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Texas Legislative Update -- 1999

A Report on Probate- and Trust-Related Legislation
In the 76th Texas Legislature

GLENN M. KARISCH
Barnes & Karisch, P. C.
2901-D Bee Caves Road
Austin, Texas 78746
(512) 328-8355/FAX (512) 328-8413
karisch@texasprobate.net
http://www.texasprobate.net
Copyright 1999 By Glenn M. Karisch, All Rights Reserved

Final End-of-Session Report

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Table of Contents

1. Legislation Affecting Decedents' Estates.

a. Judicial Discharge of Independent Executors.
b. New Citation Requirements for Probate Stale Wills.
c. Affidavit of Heirship Form.
d. Child Support Claims Given Priority in Decedents' Estates.
e. Other Decedents' Estates Legislation.

2. Legislation Affecting Guardianships, 867 Trusts and 142 Trusts.

a. Restoration of the Ward.
b. Attorney Ad Litem Certification.
c. Probable Cause for Court-Initiated Guardianship Proceedings.
d. Other Guardianship Legislation.

3. Legislation Affecting Probate Court Jurisdiction and Transfer Powers.

a. Consolidating the Transfer Power of Statutory Probate Courts.
b. Giving Statutory Probate Courts a Priority in Section 5(b) Transfers.
c. Outbound Transfers from Statutory Probate Courts.
d. Multi-County Statutory Probate Courts.
e. Probate Masters.
f. Harris County Probate Court Assignments.
g. No More Pseudo-Statutory Probate Court Jurisdiction for Nueces County.

4. Legislation Affecting Trusts.

a. Trust Venue Changes.
b. Nonjudicial Virtual Representation.
c. Delegation of Investment Authority by Trustee.
d. The Failed Charitable Beneficiary Bill.
e. The NIMCRUT Bill.
f. Protecting Charities Serving as Trustee From Suit.

5. Legislation Affecting Marital Property Rights - Family Harmony.

6. Other Legislation.

a. No More $3-and-$2 Filing Fees!
b. Statutory Probate Courts May Charge Extra $40 Filing Fee.
c. The Roth IRA Exempt Property Bill.
d. Relief for Write-Your-Own-Will Software Publishers from the Definition of the "Practice of Law."
e. Consolidation of Law Regarding Advanced Directives; New Statutory Forms for Medical Powers of Attorney and Directives to Physicians
f. Declarations for Mental Health Treatment.
g. Four-Year Statute of Limitations for Fraud and Breach of Fiduciary Duty.
h. Texas Tomorrow Fund Investments.
i. Rights of Survivorship for Automobile and Mobile Home Titles.
j. Driver License Restrictions for Incapacitated Persons.
k. Assignment of Lottery Winnings.
l. Clean-Up of Exemption From Creditors' Claims For Insurance.

APPENDIX A - 1999 Amendments to the Texas Probate Code

APPENDIX B - 1999 Amendments to the Texas Trust Code

APPENDIX C - Medical Power of Attorney Form (With Disclosure Statement)

APPENDIX D - Directive to Physicians and Family or Surrogates Form

APPENDIX E - Declaration of Guardian for Minor Children Form

APPENDIX F - Affidavit of Heirship Form

APPENDIX G - New Subchapter C of Chapter 4, Texas Family Code

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Texas Legislative Update -- 1999

The Texas Legislature met again in 1999 (don't they ever take a break?) and performed their magic on the statutes affecting probate, estate planning and trust law. Among the things lawyers practicing in these areas will have to digest in 1999 are:

New statutory forms for medical powers of attorney, directives to physicians and declarations of guardian for minor children, with the new forms to be used beginning September 1, 1999.

Transmutation of separate property into community property by agreement -- if the voters of Texas approve a constitutional amendment in November 1999.

The end of those dreaded $3 for the first page, $2 for additional pages for probate court filings.

A new procedure for obtaining a judicial discharge of independent executors.

This paper discusses some of the key changes. Attached to this paper as appendices are:

Appendix A Those sections of the Texas Probate Code which were amended, full-text, showing 1999 changes
Appendix B Those sections of the Texas Trust Code which were amended, full-text, showing 1999 changes
Appendix C New statutory form for medical power of attorney
Appendix D New statutory form for directive to physicians and family or surrogates
Appendix E New statutory form for declaration of guardian for minor children
Appendix F New statutory affidavit of heirship form
Appendix G New Subchapter C of Chapter 4, Texas Family Code

Much more information about the 1999 legislative session and its effects on the trust and probate area of practice can be found at the author's web site, http://www.texasprobate.net .

