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1999 Legislation:

REAL ESTATE PROBATE & TRUST LAW SECTION
PROBATE & TRUST DIVISION

STATE BAR OF TEXAS

PROPOSED 1999 LEGISLATION

Approved by State Bar of Texas Legislative Committee June 29, 1998

Approved by Real Estate, Probate and Trust Law Council October 24, 1998

Proposed Additions are underlined, italicized and in blue. Proposed Deletions are struck out and in red.  REPTL's introductory comments are in maroon.  Editorial notes added by Glenn M. Karisch, Barnes & Karisch, P. C., Austin, Texas -- including links to Judge Guy Herman's letter explaining the position of the statutory probate judges on these proposals -- are in green.

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TABLE OF CONTENTS

1. PROBATE CODE

a. Proposed Amendments to Section 89A.

b. Proposed Amendments to Section 89B. Proof Required for Probate of a Will as a Muniment of Title.

c. Section 149D. Approval of an Independent Executor's Account for Final Settlement of Estates of Decedents.

d. Proposed Section 221A. Resignation of Resident Agent.

e. Proposed Amendments to Section 222. Removal.

f. Proposed Amendment to Section 270. Liability of Homestead for Debts.

g. Section 378B. Allocation of Income and Expenses During Administration of Decedent's Estate.

2. GUARDIANSHIP CODE

a. Proposed Section 760A. Resignation of Resident Agent.

b. Proposed Amendments to Section 761. Removal.

c. Proposed Amendments to Section 865. Power to Make Tax-Motivated Gifts.

d. Proposed Amendments to Section 867. Creation of Management Trust.

e. Proposed Amendments to Section 868A. Discharge of Guardian of Estate and Continuation of Trust.

f. Proposed Amendments to Section 869C. Jurisdiction Over Trust Matters.

g. Proposed Section 745. Closing Guardianships of the Estate.

3. TRUST CODE

a. Proposed Amendments to Section 113.056.

b. Proposed New Section 113.060. Authority to Delegate Investment Management of Trust Assets

c. Proposed Amendments to Section 113.018. Employment of Agents.

d. Proposed New Section 114.007. Virtual Representation.

4. PROPERTY CODE. Section 42.0021. Exempting Roth IRAs.

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1.  PROBATE CODE

a.  Proposed Amendments to Section 89A. Contents of Application for Probate of Will as Muniment of Title.

Section 89A requires that the social security number of the decedent and the applicant be included in the application to probate will as a muniment of title. This requirement was deleted from the requirements for contents of an application for letters testamentary (Section 81) and should be deleted in this provision as well for consistency.

[Editor's Note:  The statutory probate judges oppose this proposal.  Click here to link to Judge Guy Herman's letter explaining their position.]

89A. Contents of Application for Probate of Will as Muniment of Title

(a) A written will shall, if within the control of the applicant, be filed with the application for probate as a muniment of title, and shall remain in the custody of the county clerk unless removed from the custody of the clerk by order of a proper court. An application for probate of a will as a muniment of title shall state:

(1) The name and domicile of each applicant.

(2) The name, age if known, and domicile of the decedent, and the fact, time, and place of death.

(3) Facts showing that the court has venue.

(4) That the decedent owned real or personal property, or both, describing the property generally, and stating its probable value.

(5) The date of the will, the name and residence of the executor named in the will, if any, and the names and residences of the subscribing witnesses, if any.

(6) Whether a child or children born or adopted after the making of such will survived the decedent, and the name of such survivor, if any.

(7) That there are no unpaid debts owing by the estate of the testator, excluding debts secured by liens on real estate or other reason why no administration is needed.

(8) Whether the decedent was ever divorced, and if so, when and from whom.

(9) The social security number of the applicant and of the decedent.

(109) Whether the state, a governmental agency of the state, or a charitable organization is named by the will as a devisee.

The foregoing matters shall be stated and averred in the application to the extent that they are known to the applicant, or can with reasonable diligence be ascertained by the applicant, and if any of such matters is not stated or averred in the application, the application shall set forth the reason why such matter is not so stated and averred.

(b) When a written will cannot be produced in court, in addition to the requirements of Subsection (a) of this section, the application shall state:

(1) The reason why such will cannot be produced.

(2) The contents of such will, to the extent known.

(3) The date of such will and the executor appointed in the will, if any, to the extent known.

(4) The name, age, marital status, and address, if known, and the relationship to the decedent, if any, of each devisee, and of each person who would inherit as an heir in the absence of a valid will, and, in cases of partial intestacy, of each heir.

(c) An application for probate of a nuncupative will as muniment of title shall contain all applicable statements required with respect to written wills in the foregoing subsections and also:

(1) The substance of testamentary words spoken

(2) The names and residences of the witnesses thereto.

Section 89A. Effective Date. The act takes effect September 1, 1999 and applies to all applications to probate a will as a muniment of title filed on or after that date.

b.  Proposed Amendments to Section 89B. Proof Required for Probate of a Will as a Muniment of Title. In 1997, Section 89B (which was formerly a part of Section 89) was added to specify the proof required for probate of a will as a muniment. Section 89B adapted language from Section 88 (proof required for issuance of Letters Testamentary or Letters of Administration), which inadvertently added the requirement that proof be given that 4 years have not elapsed since decedent's death. This may create the inference that a will cannot be admitted to probate as a muniment after 4 years, which conflicts with Section 73(a); which allows the later probate of a will in certain circumstances. This change returns the substance of the proof required for probate as a muniment of title to its pre-1997 state.

[Editor's Note:  The statutory probate judges oppose this proposal.  Click here to link to Judge Guy Herman's letter explaining their position.]

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

(a) General Proof. Whenever an applicant seeks to probate a will as a muniment of title, the applicant must first prove to the satisfaction of the court:

(1) That the person is dead; however, if the person has been dead more than four years the applicant must satisfy the requirements of Section 73 of this Code , and that four years have not elapsed since the person's death and prior to the application; and

(2) That the court has jurisdiction and venue over the estate; and

(3) That citation has been served and returned in the manner and for the length of time required by this Code; and

(4) That there are no unpaid debts owing by the estate of the testator, excluding debts secured by liens on real estate or other reason why no administration is needed.

