How to Effectively Plan for the Future – A Probate Discussion

How soon is too soon to start planning for the future? Never! When it comes to making future plans and arrangements, most people seem to forget about potential probate scenarios that may arise. Although, your retirement account might have the potential to bypass probate, it’s important to understand how this process could affect your self-directed retirement plan.

Attorney, Emily Bohls, joins me in this article to help define and explain some of the basic Texas probate laws, which can be difficult to navigate for the common investor. 

Sarah: Thank you for joining me today. Can you give me a bit of your background? Tell us who you are, what you do, etc.

Emily: I am an attorney, and I've been practicing for 14 years now. I went to law school in Houston - South Texas College of Law. My first seven years I was actually working for South Texas College of Law as a staff attorney at their legal aid clinic, primarily doing family law and probate. The model of the clinic was evolving, and I eventually became the manager of the clinic and an adjunct professor. In 2013, I decided that it was now or never to start my own practice, and that is what I’ve been focused on since then.

Sarah: So, that’s what you did next?

Emily: I remained an adjunct, teaching the probate clinic. It was a practical course where the students got actual cases, and they were legal aid cases. I think I gave that up in about 2018, because I needed to concentrate fully on my practice. Now, I've been focusing on my practice and growing that. I'm primarily a probate practice. I also do guardianships, which is kind of under that umbrella. I'm working on merging/forming with another firm that offers family law, but that's probably six months away from coming to fruition.

Sarah: You wear all the hats! Jack of all trades! What made you want to get in to this type of career? I feel like most people aren't thinking, “let's do probate”, so what was it that interested you?

Emily: I always thought it was interesting. I've experienced death in my family, and we had to go through these processes. Some experiences were good, some were bad. When I was working at the legal clinic, since it was one of the things that we did, I gravitated towards it. I find it so fascinating because you have to know something about everything, since it really depends on what people die with. In some ways, it’s formulaic and very code driven. I appreciate how well organized the area of law is, especially in Harris County. The courts are great; they have a judge, associate judge, and a staff attorney that make sure everything's perfect all the time.

Sarah: Having a good system always makes things a little bit easier. If you’re already having to deal with something that's complicated, you don't want to have a complicated system, as well!  I’ll jump right into my first question. For those here that are familiar with probate but are reading to get a better understanding, can you define probate for us and why it's important to understand in relation to Self-Directed IRAs?

Emily: Probate is the formal process of getting assets out of a deceased person’s name and into that of his/her heirs or beneficiaries’ names. So, as it relates to Self-Directed IRAs, if a deceased person had any asset that listed a designated a beneficiary, then the formal probate process is not necessary and the beneficiary can deal directly with the asset holder. Usually, I’m talking about financial assets, but you can have a piece of property that you've acquired in your SDIRA but that account has a beneficiary. If your loved one dies and leaves you as the beneficiary, then you would contact Quest and ask them information and what you need in order to change this account over into your name.

Sarah: How involved is the custodian when somebody passes away? 

Emily: The custodian is mostly passive, waiting for notification and then receiving the notification. They're not going to find it by looking through the death records or from the obituaries. They're going to need to be notified by the beneficiary, and the beneficiary needs to contact that institution. Whether it's a custodian of a Self-Directed IRA, if it's an insurance company, if it's a bank, an investment firm - all of those are different entities and the beneficiary needs to reach out to them. If you don't know you're a beneficiary, that's where it gets kind of tricky. Nowadays, no one really has paper statements anymore. In the past, you could rely on looking through the loved ones’ mail, but now you have to look through their computer, passwords, and usernames.

Sarah: Oh man, I never thought about that. 

Emily: Yes, so you can see how tricky that can get. And there's no harm in digging around!  But, if you contacted Quest because a loved one died and you're not the beneficiary, Quest is not going to tell you any of the asset holder’s information if you're not the beneficiary. 

Sarah:  Thanks for answering that. It's so important that clients understand our role as the self-directed IRA custodian.  

Emily: If you're really lost and have no direction, then it's possible to open probate and to get an executor/administrator with the authority to act on behalf of the estate and perform the necessary inquiries. Now, if I was an executor/administrator and I inquired, I have authorization. I could potentially find out who the beneficiary was or get them going. But, that would be a lot of work. For planning purposes, you should write your assets and accounts down or print out a statement of account and have a folder to keep everything in one place. Even if you have old stuff in your folder, like a closed account, there's still no harm. Try to have all of your accounts in one place, so that [your beneficiary] knows who to contact.

Sarah: It definitely sounds like it could get complicated. Especially if you didn’t know you were a beneficiary! Is it possible to avoid this probate process all together?

Emily: It is possible, but it requires planning. I think you need to sit down and write out everything you own as an asset. And don't say cash! If you have life insurance policies, financial accounts, self-directed IRAs, IRAs, homes, boats, whatever - list it all out! Then go through your goals. If your goal is to avoid probate, then you need to make sure each asset is planned in such a way that that’s what would happen. The first step is listing out everything, so that you know what to do to plan for each asset.

Sarah: Let’s say a family has done poor planning, and they do have to go through the probate process. Can you explain that process for us? Is it long? Is it complicated? Does it differ for everybody? 