1. Legislation Affecting Decedents' Estates.

a. Judicial Discharge of Independent Executors. HB 1852 establishes a new procedure for obtaining a judicial discharge of independent executors. This was one of the Real Estate, Probate and Trust Law Section's ("REPTL's) top priorities for this session, and a compromise solution worked out with some of the statutory probate judges appears to give the section virtually everything it wanted.

HB 1852 enacts new sections 149D -- 149G. Section 149D requires the independent executor to distribute all of the estate property, except for "a reasonable reserve of assets that the independent executor may retain in a fiduciary capacity pending court approval of the final account." Section 149E authorizes the independent executor to file a declaratory judgment action seeking to discharge the independent executor "from any liability involving matters relating to the past administration of the estate that have been fully and fairly disclosed." Section 149E requires notice to each beneficiary (unless citation is waived) and authorizes the court to require the filing of a final account. (Note that the legislation would not require the filing of a final account in every case, just if the court asks for it. If no beneficiary objects, presumably the court would have no reason to ask for the accounting. Of course, the executor may decide the accounting is necessary to satisfy the "fully and fairly disclosed" requirement.) Section 149F provides for the payment of costs associated with the proceeding from the estate in most cases.

HB 1852 makes a corresponding change to the declaratory judgments act in the Civil Practices and Remedies Code.

The new judicial discharge provisions apply to the estates of decedents dying on or after September 1, 1999. It will be interesting to see if the courts allow the procedure to be used for estates of decedents dying prior to that time.

b. New Citation Requirements for Probate Stale Wills. HB 1852 enacts new Section 128B of the Probate Code. New Section 128B was added as part of a compromise between REPTL and some of the statutory probate judges. In 1997, legislation backed by the statutory probate judges enacted Sections 89A and 89B and renumbered Section 89C regarding probating a will as a muniment of title. While the legislative history of the 1997 legislation made it clear that no substantive change was intended, on its face the 1997 legislation called into question the ability to probate a will as a muniment of title more than four years after the testator's death. (Section 89B required proof that four years had not elapsed since the testator's death, even though Section 73 permits probate of a will as a muniment of title more than four years after death in some cases.)

In HB 1852 as originally introduced, REPTL tried to clear up the confusion caused by the 1997 legislation, but some probate judges opposed the clean-up effort, jeopardizing HB 1852. As a compromise, the probate lawyers group agreed to the addition of Section 128B to HB 1852 while dropping the Section 89A and 89B clean-up effort.

New Section 128B sets forth new citation rules when a will is to be probated more than four years after the testator's death. It requires notice to the testator's heirs (or, if a prior will was probated, to the beneficiaries under the prior will) of an attempt to probate a will more than four years after the testator's death. Section 128B makes no sense unless it is still possible to probate a will as a muniment of title more than four years after the testator's death, so the probate lawyers indirectly have accomplished one of their purposes -- assuring that the 1997 legislation did not take away that possibility. In so doing, however, REPTL had to accept this new citation requirement when probating stale wills.

Section 128B applies to the estates of persons dying on or after September 1, 1999. That means it will not apply to attempts to probate a stale will until at least September 1, 2003. The law in effect prior to the enactment of Section 128B (which did not include the new citation rules) applies to persons dying prior to September 1, 1999.

c. Affidavit of Heirship Form. SB 1106 enacted new Section 52A, setting forth a permissive (not mandatory) form for affidavit of facts concerning identity of heirs which can be filed for record and used as prima facie evidence of heirship under Section 52. The form is attached as Appendix F. The new form is for use on or after September 1, 1999.

d. Child Support Claims Given Priority in Decedents' Estates. HB 1348 gives "Class 4" priority to "claims for the principal amount of and accrued interest on delinquent child support and child support arrearages that have been confirmed and reduced to money judgment, as determined under Subchapter F, Chapter 157, Family Code." This puts them below funeral expenses, last illness expenses, administrative expenses and secured claims for money.

e. Other Decedents' Estates Legislation. Among the other provisions enacted in 1999 affecting decedents' estates are the following:

i. HB 1852 adops new Sections 221A and 221B to permit the designation of a new resident agent and the resignation of a resident agent, respectively, for a nonresident personal representatives.

ii. HB 1852 makes Probate Code Section 270 consistent with recent changes permitting home equity loans.

iii. HB 1136 cleans up the 1997 change extending the "free" probate filing period from 90 days after the application is filed to 120 days.

iv. HB 1142 authorizes county clerks to dispense with keeping "probate minutes" and to keep virtually everything electronically.

v. HB 1660 cleans up provisions regarding closing estates.

vi. HB 1661 cleans up provisions regarding neglecting to file a final account.

vii. HB 1176 requires the original signatures of the clerk and judge on exemplified probate records filed under Section 95 of the Probate Code (foreign probate).