(b) To obtain probate of a will as a muniment of title, the applicant must also prove to the satisfaction of the court:

(1) If the will is not self-proved as provided by this Code, that the testator, at the time of executing the will, was at least 18 years of age, or was or had been lawfully married, or was a member of the armed forces of the United States or of the auxiliaries of the armed forces of the United States, or of the Maritime Services of the United States, and was of sound mind; and

(2) If the will is not self-proved as provided by this Code, that the testator executed the will with the formalities and solemnities and under the circumstances required by law to make it a valid will; and

(3) That such will was not revoked by the testator.

Section 89B. Effective Date. The act takes effect September 1, 1999 and applies to all applications to probate a will as a muniment of title filed on or after that date.

c.  Section 149D. Approval of an Independent Executor's Account for Final Settlement of Estates of Decedents. Under current law, there is no method for an independent personal representative to be discharged from his liability upon closing of the estate. This new provision allows an independent personal representative to obtain a discharge by filing an accounting. Unless an objection to the final account is filed, the court's action on the final account is essentially ministerial.

[Editor's Note:  The statutory probate judges oppose this proposal.  Click here to link to Judge Guy Herman's letter explaining their position.]

149D Approval of an Independent Executor's Final Account for Estates of Decedents

(a) When administration of an estate is to be settled and closed, an independent executor may present to the court for approval his or her verified final account, and request a discharge from all liability as independent executor.

Prior to, or immediately upon filing his final account, the independent executor shall distribute all of the remaining estate to the beneficiaries, but may retain in his fiduciary capacity a reasonable reserve from the assets of the estate pending approval of the final account. The court may review the amount of the reserve and order further distributions.

(b) Unless waived, upon filing the final account the independent executor shall give notice of the filing of the final account, by registered or certified mail, return receipt requested, to the persons interested in the estate. The independent executor shall file a copy of the notices, along with proof of delivery, in the court. The notice shall include a copy of the final account and shall state that any objections or exceptions to the final account must be filed within 90 days of receipt of the notice.

(c) A final account shall include:

(1) The property of the estate which came into the hands of the independent executor (which may be described by reference to the inventory rather than describing each item);

(2) The debts that have been paid;

(3) The debts, if any, still owing by the estate;

(4) All receipts;

(5) All disbursements;

(6) The property of the estate, if any, remaining on hand after payment of debts; and

(7) The names and residences of the persons to whom the property of the estate, if any, remaining on hand after payment of debts has been distributed along with the amount to be distributed to each beneficiary. Further, if the estate is to be distributed non prorata, the particular assets to be distributed to each beneficiary shall be set out.

(8) Such other facts as may be necessary to a full and definite understanding of the exact condition of the estate.

(d) If no objection or exception to the final account is filed within 90 days of the date notice is received as required in Subsection (b), the court shall enter an order approving such final account and discharging the independent executor from any or all liability regarding all transactions fully and completely disclosed in such final account, without review or audit of such account. If objections or exceptions to the approval of the final account or to the independent discharge are filed by an interested person, the court shall examine the final account, and after hearing all objections or exceptions thereto, and evidence in support of or against such account, shall audit and settle the same, and restate it if that be necessary. Upon settlement of the final account, if there be any of the estate remaining in the hands of the independent executor, the court shall order that a partition and distribution be made among the persons entitled to receive such estate.

(e) The Court may assess, as may be equitable and just, any fees and costs incurred by the independent executor or any beneficiary regarding the final account. If the final account is approved without objection or exception, the independent executor's legal fees, expenses, and other costs of the proceeding set out in the accounting shall be charged to the estate as an expense of administration. If objections or exceptions to the accounting or to the independent executor's discharge are made and the court finds and upholds such objections or exceptions or finds that the independent executor should not be discharged, the court shall have discretion to determine what portion, if any, of such legal fees, expenses and other costs of the proceeding are charged to the estate. In all cases, the independent executor shall be entitled to pay from the estate all of such expenses as they are incurred, unless otherwise ordered by the Court, although the independent executor shall be personally liable to refund amounts not approved by the court as proper charges against the estate.

(f) This section is cumulative of all other rights and remedies which persons interested in an estate may have against the independent executor thereof.

Effective Date. Section 149D. The act is effective for accounts filed on or after September 1, 1999.

d.  Proposed Section 221A. Resignation of Resident Agent. A nonresident personal representative of a decedent's estate is required to file a designation of resident agent to accept service of process in order to be eligible for appointment. However, the Texas Probate Code does not provide a means for either (i) a personal representative to appoint a successor resident agent, or (ii) a resident agent to resign should the need arise. Therefore, once the resident agent is appointed, it is unclear how the agent can resign and avoid being placed in the position of receiving service of process for an individual whom he or she may no longer represent, or worse, be able to locate. It has been suggested that the Probate Code be amended to provide a procedure for the resignation of a resident agent. This suggestion has been expanded to include a method for a personal representative to appoint a successor resident agent. Proposed Section 221A provides a method similar to that used by corporations under the Texas Business Corporations Act.

[Editor's Note:  The statutory probate judges do not oppose this proposal.  Click here to link to Judge Guy Herman's letter explaining their position.]

221A. Resignation of Resident Agent

(a) A personal representative may change his registered agent to accept service of process in all actions or proceedings with respect to the estate by filing with the court a designation of successor resident agent which shall state:

(1) The name and address of the personal representative.

(2) The name and address of the current registered agent.

(3) The name and address of the successor resident agent.

(b) The designation of successor resident agent shall be executed by the personal representative and filed with the court in which the estate proceeding is pending. Upon such filing, the appointment of the successor resident agent shall become effective.

(c) Upon notice to the personal representative of the intent to resign, any resident agent to accept service of process in all actions or proceedings with respect to an estate on behalf of a personal representative may resign by filing with the court a resignation of resident agent which shall state:

(1) The name of the personal representative.

(2) The last known address of the personal representative.

