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Texas Legislative Update – 2003

by

Gerry W. Beyer

    This article reviews legislation enacted by the 2003 Texas Legislature relating to the Texas law of wills, estate administration, trusts, and other estate planning matters.  The reader is warned that not all recent legislation is presented and not all aspects of each cited statute are analyzed.  You must read and study the full text of the legislation before relying on it or using it as authority.

I.  Wills

A.  Tortious Interference With Inheritance Rights

            The lower courts of Texas have recognized the tort of tortious interference with inheritance rights.  See King v. Acker, 725 S.W.2d 750 (Tex. App.—Houston [1^st Dist.] 1987, no writ).  However, the courts have not delineated exactly what actions would constitute tortious interference.  Taking an opposite approach, the 2003 Legislature declared that certain specified actions may not be considered tortious interference, that is, the filing or contesting in probate court of any pleading relating to a decedent’s estate will not constitute tortious interference.  Prob. Code § 10C.  [78^th Leg., R.S., ch. 1060, § 6 (H.B. 1473), effective September 1, 2003.]

    B.  Satisfaction

            Texas now has a statute explaining when an inter vivos gift will be treated as being in satisfaction of a testamentary gift.  Prob. Code § 37C.  [78^th Leg., R.S., ch. 1060, § 7 (H.B. 1473), applicable only to wills executed on or after September 1, 2003.]  The provision is analogous to the existing provision dealing with advancements in an intestacy context.  Prob. Code § 44.

    An inter vivos gift will be considered in partial or total satisfaction of a testamentary gift only if one of the following three conditions is satisfied:

    (1)   The testator’s will expressly indicates that the inter vivos gift is to be deducted from the testamentary gift.

    (2)   The testator declares in a contemporaneous writing that the inter vivos gift is either (a) to be deducted from the testamentary gift or (b) is in satisfaction of the testamentary gift.

    (3)   The beneficiary acknowledges in writing that the inter vivos gift is in satisfaction of the testamentary gift.

    The value of property the testator gives in partial satisfaction of a testamentary gift is determined at the earlier of the date when (a) the beneficiary acquires possession of or enjoys the property or (b) when the testator dies.

    Note the “interesting” placement of this new provision.  The Legislature included the section in the intestacy chapter (Chapter II – Descent and Distribution) rather than in the chapter dealing with wills (Chapter IV – Execution and Revocation of Wills).

    C.  Power of Appointment

            The Legislature clarified whether a residuary clause will be deemed to exercise a power of appointment held by the testator.  Prob. Code § 58c.  [78^th Leg., R.S., ch. 1060, § 8 (H.B. 1473), applicable only to wills executed on or after September 1, 2003.]  A residuary clause or a clause purporting to dispose of all of the testator’s property will exercise a power of appointment in favor of the will beneficiary only if one of the following two conditions is satisfied:

    (1)   The testator makes a specific reference to the power of appointment in the will.

    (2)   There is some other indication in a writing (but not necessarily the will itself) that the testator intended to include the property subject to the power of appointment in the will.

    D.  Contractual Wills

            The methods by which a contractual will may be proved have been modernized so that the contract may be established by the provisions of a written agreement that is binding and enforceable as well as the provisions of the will itself.  Prob. Code § 59A(a).  [78th Leg., R.S., ch. 1060, § 9 (H.B. 1473), effective September 1, 2003.]   Prior to this change, a totally valid contract such as a pre-marital agreement, post-marital agreement, divorce property settlement, or buy-sell agreement could exist but because it was on a separate piece of paper, its establishment was problematic if the will did not state that a contract existed and list the material provisions of the contract.

    E.  Pretermitted Children

            The Legislature clarified the law governing pretermitted children.  Prob. Code § 67(a).  [78^th Leg., R.S., ch. 1060, § 10 (H.B. 1473), effective only with regard to testators who die on or after September 1, 2003.]  A specified method is used to determine the share of a pretermitted child if the testator made a “provision” for a non-pretermitted child in the will.  The amendment provides that the testator’s provision may be either vested or contingent.