2. Legislation Affecting Guardianships, 867 Trusts and 142 Trusts.

a. Restoration of the Ward. HB 1663 establishes procedures for hearings to determine if a guardianship should be terminated and a ward's rights restored. Prior to the 1999 change, Section 694A provided that a ward or any person interested in the ward's welfare may petition the court for a finding that the ward no longer needs the guardianship or that the ward has regained the capacity to do some, but not all, of the tasks required for full capacity. However, the prior statute did not provide answers for such important issues as the burden of proof and the standard of proof required.

HB 1663 fills in most of the gaps in the restoration of the ward proceeding. It provides for the appointment of an attorney ad litem and/or guardian ad litem, places the burden of proof on the party seeking restoration, and sets the standard of proof at a preponderance of the evidence (not the clear and convincing evidence standard needed to set up a guardianship in the first place). The bill bars the filing of restoration suits more frequently than once per year.

All in all, HB 1663 is a welcome addition to Texas's guardianship provisions. However, there is one potentially serious problem with HB 1663: The bill also amends Section 642 of the Probate Code to provide that a person who has an interest that is adverse to a "proposed ward or incapacitated person" may not "contest an application for complete restoration of a ward's capacity or modification of a ward's guardianship." At first glance, this seems to make sense -- Section 642 bars persons with adverse interests from participating in proceedings to appoint guardians, so why shouldn't such persons be barred from participating in proceedings to restore a ward? The problem is that the guardian almost always will have some interest which is adverse (or potentially adverse) to the ward, so the guardian may be barred from contesting the restoration. This could be horrible, since in many cases the guardian may be the only person with knowledge of the ward's continuing need for a guardianship and the only person in a position to advocate for the continued guardianship. I testified on this bill at the Senate Jurisprudence Committee, and the senators indicated that the legislature did not intend to bar guardians from participating in restoration proceedings simply because they serve as guardian and have inherent conflicts. This legislative history may be helpful if, as I expect, proponents in a restoration proceeding always try to knock out the guardian as a participant in the hearing.

HB 1663 takes effect September 1, 1999, and applies to restoration proceedings begun after that date, but the bill contains a mechanism for ongoing restoration proceedings to opt into the new rules.

b. Attorney Ad Litem Certification. HB 919 changes the certification rules for court-appointed attorneys in guardianship proceedings. The bill enacts new Section 647A, which requires all court-appointed attorneys in a guardianship proceeding (not just attorney ad litems) to be certified, requires a three-hour certification course (not four as used to be the case), and makes renewal certificates be good for four years, not two, if the attorney has been certified for four years in a row. The new rules take effect September 1, 1999.

c. Probable Cause for Court-Initiated Guardianship Proceedings. HB 2165 permits the court to require an information letter or physician's certificate to establish probable cause before appointing a guardian ad litem or court investigator to see if a guardianship is necessary. This will enable the court to avoid the expense and hassle of an investigation just because the neighbor calls and says so-and-so is crazy. In such a case, the judge can decide to do nothing unless the neighbor gives a detailed information letter about the alleged incapacitated person. HB 2165 also makes it clear that a guardian of the person can file his or her report under Section 743 without the assistance of a lawyer.

d. Other Guardianship Legislation. Among the other guardianship provisions enacted in 1999 are the following:

i. HB 1662 cleans up provisions regarding investment of guardianship assets.

ii. In order to prevent a gap in protection, HB 2164 permits filing for a guardianship for a minor who, because of incapacity, will need a guardianship after attaining age 18, prior to his or her eighteenth birthday.

iii. HB 2166 provides for the appointment of a family member or friend to replace a governmental entity or guardianship program serving as guardian. This will make it easier to get a family member or friend in as guardian and a governmental entity or guardianship program out as guardian in appropriate cases.

iv. HB 2795 requires the name of the proposed guardian or temporary guardian to be included in citation of a guardianship action if the proposed guardian or temporary guardian is not also the applicant. The bill also requires the temporary guardian to appear in court if the applicant is not the temporary guardian.

v. HB 3337 deletes unnecessary references to missing persons.

vi. HB 3338 changes the statutory form for declaration of appointment of guardian for minor children (Probate Code Section 677A) so that the declarant may specify whether or not they wish for the designated person(s) to serve with or without bond. The new form is attached as Appendix E.

3. Legislation Affecting Probate Court Jurisdiction and Transfer Powers.

a. Consolidating the Transfer Power of Statutory Probate Courts. After several years of confusion in the courts, and after attempts both to expand and constrict the power of statutory probate courts to transfer cases in the 1997 legislative session, the advocates of strong transfer power had a field day in the 76th Legislature.

