and file the application along with the original death certificate and that needs to be on file for at least 10 days. After those ten days have passed, the court will give us a hearing. Now, that hearing date could be anywhere from two weeks to two months after the time they provide the date, depending on the jurisdiction and depending on the court’s calendar. So you can imagine, it could be a considerable delay in time to have somebody appointed to be able to continue handling your assets. Now, if you die without a will or trust, before that first hearing, we need to have attorney ad litem appointed. Now, this attorney ad litem is an attorney that is appointed by the court to represent the unknown heirs. In other words, this attorney will make sure that the filings that were made include all of the potential heirs and any children that the decedent had. So, if the decedent had children from a prior relationship, those need to be included. And if they’re not, it is the attorney ad litem’s responsibility to find out who’s missing and to make sure that everything is filed properly. Now, the estate is responsible for paying the ad litem attorney, which means whoever your executor is will need to advance those funds. So that’s an added expense that will need to come into play. Additionally, in a probate where there is no will, typically it is a dependent administration. What that can mean is that any time that any kind of action is taken, permission needs to be requested from the court. The court will need to hear the reasons for the requested action and after that, the action can be taken now that the court’s permission has been granted. Now, every time there’s a hearing, that means that there will be attorney’s fees involved and there will be court costs. So, not having a will require additional expenses compared to having an independent administration through a will. Option number one, in short, the government is there to help with the probate process when you don’t have a will but I think we all can figure out how that plays out. So, what are some of the other options?

The Second Option is a Very Common and Familiar Option to Most People, Especially Here in Texas. It is the Will.

A will is a document in which you will be able to state who your heirs are. You can also state how you want to distribute your estate and you’ll also be able to appoint whoever the executor is to be along with any alternates, The executor’s job is to take the will to probate, get court appointed, collect the assets, make an inventory, and then distribute the assets pursuant to the statement of the will. So that’s fairly straightforward. The problem is, a lot of times when clients are looking at doing a will, they don’t realize that it is really a two-step process. Step one happens while you’re alive. You prepare the will now. The will, while you’re alive doesn’t have any kind of power or authority. Once you pass away, then the will has potential, but it doesn’t have power or authority until it is admitted to probate by the appropriate court. So that means we still have the second step. So, a lot of times when our firm is hired to do a will, I know that that there will be work coming up for the future for that case. How does a will work? How do you probate the will? Once a person dies, like when you don’t have a will, the process is similar, except it’s much more efficient when there is a will. We still have to file an application to probate the will. We’ll need to file the original will and original death certificate and that will need to be posted for at least 10 days. After those ten days, the court will give us a hearing. That hearing can also be anywhere from two weeks to two months, sometimes more, depending on the court’s docket. The cost savings here is that there won’t be a need for attorney ad litem like in the previous example, with no will at the hearing. Then, the executor will need to be appointed and they will have thirty days to file a notice to creditors and 90 days to file an inventory of the estate. They can also file an affidavit in lieu of inventory. However, they’ll need to provide the inventory to everyone who would take under the will and have them confirm a receipt and acknowledge that there are no objections to the inventory. Now, once that inventory is approved and filed, then the executor can begin distributing the estate.

As you can see, this is still a little bit lengthier process. It could take four to six months before the assets can be distributed. Although it doesn’t sound like a long time, when there aren’t any funds that are available to pay for regular ongoing bills for the family, it could be a burden and it could create some risks of foreclosure and other situations like that. So, although the will does provide more efficient means for transferring, it still requires going to court and having the probate process.

Now, any time that we have a court process, it opens up the opportunity for there to be litigation. If one of the heirs is not happy with the way the distribution is laid out there, there could be a will contest. Typically, that can result because everyone is treated equally and one of the family members feels like they were always there for mom and dad. Maybe the other siblings were out of town and they never came in and never visited. So, the siblings that were closer to the parents geographically feel they’re entitled to a larger piece of the pie because they were there for their parents. So, if they’re treated equally, they could contest and argue this fact. On the other hand, there could be an argument in the other direction. If the child that’s locally available and attends to the parents gets a larger piece of the estate, the other the other children could argue, hey, wait a minute, we’re also equally their child and we should be entitled to exactly the same. They might feel that they should all be treated equally. There could be different arguments that can be made and brought up before the court. The one thing that that they can be certain of is that those arguments will be brought up. And from experience, arguments will cause delays and will increase the expenses for all the parties involved. There will be additional legal fees all the way around to respond to the different objections to the will and any kind of contest to the will.

That Brings Us to the Third Option That is Available.

This is what is known as the Revocable Trust. The Revocable Trust is a three-party agreement between the settlor who forms the trust and funds it. Initially, the trustee is the person who administers a trust and runs it and the beneficiary is the person who is entitled to receive the benefits of this trust. All three of these are handled by the initial settlor. When you create your revocable trust, you are all three of these people and you wear all three hats. This makes a Revocable Trust a very efficient means of handling your assets because there really is no taxable consequence to it. Once you’re incapacitated or once you pass away, your successor trustee will then take the trust and then simply distribute the assets pursuant to what the trust says. This makes it a lot easier because we don’t need to track down who would be appointed to be able to have authority to move these assets. Also, we can create a mechanism so that the trust is funded through either beneficiary designations or unrecorded documents. This will allow for all the assets to be clearly and securely in the trust. Once they’re in the trust, they can be distributed directly to the beneficiaries so your children can receive their inheritance without having to wait to go through the probate court process. We wouldn’t need to publish anything in the newspaper, and we wouldn’t need to have a public lawsuit or case such as in probate.

Now, does that mean there won’t be any lawsuits? Does that mean that nobody can ever sue? No, and if anybody ever tells you that any action you take will make it impossible to get sued, run, because the United States is the country of lawsuits, and you can sue for almost any reason. However, will they be successful? It is very unlikely that that they would be successful in a lawsuit against a trust or to try to declare a trust invalid. Texas courts have always strongly upheld trusts. There are going to be situations where there are some nefarious actions that could cause a trust to be declared invalid. Perhaps the person did not clearly have capacity to enter into this trust or if the trustee was doing any kind of mishandling of the trust assets. Those are also causes of action that could affect the trust and the distributions of the trust. Now, notwithstanding those issues, it is a lot more efficient to have things in in the trust. There won’t be an opportunity for there to already be a case open in which a lawyer can simply start nit-picking at the case. They would need to file a brand-new cause of action to challenge the trust. So, at the end of the day, within a short period of time, after the death of the last survivor, the successor trustee can distribute out the assets of the estate to the beneficiaries and the beneficiaries can start enjoying their assets. They won’t have to be held up through court processes.

For me, the trust is really one of the best and most efficient ways to handle your estate plan. If you have any questions, I would like to send you a copy of my book, The Texan’s Guide of the Probate Process.

Just contact my office and my team would be happy to send you a copy. Until next time!