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1999 Legislation:

STATUTORY PROBATE JUDGES' RESPONSE TO
EARLY DRAFT OF 1999 LEGISLATIVE PROPOSALS
OF THE REAL ESTATE, PROBATE AND TRUST LAW SECTION

An early draft of the Proposed 1999 Legislation of the Real Estate, Probate and Trust Law Section of the State Bar of Texas was provided to the judges of the statutory probate courts in Texas for their review and comment.  Following is Judge Guy Herman's response to these proposals.  Judge Herman is Presiding Statutory Probate Judge.  

Click here to see the Proposed 1999 Legislation of the Section which was finally approved on October 24, 1998.  Please note that Judge Herman's comments addressed an earlier draft.  Some of Judge Herman's comments were heeded and resulted in changes from the earlier draft.  Nevertheless, a review of Judge Herman's letter gives some clues to where the debate may center when the Legislature convenes in 1999.

Editorial notes in green type are those of Glenn M. Karisch of Barnes & Karisch, P. C., Austin, Texas, sponsor of the Texas Probate Web Site.  Thanks go to Judge Herman for giving permission for this letter to be reproduced on this site.

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STATUTORY PROBATE COURTS
STATE OF TEXAS

Guy Herman, Presiding Statutory Probate Judge

P.O. Box 1748, Room 217
Austin, Texas 78767
(512) 473-9258
Fax: (512) 708-4418

July 27, 1998

KaLyn Laney
State Bar of Texas
Governmental Relations Department

Re: Real Estate Probate and Trust Law Section's 1999 Legislative Agenda

Dear Ms. Laney:

As expected, our state's statutory probate courts have many common areas of interest with the Real Estate, Probate and Trust Law Section of the State Bar. As Presiding Judge of the Statutory Probate Judges of Texas, I appreciate the opportunity to express my and my colleagues' thoughts on the Section's proposed 1999 legislation. I must apologize for my comments not being submitted earlier in the process, but the Section's draft proposals were not submitted to me until June 26, 1998. I then had to send the draft proposals to the statutory probate judges for their comments. None of us judges have seen the final versions of these proposals; therefore our comments are to the drafts enclosed as an attachment.

89A Contents of Application for Probate of Will as Muniment of Title
89B Proof Required for Probate of a Will as a Muniment of Title

[Click here to link to these sections of REPTL's Proposed 1999 Legislation.]

Statutory probate judges from Bexar, Dallas, E1 Paso, Harris, Tarrant, and Travis Counties have indicated their strong opposition to these two proposals. The current versions of these two sections were enacted during the last legislative session as part of a compromise package the statutory probate judges had with State Representative Senfronia Thompson regarding the probating of smaller estates. [Click here to link to HB 2007 from the 1997 legislative session; click here to link to Glenn Karisch's discussion of HB 2007.]  Representative Thompson, Chair of the House Judicial Affairs Committee, has always been concerned with the costs of probate to families of meager financial means. Some years ago, she sponsored legislation commonly known as "informal probate" that was enacted into law. "Informal probate" was an attempt to address the high cost of probate by creating a mechanism for a layperson to probate a smaller estate pro se. In actuality, "informal probate" was complicated and expensive as it often required the aid of a lawyer. It was also a burden on the courts and the county clerks as laypersons using "informal probate" wanted guidance from the courts and the clerks' offices in the art of "informal probate". The statutory probate judges, being well aware of the cost concerns many people have with probate, worked with Representative Thompson to find an alternative that would address her concerns. The result was legislation in which Representative Thompson would agree to repeal her "informal probate" if the statutory probate judges would support new legislation that, besides other changes, added two new muniment of title sections to the Probate Code. One of these was an application requirement section and the other was a proof section. The result was two new sections in the Probate Code that would allow a layperson better to understand a common method of probating a will that formerly was only mentioned in passing in the Code. The application provisions came from a suggested form written by the State Bar. The proof provision tracked State Bar practice forms as well. Obviously, they promulgated these forms with the general situation in mind and could not address every conceivable circumstance. The Legislative Council drafted these sections as general application and proof provisions. The application provision contained in 89A addresses those situations where one cannot meet the general pleading requirement by inserting a provision that allows deviation from the general pleading rules while the proof provision in 89B is designated as a general proof provision. Clearly, the author of this legislation recognized that there would be times when the specific circumstances might override the general situation. Certain probate lawyers raised the issues underlying the Section's proposals regarding muniments of titles with members of the House Judicial Affairs Committee last session. The Committee rejected the concerns as unfounded. The State Bar should not inject itself into this matter as it interferes with a legislative compromise that the statutory probate judges reached with a legislator.