Most of the large urban counties in Texas -- Harris, Dallas, Bexar, Tarrant, El Paso, Travis, Galveston and Denton -- have specialty probate courts. These "statutory probate courts" have greater authority than other courts hearing probate cases in the state. For example, these courts can hear trust cases, while "constitutional county courts" and "county courts at law" may not. One of the most significant special powers these courts have is found in Sections 5B and 608 of the Probate Code -- the power to transfer a case pending in another court to the probate court without the transferring court's permission. This "reach out and touch" jurisdiction was intended to promote the efficient administration of estates -- why should a whole probate proceeding be held up while a case involving the estate drags on in some district court somewhere when the probate court could hear it quickly and efficiently?

The 5B/608 transfer power has been the source of much litigation in the past 8 years or so. In In 1997, a floor amendment late in the session added the following to the definition of "appertaining to estates" in Section 5A of the Texas Probate Code: "; all such suits, actions, and applications are appertaining to and incident to an estate for the purposes of this section." The purpose of the 1997 change was to bring suits by or against a personal representative within the "appertaining to estates" definition so the Section 5B transfer power would apply. While the decision in Greathouse v. McConnell, 982 S. W. 2d 165 (Text App. -- Houston [1st Dist.] 1998, writ denied), went a long way to resolving the construction of the 1997 amendment in favor of an expansion of the transfer power, three problems remained from 1997:

The 1997 change to Section 5A only affected decedents' estates -- what about guardianships?

What in the heck does "for the purposes of this section" mean in the 1997 amendment?

What about third party claims -- can they be transferred along with a case "by or against" the personal representative?

The 1999 legislation resolves all three of these questions, and it does so precisely how the proponents of broad probate court jurisdiction could wish:

HB 778 deletes the confusing "for purposes of this section" language from Section 5B, as well as making other clarifying amendments to Section 5A.

HB 777 makes corresponding changes to Section 607, in effect making the same transfer rules apply in both decedents' estates and guardianships.

HB 2580 amends Section 5B and Section 608, providing that statutory probate courts may transfer any case in which the personal representative or guardian is a party, making it clear that third party actions can be transferred along with the case "by or against" the estate or guardianship.

b. Giving Statutory Probate Courts a Priority in Section 5(b) Transfers. Prior to the 1999 legislation, Section 5(b) (that's five little b, not five BIG B) required a constitutional county court judge to either transfer a contested probate proceeding to the district court or ask the presiding statutory probate judge to assign a statutory probate judge to hear the contested matter. The law was silent on which method is preferred and on how the decision is made. HB 1607 added the following to Section 5(b):

If the judge of the county court has not transferred a contested probate matter to the district court at the time a party files a motion for assignment of a statutory probate court judge, the county judge shall grant the motion and may not transfer the matter to district court unless the party withdraws the motion. A statutory probate court judge assigned to a contested probate matter as provided by this subsection has for that matter the jurisdiction and authority granted to a statutory probate court by Sections 5A and 5B of this code.

This would appear to give the contestant/defendant an advantage when it comes to forum selection. Consider this example: When the applicant files a will for probate, it is not a "contested matter" unless and until a contest is filed. If the contestant wants a statutory probate judge assigned, he or she can ask for this at the time the answer is filed, thus tying the local judge's hands. In this example, there's no way to head off such a motion. Perhaps the applicant could file a protective motion to transfer, in effect saying, "if there's a contest, I want a statutory probate judge to hear the case." At any rate, there's certainly now a premium on speed.

If there's a race between the parties on the transfer/assignment issue, note that the bill is tied to the actual transfer of the case to the district court, not the filing of a motion to transfer it there. Thus, if a party wants it transferred to the district court, it almost has to ex parte the judge and ask him or her to transfer it immediately -- if a hearing on the motion to transfer to district court is set, the other side will have a chance to file a motion for assignment to a statutory probate court, rendering the motion to transfer moot.

Obviously, this will mean that more contested probate matters get heard by statutory probate judges -- not a bad result, considering that the whole point of having statutory probate judges is to have judges experienced in probate matters hearing probate cases. This bill is likely to adversely affect the budgets of small counties, however, since the county apparently bears most or all of the cost of having a statutory probate judge hear a case.

