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Welcome to the Texas Probate Web Site, your source for information on estate planning, probate and trust law in Texas.  This site is owned and maintained by Glenn Karisch of The Karisch Law Firm, PLLC, of Austin, Texas.  For older information, visit the legacy site at texasprobate.net.
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Tuesday
Aug192014

Other trust law changes

The following is part of a series of posts on 2013 Texas probate, guardianship and trust law legislation.  The changes  became effective September 1, 2013.  For information on other changes, go to the 2013 Legislation page.

The big change affecting trust law in 2013 was decanting, which is discussed in a prior post.  Here are other miscellaneous trust law changes which became effective September 1, 2013:

  1. Creditor Protection for Trusts Appointed Back to Settlor.  Trust Code Section 112.035 was amended to grant spendthrift trust protection in cases where a beneficiary uses a power of appointment to appoint property in trust for the settlor.  In those cases, the trust assets enjoy spendthrift protection from the original settlor’s creditors.  Section 112.035(d)(2), (g) and (H). 
  2. Corporate Trustees May Purchase Insurance from Affiliates.  Trust Code Section 113.053(f) was amended to permit a corporate trustee to purchase insurance from an affiliate so long as the insurance product and premium are the same or similar to a product or premium offered by nonaffiliates.  The corporate trustee taking this action is expressly subject to fiduciary duties.
Wednesday
Jun112014

Problems with the Texas disclaimer laws

Texas's two disclaimer statutes (Texas Estates Code Chapter 122 and Texas Trust Code Section 112.010) have some problems.  Glenn Karisch and Julia Jonas of Austin presented a paper on Problems with Texas Disclaimer Laws and What to Do About Them at the Advanced Estate Planning and Probate Course in San Antonio June 11, 2014.  Here are links to the paper and the related Powerpoint slides (updated August 19, 2014).

The Real Estate, Probate and Trust Law Section has approved inclusion of the Texas Uniform Disclaimer of Property Interests Act in its 2015 legislative package.  A copy of the current draft of that legislation is attached to the paper.

Wednesday
Sep042013

Decanting

The following is part of a series of posts on 2013 Texas probate, guardianship and trust law legislation.  The changes  became effective September 1, 2013.  For information on other changes, go to the 2013 Legislation page.

The modernization and liberalization of Texas trust law that began with enactment of the two UPIAs (the Uniform Prudent Investor Act and Uniform Principal and Income Act) in 2003 continued in 2013 with enactment of Texas’s first default decanting statute.  New Subchapter D of Chapter 112 of the Trust Code (Sections 112.071 – 112.087) permits a trustee to distribute trust principal “in further trust” in some cases.

Several states have preceded Texas in permitting trustees to move property from one trust to another even if the first trust does not expressly authorize the move.  Since it is always better to use an obscure word when one is available rather than a word that is easy to understand, these statutes are known as “decanting” statutes.  They permit the trustee to “decant” (pour) principal from one trust into another if the conditions stated in the statute are met.

Trustees have used decanting statutes in other states to fix problems in irrevocable trusts.  For example, the trustee of a trust with archaic administrative provisions may use the statute to move trust property into a new trust with modern administrative provisions.  Of course, it is not always clear that the problem is a “problem” at all, nor that the settlor of the trust would want it to be “fixed” in this way.

Under prior law, there was no default statutory decanting provision that applied if the trust instrument was silent, but the settlor could provide for decanting in the trust instrument.  Under the new law, the settlor may expressly provide for decanting or expressly prohibit decanting.  If the trust instrument is silent, then the new decanting rules apply.

The Texas statute distinguishes between “full discretion trusts” and “limited discretion trusts.” In a full discretion trust, the trustee’s power to distribute is not limited in any manner.  In limited discretion trusts, the power to distribute is limited in some way.  HEMS trusts – trusts permitting the trustee to distribute property for the beneficiary’s health, education, maintenance and support – are “limited discretion trusts” under the Texas statutes.

Under the decanting statute, the trustee may distribute principal from a full discretion trust to another trust for the benefit of one or more of the current beneficiaries of the first trust.  Also, the trustee may give a wholly discretionary beneficiary a broad power of appointment.  The justification for these actions is that, if the trustee could distribute the entire principal to a beneficiary, the trustee ought to be able to make that distribution in further trust with new rules for a beneficiary.

In order to decant from a limited discretion trust, the current beneficiaries of both trusts must be the same, the successor and remainder beneficiaries of both trusts must be the same, and the distribution standard of both trusts must be the same.  Due to these limitations, it is likely that the decanting power in limited discretion trusts will be useful only for administrative changes.

When decanting, the trustee must act in good faith, in accordance with the terms and purposes of the trust and in the interests of the beneficiaries.  In no case is the trustee deemed to have a duty to decant.  The power to decant is reduced to the extent it would cause any intended tax benefits to be lost.