Even if one believes it appropriate for one group not party to a compromise to change the result later, the Section does not have a good policy argument for their suggested change. These proposals would amend the muniment of title pleading and proof provisions to allow muniments for reasons other than allowed under current law. The statutory probate courts, and most probate courts we are aware of, generally limit their admission of wills into probate as muniments of title to those estates not having any debts other than those secured by liens on real estate, unless the debts are barred by limitations or meets the requirements under 139 of the Probate Code. These latter two situations and the circumstance when a creditor has agreed to a transfer of the decedent's debt obligations to another are the only reasons that come to mind for a probate court to find in its muniment order that there is a reason of no necessity of administration other than there are no debts or the only debts are those secured by liens on real estate. This reference in the court order provision of 89C allowing the probate court to admit into a probate as muniment of title when the court "for other good reason finds that there is no necessity for administration" does not need to be brought into the pleading and proof sections for muniments for many reasons.

First, many would construe such a change as a change in the current law and would use the amendment to argue that the change was meant to add to the existing reasons set out above for the probating of a will as a muniment. Rest assured, the Section's proposed amendments would most likely open the floodgates to additional muniment applications, only limited by what an attorney's or a pro se's imagination could construe as another reason that no administration is necessary. Second, even if not construed as a change in existing law, the judges are concerned that the proposals will bring attention to what is already the law, i.e., there are a few limited situations other than no debts or debts secured by liens in which a court, in its discretion, might exercise its authority by finding no necessity for an administration when admitting a will. In either event, the statutory probate judges foresee these proposals as requiring additional, unnecessary court time examining "other reasons" that will be suggested and the necessary discussions that will follow when the "other reason for no administration" is rejected by the court.

Overall, we judges believe that these proposals result from a misconception about the new muniment pleading and proof provisions. Certain attorneys apparently believe that the new muniment statutes are unclear and do not adequately address the "multitude" of instances where no administration is necessary. None of the statutory probate judges have informed me of any problems resulting from last session's muniment legislation. Because of the potential problems the Section's proposed legislation would create and the lack of a "problem" needing correction, the statutory probate judges are resistant to further tinkering with the statute to appease a small minority of practitioners who think there is a problem.

On another note, one change proposed to the pleading requirements of 89A would also remove the requirement of listing the social security number of the applicant and the decedent in the application for muniment of title. Although the statutory probate judges were not opposed to removing this requirement from the applications for letters testamentary during the last session, the judges now have concerns about removing the requirement from the muniment provisions. Some judges have heard complaints from county clerks throughout the state regarding an unforeseen side effect of the removal of decedent social security numbers from letters testamentary. Apparently, the listing of the decedent's social security number was a useful tool for county clerks in updating voter registration records. The social security numbers were compared against similar names in the voting records to determine which names should be removed from the list. Many county clerks have commented directly to me that they do not wish to see this tool further eliminated by removing the requirement in muniments or would like a solution to the problem created by the previous legislative deletion of the requirement to plead social security numbers.

270 Liability of Homestead for Debts

[Click here to link to this section of REPTL's Proposed 1999 Legislation.]

The Statutory Probate Judges agree that this is appropriate legislation considering the recent constitutional amendment regarding home equity loans.

149D (New) Final Account of an Independent Executor

[Click here to link to this section of REPTL's Proposed 1999 Legislation.]

Statutory Probate Judges from each county with statutory probate courts are strongly opposed to this proposal for several reasons. First, this proposed legislation would eliminate the current limitations period (except in cases of fraud) governing the actions of Independent Executors by allowing Independent Executors to terminate their liability by having court ratification of the propriety of their actions during the administrations by the filing of a Final Account. We judges do not believe it appropriate to shorten the current limitations period for breach of fiduciary duty, especially when the court-appointed fiduciary is operating without supervision by the appointing court. Independent Administrations are currently conducted under the Texas Probate Code with no direct court supervision. Under proposed new 149D, an Independent Executor is allowed a discharge of liability for all the Independent Executor's actions, even though the court had no supervisory control during the administration. We know of no policy reason that would justify shortening the limitations period.