Emily: It can be long and difficult, but sometimes it can be quick and straightforward. It really depends on the types of assets the decedent has and how well the heirs/beneficiaries/personal representative get along. An attorney will advise your executor/administrator or interested party as to the proper probate process for your estate, but, generally speaking, an application is filed, all interested parties are notified, a hearing is held and the executor/administrator gets court authority to officially commence his/her role as fiduciary. The executor/administrator then begins collecting assets, paying debts, taxes, etc. After everything is accounted for, debts/taxes paid, then the executor/administrator will distribute the assets according to the will or the laws of descent or distribution.

Sarah: Okay. Yes. It does sound like a lot of moving parts and a lot of steps there. It’s definitely important to have somebody who knows what they're doing.

Emily: Sometimes it’s not even because you have a complicated estate. It just depends on how long it is. And there are always things that can get jammed up.

Sarah: Speaking of those jams and things that could get complicated. How does the probate process differ from state to state? Can this hold things up? How do different laws in each state factor into this?

Emily: They do differ and every state will have different requirements. It could also require ancillary probate. When I say ancillary probate, it means you're going to have to do something in that other state to get that asset turned over. It’s the process of transferring property that is located in a state.  That's why a lot of people who are residents will put their non-Texas assets in a trust. 

Sarah: Because you mentioned an executor, let’s touch on that. Who should I appoint as my executor?

Emily: I would say first and foremost, it should be someone that is trustworthy, somewhat business savvy, resourceful, diligent, and dedicated, because it's a job. It's a job, no matter how simple it is. For example, everyone's going to die with some bills. You're going to have a Verizon account or a Comcast account, and you’ve got to shut all that down! It may be just trying to get it transferred over to your name, but you know what it's like to even get on the phone with someone if you have an issue. It may take two hours. And that’s just the preliminary phone call! First, you're going to call to find out what they need, then there's a follow-up where you have to send them a death certificate or whatever. Then you maybe pay the final bill, and finally, actually follow up to make sure they did it. You can see, every little thing is going to take time, and it's a lot of work. So, you could appoint your spouse or child, just as long as they have those attributes.  At the very minimum, your executor needs to have the ability to understand that this is going to be a process and that they could hire a good attorney to guide them through it. 

Sarah: What would happen if your loved one died without a will? What happens then?

Emily: This is called dying intestate. If there is no will, someone needs to step forward to choose a process of getting the loved one’s assets out of their name and into the name(s) of the heir(s). The method of doing this will depend on the assets your loved one leaves behind. The loved one’s heirs are defined under the laws of descent and distribution.

Sarah: What actually constitutes a valid will?

Emily: With this, it’s such a specific question, and you can't generalize. It’s the law. It’s as follows:

• Testator was at least 18 years old (or has been married or a member of the armed forces) at the time of execution
• In writing
• Signed by the testator or another person on the testator’s behalf in the testator’s presence and at the testator’s direction
• Attested by 2 or more credible witnesses who are at least 14 years old and who subscribe their names to the will in their own handwriting in the testator’s presence
• Credible cannot be a beneficiary
• For holographic will: wholly in the testator’s handwriting

Sarah: And does that have to be official? Typed up or notarized?

Emily: No! It could be on a napkin. As long as it's all in your handwriting. Just have something that works in a pinch. It could be better than having nothing at all.

Sarah: Thank you for clarifying! One of my last questions relates to potential complications with large families. If somebody is in a mixed family, how can somebody protect themselves in those types of situations, i.e. stepchildren, new spouses, etc?

Emily: First, make sure you know what you have by writing it down and when you acquired it (before or after marriage). Familiarize yourself with the laws of intestacy and where real property vs. separate property goes if you die without a will. Once you do that, picture how you would want your estate to pass once you die. Make sure you have a will. A lot of times people choose to utilize trusts to take care of a surviving spouse while they are alive, but leave the trust assets to their children once their spouse dies. There can be unintended consequences of not doing anything. 

Sarah: I think there's a lot about the trusts that people just like. Plus, it's a good shelter for things. 

Emily: I think so, too. 

Sarah: Well, Emily, I really appreciate you taking the time to dive deep and answer all these questions for me! Before we wrap up, what's one piece of advice that you would give somebody who is planning and preparing for the future?

Emily: I definitely think they need to write lists for what they have. That is a preliminary for figuring it out on your own. If you're going to go see an attorney, a lot of times they'll send out a preliminary questionnaire and that's exactly what the goal of that questionnaire is – to see what you have. Also know, you are never responsible for a deceased person's debts. Never. If you're going to pay any expenses of administration or debts of a loved one, just make sure you keep all the receipts and then you can get reimbursed. 

Sarah: That’s really helpful to know! I’m glad you threw that in! I think I’ve asked all of my questions, and I’ve loved getting to hear your answers and learn a bit more about the probate process. Thank you, again. I’ll include your contact information at the bottom for those that would like to learn more!

When preparing for the future, being proactive ahead of time is the best thing you can do. By following these practices, you can do everything you need in order to set yourself up later in life. To learn more about the probate process in Texas, you can contact Emily Bohls at emily@bohlslaw.com.

If you have questions regarding your benefices or any other Self-Directed account need, we would love to help. You can speak to an IRA Specialist by scheduling a free consultation HERE.