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Q. Which assets are handled outside of probate?
A. There are a number of different kinds of properties that may pass outside the provisions of your will.
The list includes life insurance, retirement plans, individual retirement accounts, and annuities. When you purchased or set up these types of assets and accounts, you were probably asked to fill out a form listing the beneficiaries who will receive payments upon your death. These investments will pass to the named beneficiaries regardless of whether you have a will. However, if you don’t have a beneficiary named, if the beneficiary named is your “estate,” or if all the beneficiaries are dead, then those investments will be paid to your estate and pass under your will.
Certain bank and brokerage accounts will also pass outside your will. For instance, payable-on-death accounts (sometimes called “POD” accounts) will be distributed to the named beneficiary. Additionally, accounts set up by one or more persons as joint tenants with rights of survivorship will pass to the surviving account holder or holders.
Some banks allow you to set up what they call trust accounts even though there is no written trust agreement. These types of accounts will pass to a named beneficiary without going through probate as well.
Not all joint accounts pass to the survivor. When joint accounts are set up as tenants in common, the portion of the account that was owned by the decedent passes under his or her will.
Many people have decided to create revocable or irrevocable trusts as part of their estate plan. Virtually all such trusts are designed to pass directly to persons or other trusts named in the document rather than under a last will and testament.
You may find that most of your estate consists of non-probate property. Therefore, it is extremely important to coordinate the beneficiaries of all these properties to make certain your assets will be distributed as you want when you pass away.
Q. Must a will be probated if the estate is less than $1,500,000? Are insurance proceeds included in that total?
A. There is no requirement that you probate a will no matter how much the estate is worth. Wills need to be probated only if property is not transferred by some other means.
You are confusing probate with the filing of a federal estate tax return. Regardless of how the property is transferred at death, if an estate is valued at $1,500,000 or more, then a federal estate tax return must be filed. And yes, you must include proceeds of life insurance owned by the decedent in computing the $1,500,000. (This $1,500,000 amount will be increasing in stages to $3,500,000 by 2009).
The probate process is primarily a method of changing title from the deceased to the person or persons who inherit the property. Some assets require probate, such as real estate and bank accounts held only in the name of the deceased, while others do not, such as life insurance policies or retirement plans payable directly to named beneficiaries.
Q. I’m named as the executrix of my father’s will. What do I do when he dies?
A. There are some steps you must take and other steps you may need to take. Exactly what you must do depends on the types of assets your father owns and the size of his estate.
Find the Will. Locating an original will can sometimes be difficult. Many people keep their wills in a safe deposit box, while others keep them at home or someplace else. It may be a good idea to talk to your father and find out where his is kept. If it’s at the bank, be sure you’re authorized to enter the box, otherwise it may be harder to get the will out.
Hire a Lawyer. Most of the time, it’s necessary to hire a lawyer. The judges in some smaller counties allow people to represent themselves in probate matters, but you still may have trouble preparing all the necessary forms that are required. It’s safe to say, therefore, that lawyers must be hired in the vast majority of cases.
Application For Probate. The first document your lawyer will prepare is an application for probate. The original will is filed at the court house along with the application and a filing fee ($158.00 in Harris County). The application is usually several pages long, and it describes certain facts about your father, his will, and his property.
The Probate Hearing. After a ten day mandatory waiting period, a probate hearing will be held. Your lawyer will schedule this hearing for you. Under ideal circumstances, you can get your hearing two weeks after the application is filed. However, it often takes three weeks or longer to schedule a hearing because of the backlog in the courts and other scheduling conflicts. In Harris County, the hearings are held in a crowded courtroom, and dozens of cases are heard one after another. In surrounding counties, the hearing is often less formal, with the judge often shaking your hand at the door to his or her office, and then showing you to a chair right there in the office.
Testimony and Order. At the hearing, your lawyer will ask you a number of routine questions. Most of the time, the judge will then sign an order admitting the will to probate. The order is a document which your lawyer will have prepared and brought to the hearing. You will also be asked to sign the written document containing your testimony.
The Oath. After the hearing, you will need to sign an oath stating that you will fulfill your duties as independent executrix of your father’s estate. The word “independent” means that you will not need to ask the court for permission to sell estate assets or to conduct any other duties as executrix.
Letters Testamentary. After your oath is filed, you will be able to order “letters testamentary” from the county clerk. The letters will authorize you to close bank accounts and collect and claim other estate assets. You can order as many letters as you think you will need.
Notices. Within 30 days of receiving letters testamentary, you must publish a “notice to creditors” in a local newspaper. This notice lets creditors of your father’s estate know where they may file claims to recover money they are owed. It must be published even if your father has no creditors. Certified letters must also be sent to all of the charities named in your father’s Will. Proof that you performed these tasks must be filed with the court as well.