II.  Estate Administration

    A.  Venue

            Proper venue for an action by or against a personal representative for personal injury, death, or property damages is determined under Civil Practice & Remedies Code § 15.007.  [78^th Leg., R.S., ch. 204, § 3.05 (H.B. 4), applicable only to actions filed on or after September 1, 2003.]  This change may be a codification of the holding in Reliant Energy, Inc. v. Gonzalez, 102 S.W.3d 868 (Tex. App.—Houston [1^st Dist.] 2003 pet. filed).  Because the amendment only discusses venue, however, uncertainty still remains regarding jurisdiction.  In addition, the courts could broadly interpret the phrase “property damages” to cover all sorts of injury to the value of property, not just those caused by a tort such as a motor vehicle accident (e.g., breach of fiduciary duty).

    B.  Creditors of Estate

            Attorneys fees and costs awarded to a person who in good faith and with just cause attempts to have a will admitted to probate under Probate Code § 243 are now included with other administration expenses as a Class 2 claim.  Prob. Code §  322.  [78^th Leg., R.S., ch. 1060, § 14 (H.B. 1473), effective September 1, 2003.]  This change increases the likelihood of attorneys receiving payment for their services if the estate is insolvent.

    C.  Reinstatement of Personal Representative After Removal

            The clerk must now also give notice to the successor representative of the decedent’s estate if a personal representative who is removed seeks reinstatement.  Prob. Code § 222A.  [78^th Leg., R.S., ch. 1060, § 12 (H.B. 1473), effective only with regard to applications that are filed on or after September 1, 2003.]

    D.  Re-lettering of Probate Code § 84

            For decades, Probate Code § 84 has had two subsections labeled “(b)” – one dealing with proof of a non-self-proved attested written will and the second addressing proof of a holographic will.  At long last, the Legislature has provided unique letters to these subsections.  [78^th Leg., R.S., ch. 1060, § 11 (H.B. 1473), effective September 1, 2003.]

    E.  Removal of Outdated Guardianship Language

            Since the Legislature severed the decedent estate and guardianship provisions a decade ago, vestiges of guardianship language remained in Probate Code §§ 222A(b) & 245.  The Legislature has now removed this outdated language.  [78^th Leg., R.S., ch. 1060, §§ 12 & 13 (H.B. 1473).]

III.  Trusts

    A.  Investment and Management Standard of Care

        [see Trust Investment and Allocation Rules:Texas Enters a New Era]

    B.  Allocation of Receipts and Expenses Between Principal and Income

       [see Trust Investment and Allocation Rules:Texas Enters a New Era]

    C.  Exculpatory Clauses

        The Texas Legislature codified rules regarding the enforceability of exculpatory clauses in trusts.  [78^th Leg., R.S., ch. 1154 (H.B. 3503), effective for trusts existing on or created after September 1, 2003.]

        1.  General Limitation on Enforceability

                A settlor is prohibited from relieving a trustee of liability for a breach of trust committed (1) in bad faith, (2) intentionally, or (3) with reckless indifference to the interest of the beneficiary.  In addition, the settlor may not permit the trustee to retain any profit derived from a breach of trust.  Prop. Code § 113.059(c).

    An exculpatory clause is ineffective to the extent the provision was included in the trust because of an abuse by the trustee of a fiduciary duty to or confidential relationship with the settlor.  Prop. Code § 113.059(d).

        2.  Chapter 142 Management Trusts

                An exculpatory provision in a Chapter 142 management trust will be enforceable only if the following two requirements are satisfied.  Prop. Code § 142.005(j).

    (1)   The exculpatory provision is limited to specific facts and circumstances unique to the property of that trust and is not applicable generally to the trust.

    (2)   The court creating or modifying the trust makes a specific finding that there is clear and convincing evidence that the exculpatory provision is in the best interests of the beneficiary of the trust.

    This new requirement is a reaction to the Texas Supreme Court opinion in Texas Commerce Bank, N.A. v. Grizzle, 96 S.W.3d 240 (Tex. 2002), in which the court enforced a boilerplate exculpatory clause in a Chapter 142 trust.

        3.  867 Trusts

                Rules analogous to those for Chapter 142 management trusts now govern Probate Code § 867 trusts as well.  Prob. Code § 868(c).

