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.  texasprobate.com. 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.

REPTL bill tweaks independent administration

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. 

IRS releases a draft Form 709 for 2010 gifts

The Internal Revenue Service has posted a draft version of the Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return for gifts made during calendar year 2010. The draft is dated March 4, 2011, and can be seen here.

Since 2010 was, shall we say, an unusual year for gifts, it is helpful to see what the form may look like -- and not a moment too soon. The deadline for filing is April 15, 2011. While the deadline for filing a Form 706 federal estate tax return for decedents dying in 2010 was extended to September 19, 2011, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 did not extend the deadline for filing gift tax returns.

REPTL decedents' estates bill is worth a closer look

HB 2046 would make key changes affecting every estate planning and probate lawyer in Texas.

Rep. Will Hartnett (R-Dallas) filed HB 2046 Wednesday. This bill makes numerous changes to the Texas Probate Code that are supported by the Real Estate, Probate and Trust Law Section of the State Bar of Texas.

Signing wills just once

Among the highlights of HB 2046 is a new way to handle will executions in Texas. Current law requires the testator and two witnesses to sign the will and then, if the will is self-proved, to separately sign the self-proving affidavit.  HB 2046 amends Section 59 to provide the option of having the testator and witnesses sign a combined will and self-proving affidavit so that each only has to sign once. This is a holdover change from 2009. The 2009 bill failed to pass because of a legislative logjam at the end of the session.

This change, along with others made in 2009 regarding the execution of declarations of guardian, medical powers of attorney and directives to physicians, should speed up document signings. Old foagies who like the current two-signature method may continue to use it.

Independent administration changes

Another holdover from 2009 are changes to independent administration. REPTL proposed these changes to clarify Texas's independent administration statutes in anticipation of their inclusion in the new Estates Code which takes effect January 1, 2014. If HB 2046 passes, these changes would take effect September 1, 2011, and be carried forward into the Estates Code.

The proposed independent administration changes will be covered in a separate post.

No need to file an inventory

Living trust proponents frequently tout the increased privacy of those plans over will-based plans since in a will-based plan an inventory must be filed with the court.  HB 2046 would change this for independent administrations in cases where there are no unpaid debts, except for secured debts, taxes and administration expenses. In that case, the independent executor could file an affidavit in lieu of an inventory. The affidavit must state that the independent executor has provided each beneficiary with a "verified, full, and detailed inventory." 

The changes to Section 250 would not do away with the requirement of preparing an inventory; it would do away with the filing of the inventory in some cases.  Interestingly, under current law the personal representative is not required to provide a beneficiary with a copy of the inventory, although doing so is good practice. The new law would require delivery of a copy in order to avoid the filing requirement.

As filed, it appears that dependent administrators also could file an affidavit in lieu of filing an inventory. A change is in the works to limit this procedure to independent administrations, for obvious reasons.

Overruling Holmes v. Beatty

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.

Will Hartnett, Author of HB 2046HB 2046 overturns Holmes on the first of these points.  It would add 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. HB 2046 specifically states that the bill is intended to overturn the ruling of the Texas Supreme Court in Holmes v. Beatty. 

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.

Reasonable compensation for executors

Jose Rodriguez, Author of SB 1198The bill also would change the default basis for compensation of personal representatives of decedents' estates. Currently compensation is based on 5% of all sums received in cash plus 5% of all sums paid out in cash, subject to the limitations stated in Section 241. HB 2046 would replace this with a "reasonable compensation" standard. HB 1837 makes a similar change for guardianships. 

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