Probate inventory may be kept private

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

The 2011 legislative change that is likely to have the biggest impact on Texas probate lawyers is SB 1198’s amendment to Section 250 of the Probate Code permitting independent executors to file an affidavit in lieu of an inventory, appraisement and list of claims if there are no unpaid debts, except for secured debts, taxes and administration expenses, at the time the inventory is due.  The public disclosure of information in the inventory is unpopular with clients and drives some Texans to use a living trust-based plan when a will otherwise would suffice.

Here are the particulars of the change:

• Only independent executors and independent administrators are permitted to file an affidavit in lieu of an inventory. Dependent administrators must file a public inventory.

• The affidavit may be used if there are no unpaid estate debts, other than secured debts, taxes and administration expenses, at the time the inventory is due.  If the independent executor can pay all unsecured debts between the date he or she qualifies and the due date of the inventory, the independent executor can avoid the public disclosure of inventory information.

• The change does not mean that it no longer is necessary to prepare an inventory.  The independent executor still must prepare a verified, full and detailed inventory and deliver it to each estate beneficiary.

• Any person interested in the estate – specifically including a possible heir of the decedent or a beneficiary named in a prior will – is entitled to receive a copy of the inventory on request.  The independent executor is protected from liability to the estate or its beneficiaries if he or she provides a copy of the inventory to a person the independent executor believes in good faith “may be” a person interested in the estate.  If the independent executor refuses to give a person a copy of the inventory, he or she may apply to the court to compel the independent executor to do so.

The change to Section 250 necessitates changes to a number of related sections. An independent executor may be removed if he or she fails to file an inventory or the affidavit in lieu of aninventory (Section 149C).  Successor independent executors also may file an affidavit in lieu of an inventory (Section 227). If additional property or claims are discovered, the independent executor either must file a supplemental inventory or a supplemental affidavit in lieu of an inventory (Section 256). The setting apart of exempt property (Section 271), the setting of the family allowance (Section 286) and the sale of property to raise funds for the family allowance (Section 293) are tied to the filing of the inventory or an affidavit in lieu of an inventory.

While Section 250 permits the independent executor to choose to file an inventory or an affidavit in lieu of an inventory, beneficiaries may believe that the independent executor has breached his or her duties if (a) he or she fails to use the affidavit in lieu of an inventory if the estate is eligible to do so and (b) he or she fails to quickly pay the decedent’s unsecured debts (if it is possible to do so) in order to make the estate eligible for the affidavit in lieu of inventory. It may be hard for the independent executor to justify making an unnecessary public disclosure of asset information.

This change should make will-based plans more popular.  Clients still may wish to use living trusts for other reasons (out-of-state real property, disability planning or fear of a will contest, for example), but they may not have to forego a will-based plan merely to avoid a public disclosure of information.

An affidavit in lieu of an inventory may be used for the estates of decedents dying on or after September 1, 2011.  For persons who died before September 1, 2011, an inventory must be filed, even if the inventory is filed after September 1, 2011.

Significant changes to Section 128A notices to beneficiaries

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

The 2007 amendment to Probate Code Section 128A caused much grumbling among probate lawyers.  It required the personal representative of a testate decedent to send certified mail notices to (or obtain waivers from) all beneficiaries named in the will.  The 2007 changes were a rush job to address concerns expressed in the Legislature over a sensational case in Travis County in which an independent executor was accused of misappropriating estate funds without ever telling the estate beneficiaries that he was the executor and that they had an interest in the estate.  Because it was a rush job, 2007’s Section 128A was rough around the edges and went further than has proven to be necessary.

SB 1198 amends Section 128A to make the rules about notices to beneficiaries much easier to meet.  Here are the key changes:

• The notice does not have to be given to a beneficiary who is receiving $2,000 or less worth of property or who has received all gifts to which he or she is entitled within 60 days of the order admitting the will to probate.