    D.  Accountings by Trustee

        1.  Deadline After Beneficiary Request

                Rather than having a “reasonable time” to render an accounting after a beneficiary’s written request, a trustee must now provide the accounting on or before the 90^th day after the trustee receives the demand unless a court order provides for a longer period.  Prop. Code § 113.151(a).  [78^th Leg., R.S., ch. 550, § 3 (H.B. 1471), applicable only to a demand for an accounting made on or after September 1, 2003.]

        2.  Recovery of Costs for Suit to Compel Accounting

                If the beneficiary is successful in a suit to compel an accounting, the court now has the discretion to award all or part of the court costs and all the beneficiary’s reasonable and necessary attorney’s fees against the trustee in either the trustee’s individual or representative capacity.  Prop. Code § 113.151(a).  [78^th Leg., R.S., ch. 550, § 3 (H.B. 1471), applicable only to a demand for an accounting made on or after September 1, 2003.]  Note that the section does not seem to permit the court to award only a part of the attorney’s fees; it appears to be an “all or nothing” situation unlike with regard to court costs where the court has the discretion to award “all or part.”

    E.  Trustee Removal

        1.  In Court’s Discretion

                Despite the use of the word “may” in Property Code § 113.082, Texas courts have held that they must remove a trustee for the specific reasons enumerated in the statute such as for materially violating the trust or becoming insolvent.  See Akin v. Dahl, 661 S.W.2d 911 (Tex. 1983).  The Legislature has changed the statute by adding the phrase “in its discretion” after the term “may” to make it clear that whether or not to remove a trustee is always a discretionary decision of the court.  Prop. Code § 113.082.

            2.  Additional Listed Ground

                The court may remove a trustee if the trustee fails to make an accounting that is required either by law or the terms of the trust.  Prop. Code § 113.082(a)(3).  [78^th Leg., R.S., ch. 550, § 2 (H.B. 1471).]

            3.  Non-Ground

                A trustee of a charitable trust may not be removed solely on the grounds that the trustee exercised the trustee’s power to adjust between principal and income under new Property Code § 113.0211.  Prop. Code § 113.082(c).  [78^th Leg., R.S., ch. 550, § 2 (H.B. 1471).]

            4.  Effective Date

                Note the unusual effective date provision which provides that this section applies only to a “demand for an accounting” which is made on or after September 1, 2003.  [78^th Leg., R.S., ch. 550, § 4 (H.B. 1471).]  The Legislature probably intended this limitation to apply only to § 3 which deals with accountings

IV.  Other Estate Planning Concerns

    A.  Statutory Probate Court Jurisdiction

            The Legislature enacted three bills impacting statutory probate court jurisdiction.  [78^th Leg., R.S., ch. 204, § 3.05 (H.B. 4), applicable only to action filed on or after September 1, 2003.]  [78^th Leg., R.S., ch. 549, §§ 2-6, 33 (H.B. 1470), applicable only to guardianship proceedings commenced on or after September 1, 2003.]  [78^th Leg., R.S., ch. 1060, §§ 1-4, 16 (H.B. 1473), applicable only to probate proceedings commenced on or after September 1, 2003.]  Some of the changes are technical in nature and enhance the readability and understandability of the Probate Code’s jurisdiction provisions effecting decedents’ estates and guardianships.  Unfortunately, other provisions further complicate the already confusing nature of statutory probate court jurisdiction.

    Perhaps the most significant issue is the determination of proper jurisdiction for a proceeding involving a testamentary trust.  Below are five possibilities identified by Glenn M. Karisch in 2003 Legislative Update, at http://www.texasprobate.com/03leg/03updatepaper.htm.

    (1)   If the estate is still pending in the statutory probate court which probated the will creating the trust, the action must be brought in that court.  If the estate is not pending, the action would be brought in the appropriate district court.

    (2)   Regardless of whether the estate is still pending in the statutory probate court which probated the will creating the trust, the action must be brought in that court.  This could result in the probate court hearing actions regarding testamentary trusts many decades after the estate was closed.

    (3)   The action must be brought in the statutory probate court in the county which has venue as determined by the Trust Code regardless of the county in which the will was originally probated.

    (4)   The action may be brought either (a) in the district court or (b) in the statutory probate court if the estate is still pending or if the personal representative of an estate is a party to the proceeding.

