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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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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 presentation.

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.

Wednesday
Aug312011

Ten things to do now

(This is one of a series of posts about 2011 legislation.)

Most of the legislation passed by the 82nd Texas Legislature becomes effective September 1, 2011.  Here are ten things an estate planning and probate attorney should do now to address the new legislation.

1.  Change will forms to use streamlined one-step execution


SB 1198
amends Probate Code Section 59 to permit an optional new way for a will to be executed and be made self-proved -- one which requires the testator and two witnesses to sign only once.  Attorneys should change their will forms to replace the attestation clause and self-proving affidavit with the new approved language. Here are Word and WordPerfect versions for downloading.

The method is optional, so attorneys may continue to use the traditional two-signature method.  However, there seems to be little downside to switching to the new method. The new method will make execution errors much less likely, and it speeds up the signing ceremony.  If the client moves to another state which does not recognize a combined attestation and self-proving affidavit, the will still will be just as valid as the two-signature variety, although it may not be considered self-proved. It is likely to be considered self-proved in that state, since Section 2-504 of the Uniform Probate Code permits combined attestations and self-proving affidavits, and the UPC has been enacted in one form or another in 20 states.

The new procedure is available for wills signed on or after September 1, 2011. For more information about this change, see this blog post.

2.  Use all of the streamlined forms to speed up document signings


The 2011 change to Section 59 (allowing combined attestations and self-proving affidavits) completes a series of changes begun in 2009 that can speed up document signing ceremonies and save staff time.  While updating the will form to use the one-signature method, also check the medical power of attorney, directive to physicians and declarations of guardian to assure that each takes advantage of the 2009 changes:

  • The medical power of attorney may be acknowledged by a notary instead of witnessed by two witnesses. Tex. Health & Safety Code Sec. 166.154(b). Here is a medical power of attorney form using a notary instead of witnesses in Word format.
  • The directive to physicians and family or surrogates may be acknowledged by a notary instead of witnessed by two witnesses.  Tex. Health & Safety Code Sec. 166.032(b-1).  Here is a directive to physicians form using a notary instead of witnesses in Word format.
  • The declaration of guardian in the event of later incapacity may contain a combined attestation and self-proving affidavit, making it necessary for the declarant and witnesses to sign only once. Tex. Prob. Code Sec. 679(k). Here is a declaration of guardian form using the one-signature method in Word format.
  • The declaration of guardian for children may contain a combined attestation and self-proving affidavit, making it necessary for the declarant and witnesses to sign only once.  Tex. Prob. Code Sec. 677A(i). 

As a result of the 2009 and 2011 changes, attorneys can streamline document executions:

  • If the attorney is a notary, the attorney may meet with the client alone and supervise the signing of any trusts, the statutory durable power of attorney, the medical power of attorney, the directive to physicians, the HIPAA authorization, the funeral directive and any beneficiary designations.
  • After completing those documents, the witnesses may enter the room for the signing of the will and the declarations of guardian using the new one-signature method.

3.  Begin using affidavits in lieu of inventories


SB 1198
amended Section 250 of the Probate Code to permit independent executors and administrators to file an affidavit instead of a detailed inventory if there are no unpaid debts, except for secured debt, taxes and administration expenses, when the inventory is due. The independent executor or administrator still must prepare a verified inventory and deliver it to each beneficiary, but the public disclosure of estate assets and values may be avoided.

Here are Word and WordPerfect versions of a form of affidavit in lieu of inventory for downloading.

Affidavits in lieu of inventory may be used for the estates of decedents dying on or after September 1, 2011. For more information about this change, see this blog post.

4.  Change wills to authorize affidavits in lieu of inventories


While it is clear that the legislature intended affidavits in lieu of inventories when the testator's will provided for independent administration, an anomaly in Section 145(b) of the Probate Code raises a possible argument that the required language creating independent administrations negates the right to use an affidavit in lieu of inventory.  Section 145(b) provides:

Any person capable of making a will may provide in his will that no other action shall be had in the county court in relation to the settlement of his estate than the probating and recording of his will, and the return of an inventory, appraisement, and list of claims of his estate.

Texas attorneys routinely include this language in wills. A possible interpretation of this language is that, while Texas law might otherwise permit the independent executor to file an affidavit in lieu of inventory, the terms of the will nevertheless require the filing of an inventory. This is implausible and clearly contrary to legislative intent. It is likely to be clarified by 2013 legislation.  In the meantime, Texas attorneys should modify this phrase in wills signed in the future to make it clear that the inventory must be filed only if required by law.  It probably is overkill to require former clients to re-execute wills with the new language.

Here is the language I recommended:

I direct that no action shall be had in any court exercising probate jurisdiction in relation to the settlement of my estate other than the probating and recording of my will and the return of an inventory, appraisement and list of claims of my estate; provided that, if the independent executor is permitted to file an affidavit in lieu of inventory under Texas law, I do not require the independent executor to file the inventory, appraisement and list of claims with the court.

Bill Pargaman recommended simply adding "...if required by law" to the end of the Section 145(b) language.

For more information, see this blog post.

5.  Consider using a summary-form 128A notice


SB 1198
amended Section 128A to permit the executor to include a summary of key provisions in the required notice to beneficiaries instead of enclosing a full copy of the order and will. Under the revised statute, the executor either must enclosed a copy of the will and order or "a summary of the gifts to the beneficiary under the will, the court in which the will was admitted to probate, the docket number assigned to the estate, the date the will was admitted to probate, and, if different, the date the court appointed the personal representative." The summary option also may be used in waivers signed by beneficiaries in lieu of notice.

