What is a Survivorship Agreement?
A survivorship agreement (also known in Texas as a "survivorship agreement," "survivorship arrangement," or "arrangement for joint ownership") is an agreement between the owners of personal property regarding the disposition of that property at the death of one or more of the parties to the agreement. While these agreements may seem risky to some individuals, they are in fact critically important to estate planning and also to the creation of an ownership structure that can save the necessary time and money for a decedent’s heirs and beneficiaries when it is needed the most.
Common forms of survivorship agreements include, among others, joint tenancies with right of survivorship, tenancies by the entirety, community property with rights of survivorship, and joint wills.
A survivorship agreement is a key estate planning document that, over the long-term, can save the significant time and expense often required in probating a will. It is also useful under certain circumstances in property co-owned by married couples.
In the context of the creation of a joint tenancy with right of survivorship, a survivorship agreement can be helpful in creating such an ownership structure. However, there are important issues to consider.
First , if ownership of personal property is passed to the decedent’s survivors or heirs according to any survivorship agreement, and the total value of the property passing under all of the draconian rules of Texas intestacy equals or exceeds $60,000, the creation of the survivorship agreement without the legal counsel of an attorney may unnecessarily subject the decedent’s spouse to a "hit" for the surviving spouse’s community property interest, of which we will speak hereafter in our article "The Eriador Conundrum".
Second, survivorship agreements can create what is commonly known in the estate planning profession as a "ticking time bomb." This is because a joint tenant with right of survivorship (or, for that matter, a joint tenant without right of survivorship) can unilaterally convey 100% ownership of the property in question to a third party without the knowledge or consent of the other joint tenant(s), thus depriving the other joint tenant(s) of their interest in the property outright. Naturally, this can leave one spouse completely cut out of his or her fair share of the property after the death of the husband or wife. It is for this reason that a joint tenancy with right of survivorship should always be coupled with an inter-spousal gift deed.
Texas Documentation Requirements
The legal requirements for a valid survivorship agreement in Texas are set out in section 112.109 of the Texas Estates Code. This section requires a written agreement that is signed both by the executor of a will and the beneficiary who agrees to the alternative provision of survivorship in the will. Specifically, the section states: Sec. 112.109. SURVIVORSHIP AGREEMENTS. A successor in interest may agree with a fiduciary or beneficiary concerning the distribution of property subject to a will. A fiduciary shall execute the agreement and deliver a copy of the will and the agreement to other interested persons. Survivorship agreements are also discussed in Chapter 255 of the Texas Estates Code, dealing with Durable Powers of Attorney (DPOAs). DPOAs made after September 1, 2017 include Powers of Attorney that specifically authorize agents to enter into a survivor beneficiary agreement on behalf of the principal. This provision of the Estates Code is currently untested, and has not yet been interpreted in Court; however, many professionals believe this provision to be significant and understanding the existence of this provision will assist parties to understand how language adopted into DPOAs after September 1, 2017 would apply to survivorship provisions of Wills written prior to September 1st, which would have already been effective at the time they were written.
Advantages of a Survivorship Agreement
A Texas survivorship agreement allows partners to structure the distribution of property after the death of one or both partners. The partners use the number of years that each person is expected to live according to the actuarial life table and the property value on the date of the contract to allocate an ownership percentage to each partner. The co-owners then retain farmers Garrett’s extensive history and secure their rights with the Uniform Probate Code of the Texas Probate Code Chapter 452.
A survivorship agreement has many benefits. For instance, anyone who is concerned about whether their home will pass on to loved ones with minimal legal interference may find a partner who similarly wishes to ensure this to be a survivor. The parties define the terms of the agreement, which does not need approval by anyone else. The agreement is useful to prevent disputes over property among heirs and other co-owners. Some co-owners may find the ability to dispose of property through transfer without a will necessary.
Common Myths
Many people assume, or have been told, that they can avoid all probate and accumulate further tax benefits by simply executing a survivorship agreement. Simply put, this is just not true. Survivorship agreements are not "magic". Done properly, however, they may help, in some circumstances, make some of the processes easier. However, it is important to recognize the limitations of the survivorship agreement.
