Even if you have just a few assets, it is a very good idea to have a will in place. There are instances where even though you may have very few assets, a personal injury award may arise as a result of your death, such as from an automobile accident or medical malpractice. In instances where there may be a personal injury award, a will can simplify the probate process and make the probate proceeding less expensive than if you die without a will. A will can be drafted with terms and conditions that direct how your assets will be distributed after your demise.
For example, a provision can be drafted into your will that if a beneficiary is young, commonly under age 25, or mentally incompetent, that person’s share can be held in trust and used to provide for the needs of that beneficiary. For a beneficiary under age 25, the remaining assets in the trust will be distributed outright to that person at age 25. You can also have a special needs trust provision drafted into your will to allow the beneficiary to retain any governmental benefits that they receive – the beneficiary will not have their benefits denied due to their inheritance.
MARRIED WITH STEPCHILDREN
If you are in a “blended” marriage with stepchildren, it is extremely important that you and your spouse have wills in place if you want the other spouse to use and/or own all of your assets after your demise. Under Texas law, if your spouse dies without a will and there are stepchildren, 2/3rds of that spouse’s separate property real estate and and 2/3rds of all of that spouse’s other property will be distributed to the deceased spouse’s children.
The surviving spouse will have a life estate in 1/3 of the deceased spouse’s separate property real estate, and the deceased spouse’s children will take all of the separate property real estate after the surviving spouse dies. The community property of the deceased spouse will be distributed to the deceased spouse’s children. I have personally seen instances where a husband and wife were married for 50 years and a child from a prior marriage has taken the deceased spouse’s property, subject to the preceding terms.
NON PROBATE ASSETS
There are some assets that do not have to go through probate. Assets such as bank accounts that are “payable on death” do not have to go through probate if you designate someone to receive those assets. IRAs, retirement plans, and life insurance can also avoid probate if these assets are made payable to someone. One common mistake that people make is to designate a beneficiary of an IRA or life insurance policy, with the thought that the beneficiary will split the proceeds with other loved ones, such as their siblings. A beneficiary receiving assets via a beneficiary designation is under no legal obligation to share those assets with anyone – you have made a bequest to that person only.
Additionally, if that beneficiary shares those assets with other loved ones, the beneficiary will be deemed to have made a gift for gift tax purposes to those other loved ones. For IRAs and other tax deferred investments, the persons who initially received the assets will have to pay any income taxes that come due. A disadvantage to using beneficiary designations is that the assets may go outright to someone who cannot responsibly manage their assets. One pitfall can be leaving assets to a minor via a beneficiary designation. When assets are left to a minor via a beneficiary designation, some financial institutions will insist that a legal guardian be appointed to receive those assets – even if a parent of that minor beneficiary is alive and available to take custody of those assets. If you are going to leave assets to a minor, the best course is to have those assets made payable to a trust set up for that beneficiary during your life.
WILLS DO NOT EXPIRE
I have probated wills that were signed by the client in the 1950’s. However, you may want to have a new will drafted from time to time if circumstances change in your life. For example, you may want to change executors, beneficiaries, or have your will contain trusts that will lower or eliminate estate taxes.
NEED FOR PROBATE
One common misconception after someone dies is that the deceased person’s will does not have to go through probate because the will states who is to receive the property and who is appointed as the executor, and “I will just take the will to the bank, financial planner, and real estate agent, and I will get all of the property.” Probate is the legal process to prove that the will is, in fact, the last will of the person, and that the will is valid under Texas law.
Under Texas law, a judge may not allow a will in for probate if an application to probate is not made within 4 years of the date of death of the person making the will, unless “good cause” is shown for the delay. If someone who is to receive assets under the terms of the will “sits on their rights” and does not have the will go through probate, that beneficiary may lose their inheritance. The issue as to whether a probate proceeding should be undertaken can be rather complex, and I will be happy to consult with you concerning that issue.
By Bill Wollard
Also see Dallas Trusts Attorney for information about trusts.