2023 Legislative Update
1. Introduction
The 88th Texas Legislature passed several bills which affect probate, guardianship and trust law. None of the changes were earth-shattering (earth-shattering like 2021’s 300-year rule against perpetuities bill; there’s a fairly low threshold for “earth shattering” when discussing probate legislation) but there are measures which will make the practice of law in this area easier and a few cautionary changes to be wary of.
Thanks go out to the late Bill Pargaman, who has given so much to the probate bar of Texas and whose legislative work assisted the author in coming up with this update. Here are links to Bill’s 2023 legislative update and 2023 legislative supplement.
2. Certified Mail No Longer Required
Certified mail has become increasingly unreliable, yet the Estates Code was full of requirements that documents be sent by certified mail. SB 1373 (probate) and SB 1457 (guardianships) took steps to alleviate this problem by allowing most notices which previously required certified mail to be sent by a “qualified delivery method.” Qualified delivery method is defined in new Section 22.0295 of the Estates Code to mean delivery by (1) hand delivery by courier, with courier’s proof of delivery receipt, (2) certified or registered mail, return receipt requested, with return receipt, or (3) a private delivery service designated as a designated delivery service by the U. S. Treasury for delivery of tax documentation, with proof of delivery receipt.
This will permit using courier services for local delivery and designated delivery services like United Parcel Service and Federal Express for out-of-town delivery of virtually all notices previously required to be sent by certified mail, such as notices to beneficiaries under Chapter 308 of the Estates Code. As of this writing, the designated delivery services (called designated private delivery services, or PDSs in federal jargon) include specific services of DHL Express, FedEx, and UPS. Not every delivery service by these three providers is authorized; only the specific services under each that have been approved may be used. You can check the most recent list on the IRS website here: https://www.irs.gov/filing/private-delivery-services-pds.
The new methods are available for cases filed on or after September 1, 2023. Notices for cases filed prior to September 1, 2023, will have to be done under the former statute.
3. Felon May Serve as Personal Representative with Court Approval
Under prior law persons convicted of a felony were disqualified to serve as personal representatives of estates. SB 1373 changes this so that in limited circumstances a convicted felon may serve as personal representative. Section 304.003 is amended to provide that a convicted felon is not disqualified from serving as executor if (1) the person is named as executor in the will, (2) the person is not otherwise disqualified from serving and (3) the court approves.
This will make it easier to administer estates where the testator knows the named executor is a convicted felon and is not bothered by that. It is limited to cases in which there is a will naming the person, so a convicted felon still will not be eligible to serve in an intestate administration or in testate estates where he or she is not named.
This change applies to applications for letters testamentary filed on or after September 1, 2023.
4. Purpose Trusts
Traditionally noncharitable trusts had to have an identifiable beneficiary in order to be effective. This changed in a limited way in 2005, when the legislature authorized pet trusts (Trust Code Section 112.037). HB 2333 expands this exception by adding Section 112.121 – 123 to the Trust Code to permit trusts “created for a noncharitable purpose without a definite or definitely ascertainable beneficiary.” A purpose trust may include seeking economic or noneconomic benefits.
A purpose trust is enforced by one or more trust enforcers named in the trust instrument. Trust enforcers are fiduciaries required to enforce the purpose and terms of the trust. They have the same rights as beneficiaries provided under the Trust Code and common law, but they are not beneficiaries of the trust. Trust enforcers are entitled to reasonable compensation. The trust instrument may provide for successor trust enforcers. If a purpose trust ends up with no trust enforcer, a court properly exercising jurisdiction shall appoint one.
The Uniform Trust Code has a provision allowing purpose trusts, and under the UTC the duration of the trust was limited to 21 years. The Texas version has no such limitation, so presumably one may create a purpose trust lasting until the expiration of the perpetuities period in 300 years. Everything in Texas truly is bigger and better.
5. Conveyance to Trust
Wannabe lawyers learn in the basic wills and estates course in law school that a trust is a relationship, not an entity. Title is held in the name of the trustee, not the trust.
Despite this, inexperienced and experienced practitioners alike frequently make conveyance to the So-and-So Trust, not to the trustee of the trust. A federal district court from the Southern District of Texas in 2021 held that a deed to a named trust that does not name the trustee was null and void. This rang alarm bells in the real estate community. The district court decision was reversed in Fugedi v. Initram, Incorporated, No. 21-40365 in the United States Court of Appeals for the Fifth Circuit, which held that such a deed is not void. Still, the Legislature wanted to address this issue once and for all so that conveyances to a trust are permissible under Texas law.
SB 801 adds Section 114.087 to the Trust Code, providing that the trustee of a trust is considered for all purposes to be the named party to an instrument that names the trust as a party, unless the trust is a legal entity under state law. This change is effective as of the date of the original instrument and applies to instruments executed before, on or after September 1, 2023. A correction instrument identifying the trustee may be filed but is not required.
