Property deed with penNonprobate transfers are becoming increasingly popular in Texas. When we use the term “nonprobate transfer,” we mean a transfer of money, land, or any other property made in anticipation of a person’s passing. These transfers can occur automatically upon death, or they can take place while the person is still alive. Regardless, assets subject to nonprobate transfers, by definition, aren’t a part of a deceased person’s estate and aren’t distributed under a will or heirship rules.

Usually, the purpose of nonprobate transfers is to avoid legal proceedings at probate court. Those proceedings can be expensive, time-consuming, and potentially contentious—not the best outcome for folks who just experienced the death of a loved one.

But what happens when the nonprobate transfer was improper? Perhaps a bad actor influenced the deceased person to give away their wealth. Maybe the deceased person owed you money and made nonprobate transfers to prevent you from seeking compensation from their estate. Or the deceased person may have lacked mental capacity due to dementia, a stroke, or the effects of medication, alcohol, or illegal drugs. Our last post provided an overview of challenges to nonprobate transfers in Texas. This post examines the types of nonprobate transfers that may be challenged.

Nonprobate Transfers of Bank and Investment Accounts Are Common in Texas

Beneficiary designations are among the most popular types of nonprobate asset transfers. These designations come in several forms. Texans designate payable on death beneficiaries for checking accounts. Similarly, they may designate transfer on death beneficiaries for their investment accounts. Both methods operate the same way, in that they avoid legal probate proceedings. Instead of going to court, the named beneficiary typically needs to go to the deceased person’s bank and provide a death certificate and their driver’s license or other ID. Different banks may use other procedures or require additional paperwork, but it will still be quicker, easier, and less expensive than claiming the deceased person’s assets through legal probate proceedings.

Texans can also make a nonprobate transfer by creating a joint tenant with right of survivorship bank account. This is one type of account that names two or more people as co-owners. When one of the account owners dies, ownership shifts to the remaining owners automatically. The surviving account owner should notify the bank using the same procedure as mentioned above. There are other types of accounts with multiple owners, however, that do not automatically transfer on death. To accomplish a nonprobate transfer, the account paperwork must use the magic words joint tenant with right of survivorship, sometimes abbreviated as JTWROS.

Texans Can Make Nonprobate Transfers of their Homestead, Land, Minerals, and Other Real Property

Nonprobate transfers of Texas real property are becoming more and more popular. Real property includes residential property like a homestead or rental house, unimproved land, and mineral rights. There are two primary ways to make this transfer.

Transfer on Death Deeds. In 2015, the Texas legislature created a new way to transfer property—the transfer on death deed. It allows a person to name a beneficiary who will receive their property automatically at death without needing a legal proceeding. The deed requires special language and a formalized execution process. The person making the transfer must then properly record the deed in the county deed records where the property is located. If done correctly, this can be a simple way to transfer an important asset.

Lady Bird Deeds. In Texas Lady Bird Deeds, also known as enhanced life estate deeds, are utilized to transfer real estate, as a nonprobate transfer. The property owner transfers legal title immediately to the transferee, but retains certain rights, generally to retain the right to use and profit from the property during their lifetime. This differs from transfer on death deeds, which transfer title upon death rather than immediately. The deed must be filed in the county deed records.

Joint Tenancy with Right of Survivorship Deeds. These deeds operate similarly to the JTWROS bank accounts discussed above. This type of deed allows for two or more people to exist as co-owners with equal property rights. Then, when one of the owners dies, the remaining owner or owners automatically receive the deceased person’s ownership interests in the property. As with the other deeds discussed above, they must include specialized language and strict execution requirements.

Texas Trusts Can Hold and Distribute Any Type of Property as a Nonprobate Transfer

Trusts offer Texans yet another method to accomplish a nonprobate transfer of property upon death. To make a trust, a property owner called a settlor can execute a trust agreement and transfer property of any type—including cash, real property, or tangible things like a car or a wine collection—into the custody of a trustee, who manages the trust. The trust agreement contains terms for distribution of that property to certain people at specified times. For example, the settlor can name herself as trustee, put an investment account into the trust, distribute interest and dividends to herself during her lifetime, and provide that the entire account is transferred to her children automatically upon her passing.

The methods discussed above are among the most popular ways to transfer property upon death while avoiding a legal probate proceeding. Please note, however, that these transfers may have significant tax consequences. The person making these transfers should speak with a specialized tax attorney and CPA before making any of these transfers. In our next post, we get into the spirit of this series—a pair of legal claims that can be used to challenge nonprobate transfers.

The attorneys at The Johnson Firm identify and challenge nonprobate transfers throughout Texas. Please call us today to assess whether you have a legal claim to challenge a nonprobate transfer. Our offices also serve Plano, Frisco, McKinney, Denton, Fort Worth, Garland, Irving, Austin, Houston, San Antonio, Nacogdoches, Lufkin, and Center.