(3) That the personal representative has been notified of the resident agent's intent to resign and has failed to designate a successor resident agent and the date of such notice.

(d) A copy of the resignation of resident agent shall be served, by certified mail, return receipt requested, on the personal representative, at his last known address, and all parties of record, or such party's duly authorized agent or attorney of record, as the case may be, in the estate. The resignation of resident agent shall become effective upon the entry of an order accepting the resignation of resident agent.

Section 221A. Effective Date. The Act takes effect September 1, 1999 and shall apply to all appointments on or after that date and all notices of intent to resign delivered to the personal representative on or after that date.

e.  Proposed Amendments to Section 222. Removal. Section 222 currently allows a court to remove a personal representative with or without notice based on the circumstances necessitating the removal. In light of the proposal to enact a means to appoint a successor resident agent and resign as resident agent, Section 222 should be revised to clarify that the court may remove a personal representative without notice if he or she does not have a current designation of resident agent on file.

[Editor's Note:  The statutory probate judges do not oppose this proposal.  Click here to link to Judge Guy Herman's letter explaining their position.]

222. Removal

(a) Without Notice.

(1) The court, on its own motion or on motion of any interested person, and without notice, may remove any personal representative, appointed under provisions of this Code, who:

(A) Neglects to qualify in the manner and time required by law;

(B) Fails to return within ninety days after qualification, unless such time is extended by order of the court, an inventory of the property of the estate and list of claims that have come to his knowledge;

(C) Having been required to give a new bond, fails to do so within the time prescribed;

(D) Absents himself from the State for a period of three months at one time without permission of the court, or removes from the State;

(E) Cannot be served with notices or other processes by reason of the fact that his whereabouts are unknown or is a non-resident of this State who does not have a resident agent to accept service of process on all actions or proceedings relating to the estate, or by reason of the fact that he is eluding service; or

(F) Has misapplied, embezzled, or removed from the State, or is about to misapply, embezzle, or remove from the State, all or any part of the property committed to the personal representative's care.

(2) The court may remove a personal representative under Paragraph (F), Subdivision (1), of this subsection only on the presentation of clear and convincing evidence given under oath.

(b) With Notice. The court may remove a personal representative on its own motion, or on the complaint of any interested person, after the personal representative has been cited by personal service to answer at a time and place fixed in the notice, when:

(1) Sufficient grounds appear to support belief that he has misapplied, embezzled, or removed from the state, or that he is about to misapply, embezzle, or remove from the state, all or any part of the property committed to his care;

(2) He fails to return any account which is required by law to be made;

(3) He fails to obey any proper order of the court having jurisdiction with respect to the performance of his duties;

(4) He is proved to have been guilty of gross misconduct, or mismanagement in the performance of his duties;

(5) He becomes an incapacitated person, or is sentenced to the penitentiary, or from any other cause becomes incapable of properly performing the duties of his trust;

(6) As executor or administrator, he fails to make a final settlement within three years after the grant of letters, unless the time be extended by the court upon a showing of sufficient cause supported by oath; or

(7) As executor or administrator, he fails to timely file the notice required by Section 128A of this code.

(c) Order of Removal. The order of removal shall state the cause thereof. It shall require that any letters issued to the one removed shall, if he has been personally served with citation, be surrendered, and that all such letters be canceled of record, whether delivered or not. It shall further require, as to all the estate remaining in the hands of a removed person, delivery thereof to the person or persons entitled thereto, or to one who has been appointed and has qualified as successor representative.

Section 222. Effective Date. The Act takes effect September 1, 1999 and applies to all motions on or after that date.

f.   Proposed Amendment to Section 270. Liability of Homestead for Debts. The Texas Constitution has been amended several times to change the homestead exemptions from creditors, most recently to allow home equity loans. These changes have not been reflected in Section 270. The revised language follows the current constitutional exemptions.

[Editor's Note:  The statutory probate judges agree that this is appropriate legislation.  Click here to link to Judge Guy Herman's letter explaining their position.]

270. Liability of Homestead for Debts

The homestead shall not be liable for the payment of any of the debts of the estate, except for:

(a) the purchase money thereof

(b) the taxes due thereon; or

(c) work and material used in constructing improvements thereon, if the provisions of Section 50(a)(5)) of Article XVI of the Texas Constitution are met; and in this last case the homestead shall not be liable for the payment of any of the debts of the estate, except for the purchase money thereof, the taxes due thereon, or work and material used in constructing improvements thereon; and in this last case only when the work and material are contracted for in writing, with the consent of both spouses given in the same manner as required in making a sale and conveyance of the homestead.

(d) an owelty of partition imposed against the entirety of the property by a court order or by a written agreement of the parties to the partition, including a debt of one spouse in favor of the other spouse resulting from a division or an award of a family homestead in a divorce proceeding;

(e) The refinance of a lien against a homestead, including a federal tax lien resulting from the tax debt of both spouses, if the homestead is a family homestead, or from the tax debt of the decedent; or

(f) an extension of credit on the homestead, if the requirements of Section 50(a)(6) of Article XVI of the Texas Constitution are met.

Section 270. Effective Date. The act takes effect September 1, 1999.

g.  Section 378B. Allocation of Income and Expenses During Administration of Decedent's Estate. Charging interest due on taxes to principal may be inequitable in many cases. This revision gives the personal representative the discretion to charge these to income or principal.

[Editor's Note:  The statutory probate judges have no position on this proposal.  Click here to link to Judge Guy Herman's letter containing a comment about this proposal.]

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

(a) Except as provided by Subsection (b) of this section and unless the will provides otherwise, all expenses incurred in connection with the settlement of a decedent's estate, including debts, funeral expenses, estate taxes, interest and penalties relating to estate taxes, and family allowances, shall be charged against the principal of the estate. Fees and expenses of an attorney, accountant, or other professional advisor, commissions and expenses of a personal representative, court costs, interest relating to estate taxes and all other similar fees or expenses relating to the administration of the estate shall be allocated between the income and principal of the estate as the executor determines in its discretion to be just and equitable.