Section 114.087 also provides that a certification of trust under Trust Code Section 114.086 that is recorded in the real property records is presumed to correctly identify the trust and the trustee and may be relied upon by a good faith purchaser or lender for value. That goes beyond the protection afforded third parties in Section 114.086(h), which provides that a person who “in good faith enters into a transaction relying on a certification of trust may enforce the transaction against the trust property as if the representations contained in the certification are correct.”
6. Psychologists and Advanced Practice Registered Nurses Performing Guardianship Exams
Under prior law, psychologists could prepare Physician’s Certificates of Medical Examination (PCMEs) in guardianships if the incapacity resulted from a developmental disability but not for other types of incapacity, such as dementia in an elderly person. SB 1624 amended Section 1101.103 of the Estates Code to permit a psychologist to examine the proposed ward and prepare the PCME if the proposed ward’s incapacity results from a mental condition. If the incapacity results from a physical condition, a licensed physician must do the exam and provide the certificate.
The changes to Section 1101.103 made by SB 1624 further provide that the physician or psychologist who provides the PCME must have experience examining individuals with the physical or mental condition resulting in the alleged incapacity or have an established patient-provider relationship with the proposed ward.
The changes made by SB 1624 become effective September 1, 2023.
Another bill amended Section 1101.103. HB 3009 amends the same subsections in an inconsistent way to permit advanced practice registered nurses to perform the exam and provide the PCME, but the PCME must be signed by the nurse’s supervising physician.
HB 3009 also is effective September 1, 2023. Hopefully the changes will be read in harmony so that the intent of both bills is carried out.
7. Reimbursement Claims Between Marital Estates
Previously a claim for reimbursement between two marital estates (such as reimbursement of the community estate by a spouse’s separate estate) was limited to a list of specific types of transactions, such as payment by one marital estate of the unsecured liabilities of another marital estate. HB 1547 drops the list of specific transactions in favor of a description of when the “benefited estate” must reimburse the “conferring estate”: (1) If one or both spouses used property of the conferring estate to pay a debt, liability, or expense that “in equity and good conscience” should have been paid from the benefited estate’s property. (2) If one or both spouses used property of the conferring estate to make improvements on the benefited estate’s real property and the improvements resulted in an enhancement of the value of the property. (3) If one or both spouses used time, toil, talent, or effort to enhance the value of property of a spouse’s separate estate beyond that which was reasonably necessary to manage and preserve the spouse’s separate property, and for which the community estate did not receive adequate compensation.
8. Other Decedent’s Estates Changes
a. Creditors’ Claims and Community Property
SB 1373 amends Estates Code Section 101.052 to define what community property is liable for debts in a decedent’s estate.
(1) For either spouse (the decedent spouse or the surviving spouse), that spouse’s sole management community property and the joint management community property continues to be subject to the liabilities of that spouse upon the death of either spouse.
(2) The undivided one-half interest that the surviving spouse owned in the deceased spouse’s sole management community property is subject to the liabilities of the surviving spouse on the death of his or her spouse.
(3) The undivided one-half interest that the deceased spouse owned in the surviving spouse’s sole management community property passes to the deceased spouse’s heirs or devisees charged with the liabilities of the deceased spouse.
This means that the liability rules change when one spouse dies. For example, while both spouses are alive Spouse 1’s sole management community property (both halves) is not liable for the non-tort debt of Spouse 2, but upon the death of Spouse 2, one half of Spouse 1’s sole management community property is liable to Spouse 2’s creditors.
SB 1373 is effective September 1, 2023.
b. Brokerage Accounts Can Be Multiple Party Accounts
Previously Chapter 113 of the Estates Code, with its rules about ownership of multiple party accounts, applied only to accounts with cash deposits. Many practitioners and some courts applied the same rules to accounts holding securities, but the statute didn’t support this. Now SB 1373 has amended Estates Code Section 113.001 to provide that accounts holding securities, including stocks, bonds, and mutual funds are “accounts” for Chapter 113 purposes.
c. Affidavit of Heirship as Proof in Heirship Proceeding
SB 1373 amends Estates Code Section 202.151 to permit proof at an heirship proceeding to be provided by an affidavit of heirship meeting the requirements of Estates Code Section 203.001 instead of by live testimony or deposition testimony. It remains to be seen if individual courts will accept this alternative method of proof.
This change applies to heirship proceedings commenced on or after September 1, 2023.
d. Declaration Under Penalties of Perjury Instead of Notarized Oaths
Oaths of personal representatives under the Estates Code had to be sworn before a notary or other officer authorized to take oaths. During Covid we learned that, while many documents which previously had to be notarized could be signed with unsworn declarations, oaths of personal representatives were not permitted as unsworn declarations. Now SB 1373 has amended Estates Code Sections 305.051 – 305.053 to permit “oaths” of personal representatives to be made by unnotarized declarations under penalty of perjury.
The new procedure is available for proceedings commenced on or after September 1, 2023.
