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.

(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.

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.

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.

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.

(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.

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.

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.

(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.

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.

(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)(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.

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.

(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

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

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.

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.

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.

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.

(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.

(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.

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

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.

(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.