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Pros- and Cons- of Estate Planning Techniques

Dear Mr. Premack: My wife and I have our only child listed as beneficiary or pay on death on all our CD’s, money market accounts, annuity, IRA accounts, broker accounts, etc. Our home is paid for with a value of around $100,000. We wonder how our daughter would obtain possession of the home should something happen to the both of us. Our total assets are around $850,000. We have simple Wills but not a living trust, and were told that since she is the beneficiary we do not need a living trust. Will she have any problems in probating the Will and what effect will probate have on our assets? – RM

You mention beneficiary designations, non-testamentary accounts and a living trust. These are all legal approaches to avoiding probate. For instance, when you designate a pay on death beneficiary on a Certificate of Deposit, the bank will pay the funds to that person upon receiving proof of your death.

However, you must be careful to use these tools properly. For instance, your bank may have allowed you to set up your money market account as “joint with right of survivorship” between you, your wife and your daughter. If so, when the first of you dies, the other two survivors own the money in the account. Your daughter, however, should not become owner of any of the funds until after both of you (her parents) have died.

With an account like that, the correct designation is “joint with right of survivorship” between you and your wife only, and then adding a “pay at second death” designation to your daughter. The problem is that banks are not concerned about the big picture of your estate planning. They offer limited options with account designations, and the bank employee who handles the agreement is certainly not going to ask about how the account designation might affect your estate tax situation, or whether it contradicts your Will.

Compound that with the fact that the deed to your house does not automatically contain any type of survivorship rights or beneficiary provisions. The house typically passes under the terms of your Will, and for those terms to be given legal effect, the Will must be admitted to probate when you die. Often with a married couple there must be two probates – one at the death of the first spouse, one at the death of the second spouse (which is when your daughter finally becomes owner of the house).

You might feel that is a “problem in probating the Will”, but it is really just a standard legal proceeding. Fortunately, if the Wills are written correctly they can undergo an abbreviated and unsupervised probate administration under Texas law.

You were told that because your daughter is the beneficiary, you do not need a living trust. A living trust would, if properly written and properly funded, help keep your assets out of probate court twice (when each spouse dies). You can also accomplish avoiding probate by adjusting title to the house with, for instance, a “community property survivorship agreement” or a life estate arrangement. Those options should be discussed with your certified lawyer before you make a decision on what planning tools to use.

You ask what effect probate would have on your assets. Probate is a process by which your obligations are fulfilled (debts and taxes are paid) and your assets are retitled in the manner you have instructed. The effect on your assets? If your Wills say that your daughter inherits when you both have died, probate is the process by which your instructions are implemented. Probate has no negative tax consequences; your final income taxes and your estate taxes are the same whether the Will is probated, whether the assets pass by non-testamentary designations or whether you have a living trust.

Paul Premack is a Certified Elder Law Attorney and a Five Star Wealth Manager (Texas Monthly Magazine 2009-2013) practicing estate planning and probate law in San Antonio.

Original Publication: San Antonio Express News, October 15, 2010


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