William D. Pargaman 2013-08-27 03:04:26
THIS ARTICLE CONTAINS A SUMMARY OF STATUTORY CHANGES AFFECTING DECEDENTS’ ESTATES, GUARDIANSHIPS, TRUSTS, POWERS OF ATTORNEY, AND OTHER AREAS OF INTEREST TO ESTATE AND PROBATE PRACTITIONERS THAT PASSED IN THE TEXAS LEGISLATURE’S 83RD REGULAR SESSION. Due to space constraints, not all changes in these areas are discussed. However, a more-detailed version of these materials, including a list of effective dates, is available on the website of the author’s law firm at snpalaw.com/resources/2013legislativeupdate. OUT WITH THE OLD AND IN WITH THE NEW The new Texas Estates Code, enacted in 2009 and 2011, replaces the existing Texas Probate Code on Jan. 1, 2014. Our existing Probate Code, enacted in 1955, is not considered a “code” under the Legislature’s comprehensive program that organizes Texas statutes into 27 codes that began in 1963. The Probate Code was one of the last statutes to be “codified.” The effective date of the new Texas Estates Code was delayed until 2014 to allow the 2013 Legislature to make any necessary “last-minute” corrections and additions to the Estates Code. To this end, general code update bills were passed in 2011 (S.B. 1303) and 2013 (S.B. 1093) to incorporate substantive changes to the Probate Code made in prior sessions. THE REPTL 2013 DECEDENTS’ ESTATES BILL (H.B. 2912)1 The REPTL decedents’ estate package contains a number of significant changes. Self-proving Affidavits Chapter 132 of the Texas Civil Practice and Remedies Code was revised in 2011 to allow (with limited exceptions) the broad use of an unsworn written declaration made under penalty of perjury in lieu of most sworn declarations, verifications, certifications, oaths, or affidavits. A 2013 change to the Estates Code eliminates the use of unsworn declarations for self-proving affidavits in wills and codicils. A 2011 change expanding the recognition of foreign self-proving affidavits is clarified to eliminate a possible misinterpretation that it supplanted the normal self-proving affidavit requirements for a Texas will. Heirships • A 2010 Supreme Court ruling that applied the residual four-year limitations period to an heirship proceeding is reversed; there will be no statute of limitations. • All creditors (not just secured creditors) will be able to initiate heirship proceedings. • An applicant must file an affidavit or attorney’s certificate to the effect that all required notices were given to interested parties. The court may not enter a final order until that affidavit or certificate is filed. • The Family Code Section 160.505 presumption (regarding establishment of a parent-child relationship by genetic testing) will apply to genetic testing in heirships. Inventories (or Affidavits in Lieu) • An affidavit in lieu may be filed even if the will contains common language directing the filing of an inventory. A testator who wants to require the filing of an inventory must include language specifically prohibiting the filing of an affidavit in lieu. • An executor cannot be held liable for choosing to file the affidavit, or choosing to file an inventory. • The same remedies available for an erroneous or unjust inventory are made available for affidavits in lieu. • A court may fine a representative (including an independent representative) up to $1,000 for failure to file an inventory (or an affidavit in lieu) after citation and hearing. • A successor representative’s inventory should only list the undistributed assets remaining (and their value) on the date of qualification if a previous representative has already filed the standard date-of-death inventory. Removal of Independent Executor The notice requirements for removal of an independent executor are revised. An executor may be removed without notice if missing, eluding notice, a nonresident without a resident agent, or misapplication or embezzlement of estate property. An executor may be removed with notice by certified mail in cases where the executor fails (in a timely manner) to (1) qualify, or (2) file either an inventory or an affidavit in lieu. Personal service is still required for other removal grounds. Application of Texas Law to Nontestamentary Transfers If more than 50 percent of a nonprobate asset is contributed by a Texas resident, then the validity of any survivorship provisions is determined by Texas law. This change is intended to overrule the holding in McKeehan v. McKeehan, 355 S.W.3d 282 (Tex. App.