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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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Monday
Aug292011

Claims in independent administrations

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

Section 146 addresses claims in independent administrations.  SB 1198 makes several changes:

  • Section 294(d) permits personal representatives to give notices to unsecured creditors, and those creditors are required to present their claim within 120 days of receipt of the notice, or the claim is barred.  Section 146 makes it clear that Section 294(d) notices may be used in an independent administration.  However, when used in an independent administration, the notice also must include a statement that a claim may be effectively presented by only one of the methods prescribed by Section 146.  (Here are Section 294(d) notice forms for independent administrations which address the 2011 changes in Word and WordPerfect formats.) 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.
  • A secured creditor electing matured secured status must give notice to the independent administrator in one of the methods prescribed in Section 146(b-4) (described above) and must record a notice of the creditor’s election in the deed records of the county in which the real property is located.
  • A secured creditor electing matured secured status in an independent administration is entitled to the priority granted by the Probate Code, but the creditor is not entitled to exercise any remedies in a manner that prevents the payment of higher priority claims and allowances and, during the estate administration, is not entitled to exercise any contractual collection rights, including the power to foreclose, without either the prior written approval of the independent executor or court approval. If the secured creditor elects matured secured status, the independent executor and not the secured creditor is empowered to sell the property if necessary to pay the claim. Still, the creditor with matured secured status is not powerless to protect itself.  Section 146(b-1)(2) permits the matured secured creditor to seek judicial relief or to execute a judgment against the independent executor. Section 146(b-1)(3) coordinates with the no right to exoneration of lien statute (Section 71A), requiring the independent executor either to collect from the devisees the amount needed to pay the debt or to sell the property to raise money to pay the debt.
  • A secured creditor with preferred debt and lien status is free to exercise judicial or extrajudicial collection rights, including the right to foreclose and execution, but the creditor may not conduct a nonjudicial foreclosure sale within 6 months after letters are granted.
  • In an independent administration, presentation of a statement of claim or a notice with respect to a claim to an independent executor does not toll the running of the statute of limitations with respect to that claim. Except as otherwise provided in Section 16.062 of the Civil Practices and Remedies Code, the running of the statute of limitations in an independent administration is tolled only by:
    • Written approval of a claim signed by an independent executor;
    • A pleading in a suit pending at the time of the decedent’s death; or
    • A suit brought by the creditor against the independent executor.
  • Section 146(b-7) states plainly that, other than as provided in Section 146, the procedural provisions of the Probate Code governing creditor claims in supervised (dependent) administrations do not apply to independent administrations.  Among the procedural provisions that do not apply to independent administrations are Section 306(f) – (k) and Section 313.  A creditor’s claim is not barred solely because the creditor failed to file a suit not later than the 90th day after the date an independent executor rejects the claim or fails to act with respect to a claim.

Section affected:  Probate Code Section 146.

Friday
Aug262011

Power of sale in independent administrations

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

Most well-drafted wills expressly give the independent executor the power to sell real property. However, some wills do not include a power of sale provision.  Also, when the distributees of an intestate estate agree on the appointment of an independent administrator, that administrator serves without the benefit of a power of sale provision.  In those cases, when can the independent administrator sell real property without the joinder of the distributees? Under prior law, there was no clear answer to this question.  As a result, most title companies would not insure title if an independent administrator without the power of sale tried to sell real property of the estate, unless the distributees joined in the conveyance.

SB 1198 attempts to clarify the rules about sales of real property by independent administrators and to provide a means for independent administrators with no express power of sale to obtain the clear authority to sell real property.

New Section 145A permits the distributees of an estate to give the independent administrator the power of sale in cases where there is no will or where the will does not contain language authorizing him or her to sell real property.  The distributees may give the independent administrator the power of sale by signing a consent prior to the appointment of the independent administrator, whereupon the court will include the power to sell in the order appointing the independent administrator. Thus, if the proposed independent administrator knows in advance that he or she may need to sell real property, he or she may ask the distributees to sign a consent giving the independent administrator the power of sale and file these consents with the application for appointment.  The court, seeing that the distributees have consented to giving the independent administrator the power of sale, can include the power of sale in the order appointing the independent administrator.  This permits title companies and other third parties to rely on that order when the independent administrator wishes to sell real property.  If the independent administrator waits until after he or she is appointed to get the power of sale, it is too late – the distributees also must sign the deed (unless the sale is necessary to pay expenses of administration, funeral expenses and expenses of last sickness of decedent, and allowances and claims against the estate – see below.)