(b) Unless the will provides otherwise, income from the assets of a decedent's estate that accrues after the death of the testator and before distribution, including income from property used to discharge liabilities, shall be determined according to the rules applicable to a trustee under the Texas Trust Code (Subtitle B, Title 9, Property Code)1 and distributed as provided by Subsections (c), (d), and (e) of this section.

(c) The income from the property bequeathed or devised to a specific devisee shall be distributed to the devisee after reduction for property taxes, ordinary repairs, insurance premiums, interest accrued after the death of the testator, other expenses of management and operation of the property, and other taxes, including the taxes imposed on the income that accrues during the period of administration and that is payable to the devisee.

(d) Except as provided by Subsection (f) of this section, the balance of the net income shall be distributed to all other devisees after reduction for the balance of property taxes, ordinary repairs, insurance premiums, interest accrued, including interest accruing as provided by Subsection (f) of this section after the death of the testator, other expenses of management and operation of all property from which the estate is entitled to income, and taxes imposed on income that accrues during the period of administration and that is payable or allocable to the devisees, in proportion to the devisees' respective interests in the undistributed assets of the estate.

(e) If a charitable organization is entitled to receive income under Subsection (b) of this section, any amount allowed as a tax deduction to the estate for income payable to the charitable organization shall be paid, without reduction for taxes, to the charitable organization.

(f) A devisee of a pecuniary bequest, whether or not in trust, shall be paid interest on the bequest at the legal rate of interest as provided by Article 1.03, Revised Statutes (Article 5069-1.03, Vernon's Texas Civil Statutes), and its subsequent amendments, beginning one year after the date the court grants letters testamentary or letters of administration.

(g) Income received by a trustee under this section shall be treated as income of the trust as provided by Section 113.103, Property Code.

(h) In this section, "undistributed assets" includes funds used to pay debts, administration expenses, and federal and state estate, inheritance, succession, and generation-skipping transfer taxes until the date of payment of the debts, expenses, and taxes. Except as required by Sections 2055 and 2056 of the Internal Revenue Code of 1986 (26 U.S.C. Secs. 2055 and 2056), and its subsequent amendments, the frequency and method of determining the beneficiaries' respective interests in the undistributed assets of the estate shall be in the executor's sole and absolute discretion. The executor may consider all relevant factors, including administrative convenience and expense and the interests of the various beneficiaries of the estate in order to reach a fair and equitable result among beneficiaries.

1 V.T.C.A. Property Code, 111.001 et seq.

Section 378B. Effective Date. This act takes effect September 1, 1999 and applies to all interest accrued on or after that date.

2.  GUARDIANSHIP CODE

a.  Proposed Section 760A. Resignation of Resident Agent. A nonresident individual seeking to be appointed guardian is required to file a designation of resident agent to accept service of process in order to be eligible for appointment. However, the Texas Probate Code does not provide a means for either (i) a guardian to appoint a successor resident agent, or (ii) a resident agent to resign should the need arise. Therefore, once the resident agent is appointed, it is unclear how the agent can resign and avoid being placed in the position of receiving service of process for an individual whom he or she may no longer represent, or worse, be able to locate. It has been suggested that the Probate Code be amended to provide a procedure for the resignation of a resident agent. This suggestion has been expanded to include a method for a guardian to appoint a successor resident agent. Proposed Section 760A provides a method similar to that used by corporations under the Texas Business Corporations Act.

[Editor's Note:  The statutory probate judges do not oppose this proposal.  Click here to link to Judge Guy Herman's letter explaining their position.]

760A. Resignation of Resident Agent

(a) A guardian may change his registered agent to accept service of process in all actions or proceedings with respect to the guardianship by filing with the court a designation of successor resident agent which shall state:

(1) The name and address of the guardian.

(2) The name and address of the current registered agent.

(3) The name and address of the successor resident agent.

(b) The designation of successor resident agent shall be executed by the guardian and filed with the court in which the guardianship proceeding is pending. Upon such filing, the appointment of the successor resident agent shall become effective.

(c) Upon notice to the guardian of the intent to resign, any resident agent to accept service of process in all actions or proceedings with respect to a guardianship on behalf of a guardian may resign by filing with the court a resignation of resident agent which shall state:

(1) The name of the guardian.

(2) The last know address of the guardian.

(3) That the guardian has been notified of the resident agent's intent to resign and has failed to designate a successor resident agent and the date of such notice.

(d) A copy of the resignation of resident agent shall be served, by certified mail, return receipt requested, on the guardian, at his last known address, and all parties of record, or such party's duly authorized agent or attorney of record, as the case may be, in the estate. The resignation of resident agent shall become effective upon the entry of an order accepting the resignation of resident agent.

Section 221A. Effective Date. The Act takes effect September 1, 1999 and shall apply to all appointments on or after that date and all notices of intent to resign delivered to the personal representative on or after that date.

b.   Proposed Amendments to Section 761. Removal. Section 761 currently allows a court to remove a guardian with or without notice based on the circumstances necessitating the removal. In light of the proposal to enact a means to appoint a successor resident agent and resign as resident agent, Section 761 should be revised to clarify that the court may remove a guardian without notice if he or she does not have a current designation of resident agent on file.

[Editor's Note:  The statutory probate judges do not oppose this proposal.  Click here to link to Judge Guy Herman's letter explaining their position.]

761. Removal

(a) The court, on its own motion or on motion of any interested person, including the ward, and without notice, may remove any guardian, appointed under this chapter, who:

(1) neglects to qualify in the manner and time required by law;

(2) fails to return within 90 days after qualification, unless the time is extended by order of the court, an inventory of the property of the guardianship estate and list of claims that have come to the guardian's knowledge;

(3) having been required to give a new bond, fails to do so within the time prescribed;

(4) absents himself from the state for a period of three months at one time without permission of the court, or removes from the state

(5) cannot be served with notices or other processes because the guardian's whereabouts are unknown or is a non-resident of this State who does not have a resident agent to accept service of process on all actions or proceedings relating to the guardianship, or because the guardian is eluding service;

(6) has misapplied, embezzled, or removed from the state, or is about to misapply, embezzle, or remove from the state, all or any part of the property committed to the guardian's care; or

(7) has cruelly treated a ward, or has neglected to educate or maintain the ward as liberally as the means of the ward and the condition of the ward's estate permit.