—Austin 2011, no pet. h.), which gave effect to a Michigan choice-oflaw provision in an account agreement. The bill provides this change represents “fundamental policy” of Texas, bolstering any conflict-of-laws issues. Exclusion From Expedited Action Rules Actions under the Family or Property codes (including trust cases) were excluded by statute in 2011 from the Supreme Court’s rules expediting “smaller” lawsuits. Revisions to the Texas Estates Code will preclude application of those rules to probate or guardianship proceedings. OTHER DECEDENTS’ ESTATES CHANGES H.B. 2621 prevents a disclaimer of property by a beneficiary who owes child support if the disclaimed property could otherwise be applied to satisfy the obligation. H.B. 2380 amends the 2009 forfeiture clause enforceability provisions. Instead of being unenforceable if there is just cause and good faith, the forfeiture clause will be enforceable unless the person bringing the action contrary to the forfeiture provision establishes the same two facts by a preponderance of the evidence. The bill’s supporters thought a clarification of who had the burden of proof was necessary. (The identical change is made to both current Probate Code Section 64 and Trust Code Section 112.038 and the Texas Estates Code Section 254.005.) A 2012 Houston Court of Appeals decision2 listed 12 different types of action that do not trigger forfeitures. In connection with this list of non-forfeiture- triggering actions, remarks were read into the Senate Journal3 to clarify that the bill does not overturn this aspect of Texas law. THE REPTL GUARDIANSHIP BILL (H.B. 2080) The REPTL Guardianship Bill contains a number of significant changes. Payment of Filing Fees The original applicant is responsible for the initial filing fee (including any ad litem deposit) unless the applicant (not the ward) is indigent or is a government or nonprofit agency providing guardianship services. The applicant may later seek reimbursement from the guardianship estate, if any. Permissive Appointment of Attorney Ad Litem The ability of a court to appoint an attorney ad litem in a guardianship proceeding to represent the interests of persons other than the ward is expanded. Protection of Persons From Family and Other Violence Orders protecting certain personal information in a Family Code proceeding will automatically carry over to guardianship proceedings. A presumption is created against the appointment of a person convicted of a terroristic threat or continuous violence against the family of the ward. And a person found to have committed family violence while subject to a protective order under the Family Code may not be appointed guardian of a proposed ward or ward who is protected by the order. Contents of Information Letter An “interested person” submitting an information letter under the Texas Estates Code Section 1102(1) must include the items listed in Section 1102.003 “to the best of the interested person’s knowledge.” Further, if the sender is a family member, it must be sworn to or include an unsworn declaration. Attorneys’ Fees and Other Costs A court may assess attorneys’ fees and costs of a guardianship against a party acting in bad faith or without just cause. Contents of Order Appointing Guardian Orders appointing a guardian of the person must contain the rights of the guardian with respect to physical possession of the ward and establishment of the ward’s legal domicile, along with a prominently displayed statement that any peace officer may use reasonable efforts to enforce those rights of the guardian, with immunity for good faith acts. Management Trusts for Persons With Only Physical Disabilities (Including Changes Made by the Legislative Council’s General Code Update Bill) A number of changes are made that ease the requirements of management trusts for persons with physical disabilities only to recognize that those persons have the capacity to oversee the actions of their trustee themselves, and may not need the protections (with their concomitant expense) afforded to incapacitated persons. THE REPTL TRUSTS BILL (H.B. 2913) Creditor Protection for Trusts Appointed Back to Original Settlor Under current law, if a settlor gives a beneficiary a power of appointment, and prior to the trust’s termination the beneficiary exercises that power to appoint the property back to a new trust for the original settlor (e.g., at the beneficiary’s death), under common law applicable to trusts, the beneficiary is merely exercising a power originally delegated by the original settlor, and the latter may be considered both the settlor and beneficiary of the new trust. Trust Code Section 112.035 would provide no spendthrift protection for the settlor’s interest in the new trust, exposing the trust to both creditors (currently) and estate tax (at the settlor’s death). This change provides that an original settlor won’t be considered a beneficiary of the new trust merely because of the exercise of a power of appointment by a third party (i.e., the beneficiary of the original trust). Decanting New statutory decanting provisions supplement any similar provisions in a trust, unless the settlor expressly prohibits decanting. (A standard spendthrift clause is not sufficient to prohibit decanting.) The following is an extremely condensed summary of the decanting provisions: • A trustee with “full discretion” (i.e., a power that is not limited in any manner) may distribute principal to another trust for the benefit of one or more of the current beneficiaries of the first trust. • A trustee with “limited discretion” (i.e., a power that is limited in some way) may distribute principal to another trust, but the current, successor, and remain- der beneficiaries, and the distribution standards, must remain the same. • The trustee must act “in good faith, in