The second sentence to be added to Section 5(b) is significant. The statutory probate judge hearing the case now brings his or her bag of jurisdictional tricks to the county when he or she hears the case. This will enable the court to hear ancillary matters which the constitutional county court lacked jurisdiction to hear. It also will allow the court to make Section 5B transfers to the court.

c. Outbound Transfers from Statutory Probate Courts. HB 1605 permits statutory probate courts to transfer cases to other courts when they lose jurisdiction. HB 1605 is effective September 1, 1999.

d. Multi-County Statutory Probate Courts. SB 1001 amends Chapter 25 of the Government Code to permit counties to band together to form multicounty statutory probate courts. This legislation is a good idea conceptually, but it requires the counties to agree on splitting the cost of the court. District courts are funded by the state, so multicounty district courts are easier to stomach for rural counties. It remains to be seen if a county will be willing to pay a portion of the cost for a statutory probate court while facing the possibility that the judge will not be a resident of the county.

e. Probate Masters. For the last few sessions, legislation permitting statutory probate courts to employ masters to hear probate cases has failed. This session the probate masters' bill (SB 294) made it into law.

The masters bill is modeled on family court masters. It places the burden on a county's commissioners' court to decide whether or not to fund masters. The Dallas County lobbyists apparently are paid to keep the burden to make such decisions off of the Dallas County Commissioners' Court -- they insisted that the bill have a provision in it saying it is inapplicable to Dallas County statutory probate courts.

f. Harris County Probate Court Assignments. HB 3854 changes the way in which probate cases are allocated among the various statutory probate courts of Harris County, presumably to make forum-shopping a little harder to do.

g. No More Pseudo-Statutory Probate Court Jurisdiction for Nueces County. SB 1150 gets rid of the special probate jurisdiction of the Nueces County courts at law. Nueces County has no statutory probate court, but it had a special jurisdictional statute giving each of its county courts at law the jurisdiction of a statutory probate court. That no longer is the case, effective September 1, 1999.

4. Legislation Affecting Trusts.

a. Trust Venue Changes. We have new venue rules for litigation involving trusts. The new venue rules were in the huge Interstate Banking Bill (HB 2066 by Rep. Marchant) and in a standalone bill -- HB 2317 by Rep. Hartnett. The venue provisions of both bills are identical, and both passed.

The new venue rules introduce the concept of "the situs of administration of the trust," rather than relying solely on the residence of the trustee or the principal office of a corporate trustee. "Situs of administration" is defined as "the location in this state where the trustee maintains an office that is primarily responsible for dealing with the settlor and beneficiaries of the trust." The definition also states that the "situs of administration may also be but is not necessarily the same as the principal office of a corporate trustee."

These bills make additional changes to Tex. Trust Code Sec. 115.002, but the gist of the changes is that a disgruntled trust beneficiary who has all of his or her dealings with the trustee in a remote office (for example, McAllen) is not required to bring the suit in the county where the trustee's principal office is located (for example, Dallas).

The new trust venue rules take effect September 1, 1999.

b. Nonjudicial Virtual Representation. HB 1475 permits the trustee to obtain approval of various actions via nonjudicial virtual representation. Texas law has long permitted trust beneficiaries with identical interests to contingent remaindermen to bind such remaindermen in judicial proceedings through the doctrine of virtual representation. HB 1475 takes this a step further, permitting the trustee to obtain binding agreements with beneficiaries which will bind remaindermen without the need for a court proceeding. New Section 114.032 provides that a written agreement between a trustee and a beneficiary, including a release, consent, or other agreement relating the a trustee's duty, power, responsibility, restriction, or liability, is "final and binding" on a beneficiary and "any person represented by a beneficiary" if the conditions stated in the statute are met. The statute requires the beneficiary to have "full knowledge of the circumstances surrounding the agreement" for the agreement to be binding.

The new virtual representation provision seems very broad, and the potential for trustee abuse seems great, but it does contain the following limitation:

This section does not apply to a written instrument that modifies or terminates a trust in whole or in part unless the instrument is otherwise permitted by law.

Since it cannot be used for modifications and terminations, I believe the most popular use will be to close the book on relatively minor trustee malfeasance. Consider this hypo:

Big Bank is trustee of a trust. The trust instrument prohibits investment in foreign securities. Through an oversight, Big Bank had invested in offshore stocks. When it discovers its error, it sells the stock, calculates any damages which resulted from the improper investments, and pays back the trust for the damages it calculated. Without the new statute, Big Bank could disclose to the current adult beneficiaries and obtain a release from them, but nothing short of a court action (such as a suit to settle its interim accounts) could bind unborns. Now, with the new statute, Big Bank can make an adequate disclosure, obtain releases from the adult beneficiaries and, assuming their interests are virtually represented, bind unborns.

c. Delegation of Investment Authority by Trustee. HB 1475 authorizes trustees to employ investment agents (Tex. Trust Code 113.018) delegate investment decisions (new Section 113.060). The banking/trust company lobby has been after this authority for two sessions now, and HB 1475 represents a compromise struck between the probate lawyers and the bankers.