Second, the provision does not even allow the Court to question the proposed final account if no interested person contests the application for final account. The proposal provides that the court "shall enter an order approving such final account and discharging the independent personal representative from any or all liability . . . without review or audit of such account" when no interested person contest the final account. Only if an objection is filed will the court conduct a hearing to examine the final account. Both alternatives are highly undesirable. If no objection were filed, the Court would be forced to approve a final account regardless of how inaccurate or improper the account appeared, releasing the personal representative from liability and denying interested persons the standard statute of limitations often needed to determine whether an Independent Executor's actions should be challenged. If an objection was filed, the Court would need to conduct a full scale audit of an estate's numerous financial activities during a limited time frame. In a dependent administration or a guardianship, the court is conducting its financial audits on an annual basis and reviews actions of the dependent administrator and guardians as the action is taken. Thus, the final account of the dependent administrator or guardian is made easy by the earlier supervision of the court. It is quite different with a unsupervised administration. Actions taken over a lengthy period of time that are unsupervised by the court would be difficult to audit. The more complicated the estate, the more detailed and time-consuming the court's review would need to be.

Finally, the state's court system could easily be burdened by the addition of applications filed under the proposed provision by fiduciaries seeking to absolve themselves and by objections filed in response by beneficiaries simply to toll the application of the statute while the beneficiaries proceed with discovery. Such an additional workload demand could overwhelm all counties, and would be especially troublesome to smaller counties that do not have statutory probate courts or that much familiarity with complicated auditing procedures. The Statutory Probate Courts would probably need additional personnel merely to comply with the auditing provisions of proposed 149D. All courts would also undoubtedly have to spend additional time to ensure that the Independent Executor complied with proper notice to all beneficiaries.

Overall, the proposed legislation appears to allow an Independent Executor and his or her attorney the best of both worlds to the detriment of beneficiaries and creditors. Most practitioners and judges believe that Texas' system of independent administration to be an marked advancement over the probate systems of other states. Its basic underpinning is the lack of court involvement in the affairs of administration and this non-court intervention concept extends over a period of time. There are several statutory prohibitions against beneficiaries or creditors invoking the protections of the court system until a considerable period of time has passed. It does not seem fair to allow an Independent Executor to operate outside the supervision of the court for long periods of time and then to invoke the court's protections (and blessings) whenever the fiduciary finds it convenient. Under the proposed statute, an Independent Executor could flaunt the provisions of the probate code, and escape responsibility if no one complained within 90 days of the filing of the final account.

378B Allocation of Income and Expended During Administration of Decedent's Estate

[Click here to link to this section of REPTL's Proposed 1999 Legislation.]

The Statutory Probate Judges have no position on this proposal, but only wonder why we are just figuring out that Texans have been paying more in taxes under the old provision. It should be noted that a reduction in federal estate taxes paid will probably result in a reduction of state estate taxes paid.

42.0021 Additional Exemption for Retirement Plan

[Click here to link to this section of REPTL's Proposed 1999 Legislation.]

The Statutory Probate Judges have no position on this proposal.

221A (New) Resignation of Resident Agent
222 Removal (of non-resident personal representative without resident agent)
760A (New) Resignation of Resident Agent
761 Removal (of non-resident guardian without resident agent)

[Click on the following section numbers to link to the corresponding sections of REPTL's Proposed 1999 Legislation:  221A; 222; 760A; 761.]

The Statutory Probate Judges are not opposed to these proposals, but some statutory probate judges would suggest that the address of the personal representative be included in the filed designations of successor resident agents proposed by 221A and 760A. [Editor's Note:  This suggestion was adopted by REPTL.]

865 Power to Make Tax-Motivated Gifts

[Click here to link to this section of REPTL's Proposed 1999 Legislation.]

The Statutory Probate Judges have no position on this proposal, but certain statutory probate judges have questioned the need for such an amendment. These judges believe there is not a problem needing to be addressed, as only a very limited number of guardians avail themselves of the power to make such gifts.

867 Creation of Management Trust
868A Discharge of Guardian of Estate and Continuation of Trust

[Click here to link to these sections of REPTL's Proposed 1999 Legislation.]