File the Inventory. Within 90 days of qualifying as executrix, you must file an Inventory with the court. The Inventory lists all the assets which pass under your father’s will. Importantly, the inventory doesn’t always list everything a person owns, since you don’t have to list assets that pass directly to named beneficiaries. For instance, life insurance, retirement plans, some joint accounts, and many other properties are designed to pass directly to a named beneficiary. After the Inventory is filed, the judge will sign an order approving the Inventory.
Tax Returns. Estates valued at over $1,000,000 must file a federal estate tax return and a Texas inheritance tax return within nine months of death. Taxes will be owed if the net estate exceeds that amount. The tax rates on assets over $1,000,000 start at 41% and go as high as 50%. You may also be required to file income tax returns for the estate. Often, the lawyer handling the estate will also prepare the estate and inheritance tax returns. However, few lawyers prepare income tax returns.
In answering your question, I have assumed your father’s will was executed, witnessed and notarized properly, and that it contains all the right language. Not all probate proceedings are as easy as this answer indicates. For instance, you may find yourself in the middle of a will contest, or your father’s will may have been written in another state, thus complicating the probate.
One more thing: Not all wills need to be probated. You may find that everything your father owns passes directly or automatically to named beneficiaries. If the only assets left are his household goods and other personal items, there is no need to hire a lawyer and go through probate.
Q. For years, I’ve heard that probating a will in Texas is simple and can be done by a lay person, but in response to a recent question on the subject, you said the first step is to hire a lawyer. To clarify, can a lay person probate a simple will in Texas without the need to hire a lawyer?
A. The answer to your question depends on where you live.
In densely populated counties like Harris County, the courts are extremely busy, and they have adopted policies of not allowing people to probate wills without a lawyer. But in smaller counties, the judges are perfectly willing to let people probate wills on their own.
The courts in the larger counties simply don’t have the time to explain the probate process to all the people who call asking for help. More often than not, when people try to conduct a probate proceeding without a lawyer, forms are prepared incorrectly or not at all, and the required court hearings are slowed to a crawl.
Courts justify this decision in a number of ways. Some courts say the “client” in a probate matter is the estate of the person who died and not you, the Executor. You may be allowed to represent yourself in a legal matter, but you cannot represent another party–which is the estate in a probate matter–unless you are a licensed attorney.
Other courts say that because many probate proceedings are not straightforward or because witnesses may need to be deposed or cross-examined, a lawyer should be present. Judges are sometimes unwilling to let non-lawyers handle the representation and conduct the court hearing.
Q. I was told that a Muniment of Title could be used to settle an account with a brokerage house. I tried that approach with my wife’s estate, of which I am the Executor. The brokerage firm would not accept the Muniment of Title because I was not appointed by the court to be the Executor, and they wouldn’t look at the will at all, where my role is laid out. What did I do wrong?
A. It’s hard to say what was done wrong. Wills are probated as muniments of title–which is a simplified way of going through probate–all the time, and they usually work just fine.
Let’s review the steps you should have taken in probating your wife’s will as a Muniment of Title. Perhaps you’ll discover what went wrong as you read through the process.
You should have started by filing the original will along with an application for probate with the county clerk’s office. The application should have stated (among other things) that there is no necessity for administering your wife’s estate and that there are no debts of the estate other than those secured by real estate. (You can probate a will as a Muniment of Title if there is a mortgage on your home.)
After a mandatory 10 day waiting period, you should have attended a hearing where you or another person would have testified before the court about certain facts relating to the decedent. Most people hire lawyers to prepare the paperwork and handle the scheduling and conducting of the hearing. In fact, most courts don’t allow people to appear in court without a lawyer.
Assuming all went well at the hearing, the judge then would have signed an order prepared by your lawyer directing that the assets owned by your wife be distributed as provided in her will. It would have been advisable to add language to the order specifying the name of the brokerage firm, the account number, and the person or persons to whom the securities must be distributed. The order should have also contained a provision waiving the requirement that you report back to the court once the brokerage account has been distributed. Courts will routinely waive this requirement, but you must remember to ask for the waiver.
Once the probate hearing was over, you should have ordered a certified copy of the will and the signed order from the clerk’s office, and then forwarded those documents to the brokerage house. They may prefer for you to be the court-appointed executor of your wife’s estate, but when presented with a court order requiring them to disburse the account, they should do as directed.
According to Texas law, the order admitting the will to probate as a Muniment of Title is sufficient legal authority for banks, transfer agents, brokerage houses or other businesses holding assets of the estate to pay those assets to the person or persons named in the will.