As with many compromises, the delegation of authority provision has ended up being somewhat unattractive both from the trustee's perspective and the probate lawyers' perspective. The bill provides that the trustee remains responsible for the investment decisions of the agent unless he meets strenuous criteria, such as exercising appropriate judgment and care in selecting the agent and assuring that the agent is subject to the jurisdiction of Texas courts, is subject to the trust management and investment standards under Texas law and assumes responsibility for failing to follow that standard.

d. The Failed Charitable Beneficiary Bill. HB 115 permits the nonjudicial change of a charitable beneficiary in some cases. As originally proposed, HB 115 would have permitted nonjudicial designation of successor charitable beneficiaries (in cases where the named charity ceases to exist, for example) with the settlor's consent which did not have the same or similar purpose as the named charity. The attorney general negotiated that out of the bill, so that the new charity must have a same or similar purpose even if the settlor agrees. However, and almost inexplicably, the language agreed to by the AG permits the trustee/trust to recover attorneys fees and costs from the AG if the AG unreasonably objects to the charity selected by the trustee. If this doesn't seem to make sense, don't worry about it -- you should never encounter the problem addressed by this bill if you give the trustee the power to name new charitable beneficiaries in the event a named beneficiary ceases to exist.

e. The NIMCRUT Bill. HB 1373 adopts a new default rule for allocating income and principal for charitable trusts. The default rule for charitable trusts will be that an increase in the value of a deferred annuity before annuitization and a life insurance contract before the death of the insured over the value at the time the obligation was acquired by the trust is income. This makes it easier for net income makeup charitable remainder unitrusts (NIMCRUTs) to employ the so-called spigot technique -- a substantial portion of the NIMCRUT is invested in deferred annuity contracts, yielding no income in years when the noncharitable beneficiary needs no income and permitting the trustee to generate lots of make-up income in years when the noncharitable beneficiary wants lots of income. As originally introduced, the rule would apply to all trusts, but the bill was amended in the Senate Jurisprudence Committee to apply only to charitable trusts.

f. Protecting Charities Serving as Trustee From Suit. HB 3276 protects charities serving as trustees of trust from suit. This is a holdover from the 1997 session. A similar bill died in 1997 due to a parliamentary move on other legislation. This bill is part of the backlash caused by the charitable gift annuity antitrust litigation in Wichita Falls a couple of years back.

5. Legislation Affecting Marital Property Rights - Family Harmony. The Texas Academy of Probate and Trust Lawyers (the "Texas Academy") finally succeeded in passing a transmutation bill in 1999, but not without a lot of effort and a somewhat distasteful compromise.

Texas always has been the most conservative of the community property states when it comes to permitting the spouses to vary the community property scheme by agreement. (Remember Hilley v. Hilley?) Today the law is pretty clear that spouses can agree to partition community property into separate property, but our law does not permit the reverse -- conversion of separate property into community. Now spouses must rely on two community property principles -- the income from separate property is community rule and commingling (presumption of community property rule) to convert separate property into community. Since under current tax law both halves of community property get a stepped-up basis at death, there are times when creating community property by agreement makes sense.

For two sessions REPTL has tried to pass a bill which would permit spouses to agree to convert separate property into community property. Both times the probate lawyers group was thwarted by certain family lawyers within the state bar, making it impossible for the section to sponsor the legislation. The Texas Academy took up the battle in 1999. It dusted off the failed REPTL legislation, renamed it the "Family Harmony" bill and obtained a powerful House sponsor -- Rep. Toby Goodman of Tarrant County, Chair of the House Juvenile Justice and Family Issues Committee (through which virtually all Family Code legislation must pass).

The bill (which actually was two bills -- HJR 36, the necessary constitutional amendment, and HB 734, the enabling legislation amending the Family Code) sailed through the House but ran into trouble in the Senate. The trouble in the Senate resulted from another bill of Rep. Goodman's which the Academy opposed -- HB 2142, which would have radically altered the rules in Texas about community enhancements to separate property. The community enhancements bill would have greatly enhanced the ability of the nonmoneyed spouse to claim that increases in value of the separate property of the other spouse was community property, including an express legislative statement that the Legislature prefers the "enhancement in value" rule espoused in Anderson v. Gilliland, 684 S. W. 2d 673 (Tex. 1985), over the "reimbursement theory" expressed in Jensen v. Jensen, 665 S. W. 2d 107 (Tex. 1984). This may have been a boon to family lawyers, but it would have been a disaster for administrators of decedent's estates, who also would struggle with the loosey-goosey separate/community characterization issues presented.