New Section 145C confirms that an independent executor has the power to sell real property if that power is expressly given to him or her in the will. In most cases in the Probate Code, the term “independent executor” includes “independent administrators.” This is not the case in Section 145C, however.  While an independent executor has the power of sale given in the will, an independent administrator with will annexed does not, since the testator is deemed to have given the power of sale only to the persons he or she named as independent executors in the will and not to an unnamed person later appointed as independent administrator.

Section 145C also provides that, unless limited by the terms of a will, both independent executors and independent administrators have the same power of sale for the same purposes as a personal representative has in a supervised (dependent) administration, but without the requirement of court approval and without the need to comply with the procedural requirements applicable to a supervised administration.  Section 341 provides that a personal representative in a supervised administration with court approval may sell property when it appears necessary or advisable in order to:

(1)        Pay expenses of administration, funeral expenses and expenses of last sickness of decedents, and allowances and claims against the estates of decedents.

(2)        Dispose of any interest in real property of the estate of a decedent, when it is deemed to the best interest of the estate to sell such interest.

Clearly under new Section 145C an independent executor or independent administrator may sell real property if necessary to pay expenses, allowances and claims (Section 341(1)) regardless of whether the will contains a power of sale and so long as the terms of the will do not limit the power of sale.  It is not so clear if an independent executor or independent administrator without an express power of sale may sell real property “when it is deemed to the best interest of the estate” (Section 341(2)). Section 145C(b) says he or she has the same power of sale for the same purposes as a dependent administrator, and a dependent administrator may apply to the court for a “best interest” sale, so it appears that independent executors and administrators are given this power.  However, Section 145C(c) provides that a good faith unrelated purchaser of real property is protected if  there is a power of sale given to the independent executor in the will, if the court grants a power of sale in the order appointing the independent executor or independent administrator, or if “the independent executor or independent administrator provides an affidavit, executed and sworn to under oath and recorded in the deed records of the county where the property is located, that the sale is necessary or advisable for any of the purposes described in Section 341(1) of this code.” Since Section 341(1) permits sales to pay administrative expenses, allowances and claims, while Section 341(2) permits “best interest” sales, there is no third-party protection for “best interest” sales.

After chopping through the bushes on Sections 145A and 145C for a while, it appears that the power of sale in an independent administration may be summarized as follows:

  • If the will expressly gives a power of sale, the independent executor named in the will has the power to sell real property for any purpose.
  • An independent administrator with will annexed cannot use a power of sale granted in the will.
  • If the distributees consent to giving the independent executor or independent administrator the power of sale and the order appointing the independent executor or independent administrator expressly grants the power of sale, the independent executor or independent administrator has the power to sell real property for any purpose.
  • Unless the terms of a will limits the power, any independent executor or independent administrator may sell real property to pay administrative expenses, allowances and claims or if it is in the best interest of the estate – even if the will or order grant no power of sale – but a good faith third party purchaser will be protected only if the sale is to pay administrative expenses, allowances and claims. The third party is not protected if the reason for the sale is the best interest of the estate.

Section 145C(c)(2) makes clear that the signature or joinder of a devisee or heir is not required as to acts undertaken in good faith reliance on the independent executor’s affidavit that the sale is for the purpose of paying administrative expenses, allowances or claims.  Section 145C(c)(3) makes clear that the fact that an independent executor or administrator has the power to sell real property does not relieve him or her from any duty owed to a devisee or her in relation, directly or indirectly, to the sale.

Sections affected:  Probate Code Sections 145A and 145C.

