How to Keep a House Out of Probate Court

A primary residence is often a family’s most valuable asset. A couple living in their house for many years may well have paid off their mortgage and built up tremendous equity in the property. And this equity can benefit a surviving spouse or children in the future—especially if the property can be passed to them easily and affordably.

What Happens to a House During Probate?

However, failing to plan ahead can tie up your real estate in probate, which may mean long and costly transfer processes. The main issues that come up, then, are the various delays and expenses that impact beneficiaries. 

Probate’s Impact on a Surviving Spouse

Probate can hamper a surviving spouse’s ability to:

• refinance the home.
• take out a reverse mortgage on a home.
• sell a home in order to offset the costs of long-term care. 

Probate’s Impact on Children of The Deceased

Difficulties executing the will

Meanwhile, children responsible for executing a will may have to endure a significant time lapse between when the house goes into probate and when they can sell it to distribute the proceeds. 

Delays in receiving proceeds

If children are the inheritors of the property, this delay in receiving the monetary proceeds of a home’s sale may impact their own lives. The home may even depreciate in value while in probate.

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How to Transfer a House or Property Without the Costs of Probate

Make sure you understand how to avoid the frustrations of probate. In this section, we will show how to keep clear of this situation with estate planning—and we encourage all families to take the time to properly plan the future of their most valuable asset. But even if you’ve missed that window, it is possible to make probating a house faster, easier, and less expensive—and we will show you how.

First, use estate planning to prevent probate on a house

As you consider the details of your estate plan, there are a few important steps you can take to sidestep the probate process on a home or property. 

Place the House in a Trust 

Placing a home into a trust allows you (the grantor) to give power over the property to a third-party trustee. This trustee manages the property for the beneficiaries for as long as directed. In the case of a living trust, the you are not just the grantor, but a trustee as well. A living trust, then, allows you control of the property for as long as you are alive, at which time another named trustee steps in. A properly drafted trust will also allow you to maintain various property tax exemptions.

Create a Transfer-on-Death Deed or Lady Bird Deed

In Texas, state laws recognize two types of deeds that can help you avoid probate court: transfer-on-death deeds and lady bird deeds. These property deeds allow you to occupy and control a property while alive and pass this property to designated beneficiaries upon death. In this way they are similar, but there are a few notable differences.

Transfer-on-Death Deed (TODD)

A TODD is a newer, statue-based deed option that transfers property in a manner similar to the way payable-on-death or beneficiary designations works to transfer assets from bank accounts and other financial holdings accounts. TODDs are accepted for property located in Texas and allow you to name contingent and alternate beneficiaries on the deed so that you can plan for a variety of circumstances.

Lady Bird Deed

A lady bird deed is only recognized by the states of Texas, Florida, Michigan, Vermont, and West Virginia. However, it allows more flexibility in some ways than a TODD: properties can be split up unevenly among heirs or beneficiaries, unlike with a TODD. A lady bird deed also bypasses any claims by creditors, whereas a TODD allows creditors to make claims against the property for up to two years.  However, a Ladybird deed does not have quite the same flexibility as a TODD when naming successive or alternate beneficiaries

Ask Us Which Option Is Right for Your Estate

Creating a living trust is a good option for avoiding probate on large or complicated properties, but not always on small estates. Plus, trusts are complicated and can themselves generate expenses. Holman Law will be able to help you decide whether a living trust, a TODD deed, or a lady bird deed will work best for you and your family members.

Even after a loved one’s death, there are ways to make the probate process easier

If the death of a spouse or parent has already occured, and there were no documents in place ensuring a swift transfer of property ownership, you still have options. Here are the top three things you can do when a house is set to go into probate.

If There Is a Will…

…File a Muniment of Title With a Texas Probate Court 

In Texas, one may file a muniment of title on a house. Through this process, a will (or other written document) may be presented as evidence to the court that you are the beneficiary of a given property. If accepted, the title of the house or property will bypass probate administration and can then be transferred quickly to the beneficiary named in the will. This option is unique to Texas.

If There Is No Will…

…Create an Affidavit of Heirship 

An Affidavit of Heirship is a document that states your relationship to the deceased in order to prove your right to inherit a property based on Texas heirship laws. The form, which may be downloaded here, must be signed by a notary public and by two disinterested witnesses who knew the decedent before it is filed with the real property records office.

Note: An affidavit of heirship is also an option if a will has not been properly probated in four years’ time.

…Agree to an Independent Administration

If a spouse or parent dies intestate (that is, without a will), the estate may be ordered to undergo a dependent administration, during which the probate court must review the estate’s activities every step of the way. This can waste time and money (learn more about dependent vs. independent administration on our web page all about probate). This extra oversight, however, can be avoided if all parties considered heirs under Texas law can agree to an independent administration. 

Avoid Three Mistakes Regarding Home Inheritance

1. Never list a joint owner on a house you want another party to inherit  

A joint owner with rights of survivorship (ROS) will inherit an entire property when his or her co-owner passes away. This can completely ruin an estate plan if the joint owner is not the intended beneficiary. If you are concerned about maintaining the property yourself, name a trusted individual as your financial power of attorney to assist you. It will save effort, cost, and time if the house is given to those you intended to received it.

2. Consider big tax consequences if you transfer or gift a house during your lifetime

If you do so, your beneficiary will not benefit from the “stepped-up in basis” of the asset upon your death. For example, imagine you purchased a house 40 years ago for $50,000, and it is worth $400,000 today. If you pass it to a beneficiary as an inheritance, the house will have a $400,000 tax basis. If it appreciates in value over the next few years to $410,000 and your beneficiary sells at that time, he or she will owe capital gains taxes on only the $10,000 value increase. 

However if you gift the house to this individual during your lifetime instead, the home’s tax basis will remain at $50,000. Selling it a few years later for $410,000, your surviving spouse or child will need to pay a capital gains tax on the $360,000 value increase. Transferring a property after death allows you to pass tax-related fiduciary benefits to your loved ones.

3. Do not ignore the impacts of real estate on Medicaid

Medicaid excludes your primary residence when calculating your Medicaid eligibility. However, Medicaid can seek to recover against a Medicaid recipient’s probate estate. This could cause a house to be sought by Medicaid. A good estate planner will recommend strategies to ensure Medicaid eligibility while preventing Medicaid recovery against the house.