Should attorneys routinely use the new method?  It will save postage and trees not to have to send copies of the order and will.  On the other hand, it always is possible that a court later will consider the summary to be incomplete or insufficient.  Also, while attorneys can standardize the sending of 128A notices with the will and order attached, use of the summary is likely to require special drafting and editing.

There were other changes to the statute requiring notice to beneficiaries. Fewer persons must be notified.

For old "long form" Section 128A notice and affidavit forms, click here. There are no new "summary form" notices on this site.  For more information about Section 128A changes, see this blog post.

6.  Complete disclaimers for 2010 decedents by September 16


The tax law passed by Congress in 2010 extended the deadline for disclaiming property that would otherwise be received from a decedent dying between January 1, 20102011, and December 17, 20102011, until 9 months after December 17, 20102011.  The Texas legislature made corresponding extensions of the state deadlines for disclaimers.  The deadline under federal and state law is September 17, 2011.  Since September 17 falls on a Saturday, be sure to complete the disclaimer by Friday, September 16, since it is unclear that the Texas deadline would be extended to the following business day. [corrected September 14, 2011]

7.  Make sure to follow the rules for Section 294(d) notices to unsecured creditors


SB 1198 made many changes affecting independent administration.  As amended, Probate Code Section 146 makes it clear that Section 294(d) notices to unsecured creditors may be used in independent administrations to bar claims that are not made within 120 days of receipt of the notice.  However, when used in an independent administration, the notice must state that a claim may be effectively presented by only one of the methods prescribed by Section 146.  Section 146(b-4) prescribes these methods of giving notices by creditors:

  • A written instrument that is hand-delivered with proof of receipt, or mailed by certified mail, return receipt requested with proof of receipt, to the independent executor or the executor’s attorney;
  • A pleading filed in a lawsuit with respect to the claim; or
  • A written instrument or pleading filed in the court in which the administration of the estate is pending. 

When representing independent executors, make sure the notice to unsecured creditors contains the proper language.  When representing creditors, make sure to respond to the notice in one of the ways required by Section 146.

Here is a form for Section 294(d) notices in independent administrations in Word and WordPerfect formats.

8.  Check the power of sale before applying for the next independent administration


SB 1198 makes it clearer whether or not an independent executor or administrator has the power to sell real estate without the joinder of the beneficiaries. If the will does not contain a power of sale provision, Section 145A permits the distributees to agree to give the independent executor or administrator the power of sale. It is important to note that this consent must be obtained before the personal representative is appointed so that the order appointing him or her may state that the power of sale exists.  If the personal representative does not obtain the consent of the distributees prior to appointment, it is too late -- each sale of real estate from the estate is likely to require the joinder of the beneficiaries.

Therefore, before applying for the next independent administration, check the will for a power of sale.  If there is not a power of sale in the will, consider whether to ask the distributees to agree to the power of sale before filing the application.

The changes to the power of sale in independent administrations are discussed in this blog post.

9.  Consider if the 2011 changes create new opportunities for elder law clients


Over the past several sessions, Texas statutes have been amended to make it easier for clients of elder law attorneys to qualify for government benefits programs.  The 2011 changes open the door even further.

Now persons with physical disabilities only but with no mental incapacity may apply for the creation of a court-created trust under Section 867 of the Probate Code.  This will make it easier for disabled individuals to utilize a special needs trust.  The federal statute (42 U.S.C. Sec. 1396p(d)(4)(A)) requires that trusts be created by a parent, grandparent or court.  It was unclear if a disabled person with no mental incapacity was eligible for an 867 trust.  The 2011 changes make it clear that the trusts are available for disabled persons, who may apply for their creation directly, without the need for a guardianship.  Disabled persons also may waive the annual accounting requirement otherwise applicable to 867 trusts.

It is easier than ever to get a qualifying individual's property into a pooled trust subaccount administered under 42 U.S.C. Sec. 1396p(d)(4)(C).  Probate Code Section 911 lists the persons who may apply fo the establishment of a subaccount.  The list does not include the trustee of a Section 867 trust.  However, Section 868C permits the court to order the transfer of the assets of an 867 trust into a pooled trust subaccount, so the trustee may use that statute to, in effect, apply for the creation of a subaccount.

Section 865 of the Probate Code was amended to permit a guardian of the estate or any interested person to apply to the court to transfer a portion of a ward's estate as necessary to qualify the ward for government benefits, but only to the extent allowed by applicable state or federal laws, including rules, regarding those benefits.

Each of these changes was made by SB 1196, the guardianship bill supported by the Real Estate, Probate and Trust Law Section of the State Bar of Texas.

10.  Review the new Estates Code


The current Probate Code will be repealed and replaced by the new Estates Code on January 1, 2014.  The Texas Legislative Council has been working on the nonsubstantive codification of the Probate Code since 2007. The decedents' estates portion of the code was enacted in 2009. The guardianship and power of attorney portions were enacted in 2011. A corrections bill was passed in 2011.  A final corrections bill will be enacted in the 2013 session prior to the January 1, 2014, effective date.  Members of the Real Estate, Probate and Trust Law Section have been scouring the new provisions to see if any changes or corrections need to be made. REPTL probably will have a bill making changes in 2013.

Now is a good time to review the new Estates Code. The Texas Legislative Council's website has information about the new code and texts of the legislation. Direct any suggested changes or corrections to me or to Bill Pargaman so that REPTL may consider them.