IRA - 401K - Life Insurance and Probate in Texas

A common question to all Texas probate attorneys is, “What Letters of Testamentary do I need for my parent’s life insurance policies?” In Texas, a will controls the distribution of all assets in the probated estate. Certain assets are classified as non–probate assets and no Court intervention is required. The following are the most commonly used non–probate assets:

1. 1. IRA’s
   2. 401K’s
   3. Life Insurance;
   4. Pension Plans; and
   5. Any assets placed in a separate trust.

These assets are not usually distributed by a will because the assets are contractual and pass free of probate. Individuals may freely designate any beneficiary they wish to receive these assets and when that individual dies, the money will be transferred directly to such beneficiary, if an individual designates his or her estate as the beneficiary the money passes through probate as dictated by the will.

Most life insurance policies and 401K’s will designate an individual’s estate as the third or fourth fee of probate. This is usually the default designation, which will be triggered if all the other residual beneficiaries die prior to the individual. If this happens, then the estate of the insured must be probated. Once the estate is probated, an executor is appointment, and the Court will issue Letters of Testamentary that the Life Insurance Company can use to support payment to the estate.

Even with non-probate assets, a will may be needed.  Distribution will likely be more expensive and require multiple hearings. It is always the best practice to have a will for all estate assets, probate assets and non-probate assets.

It is important to constantly monitor who is appointed as beneficiary on your 401K and Life Insurance proceeds. If a Life Insurance Company or Employer is not informed of a divorce, then the former spouse may claim all the proceeds if the spouse is still listed as a beneficiary. The Life Insurance company or Employer will be protected from liability unless (1) the company or insurer received written notice that the beneficiary designation was invalid, and (2) the company or insurer failed to interplead the proceeds into the Court Registry.

Preparation and execution of a proper will is essential for your family and as back up for any non-probate assets such as life insurance, 401K’s, and pensions. Call the Dallas Texas probate attorneys at the Nacol Law Firm  if you are having difficulty receiving payment from any of the above-mentioned non-probate assets since chances are the difficulties can be cured through the probate.