First, survivorship agreements cannot be used for real property in a single state. The Texas Probate Code merely permits as the creation of survivorship rights regarding "personal property". The Texas Probate Code does not define what "personal property" means. In 2004, the Texas Supreme Court, in the decision known as Sullivan v. Smith, determined that a survivorship agreement could not be created for real estate. Since the Probate Code does not expressly exclude such, many practitioners have begun using a survivorship agreement for real property because the Sullivan case refers repeatedly to the general characteristics of survivorship agreements . However, until the Probate Code is amended to expressly permit survivorship agreements for real property, two separate instruments are required: a deed to transfer the interest and a survivorship agreement.
Second, survivorship agreements have no effect on future creditors. Simply put, the joint owners of an asset take it free of creditors of the other joint owner at the time the second spouse passes away. Since the survivorship agreement only becomes effective when the second spouse dies, creditors still have a claim to the asset during the lifetime of the first spouse.
Third, survivorship agreements do not mean estate tax benefits. In creating a survivorship agreement, property passing to a surviving spouse (or any joint owner) does receive a basis adjustment to fair market value at the time of death of the survivor spouse. However, under the federal estate tax law, if your estate (as valued on your death) is less than $2 million, no estate tax is due. If your estate is over $2 million, then estate tax is due, regardless of whether or not your will contained a survivorship agreement.
How to Create a Survivorship Agreement
Establishing a Survivorship Agreement in Texas involves several important steps to ensure that the process is legally binding and effectively addresses the estate planning needs of the parties involved. The following are the general steps involved:
Drafting the Terms of the Agreement: The first step in establishing a Survivorship Agreement is to engage in a consultation with the parties who will own the assets transmuted via the agreement. This step will also involve consultation with a qualified estate planning attorney to draft the agreement. During this stage, the agreement will be structured to cover all eventualities best suited for the needs of the parties involved.
Execution of the Agreement: After the terms of the Survivorship Agreement have been established and both parties agree to the terms therein, the agreement must then be executed. It is important to note that for any estate planning document to be effective, a qualified estate planning attorney, not just anyone, must be used during the executory phase of the transaction.
Retention of Documentation: Upon execution of the Survivorship Agreement, all related documents must be retained by the parties and their respective financial institutions. This ensures that the bank account is held in joint and survivorship form and/or serves as community property with right of survivorship. However, it is important to note that the default form of ownership for any bank asset in Texas is either separate property ownership, or joint ownership without survivorship rights.
Revisions to Account Holdings: At this point in the process, all titled assets will be listed as such:
Estate Planning Update: Following the completion of all changes related to the agreement, the drafting party, or parties, should revisit the Estate Planning documents to reflect the provisions within the Survivorship Agreement.
Survivorship Agreement Q and A
Q. What is a survivorship agreement?
A. It is a written contract between two or more individuals wherein they agree that if one of them dies, his or her ownership interest in certain property will automatically pass to the other(s) by operation of law. In Texas, these agreements can provide that the joint owners’ interest passes to the surviving owners, or it can pass to the representatives of the deceased co-owner’s estate.
Q. Is a survivorship agreement a will?
A. No. It is an alternative to writing a will to transfer your property upon death. Under Texas law, a will does not have to be written, but usually it must have two witnesses who also sign the will. A survivorship agreement, can be made either in writing or orally, and it does not have to be witnessed . It can be an effective substitute for a will since it operates by law, is not subject to probate and there are no statutory formalities associated with its use.
Q. Can a survivor be required to pay for property improvements after the death of the first owner?
A. The terms of the survivorship agreement are determinative in answering this question. Unless the agreement so provides, a survivor is not obligated to pay for improvements after the death of the first co-owner.
Q. Who has the right to possession and enjoyment of the property after the death of the first owner?
A. Unless the survivorship agreement provides otherwise, each owner has equal rights of possession and enjoyment of the whole property upon the death of the first joint owner.
Q. Does Texas law require a specific form of survivorship agreement?
A. No, but it is preferable for both parties to sign the agreement.