For a while it looked like the Texas Academy may be able to defeat the community enhancements bill only at the risk of Family Harmony (pardon the bad pun, but it is hard to get humor out of probate legislation, and one must take one's opportunities when they present themselves). In the end, a watered down version of the community enhancements bill -- without the offensive anti-Jensen provisions -- was grafted onto the Family Harmony bill, which passed.

The Family Harmony constitutional amendment was approved by Texas voters on November 2, 1999. The new Subchapter C to Chapter 4 of the Texas Family Code – the Family Harmony enabling legislation which takes effect January 1, 2000 – is attached as Appendix G.

6. Other Legislation.

a. No More $3-and-$2 Filing Fees! HB 2822 may have the most significant impact on probate law practices. This bill replaces the old $3 for the first page and $2 for subsequent pages filing fee system in probate cases in favor of fixed filing fees for certain items (such as annual accounts) and FREE filings of everything else.

Forget esoteric legislative issues like community enhancements, 5B transfer power, etc. -- no more 3-and-2 filing fees? In Texas? In probate? That, my friends, is earth-shattering stuff. No more sending the runner to the courthouse with the wrong fee due to a miscount of pages. (Let's see, is the order a separate document, getting $3 for the first page, or just a continuation?) It is not clear if the $2 fee for the judge's signature requirement will remain. (That always seemed odd -- yes, the judge will sign the order, but it'll cost you $2 extra to file it.)

HB 2822 takes effect September 1, 1999.

b. Statutory Probate Courts May Charge Extra $40 Filing Fee. HB 1123 permits counties with statutory probate courts to charge an extra $40 filing fee in each probate, guardianship, mental health or civil case. A similar statute already applied to other courts, but now counties with statutory probate courts will be able to collect the extra fee as well.

c. The Roth IRA Exempt Property Bill. When Congress adopted Section 408A of the Internal Revenue Code permitting Roth IRAs, they threw the people of Texas a curveball -- Texas's exempt property statute for individual retirement accounts (Tex. Prop. Code 42.0021) defined IRAs by Internal Revenue Code section rather than by descriptive name and specifically provided that nondeductible contributions were not exempt.

Of course, by their very nature contributions to Roth IRAs are not deductible. Therefore, persons establishing new Roth IRAs and worse -- persons making rollovers to Roth IRAs -- may not have the protection of the exempt property statute.

HB 76 addresses this problem by adding "Section 408A" plans to the list and by stating that nondeductible contributions to a Roth IRA do not foul up the exempt status of the account. Finally, HB 76 provides that "[a]mounts treated as qualified rollover contributions under Section 408A, Internal Revenue Code of 1986, are treated as exempt amounts . . . ."

HB 76 was signed into law by Governor Bush and takes effect September 1, 1999, and by its terms applies to "all contributions made under Section 408A, Internal Revenue Code of 1986, before, on, or after the effective date of this Act." Nonetheless, creditors of a person making a big Roth IRA rollover before the enactment of HB 76 may argue that the rollover assets are not exempt because HB 76 is unconstitutional as it affects vested rights.

d. Relief for Write-Your-Own-Will Software Publishers from the Definition of the "Practice of Law." In February, Federal Judge Barefoot Sanders of Dallas banned the sale or distribution of "Quicken Family Lawyer" in Texas, saying that the program violates Texas's statute barring the unauthorized practice of law. In the case, brought by the Dallas unauthorized practice of law committee, the judge held that the program, which aids users in filling out wills, leases, and other legal documents, goes well beyond the mere provision of factual information about the legal system. To the author's knowledge, the Quicken Family Lawyer case remains pending.

Judge Sanders's decision directly led to the introduction of HB 1507, which excludes such products from the definition of "practice of law," clearing the way for those products to be sold in Texas.

e. Consolidation of Law Regarding Advanced Directives; New Statutory Forms for Medical Powers of Attorney and Directives to Physicians. SB 1260 recodifies Texas law regarding durable powers of attorney for health care, directives to physicians and out-of-hospital DNR orders into new Chapter 166 of the Health and Safety Code, entitled "Advanced Directives." The new Chapter 166 contains some common definitions that apply to all such directives, as well as subchapters on each type of directive. About the only health care directive not included in the recodification are declarations for mental health treatment.