• The notice or waiver need not include a copy of the will and the order admitting it to probate if it includes a written 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 personal representative does not need to notify a beneficiary of a trust whose right to receive income distributions is at the sole discretion of the trustee if the trustee has given the notice to an ancestor of the beneficiary and there is no apparent conflict of interest between the ancestor and the beneficiary.  This change may offer some help in the case of trusts permitting distributions to all of a person’s descendants, but it will not help if the distribution standard is based on the health, education, maintenance and support needs of the beneficiary, since this is not a wholly discretionary standard.

SB 1198 clarifies that notices are not required if the will is probated as a muniment of title and that notices are not required to a person whose interest arises on the occurrence of a contingency which has not occurred.

The changes made by SB 1198 apply to the estate of a decedent dying on or after September 1, 2011.  The old law must be followed for persons dying before that date.

2011 Texas Legislative update

Glenn Karisch's 2011 Texas Legislative Update is now available here in pdf format. This covers all of the key probate, guardianship and trust law changes made in the regular and first called session of the 82nd Texas Legislature. Most of the changes become effective September 1, 2011. Subject-by-subject excerpts will be posted to this site shortly.

Bill Pargaman's excellent and comprehensive legislative update is available here in pdf format.  Bill's paper includes the full text of the Probate Code and Trust Code changes.

Sine die

The 2011 regular session of the Texas Legislature ended May 30, 2011. Governor Perry has until June 19, 2011, to sign or veto bills. While the legislature is meeting in special session as of this writing (June 8, 2011), it is unlikely that any probate, guardianship or trust legislation will be enacted in this or any other special session. Most enacted legislation becomes effective September 1, 2011.

There are summaries of each enacted bill in the 2011 Legislation portion of The Texas Probate Website. Bill Pargaman's excellent and comprehensive legislative update is available online here. Here are some of the key changes:

You won't have to file an inventory in most independent administrations.

SB 1198 amends Section 250 of the Probate Code to permit an independent executor to file an affidavit in lieu of an inventory if there are no unpaid debts, except for secured debts, taxes and administrative expenses, at the time the inventory is due. The independent executor still must prepare an inventory and send a copy to each beneficiary, but the public disclosure of the decedent's assets which results from filing a probate inventory will no longer be required in the vast majority of estates.

The testator and witnesses need to sign the will only once.

SB 1198 amends Section 59 to allow a combined execution of the will and self-proving affidavit so that the testator and witnesses are required to sign only once, instead of having to sign both the will and the self-proving affadavit. The old way still works, but this provides a new way to speed up will signings.

Survivorship accounts -- the worst part of Holmes v. Beatty is overruled. 

SB 1198 amends Sections 439 and 452 to make it clear that, for both community property and non-community property multiple party accounts, a survivorship agreement will not be inferred from the mere fact that the account is a joint account or that the account is designated as JT TEN, Joint Tenancy, or joint, or with similar language. The effective date provision makes it clear that this was intended to expressly overrule Holmes v. Beatty, 290 S.W.3d 852 (Tex. 2009).

Changes to Section 128A notices to beneficiaries.

SB 1198 amends Section 128A to make it easier on personal representatives. No notice is required if the beneficiary receives property worth $2,000 or less or if the beneficiary receives all property to which he or she is entitled within 60 days of the order admitting the will to probate. The notice need not include a copy of the will and the order admitting it to probate if the notice includes a summary of the gifts to the beneficiary, the court in which the will is probated and the docket number assigned to the case. The bill clarifies other issues about 128A notices.

Power of sale in independent administrations.

SB 1198 attempts to clarify whether or not an independent administrator has the power to sell real property. In cases where there is no will or the will does not give the independent administrator or executor the power of sale, Section 145A permits the distributees of the estate to agree at the time the personal representative is appointed to consent to granting the power of sale, in which case the court will include the power of sale in the order appointing the independent administrator or executor. Section 145C attempts to clarify in which cases independent executors have the power of sale.

Deadline to make disclaimers extended to match 2010 tax law.

SB 1197 and SB 1198 change the disclaimer provisions in the Trust Code and Probate Code, respectively, to extend the deadling for persons dying after December 31, 2009, but before December 17, 2010, until 9 months after December 17, 2010. The tax law enacted by Congress in December 2010 gave those decedents until that date to disclaim for federal tax law purposes, so the Texas law change matches the federal change.