9. Other Trust Changes
a. Rule Against Perpetuities Cleanup
In 2021, Section 112.036 of the Trust Code was amended to adopt a 300-year perpetuities period for trusts. This legislation created confusion on a few points, so HB 2196 cleans it up in a few ways. First, instead of referring to the effective date of the trust, the statute now refers to the effective date of the trust instrument, which is the date it becomes irrevocable. Second, if the interest of one trust is distributed to another trust with a different effective date, the effective date of that interest in the second trust becomes the earlier of the effective date of the two trusts.
b. Homesteads Owned by Trusts
Under prior law, Tax Code Section 11.13(j) permitted the ad valorem homestead tax exemption if a trust beneficiary has a right to use the residence “rent free and without charge except for taxes and other costs and expenses,” while Property Code Section 41.0021 provided homestead creditor protection if a trust beneficiary has a right to use the residence “at no cost … other than payment of taxes and other costs and expenses.” These now have been harmonized by making Section 41.0021 read “at no cost or rent free and without charge.”
c. Spendthrift Protection with General Testamentary Power of Appointment
HB 2196 amends Section 112.035 of the Trust Code to provide that a beneficiary holding a general testamentary power of appointment is not treated as a settlor of the trust (and thus is not exposing the trust assets to the beneficiary’s creditors) merely because the beneficiary holds the general power or exercises the power in favor of the takers in default of the appointive assets.
d. Decanting into the “Same” Trust
HB 2196 amends Section 112.0715, regarding decanting, to provide that the trust receiving the decanting (the “second trust”) can have the same name and the same federal tax ID number as the decanting trust.
10. Other Guardianship Changes
a. Small Transaction Exception to Guardianships Increased to $250,000
Prior law permitted certain actions, such as the sale of a minor’s interest in property, to take place without the need for a guardianship of the estate if the value of the interest was $100,000 or less. SB 1457 raised this limit to $250,000. Thus: (1) a minor’s interest in property may be sold without a guardianship if its value is $250,000 or less (Estates Code Section 1351.001); (2) an out-of-state ward’s interest in property may be sold without the appointment of a guardian in Texas if the value of the property is $250,000 or less (Section 1351.052); (3) a minor’s interest in a residential homestead may be mortgaged if its value is $250,000 or less (Section 1352.052); (4) the guardian of the person of a minor ward whose interest in a residence homestead is worth $250,000 or less may mortgage the interest without the appointment of a guardian of the estate (Section 1352.102); and (5) a resident or nonresident creditor with a liquidated claim of $250,000 or less may collect the claim without the need for a guardianship (Sections 1355.001 and 1355.002).
b. Attorney ad Litem/Attorney for Ward
SB 1624 made changes to provisions regarding representation of the proposed ward by an attorney ad litem or private attorney.
Estates Code Section 1054.001 previously required the appointment of an attorney ad litem “to represent the proposed ward’s interests.” Now the attorney ad litem is “to represent the proposed ward's interests, including the proposed ward’s expressed wishes.” This makes explicit what has been implicit in this statute. A similar change was made to Estates Code Section 1054.007.
Estates Code Section 1054.006 permits the proposed ward (or a ward in a restoration proceeding) to retain an attorney to represent him or her instead of an attorney ad litem. If the proposed ward retains his or her own attorney, the court is required to remove the attorney ad litem. Any party to the proceeding may file a motion challenging the proposed ward’s capacity to retain an attorney, and the burden of proof is on the moving party to prove lack of such capacity.
c. Parent Serving as Guardian of Estate May Designate Successor
Under prior law the surviving parent of an adult incapacitated person who was serving as guardian of the person could designate a successor guardian of the person. SB 1457 amended Section 1104.103 of the Estates Code to permit the designation of a successor guardian of the estate as well and provides that different persons may be designated as successor guardian of the person and guardian of the estate.
d. Guardian of Person May Manage Up to $20,000
New Section 1151.0525 permits the court to authorize a guardian of the person where there is no guardian of the estate to manage up to $20,000 per year for the ward’s benefit. The court is required to set an appropriate bond, and the guardian of the person must report the expenditures on his or her annual report.
e. Compensation of Guardian of the Person
Under prior law the court could authorize a guardian of the person not also serving as guardian of the estate to receive compensation not to exceed five percent of the ward’s gross income. Now Section 1155.002 has been amended to permit the court to award the greater of $3,000 or five percent of the ward’s gross income.
11. Other Changes
a. Disclaimer by Agent Under Power of Attorney
SB 1650 amends Property Code Section 240.008 to permit an agent under a durable power of attorney which authorizes disclaimers to disclaim property without court approval, even if the disclaimer results in property being paid to the agent.
b. Removal of Remains
SB 1300 amends Health and Safety Code Sections 711.002 and 711.004 to permit the person authorized to control the disposition of one’s remains to consent to the removal of that person’s remains.
a. Remote Notarization of “Wet” Signatures
Chapter 406 of the Government Code was amended to permit remote (online) notarization of wet ink signatures.
b. New Statutory Probate Courts
The legislature authorized new statutory probate courts in Bexar, Cameron, Montgomery, Harris and Travis Counties.