(b) The court may remove a personal representative under Subsection (a)(6) or (7) of this section only on the presentation of clear and convincing evidence given under oath.

(c) The court may remove a guardian on its own motion, or on the complaint of an interested person, after the guardian has been cited by personal service to answer at a time and place set in the notice, when:

(1) sufficient grounds appear to support belief that the guardian has misapplied, embezzled, or removed from the state, or that the guardian is about to misapply, embezzle, or remove from the state, all or any part of the property committed to the care of the guardian;

(2) the guardian fails to return any account or report that is required by law to be made;

(3) the guardian fails to obey any proper order of the court having jurisdiction with respect to the performance of the guardian's duties;

(4) the guardian is proved to have been guilty of gross misconduct or mismanagement in the performance of the duties of the guardian;

(5) the guardian becomes incapacitated, or is sentenced to the penitentiary, or from any other cause becomes incapable of properly performing the duties of the guardian's trust;

(6) as guardian of the person, the guardian cruelly treats the ward, or neglects to educate or maintain the ward as liberally as the means of the ward's estate and the ward's ability or condition permit;

(7) the guardian interferes with the ward's progress or participation in programs in the community; or

(8) the guardian fails to comply with the requirements of Section 697 of this code.

(d) The order of removal shall state the cause of the removal. It must require that any letters issued to the person who is removed shall, if the removed person has been personally served with citation, be surrendered and that all those letters be canceled of record, whether or not delivered. It must further require, as to all the estate remaining in the hand of a removed person, delivery of the estate to the person or persons entitled to the estate, or to one who has been appointed and has qualified as successor guardian, and as to the person of a ward, that control be relinquished as required in the order.

(e) If the necessity exists, the court may immediately appoint a successor but may not discharge the person removed as guardian of the estate or release the person or the sureties on the person's bond until final order or judgment is rendered on the final account of the guardian.

(f) The court at any time may order a person removed as guardian under this section who has all or part of the estate of a ward to deliver all or part of the ward's estate to a person who has been appointed and has qualified as successor guardian.

Section 222. Effective Date. The Act takes effect September 1, 1999 and applies to all motions on or after that date.

c.   Proposed Amendments to Section 865. Power to Make Tax-Motivated Gifts. Generally, Texas case law seems to provide that a guardian of a ward's estate is not entitled to possess or review a ward's will. However, Section 865 allows tax motivated gifts to beneficiaries under a ward's will and requires that a guardian notify each devisee by certified mail of any request to make tax motivated gifts. Proposed Section 865 would allow a guardian of a ward's estate to apply to the court for an order which compels the individual, in possession of the ward's will, to forward a copy to the court for inspection. However, in light of the concern that a guardian may use this opportunity to determine the contents of a ward's will, the guardian would have the burden of showing just cause exists for the inspection.

[Editor's Note:  The statutory probate judges have no position on this proposal.  Click here to link to Judge Guy Herman's letter containing a comment about this proposal.]

865. Power to Make Tax-Motivated Gifts

(a) On application of the guardian of the estate or any interested party and after the posting of notice, the court, after hearing, may enter an order that authorizes the guardian to apply the principal or income of the ward's estate that is not required for the support of the ward or the ward's family during the ward's lifetime toward the establishment of an estate plan for the purpose of minimizing income, estate, inheritance, or other taxes payable out of the ward's estate on a showing that the ward will probably remain incapacitated during the ward's lifetime. On the ward's behalf, the court may authorize the guardian to make gifts, outright or in trust, of the ward's personal property or real estate to or for the benefit of:

(1) an organization to which charitable contributions may be made under the Internal Revenue Code and in which it is shown the ward would reasonably have an interest;

(2) the ward's spouse, descendant, or other person related to the ward by blood or marriage who are identifiable at the time of the order;

(3) a devisee under the ward's last validly executed will, trust, or other beneficial instrument if the instrument exists; and

(4) a person serving as guardian of the ward if the person is eligible under either Subdivision (2) or (3) of this subsection.

(b) The person making an application to the court under this section shall outline the proposed estate plan and set forth all the benefits that are to be derived from the estate plan. The application must indicate that the planned disposition is consistent with the ward's intentions if the ward's intentions can be ascertained. If the ward's intentions cannot be ascertained, the ward will be presumed to favor reduction in the incidence of the various forms of taxation and the partial distribution of the ward's estate as provided by this section.

(c) Upon the filing of an application under this section, the guardian of an estate may apply to the court where the guardianship proceeding is pending for an order directing any person having custody of the ward's purported will, codicil, trust or other estate planning instrument to deliver a true and correct copy of such instruments to the Court for in camera inspection. The application must be sworn to by the guardian and state facts and reasons that support the need to inspect the purported estate planning documents. A person who makes application to the court under this Section shall serve a copy of the application, by registered or certified mail, to any person having custody of the ward's purported estate planning documents. After the expiration of ten days from the date the application is filed and notice as provided by this section is given, the guardian may set the application for hearing and upon conclusion of the hearing, the court may enter an order directing any person having custody of the instruments to deliver a true and correct copy of the ward's purported estate planning instrument to the court for inspection, upon a finding that there is just cause for an in camera inspection. Guardian shall give any person having custody of the ward's purported estate planning documents notice of the date of the hearing. In the event the order directs an attorney to release a copy of the estate planning instrument to the Court for in camera inspection, no attorney shall be held to have breached the attorney client privilege by complying with an order of the court under this section.

(c)(d) The court may appoint a guardian ad litem for the ward or any interested party at any stage of the proceedings if it is deemed advisable for the protection of the ward or the interested party.

(d)(e) A subsequent modification of an approved plan may be made by similar application to the court.

(e)(f) A person who makes an application to the court under this section shall mail notice of the application by certified mail to:

(1) all devisees under a will, trust, or other beneficial instrument relating to the ward's estate;

(2) the ward's spouse;

(3) the ward's dependents;

(4) any other person as directed by the court.