Creditor protection for inherited IRAs.

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 similar cases across the country.

2011 Legislation

The 82nd Texas Legislature ended its regular session May 30, 2011. All probate, guardianship and trust bills passed during the session have been signed by the Governor, and most become effective September 1, 2011. One bill in the first called session (SB 1) contains guardianship changes and, as of July 8, 2011, was awaiting the Governor's signature. Each bill affecting probate, guardianship and trust law is listed below. 

All bills are labeled "Awaiting Governor's Signature," "Enacted," or "Did Not Pass."

Useful links: 

• Texas Legislature Online.

• Glenn Karisch's 2011 Legislative Update.

• Bill Pargaman's 2011 Legislative Update -- All of the bills, the full text of all of the changes to the probate and trust codes and helpful forms.

• Top Ten Things to Do Now -- Glenn Karisch's list of ten things estate planning and probate attorneys should do to address the legislative changes taking effect September 1, 2011.

Awaiting Governor's Signature: SB 1 (First Called Session) -- Transfers of guardianships

Caption: Relating to certain state fiscal matters; providing penalties.
Author: Duncan, Shapiro
Bill History
Bill Text

Relevance: In a rarity for probate and guardianship legislation, SB1 in the First Called (Special) Session makes some changes to the guardianship portion of the Probate Code. It is primarily a school finance bill, but it has been loaded up with provisions from bills which failed to pass during the regular session. It makes a number of changes to the provisions regarding transfer of guardianship proceedings (Sections 612, 613, 614, 615, 616, 617, 618 and 619), including requiring the guardian of a guardianship that is transferred to give a new bond payable to the court to which the guardianship is transferred or to file a rider to the existing bond noting the court to which the guardianship is transferred. (Section 614) The bill also requires the court to which the guardianship is transferred to conduct a hearing within 90 days to consider modifying the rights, duties, and powers of the guardian. (Section 619) SB1 also alters the procedures for dealing with interstate guardianships (Sections 892, 893, 894 and 895). New Section 895 provides a means for a court in which a guardianship proceeding is pending to determine if it is the most appropriate forum for the guardianship. 

Enacted-Effective 9/1/11: HB 3573 -- Disclosures about and eligibility of members of charity's board

Caption: Relating to limiting the disclosure of certain information regarding certain charitable organizations, trusts, private foundations, and grant-making organizations.
Author: King, Susan
Bill History
Bill Text

Relevance:  This bill prohibits a charity from disclosing certain information about officers, board members, trustees and members of the charity unless those persons give written consent to the disclosure.  It also prohibits a governmental entity from prohibiting an individual's service on a charity's board or as an officer of a charity based on the individial's donor status or familial relationship to a donor. The bill provides that it does not limit the authority of the attorney general to investigate or enforce laws in accordance with the attorney general's duty to protect the public interest.

Enacted-Effective 9/1/11: SB 1810 -- Inherited IRAs exempt from creditors

Caption: Relating to the exemption of certain retirement accounts from access by creditors.
Author: Carona
Bill History
Bill Text

Relevance:  This bill would make it clear that inherited IRAs are exempt from creditors' claims.  There are cases nationwide which have gone both ways on this issue. 

Enacted-Effective 9/1/11: HB 274 -- Civil trial issues

Caption: Relating to the reform of certain remedies and procedures in civil actions and family law matters.
Author: Creighton, and others
Bill History
Bill Text

The “loser pays” bill signed into law by Governor Perry may impact probate and guardianship practice in Texas.  The Legislature stripped many of the more controversial provisions from the final version of HB 274.  Earlier versions of the bill could have more significantly (and adversely) impacted Texas probate, guardianship and trust law practice.  The biggest problem for probate and guardianship lawyers in the final version is the potential for new Supreme Court rules that alter the way probate and guardianship actions are handled.