The trustee may not use decanting to take away a beneficiary’s mandatory distribution right, materially impair the rights of any beneficiary, materially lessen the trustee’s fiduciary duty, decrease the trustee’s liability or exonerate the trustee, or eliminate another person’s power to remove the trustee.

Significantly, the trustee may not modify the applicable rule against perpetuities period, “unless expressly permitted by the terms of the first trust.”  This eliminates one of the key reasons why a trustee may wish to decant.  Still, this gives Texas estate planning attorneys a drafting tip:  in appropriate cases, include language in the trust instrument making it clear that the perpetuities period may be modified by decanting.  In most cases, there is very little downside to doing this, since most clients have not given a lot of thought to the vested remainder beneficiary rights of their unborn remote descendants when they create trusts.

The trustee must give 30 days’ written notice to current beneficiaries and presumptive remainder beneficiaries.  If a charity is a beneficiary, the notice also must be given to the attorney general.  If no one objects during the 30-day notice period, the trustee may decant without judicial approval, although the trustee may seek judicial approval if desired.  If a beneficiary other than the attorney general objects, the trustee may seek judicial approval but is not required to do so.  If the attorney general objects, the trustee must seek judicial approval before decanting.

The trustee may not decant without judicial approval solely to change the trustee compensation provisions.  However, the trustee may change compensation provisions without judicial approval if the change is in conjunction with other changes for which there are valid reasons, so long as the change does not provide for unreasonable compensation under Texas law.

Except as otherwise provided in the trust instrument, the decanting provisions apply to trusts existing or created on or after September 1, 2013.  Interestingly, the effective date provision states that the Legislature intends the decanting provisions “to be a codification of the common law of this state in effect before the effective date of this Act.”  The Legislature does not get to say what the law was before it enacts a statute, but this is an attempt to bolster the argument that there already existed a common law power to decant in Texas.

Thursday
Aug292013

2013 Texas Legislative Update

Glenn Karisch's 2013 Texas Legislative Update is now available in pdf format here.  Bill Pargaman's more extensive legislative update is available on the Saunders Norval Pargaman & Atkins resources page here.

Resources about the 2013 changes may be found on Texas Probate's 2013 Legislation page.  The change that estate planning, probate and trust lawyers will notice most is the new Estates Code, which replaces the Probate Code effective January 1, 2014.  There also was a significant change to the Trust Code permitting decanting of trusts.

Two statutory forms changed, effective for use beginning January 1, 2014:

  • Statutory Durable Power of Attorney form (basic) in Word and pdf formats.
  • Statutory Durable Power of Attorney form (modified and enhanced by Glenn Karisch) in Word and pdf formats.
  • Medical Power of Attorney form and disclosure statement in Word and pdf formats.

See Glenn Karisch's musings about the new statutory durable power of attorney form here.

The most significant 2013 changes will be summarized in a series of posts following this one.  Most of the changes become effective January 1, 2014, although some (particularly the trust law changes) become effective September 1, 2013.

Friday
May042012

Requiring attorney signatures on probate affidavits

Travis County Probate Court No. 1 is rejecting affidavits in lieu of inventory filed by non-lawyer personal representatives pursuant to Texas Probate Code Section 250 unless they also include the signature of the attorney of record. Judge Guy Herman believes that the filing of an affidavit by a non-lawyer personal representative constitutes the unauthorized practice of law. He also thinks that there is a strong policy argument for requiring the attorney of record to sign since it lets the court know that the attorney is aware of the filing and is still involved in the administration.

Judge Guy HermanIn Steele v. McDonald, 202 S.W.3d 926 (Tex. App. -- Waco 2006), the court held that a non-lawyer may not appear pro se in the capacity as an estate's independent executor. The court reasoned that, since the executor is acting in a representative capacity, appearing pro se would constitute the unauthorized practice of law. A Texas court also has prohibited a non-lawyer trustee from appearing in a lawsuit in his representative capacity. In re Guetersloh, 326 S.W.3d 737 (Tex. App. -- Amarillo 2006).

The Probate Code requires personal representatives to file affidavits of compliance with Section 128A and a sworn inventory or affidavit in lieu thereof. Most attorneys routinely sign the inventory. However, there is nothing in Section 128A or Section 250 requiring attorneys to sign the inventory or those affidavits. I do not think filing a statutorily-required factual statement constitutes practicing law, so I do not think the attorney's signature should be required. The forms for Section 128A affidavit and affidavit in lieu of inventory I prepared and put on this website have no place for the attorney to sign.

Still, those of us who practice in Travis County need to comply with Judge Herman's requirements. Also, Judge Herman's practices often influence the practice in other Texas courts. Therefore, I have added to the website an affidavit in lieu of inventory form with a place for the attorney to sign and an affidavit of compliance with Section 128A form with a place for the attorney to sign. Adding the attorney's signature is easy, so that will be my practice from now on.