Section 865. Effective Date. The Act applies to all applications to make tax-motived gifts filed on or after September 1, 1999.

d.   Proposed Amendments to Section 867. Creation of Management Trust. Section 867 was amended in the last legislative session to allow a ward's attorney ad litem to seek the establishment of an 867 trust. The statute, as currently drafted, appears to imply that it is still necessary for the court to appoint a guardian before it may create an 867 trust. Furthermore, the only person, other than the guardian, which may create an 867 trust is the ward's attorney ad litem. This places the attorney ad litem in the dilemma of seeking the appointment of an 867 trust while at the same time potentially arguing the ward has capacity and does not require the appointment of a guardian. Additionally, Section 867 does not currently provide a clear procedure to create an 867 trust when a guardian has not been appointed.

Proposed Section 867 clarifies who may initially seek the creation of a trust, i.e., the guardian, a ward's guardian or attorney ad litem or a person who could apply for the appointment of a guardian. Further, subsections (b) and (c) delineate the requisite findings that must be made prior to the creation of an 867 trust. These are similar to that necessary to appoint a guardian. Finally, subsections (d) and (e) are simply a reorganization of the information which is currently required under Section 867.

[Editor's Note:  The statutory probate judges oppose this proposal.  Click here to link to Judge Guy Herman's letter explaining their position.]

867. Creation of Management Trust

On application by the guardian of a ward or by a ward's attorney ad litem at any time after the date of the attorney's appointment under Section 646 of this code, the court in which the guardianship proceeding is pending may enter an order that creates for the ward's benefit a trust for the management of guardianship funds if the court finds that the creation of the trust is in the ward's best interests. (a) An application to create a trust for the management of all or a part of the estate of a ward or proposed ward may be filed in the court in which the guardianship proceeding is pending by:

(1) the guardian of the person or estate;

(2) a ward or proposed ward's attorney ad litem at any time after the date of the attorney ad litem's appointment under Section 646 of this code; or

(3) a ward or proposed ward's guardian ad litem at any time after the date of the guardian ad litem's appointment under Section 645 of this code; or

(4) any person who has standing to commence a proceeding under Section 642 of this code.

(b) Before entering an order that creates a trust for the management of all or part of the estate of a ward or proposed ward, the court must find by clear and convincing evidence that:

(1) the ward or proposed ward is an incapacitated person;

(2) it is in the best interest of the ward or proposed ward to have the court create a trust for the management of all or a part of the estate of the ward or proposed ward; and

(3) the rights of the ward or proposed ward's property will be protected by the creation of a trust for the management of all or part of the estate of the ward or proposed ward.

(c) The court may not grant an application to create a trust under this Section unless the applicant proves each element required by this code. A determination of incapacity of an adult proposed ward must be in the same manner as that required to appoint a guardian of the estate.

(d) The order shall:

(1) direct the guardian or another person to deliver all or part of the assets of the estate of the ward or proposed ward guardianship to a trust company or a state or national bank that has trust powers in this state.;

(2) include the terms, conditions, and limitations placed on the trust; and

(3) constitute sufficient legal authority to all persons owing any money to the ward, having custody of any property, or acting as register or transfer agent of any evidence of interest, indebtedness, property or right belonging to the ward to deliver, transfer, or pay such interest, indebtedness, property or right to the trustee.

(e) The court shall maintain the trust under the same cause number as the guardianship proceeding.

Section 867. Effective Date. The Act takes effect September 1, 1999, and applies to all applications to create a trust on or after September 1, 1999.

e.   Proposed Amendments to Section 868A. Discharge of Guardian of Estate and Continuation of Trust. Section 868A currently requires the continued appointment of a guardian of the person after the creation of an 867 Trust. However, in certain cases, a guardian of the person is not necessary and results in an added expense to the ward's estate. For example, a minor's parents are the minor's natural guardians and, as such, it is not necessary to appoint either parent guardian of the minor's person. However, it may be necessary to create an 867 trust for the minor to manage the proceeds he/she may receive from a personal injury settlement or inheritance. Thus, in conjunction with the proposed amendment to Section 867, proposed Section 868A allows a court to discharge the guardian of a ward's estate after the creation of an 867 Trust regardless whether a guardian of the person remains. The court must still determine the discharge is in the ward's best interest.

[Editor's Note:  The statutory probate judges oppose this proposal.  Click here to link to Judge Guy Herman's letter explaining their position.]

868A. Discharge of Guardian of Estate and Continuation of Trust

On or at any time after the creation of a trust under this subpart, the court may discharge the guardian of the ward's estate only or the person or both if a guardian of the ward's person remains and the court determines that the discharge is in the ward's best interests.

Section 868A. Effective Date. The Act takes effect September 1, 1999, and applies to all applications for discharge filed on or after that date.

f.   Proposed Amendments to Section 869C. Jurisdiction Over Trust Matters. Section 869C confirms that the court has jurisdiction over trust matters. However, in conjunction with the proposed amendment to Section 867 and 868A, proposed Section 869C clarifies that the court also has continuing jurisdiction over the trustee of an 867 Trust regardless whether either a guardian of the person or estate is currently appointed.

[Editor's Note:  The statutory probate judges have no position on this proposal.  Click here to link to Judge Guy Herman's letter containing a comment on this proposal.]

869C. Jurisdiction Over Trust Matters

A court that creates a trust under Section 867 of this code has the same jurisdiction over the trustee and to hear matters relating to the trust as the court has with respect to a court appointed guardian, the guardianship and other matters covered by this chapter.

Section 869C. Effective Date. The Act takes effect September 1, 1999, and applies to all trusts created under Section 867 of the Texas Probate Code, whether created before, on, or after the effective date of the Act.

g.  Proposed Section 745. Closing Guardianships of the Estate.

[Editor's Note:  The statutory probate judges do not oppose this proposal.  Click here to link to Judge Guy Herman's letter containing a comment on this proposal.]