Statutory Probate Judges from each county with a statutory probate court are opposed to these proposals as they would potentially allow individuals to reach a person's assets without due process of law. State interference with a person's property under whatever guise one wishes to invoke requires notice and hearing. Our state's guardianship laws are founded around this premise and the provisions allowing courts to create trusts over guardianship property under certain limited circumstances were based on the idea that the due process concerns of removing property rights of individuals was best addressed in the guardianship creation context. Having a hearing after notice to the proposed ward and those interested in the proposed ward, representation of the proposed ward by an attorney, and a heightened burden of proof were thought to be minimum standards of due process that an individual losing his liberty and/or property rights was entitled to. The court-created management trust concept was acceptable to some judges under the belief that the guardianship creation process would continue before the issue of management trusts would arise. The due process concerns of the judges would be satisfied by the guardianship laws built-in procedures. The end result would be the appointment of a guardian of the person or estate who would owe a fiduciary duty to the ward either directly as guardian of the estate or as guardian of the person. The creation of a management trust under the current provisions does not interfere with this fiduciary duty. It places a fiduciary duty upon a second party, the trustee. The Section's proposal would remove the fiduciary duties imposed on the proponents of the court-created trust and place them solely on the trustee. This is not a good idea because has the potential of defrauding creditors and it removes another line of defense available to those whose property rights have been removed.

Under proposed 867(a)(4), any interested person may file to create a management trust for a proposed ward (before the guardianship is created). The order that creates the management trust can then be used to receive any money or property owed to the ward. Under the proposed amendment, a practitioner could obtain this order and transfer funds into the management trust without ever creating a guardianship, thus circumventing the desires of the court and any later named guardian of the estate. Such allowed transfers would also give the trustee the opportunity to defraud creditors since the proposed revisions have no notice provisions for creditors; the same creditors are afforded due process and notice under the current statute requiring the creation of a guardianship.

Many statutory probate judges are also opposed to the proposed 868A revisions because of the lack of court supervision that would exist after a guardian was discharged under the proposal. Under the current section, a guardian of the estate can be discharged, but only when there is another court-appointed fiduciary available to monitor the trustee. If there is no guardian of the person, then the guardian of the estate remains on board to monitor thee trustee. Thus, there is someone with a fiduciary duty to the person whose property rights have been interfered with by the state, in a position to monitor the trustee during the course of the year. The guardian of the person or guardian of the estate will maintain ties to the ward and keep the court informed through their accountings or reports of the person. Maintaining their fiduciary position is not too much to ask of someone who wants another's property to be managed by someone else. The statutory probate judges would like to keep this safeguard in place.

869C Jurisdiction Over Trust Matters

[Click here to link to this section of REPTL's Proposed 1999 Legislation.]

The Statutory Probate Judges have no position on this proposal other than we find it unnecessary in light of our opposition to changes in the existing court-created management trust laws.

745 Closing Guardianship of the Estate

[Click here to link to this section of REPTL's Proposed 1999 Legislation.]

The Statutory Probate Judges are not opposed to this provision as written as it responds to an oversight by the statutory probate judges in working with Representative Thompson in making the management of smaller estates less costly.

TRUST CODE PROPOSALS

[Click here to link to REPTL's Proposed 1999 Trust Code Amendments.]

The Statutory Probate Judges have no position on these proposals.

FAMILY CODE PROPOSALS: CONVERSIONS TO COMMUNITY

[Editor's Note:  These proposals were not approved by the State Bar of Texas Legislative Committee, due at least in part to objections from some family lawyers.]

The Statutory Probate Judges have no position on these proposals. However, many of the statutory probate judges question the practical effect of creating this subchapter. Although there may be some equitable justification in creating such a statute to complement current family code statutes authorizing reverse conversions of community property to separate property, some statutory probate judges feel this current proposal needs a more thorough examination as to the effects of the proposal. Many believe this proposal guarantees litigation in both probate and family law courts. It is probable that such conversions would be challenged in the probate courts on many of the same grounds used to challenge the probating of wills, e.g., undue influence, duress, capacity, etc.

 

I hope the statutory probate judges' comments will be of some use to you. Please do not hesitate to contact me if I can be of further assistance or provide further clarification.

Sincerely,

/s/

Guy Herman, Presiding Judge
Statutory Probate Courts of Texas

 

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Copyright 1998 by Glenn M. Karisch     Last Revised October 28, 1998