REPTL bill tweaks independent administration

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HB 2046 fine-tunes Texas statutes on independent administration for inclusion in the new Estates Code. While the changes are minor in the overall scheme of things, each change may be important in particular cases.

Will Hartnett, Author of HB 2046The bill, authored by Rep. Will Hartnett (R-Dallas), is the work of the Real Estate, Probate and Trust Law Section of the State Bar of Texas. It is part of the Section's multi-year effort to address certain key subjects prior to the change to the Estates Code on January 1, 2014. Most of the changes in HB 2046 were included in REPTL's 2009 legislation. The 2009 legislation (HB 3085) failed to pass because of a logjam at the end of the session.

Which rules apply to independent administrations?

Many of the changes clarify if certain rules applicable to dependent administrations also apply to independent administrations. For example, new Section 145B would affirmatively state the authority of an independent executor to act:

Unless this code specifically provides otherwise, any action that a personal representative subject to court supervision may take with or without a court order may be taken by an independent executor without a court order. The other provisions of this part are designed to provide additional guidance regarding independent administrations in specified situations, and are not designed to limit by omission or otherwise the application of the general principles set forth in this part.

Since Section 3(q) of the Probate Code includes "independent administrator" within the definition of "independent executor," Section 145B and other provisions referring to "independent executor" also include independent administrations of intestate decedents and independent administrations with will annexed.

Power of sale

HB 2046 makes substantive changes to the power of independent executors to sell property from the estate. New Section 145C sets out the general rules:

Independent executors have the power of sale of estate property set forth in the will without the need for court approval.
In addition, unless limited by the terms of a will, independent executors have the same authority to sell estate property that dependent administrators have, but without the need for court approval and without the need to follow the procedural requirements applicable to dependent adminstrations.
Third parties are protected and need not inquire into an independent executor's power of sale (A) if the power of sale is granted in the will or in the order appointing the independent executor or (B) if the independent executor provides an affidavit to the third party that the sale is necessary or advisable to pay expenses of administration, funeral expenses and expenses of last sickness of decedents, and allowances and claims against the estates of decedents.
The protection granted to third parties does not relieve the independent executor from any duty owed to a devisee or heir.
These rules do not limit the authority of the independent executor to enter into leases or borrow money.

One negative comment about these changes is that they expand the power of sale granted in the will to an independent administrator with will annexed. The power of sale may be viewed as a personal right granted to the independent executor named by the testator and should not extend to an independent administrator not named by the testator.

HB 2046 deals with the problem of independent administrations in cases where the will does not grant the power of sale by giving the applicant the opportunity to obtain the consent of all devisees or heirs to the power of sale. Section 145A provides that, if all devisees or heirs agree to give the independent aexecutor the power of sale, then the court may include that authority in the order appointing the independent executor. The power of sale issue must be raised prior to the appointment of the personal representative.

Creditors' claims in independent administrations

Section 294(d) notices and creditor response. Most of HB 2046's changes affecting creditors' claims clarify the procedural aspects of those claims. For example, under current law an independent executor may give a notice to unsecured creditors under Section 294(d) by certified or registered mail, return receipt requested, and claims which are not made within 4 months of the notice are barred. New Section 146(a-1) would require the Section 294(d) notice to include a statement that "a claim may be effectively presented by only one of the methods prescribed by this section." Section 146(b-4) would require the creditor to perfect its claim by (1) written instrument that his 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; (2) a pleading filed in a new lawsuit with respect to the claim; or (3) a written instrument or pleading filed in the court in which the administration of the estate is pending. This means that communications from creditors which are not sent by certified mail will not be sufficient to overcome the Section 294(d) bar.

Matured secured claims. Practitioners have different opinions about how matured secured claims are handled in independent administrations. Some think that, having elected matured secured status, the creditor may not then exercise its nonjudicial foreclosure right and instead must rely on the independent executor to sell the secured property in due course of administration. Others think that a creditor with a matured secured claim retains the nonjudicial foreclosure right. Section 146(b-1) would clarify this issue by providing that creditors with matured secured claims do not have the power to conduct a nonjudicial foreclosure, but they retain the right to seek judicial relief or to execute a judgment against an independent executor. Section 146(b-1)(3) would provide a means by which the independent executor may collect the amount of the matured secured debt from the devisees. If the devisees do not pay the debt, then the independent executor must sell the property and pay the money as it is paid in a dependent administration.

Preferred debt and lien claims. Section 146(b-2) would make clear that a secured creditor electing preferred debt and lien status is free to conduct a nonjudicial foreclosure but must wait 6 months after letters testamentary are granted.

Tolling of the statute of limitations. Under current law, Section 16.062 provides that the death of a person against whom or in whose favor there may be a cause of action suspends the running of an applicable statute of limitations for 12 months after the death, but this period is shortened to the date of qualification if a personal representative qualifies within 12 months after death. HB 2046 would keep that general rule, but would add (in new Section 146(b-6)) that the running of a statute of limitations shall be tolled only by written approval of a claim signed by an independent executor, a pleading filed in a suit pending at the time of the decedent's death or a suit brought by the creditor against the independent executor. Thus, the presentation of a statement of claim or a notice with respect to a claim would not toll the running of the statute of limitations with respect to that claim.

Other claims procedures do not apply. New Section 146(b-7) would wrap up the statute regarding claims in independent administrations by making it clear that the other procedural provisions governing creditor claims in "supervised" administrations do not apply. To further avoid confusion, that section states specifically that:

Section 313 does not apply to independent administrations, so a creditor's claim is not barred by its failure to sue on a rejected claim within 90 days.
Sections 306(f) - (k) regarding secured claims do not apply to independent administrations.

Closing independent administrations

HB 2046 would retain the seldom-used closing affidavit procedure for closing an independent administration, although it calls those affidavits "closing reports" (Section 151). It would add a new alternative closing procedure. Under Section 151 (b) the independent executor may file a sworn notice of closing the estate, stating:

all debts have been paid to the extent permitted by the assets in the independent executor's possession;
all remaining assets have been distributed; and
the names and address of the distributees to whom property was distributed.

Jose Rodriguez, Author of SB 1198Before filing such a notice, the independent executor must give each distributee a copy of the notice and the filed notice must include signed receipts or other proof that all distributees have received a copy of the notice.

HB 2046 also changes the Estates Code

HB 2046 also contains parallel provisions putting these same changes into the new Estates Code. The changes noted above would become effective September 1, 2011, if HB 2046 is enacted.

Update: On March 4, 2011, Sen. Jose Rodriquez (D-El Paso), filed SB 1198 as REPTL's decedent's estates bill in the Senate.

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As the law stands currently, does an independent executor have the power to sell personal property without a direct 'power to sell' clause? What conditions are necessary for them to be able to sell without court order? Are they ever able to sell before filing the inventory and appraisal or is it necessary for them to wait until it is filed? If they do sell property, how should the inventory be modified to show that property has been sold?

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