Friday
Aug262011

Inherited IRAs are Exempt from Creditors’ Claims

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

SB 1810 amends Section 42.0021 of the Property Code to provide that all IRAs, including inherited IRAs, are exempt from creditors' claims.  It provides that the interest of a person in an IRA acquired by reason of the death of another person is exempt to the same extent that the interest of the person from whom the account was acquired was exempt on the date of the person's death.

The exempt status of inherited IRAs was called into question by In re Jarboe, 2007 WL 987314 (Bankr. S. D. Tex 2007), and by similar cases across the country.

Section affected:  Property Code Section 42.0021.

Thursday
Aug252011

Survivorship accounts: Holmes v. Beatty expressly overturned

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

Holmes v. Beatty, 290 S.W.3d 852 (Tex. 2009), caused shockwaves in the probate and estate planning community for two reasons:

  • First, and most importantly, the Supreme Court relaxed the standards for creating rights of survivorship with respect to community property, holding that a "joint tenancy" or " JT TEN" designation on an account is sufficient to create rights of survivorship in community property under Section 452 of the Texas Probate Code.
  • Second, the Supreme Court held that stock certificates issued from a community property with right of survivorship brokerage account continue to be survivorship property even though the the certificates themselves do not meet the requirements for survivorship agreements.

SB 1198 overturns Holmes on the first of these points.  It adds this sentence to Section 452: "A survivorship agreement will not be inferred from the mere fact that the account is a joint account or that the account is designated JT TEN, Joint Tenancy, joint, or other similar abbreviation." Parallel language is added to Section 439, which governs non-community property multi-party accounts. SB 1198 specifically states that the bill is intended to overturn the ruling of the Texas Supreme Court in Holmes v. Beatty.

These changes were intended to bring Section 452 – regarding community property with right of survivorship accounts – in line with Section 439 and the principles established by the Texas Supreme Court in Stauffer v. Henderson,801 S.W.2d 858 (Tex. 1990). Those principles apply to community property with right of survivorship accounts notwithstanding the slight differences in language between Sections 439 and 452.

The bill is silent on the other significant holding in Holmes, so stock certificates issued out of community property with right of survivorship accounts may continue to be survivorship property, at least to the extent described in Holmes.

Sections affected:  Probate Code Sections 439 and 452.

Wednesday
Aug242011

Will unsworn declarations invade probate practice?

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

Because of HB 3674, which flew under the radar in 2011, arguably it is no longer necessary to have a notary in most cases were a sworn statement or affidavit is made.  The statute amends Section 132.001 of the Civil Practice and Remedies Code – which previously only dealt with unsworn statements by inmates – to provide that an “unsworn declaration may be used in lieu of a written sworn declaration, verification, certification, oath, or affidavit required by statute or required by a rule, order, or requirement adopted by law.”  The unsworn declaration must be in writing and subscribed by the person making the declaration as true under penalty of perjury.  A specifc form of non-notarized jurat must be used.  There are exceptions for an oath of office or an oath required to be taken before a specified official other than a notary public. The bill becomes effective September 1, 2011, and applies to unsworn declarations made on or after that date.

Is a will containing an unsworn declaration self-proved as required by Section 59 of the Probate Code?  Probably not.  For one thing, the testator and each witness would have to make an unsworn declaration, not just the testator.  For another, a court is likely to find that the use of an unsworn declaration is not “in form and contents substantially” as required by Section 59.  Also, since the consequences of a court’s refusal to accept an unsworn declaration on a will is that it is not self-proved (rather than that it is not entitled to probate), it is hard to imagine anyone appealing a decision of a court refusing to accept it.

Sworn statements are permitted or required at least 70 times in the decedents’ estates portion of the Probate Code.  (The author grew tired of counting before getting to guardianships.)  With some of these statutes, it may be appropriate to permit someone to make an unsworn declaration under penalty of perjury rather than a notarized statement.  In others, it clearly is a bad idea.

Time will tell if probate judges will permit the use of these declarations.  In the meantime, the simple, worry-free answer for a probate practitioner is to use notarized sworn statements and affidavits.