745. Closing Guardianships of the Estate

(a) A guardianship of the estate of a ward is settled and closed when:

(1) a minor ward dies or becomes an adult by becoming 18 years of age, or by removal of disabilities of minority according to the law of this state, or by marriage;

(2) an incapacitated ward dies, or is decreed as provided by law to have been restored to full legal capacity;

(3) the spouse of a married ward has qualified as survivor in community and the ward owns no separate property;

(4) the estate of a ward becomes exhausted;

(5) the foreseeable income accruing to a ward to his estate is so negligible that maintaining the guardianship in force would be burdensome;

(6) all of the assets of the estate have been placed in a management trust under subpart N, Part 4, of this code and the court determines that a guardianship for the ward is no longer necessary; or

(7) the court determines for any other reason that a guardianship for the ward is no longer necessary.

(b) In a case arising under Subsection (a)(5) of this section, the court may authorize the income to be paid to a parent, or other person who has acted as guardian of the ward, to assist in the maintenance of the ward and without liability to account to the court for the income.

(c) When the estate of a minor ward consists only of cash or cash equivalents in an amount of $25,000 $50,000 or less, the guardianship of the estate may be terminated and the assets paid to the county clerk of the county in which the guardianship proceeding is pending, and the clerk shall manage the funds as provided by Section 887 of this code.

(d) In the settlement and closing of a guardianship, the court may appoint an attorney ad litem to represent the interests of the ward, and may allow the attorney reasonable compensation for services provided by the attorney out of the ward's estate.

Section 745. Effective Date. The Act takes effect September 1, 1999, and applies to all applications to close guardianships filed on or after that date.

3. TRUST CODE

[Editor's Note:  The statutory probate judges have no position on REPTL's proposed Trust Code amendments.]

a.   Proposed Amendments to Section 113.056

113.056. Standard for Trust Management and Investment.

(a) Unless the terms of the trust instrument provide otherwise, in acquiring, investing, reinvesting, exchanging, retaining, selling, supervising, and managing trust property, including an investment vehicle authorized for the collective investment of trust funds pursuant to Part 9, Title 12, of the Code of Federal Regulations, a trustee shall exercise the judgment and care under the circumstances then prevailing that persons of ordinary prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income from as well as the probable increase in value and the safety of their capital. The foregoing standard is intended to be a flexible one that does not require or prohibit a trustee from also investing for capital appreciation or from following modern portfolio theory in investing. In determining whether a trustee has exercised prudence with respect to an investment decision, such determination shall be made taking into consideration the investment of all the assets of the trust, or the assets of the collective investment vehicle, as the case may be, over which the trustee had management and control, rather than a consideration as to the prudence of the single investment of the trust, or the single investment of the collective investment vehicle, as the case may be.

(b) Within the limitations of Subsection (a) of this section, a trustee may acquire and retain every kind of property and every kind of investment that persons of ordinary prudence, discretion, and intelligence acquire or retain for their own account.

(c) Within the limitations of Subsection (a) of this section, a trustee may indefinitely retain property acquired under this section without regard to its suitability for original purchase.

(d) Within the limitations of Subsection (a) of this section, whenever the instrument directs, requires, authorizes, or permits investment in obligations of the United States government, the trustee may invest in and hold such obligations either directly or in the form of interests in an open-end management type investment company or investment trust registered under the Investment Company Act of 1940, 15 U.S.C. 80a-1 et seq., or in an investment vehicle authorized for the collective investment of funds pursuant to Part 9, Title 12 of the Code of Federal Regulations, so long as the portfolio of such investment company, investment trust, or collective investment vehicle is limited to such obligations and to repurchase agreements fully collateralized by such obligations.

Section 113.056. Effective Date. The act takes effect September 1, 1999.

b.  Proposed New Section 113.060. Authority to Delegate Investment Management of Trust Assets

113.060. Authority to Delegate Investment Management of Trust Assets

a. A trustee, without complying with the requirements of subsection (b), may employ an investment agent and delegate investment functions to such agent, but the trustee shall be responsible for the investment decisions, actions or omissions of such agent.

b. A trust may employ an investment agent and delegate investment functions to such agent. The trustee shall not be responsible for the investment decisions, actions or omissions of the investment agent if the following requirements are met:

1. The trustee shall exercise the judgment and care under the circumstances then prevailing that persons of ordinary prudence, discretion and intelligence exercise in the management of their own funds in the selection of the investment agent and in establishing the scope and specific terms of any delegation;

2. The trustee must conduct an inquiry into the experience, performance history, professional licensing of and registration, if any, of the investment agent selected by the trustee, as well as its capitalization, insurance and/or bonding;

3. The investment agent must be subject to the jurisdiction of the courts of the State of Texas;

4. Under the terms of the delegation, the investment agent must be made subject to the same investment standard that is applicable to the trustee and must assume liability to the beneficiaries of the trust and to the trustee for failure by the investment agent to follow that investment standard applicable to the trust;

5. The trustee shall conduct a periodic review of the actions taken, results obtained and the compliance or non compliance by the investment agent with the overall investment strategy developed by or for the trustee to meet the investment standard applicable to the trust.

The trustee will send a notice in writing to all beneficiaries stating the intention of the trustee(s) to delegate investment authority to an investment agent and the identity thereof no later than thirty (30) days prior to the date of the delegation. Beneficiaries for the purposes of the preceding sentence means all persons currently entitled to distributions as well as all persons who would be entitled to distributions of the trust if the trust terminated at the time of delegation. Notice to any minors or incapacitated beneficiaries will be to their natural or court appointed guardians. The trustee shall provide a similar notice to any charitable entity as defined by Section 123.001 that has an interest in the trust.

Section 113.060. Effective Date. The act takes effect September 1, 1999.

c.   Proposed Amendments to Section 113.018. Employment of Agents

113.018. Employment of Agents

A trustee may employ attorneys, accountants, agents (including investment agents) and brokers reasonably necessary in the administration of the trust estate.

Section 113.018. Effective Date. The act takes effect September 1, 1999.

d.  Proposed New Section 114.007. Virtual Representation.

