This series has focused on ways Texans can avoid probate proceedings through the use of non-probate transfers. We now shift gears and look at the opposite side of the coin—the ways to challenge a non-probate transfer.

Texas Community Property Claims Can Disrupt Non-probate Transfers

Probate Law BookTexas is a community property state. By default, any income earned during marriage and property purchased with that income is community property. When a marriage is dissolved due to the death of one spouse, all community property assets are converted from joint ownership to 50/50 ownership between the surviving spouse and the deceased spouse’s estate. This conversion may seriously disrupt the deceased spouse’s plan for non-probate transfers. For example, a deceased spouse may have placed money earned during marriage into a POD account with the deceased spouse’s brother as beneficiary. Under community property rules, the brother may only inherit half of that account. The bank holding the account, however, may not realize that the accountholder was married and distribute the entire account to the brother. In this example, the surviving spouse would have a claim against the brother for recovery of community property.

Non-probate Transfers May Be Invalid Due to Lack of Capacity and Undue Influence

Our previous series on inheritance disputes discussed two common ways to invalidate a will—lack of testamentary capacity and undue influence. Similar claims may also invalidate attempted non-probate transfers.

Undue influence invalidates non-probate transfers in a similar fashion to wills. In other words, a non-probate transfer is invalid if someone influenced the deceased person, overpowered their mind and intentions, and caused them to sign something that they never would have otherwise signed. The “something” here, of course, is the non-probate transfer document. This applies to a signed beneficiary designation form, a transfer on death deed, a trust agreement, or whatever other document the deceased person used to set up the non-probate transfer.

Lack of capacity claims differ slightly when the challenged document is not a will. As addressed by our previous post, a person who signs a will must meet several different requirements to prove they have testamentary capacity. A person signing (for example) a POD beneficiary designation must have contractual capacity, which has fewer requirements to meet. It requires that the person executing the transfer document appreciate the effect of what they are doing and understand the nature and consequences of their acts and the business they were transacting. In practice, the same conditions that may lead to lack of testamentary capacity may also lead to lack of contractual capacity: Alzheimer’s disease and other dementias; use of prescribed narcotics and other medications with mental side effects; use of illegal drugs and alcohol; traumatic brain injuries; strokes and other vascular events; intellectual disabilities; and schizophrenia and other severe mental disorders.

Texas Residents Cannot Make Fraudulent Non-probate Transfers to Avoid Creditors

Imagine that you loaned your brother $100,000. Afterward, you have a falling out with your brother. He doesn’t pay you back one penny. You ask for repayment, but he has already squandered most of his estate, and the only thing he owns with any value is a car worth $100,000. Right before he dies, he puts the car into a trust that provides his friend gets the car upon his passing. You may have a claim for fraudulent transfer against your brother and possibly his friend. This claim can unravel the non-probate distribution that your brother attempted to make.

Basically, the claim of fraudulent transfer is available to Texans who are owed money, and the debtor tries to avoid paying the debt by sending money or property elsewhere. This claim can be a powerful tool for creditors. That said, please contact an attorney immediately if you believe you may have a claim for fraudulent transfer. Fraudulent transfer claims have strict legal requirements, and expedient timing is almost always a concern.

Our Dallas, Texas probate lawyers are experienced in contesting beneficiary designations, trusts, and other non-probate transfers. If you need assistance with challenging or defending a non-probate transfer, please contact us. Our attorneys are ready to assist clients in Dallas, Plano, Frisco, McKinney, Denton, Fort Worth, Garland, Irving, Austin, Houston, San Antonio, Nacogdoches, Lufkin, and Center.

In our next post, we will address the different traps that can arise when attempting a non-probate transfer. These traps can invalidate a non-probate transfer or divert it to an unintended recipient, ruining the plans of the transferor and the expectations of the recipient.