Under amendments to Section 22.004 of the Government Code, the Supreme Court must adopt rules that “apply to civil actions in district courts, county courts at law, and statutory probate courts in which the amount in controversy does not exceed $100,000.”  The rules “shall address the need for lowering discovery costs in these actions and the procedure for ensuring that these actions will be expedited in the civil justice system.”  While the Court is not permitted to adopt rules which conflict with the Family Code or the Property Code, there is no carve-out for conflicts with the Probate Code.  (The Property Code exception should apply in trust law cases since the Trust Code is part of the Property Code.)

The bill itself does not impose these new rules. Rather, it directs the Supreme Court to adopt rules.  Hopefully the Court will consider some if the unique aspects of probate and guardianship actions when making its rules. Still, there is a potential problem in these cases:

• Claims Practice.  The Probate Code already has an expedited way to handle claims against probate estates.  Most of those claims are under $100,000.  Will the rules provide a different way to handle these claims?  Will the rules be mandatory?

• Administrative Matters Not Involving an Amount in Controversy.  It seems clear that the new rulemaking authority was meant to address litigation seeking damages.  The statutory language is not limited, however.  There are other statutes addressing specialized procedures in litigation seeking damages, such as Chapter 42 of the Civil Practices and Remedies Code.  These statutes expressly limit their application to claims for monetary relief.  See, for example, Section 42.002(a) of the Civil Practices and Remedies Code. What happens if a party in an action to remove an independent executor under Section 149C of the Probate Code elects to follow a new procedure enabled by rules implemented under HB 274?

There are other provisions of HB 274 which may impact probate, guardianship and trust practice:

 

• The bill amends Section 51.014 of the Civil Practices and Remedies Code to make it easier to appeal interlocutory orders.

 

• The bill amends Section 42.001 of the Civil Practices and Remedies Code to add deposition costs to the list of litigation costs which the loser may be required to pay if a settlement offer is rejected under Section 42.003.

 

The bill becomes law September 1, 2011.

x-Did Not Pass: HB 2900 -- Guardianship transfers

Caption: Relating to guardianships.
Author: Hartnett
Bill History
Bill Text

Relevance: HB 2900 addresses transfers of guardianship (both intrastate and interstate) and the location where a hearing on a guardianship application may be held.

x-Did Not Pass: HB 2899 -- Decedents' estates

Caption: Relating to decedents' estates.
Author: Hartnett
Bill History
Bill Text

Relevance: This bill makes multiple changes to the decedents' estates portion of the probate code, including repealing Section 29 of the Probate Code, which exempted executors and administrators from the requirement to file an appeal bond, clarifying that there is no statute of limitations for determining heirship, permitting unsecured creditors to initiate probate proceedings (secured creditors already were permitted to do so), prohibiting severance of dueling will applications (both applications must be heard together), tinkering with the notice requirements for removal of independent executors and addressing the disposition of property distributable from an estate to an unknown or missing person.

Enacted-Effective 9/1/11: SB 1368 -- Authority of co-owner to encumber homestead property without consent of other co-owners

Caption: Relating to the authority of a co-owner of residential property to encumber the property.
Author: West
Bill History
Bill Text

Relevance:  This bill allows a co-owner of residential property claimed as the co-owner's homestead to place a lien on the property in certain circumstances.  The debt secured by the lien would be solely the obligation of the co-owner, but other co-owners could not repudiate or disaffirm the lien. This bill is intended to permit a co-owner who has paid all of the taxes on a property to create a lien to improve or preserve that property without the consent of other co-owners. This could come in handy in the case of property passing by intestacy to multiple heirs where only one heir occupies the property. 

Enacted-Effective 9/1/11: HB 2722 -- State Medicaid program is payor of last resort

Caption: Relating to the state Medicaid program as the payor of last resort
Author: Perry
Bill History
Bill Text

Relevance:  This bill requires the executive commissioner of the Texas Health and Human Services Commission to adopt rules to ensure that, to the extent allowed by federal law, the state Medicaid system is the payor of last resort and provides reimbursement only if, and to the extent, that other public or private sources of payment are not available.