accordance with the terms and purpose of the trust, and in the interests of the beneficiaries.” • A trustee may not exercise a decanting power if it would (1) reduce a beneficiary’s current right to a mandatory distribution or to withdraw a portion of the trust; (2) materially impair the rights of any beneficiary; (3) materially lessen a trustee’s fiduciary duty; (4) decrease the trustee’s liability or indemnify or exonerate a trustee for failure to exercise reasonable care, diligence, and prudence; (5) eliminate another person’s power to remove or replace the trustee; or (6) modify the perpetuities period (unless the first trust expressly permits this modification). • A trustee may not exercise a decanting power without court approval solely to change the trustee compensation provisions, but those provisions may be modified without court approval if made in conjunction with other valid reasons for decanting and the change raises the trustee’s compensation to reasonable limits in accord with Texas law. • No “duty to decant” is created. • A trustee may ask a court to order the distribution. If a beneficiary timely objects to a proposed decant, either the trustee or the beneficiary may petition to court to approve, modify, or deny the power. Trust-related Tax Code Changes Most irrevocable trusts will now be “qualifying trusts” eligible for the ad valorem tax homestead exemption if the beneficiary has a qualifying occupancy interest. That qualifying interest may be granted in an instrument transferring property to the trust or any other agreement binding on the trustee if the language isn’t found in the trust itself. The beneficiary no longer need be the “trustor” or the trustor’s spouse. Also, transfers of vehicles to and from revocable trusts will be eligible for the $10 “gift tax.” Clarification of Venue for Trust Proceedings (Trust Code Section 115.002) There is no venue change if there is a single, noncorporate trustee, or one or more corporate trustees. However, if there are multiple noncorporate trustees4, venue will be proper either in a county where the trust has been administered at any time during the preceding four-year period or (1) if the trustees maintain a principal office in Texas, or (2) if the trustees do not maintain a principal office in Texas, a county where any trustee has resided at any time during the preceding four-year period. POWER OF ATTORNEY CHANGES HB 2918 adds a notice to the principal and detailed instructions for the agent regarding his or her duties and liabilities to the statutory form for financial powers of attorney. In addition, instead of the principal crossing out “ungranted” powers, the bill reinstates the original method we had from 1993 to 1997, requiring the principal to initial the “granted” powers, with a twist noting that the principal may, but doesn’t have to, cross out the “ungranted” powers.5 SB 651 (the REPTL Medical Power of Attorney Bill) modifies the required disclosure statement for a medical power, and the statutory form itself, to conform with a 2009 change allowing acknowledgment before a notary, instead of two witnesses. EXEMPT PROPERTY CHANGES Among other changes, SB 649 (the REPTL Exempt Property Bill) adds references to both Roth IRAs and inherited Roth IRAs to the Property Code list of exempt savings plans, along with nondeductible (but otherwise permissible) contributions to traditional IRAs. HB 789 increases the allowance in lieu of homestead from $15,000 to $45,000, and the allowance in lieu of other exempt property from $5,000 to $30,000. NOTES 1. While several bills are identified as “REPTL” bills, all but one of those bills incorporated additional non-REPTL proposals by the time they passed. 2. Di Portanova v. Monroe, __ S.W.3d __ (2012 WL 5986448) (Tex. App.—Houston [1st Dist.] 2012, no pet.) 3. Senate Journal, 83rd Legislature—Regular Session, 61st day (5/17/13), pp. 1962-1963. 4. The language REPTL requested for (b-1) and (b-2) was “multiple trustees, none of whom is a corporate trustee.” However, Legislative Council changed this language to “multiple noncorporate trustees.” This language opens up the possibility of overlap between subsections (b-1) or (b-2) and subsection (c) if there are multiple noncorporate trustees and at least one corporate trustee. Correction of this overlap will likely be included in the REPTL 2015 Trusts package in order to carry out the original intent. 5. The statutory form is completely optional. While the new notices may be a prudent addition, attorneys who prefer the cross-out method may continue to use that in their forms. WILLIAM D. PARGAMAN is a partner with the Austin law firm of Saunders, Norval, Pargaman & Atkins, L.L.P., is certified as a specialist in estate planning and probate law by the Texas Board of Legal Specialization, and is a fellow in the American College of Trust and Estate Counsel. He has been chair of the Estate and Trust Legislative Affairs Committee of the Real Estate, Probate, and Trust Law Section of the State Bar of Texas since the 2009 legislative session and became treasurer of REPTL this summer.
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