While they were at it, the legislators changed two key disability planning forms. First, the old "Durable Power of Attorney for Health Care" has been renamed "Medical Power of Attorney," and it has just enough form changes to trip folks up. The new "Medical Power of Attorney" form and disclosure statement is attached as Appendix C. Please not that this is a mandatory form which must be used beginning September 1, 1999. The other statutory forms -- property power of attorney, directive to physicians, etc., are permissive, not mandatory, but the medical power of attorney must be "substantially" in the statutory form. My guess is that folks who are slow to switch over and use the old form after September 1, 1999, will be considered to "substantially" to have complied with the form, but there's no reason to risk it -- start using the new form effective September 1, 1999!

The other form change was to the venerable "Directive to Physicians" form. Apparently, the drafters did not want to make DTP fans jealous of the spiffy new "Medical Power of Attorney" form, so they renamed the directive to physicians, too -- it is now called by the noble title of "Directive to Physicians and Family or Surrogates." The new form is attached as Appendix D.   We can now call it the "DTPFS" or "DTPAFOS." In addition to a name change, the form now has a disclosure statement (similar to the medical power of attorney disclosure statement), a place for the principal to choose between two treatment options, and a place for the principal to designate an agent. However, the form tells the principal not to designate an agent on the DTPAFOS if a medical power of attorney has been used. All in all, the new form will make document signings more complicated, since there are more options for the principal. It will be interesting to see if attorneys get their clients to pre-choose these options so that the document signing goes fast or if they stumble over this during each signing ceremony.

The new DTPAFOS form is for use beginning September 1, 1999, but it is permissive, not mandatory, so the need to get up to speed on the new form is not as great.  The new form is attached as Appendix D.

f. Declarations for Mental Health Treatment. HB 1361 made changes to the statutes regarding declarations for mental health treatment, giving physicians an opportunity to withdraw from treating a patient if they do not agree with the treatments specified in the declaration and permitting deviations from the declaration in case of an emergency when the principal's instructions have not been effective in reducing the severity of the behavior that has caused the emergency.

g. Four-Year Statute of Limitations for Fraud and Breach of Fiduciary Duty. Prior to the enactment of HB 2456, it was unclear whether or not causes of action for breach of fiduciary duty were subject to the two-year or four-year statute of limitations. HB 2456 makes it clear that the four year statute of limitation applies. HB 2456 says that it just "clarifies existing law," so litigants can spin it however they choose for existing causes of action.

h. Texas Tomorrow Fund Investments. In 1997 the Probate Code was amended to permit investment of guardianship funds in the Texas Tomorrow college education fund with court approval. SB 112 which has been signed into law and became effective May 17, 1999, permits investments in the Texas Tomorrow Fund under Section 142.004 of the Texas Property Code and Section 868 of the Texas Probate Code. Therefore, lawsuit proceeds now can be placed in the Texas Tomorrow Fund under Section 142.004 without the need for a guardianship or trust under Section 142.005, and the trustee of an 867 trust is able to invest trust assets in the Texas Tomorrow Fund without court approval.

i. Rights of Survivorship for Automobile and Mobile Home Titles. Under prior law, only spouses could register automobile titles and mobile home titles with a right of survivorship -- so that the survivor automatically owns the car or mobile home without the need for probate. HB 381 now permits unmarried persons to have the same privilege. This may be useful in cases where an unmarried person's car is the only reason a probate or small estate affidavit is needed to clean up title on that person's death.

j. Driver License Restrictions for Incapacitated Persons. Under prior law, Transportation Code Section 521.201 provided that a person who has been adjudicated "mentally incompetent" cannot be issued a driver license. HB 3342 deleted "mentally incompetent" and substituted "totally incapacitated or incapacitated to act as the operator of a motor vehicle" in its place.

k. Assignment of Lottery Winnings. HB 1799 permits the assignment of lottery winnings (annuitized, not cash option) with the approval of the district court of Travis County. Assignments are not permitted in the last two years of the payout schedule, and the applicant must satisfy the Court that he/she understands the tax implications, etc.

l. Clean-Up of Exemption From Creditors' Claims For Insurance. HB 1805 cleans up inconsistencies between the Property Code and the Insurance Code regarding the creditor protection afforded insurance policies and proceeds. The legislative history makes clear that the changes are not intended to weaken the protection in any way.

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APPENDIX A - 1999 Amendments to the Texas Probate Code

APPENDIX B - 1999 Amendments to the Texas Trust Code

APPENDIX C - Medical Power of Attorney Form (With Disclosure Statement)

APPENDIX D - Directive to Physicians and Family or Surrogates Form

APPENDIX E - Declaration of Guardian for Minor Children Form

APPENDIX F - Affidavit of Heirship Form

APPENDIX G - New Subchapter C of Chapter 4, Texas Family Code

 

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