114.007. Virtual Representation

1. Except as provided in subsection (5), any written instrument including a release, consent, or other agreement (including, but not limited to, an instrument relating to any duty, power, responsibility, restriction, liability, action or inaction of the trustee) between the trustee and a beneficiary who has full legal capacity and who is acting on full information shall be final and binding on such beneficiary and all other persons who he or she virtually represents, as described below.

2. Any such written instrument executed by a beneficiary who possesses a power of revocation or a power to appoint (including one in the form of a power of amendment) the income or principal of the trust to or for the benefit of himself or herself, his or her creditors, his or her estate, or creditors of his or her estate, shall be final and binding on those persons who either take upon the exercise of such power of appointment or take in default if such power of appointment is not exercised.

3. If there is no conflict of interest and no guardian of the estate or guardian ad litem has been appointed, a parent (including a parent who is also a trust beneficiary) may execute such a written instrument for and on behalf of his or her minor child and bind such child by such instrument.

4. An unborn or unascertained beneficiary shall be bound by a written instrument executed by a beneficiary (including a minor child through a parent, as provided above, or by a legal guardian) having an interest substantially identical to the interest of such unborn or unascertained beneficiary. For these purposes, it shall be presumed that unborn or unascertained beneficiaries who are descendants of other living trust beneficiaries have a substantially identical interest only with those living trust beneficiaries from whom they descend.

5. This Section shall not apply to a written instrument that terminates a trust, in whole or in part, unless such written instrument is otherwise allowed by law.

6. A written instrument under this Section must be in writing and signed by the beneficiary.

7. This Section applies to all written instruments entered into on or after the effective date.

Section 113.056. Effective Date. The act takes effect September 1, 1999.

4.  PROPERTY CODE. Section 42.0021. Exempting Roth IRAs. This amendment to the Texas Property Code exempts the new Roth IRAs from execution by creditors, make this asset compatible with other IRAs and is designed to avoid individuals losing protection from creditors on these retirement assets as a result of rolling over current IRAs to Roth IRAs.

[Editor's Note:  The statutory probate judges have no position on this proposal.]

42.0021. Additional Exemption for Retirement Plan

(a) In addition to the exemption prescribed by Section 42.001, a person's right to the assets held in or to receive payments, whether vested or not, under any stock bonus, pension, profit-sharing, or similar plan, including a retirement plan for self-employed individuals, and under any annuity or similar contract purchased with assets distributed from that type of plan, and under any retirement annuity or account described by Section 403(b) of the Internal Revenue Code of 19861 (26 U.S.C.A. 403(b)), under any Roth IRA described by Section 408A of the Internal Revenue Code of 1986, (26 U.S.C.A. 408A) and under any individual retirement account or any individual retirement annuity, including a simplified employee pension plan, is exempt from attachment, execution, and seizure for the satisfaction of debts unless the plan, contract, or account does not qualify under the applicable provisions of the Internal Revenue Code of 1986 2 (26 U.S.C.A. et seq.). A person's right to the assets held in or to receive payments, whether vested or not, under a government or church plan or contract is also exempt unless the plan or contract does not qualify under the definition of a government or church plan under the applicable provisions of the federal Employee Retirement Income Security Act of 19743 (26 U.S.C.A. 1001 et seq). If this subsection is held invalid or preempted by federal law in whole or in part or in certain circumstances, the subsection remains in effect in all other respects to the maximum extent permitted by law.

(b) Contributions to an individual retirement account (other than contributions to a Roth IRA described in Section 408A of the Internal Revenue Code of 1986 (26 U.S.C.A. 408A)), or annuity that exceed the amounts deductible under the applicable provisions of the Internal Revenue Code of 1986 (26 U.S.C.A. 1001 et seq.) and any accrued earnings on such contributions are not exempt under this section unless otherwise exempt by law. Amounts qualifying as nontaxable rollover contributions under Section 402(a)(5), 403(a)(4), 403(b)(8), or 408(d)(3) (26 U.S.C.A. 402(a)(5), 403(a)(4), 403(b)(8), or 408(d)(3)) of the Internal Revenue Code of 19864 before January 1, 1993, are treated as exempt amounts under Subsection (a). Amounts treated as a qualified rollover contribution under Section 408A of the Internal Revenue Code of 1986 (26 U.S.C.A. 408A), are treated as exempt amounts under Subsection (a). In addition, amounts qualifying as nontaxable rollover contributions under Section 402(c), 402(e)(6), 402(f), 403(a)(4), 403(a)(5), 403(b)(8), 403(b)(10), or 408(d)(3) of the Internal Revenue Code of 1986 on or after January 1, 1993, are treated as exempt amounts under Subsection (a).

(c) Amounts distributed from a plan or contract entitled to the exemption under Subsection (a) are not subject to seizure for a creditor's claim for 60 days after the date of distribution if the amounts qualify as a nontaxable rollover contribution under Subsection (b).

(d) A participant or beneficiary of a stock bonus, pension, profit-sharing, retirement plan, or government plan is not prohibited from granting a valid and enforceable security interest in the participant's or beneficiary's right to the assets held in or to receive payments under the plan to secure a loan to the participant or beneficiary from the plan, and the right to the assets held in or to receive payments from the plan is subject to attachment, execution, and seizure for the satisfaction of the security interest or lien granted by the participant or beneficiary to secure the loan.

(e) If Subsection (a) is declared invalid or preempted by federal law, in whole or in part or in certain circumstances, as applied to a person who has not brought a proceeding under Title 11, United States Code, the subsection remains in effect, to the maximum extent permitted by law, as to any person who has filed that type of proceeding.

(f) A reference in this section to a specific provision of the Internal Revenue Code of 1986 includes a subsequent amendment of the substance of that provision.

126 U.S.C.A. 403(b)

226 U.S.C.A. 1 et seq.

326 U.S.C.A. 1001 et seq.

426 U.S.C.A. 402(a)(5), 403(a)(4), 403(b)(8) or 408(d)(3)

Section 42.0021. Effective Date. The act takes effect September 1, 1999.

 

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