    (5)   The action must be brought in the district court unless the estate is still pending in a statutory probate court or if the personal representative of an estate is a party to the proceeding.

    B.  Rights of Creditors Against Multiple-Party Accounts

            The Texas Legislature clarified the rights of creditors against multiple-party accounts.  Prob. Code § 442.  [78^th Leg., R.S., ch. 564, § 1 (H.B. 1590), effective only for multiple-party accounts created on or after September 1, 2003.]  No multiple-party account is effective against the claim of a secured creditor who has a lien on the account.  Any party, except a convenience signer to a convenience account, may use the account as collateral without the joinder of any of the other parties.  If the secured creditor is a financial institution, the creditor must give written notice sent by certified mail that the account was used as collateral to the other party within thirty days of perfection.  However, notice need not be given to parties who have no current ownership rights such as P.O.D. payees, trust account beneficiaries, and convenience signers.

    C.  Convenience Accounts

            The rules governing convenience accounts were modernized to permit multiple parties and multiple convenience signers on the same account.  Prob. Code § 438A.  [78^th Leg., R.S., ch. 658, § 1 (H.B. 2238), effective only with respect to convenience accounts created on or after September 1, 2003.]  This change enhances the usefulness of convenience accounts.  For example, a husband and wife may be parties and designate a child as a convenience signer or a parent may designate several children as convenience signers.  The Uniform Single-Party or Multiple-Party Account Selection Form Notice was revised to reflect this change.  Prob. Code § 439A. [78^th Leg., R.S., ch. 658, § 2 (H.B. 2238), effective only with respect to convenience accounts created on or after September 1, 2003.]

    D.  Powers of Appointment

            The Legislature codified various aspects of the law governing the exercise of powers of appointment.  Prop. Code §§ 181.081 - .083.  [78^th Leg., R.S., ch. 551, § 2 (H.B. 1472), applicable to any exercise of a power of appointment on or after September 1, 2003 regardless of when the power was created.]  Unless the power of appointment expressly provides otherwise, the donee of a power of appointment may do the following things when exercising the power:

    (1)   Appoint present, future, or both present and future interests.

    (2)   Impose conditions and limitations on the appointment.

    (3)   Impose restraints on alienation.

    (4)   Appoint interests to a trustee for the benefit of one or more objects of the power.

    (5)   Create any right existing under the common law.

    (6)   Grant the objects of the power of appointment the power to appoint the property provided that these powers of appointment must be exercisable only in favor of the objects of the power who would have been permissible objects under the original donee’s power. 

    (7)   If the donee has the power to appoint outright to the object of the power, exercise the power to give a power of appointment to the object of the original power.  The donee of the original power becomes the donor of the second generation power.  There are no restrictions on the identity of the objects of the second generation power; in other words, these objects do not have to be permissible objects of the original power of appointment.

    E.  Surrogate Mothers

            The Texas Legislature has now authorized gestational agreements between a surrogate mother and the intended parents.  Fam. Code §§ 160.751 - .762.  [78^th Leg., R.S., ch. 457, § 2 (H.B. 729), applicable only to a motion or other request for relief made in a parentage or paternity proceeding that is commenced on or after September 1, 2003.]  If the agreement is properly validated, the woman who gave birth to the child will not be treated as the child’s mother.  Accordingly, this child would not inherit from or through the birth mother.  Instead, the mother and father of the child will be the intended parents and inheritance rights will accrue accordingly.

    F.  Advance Directives

            Texas now has extensive procedures which must be followed when either (1) the attending physician wishes to cease life-sustaining treatment but the patient’s advance directive or medical agent indicates that treatment should be continued or (2) the attending physician wishes to continue life-sustaining treatment but the patient’s advance directive or medical agent indicates that treatment should be withheld.  Health & Safety Code §§ 166.052 - .053.  [78^th Leg., R.S., ch. 1228, § 5 (S.B. 1320), effective June 1, 2003.]  These procedures will assist the patient in being transferred to a facility willing to comply with the advance directive or the agent’s instructions.

    G.  Out-of-Hospital Do-Not-Resuscitate Order

        1.  Individuals Authorized to Comply

                The types of individuals who may honor a physician’s do-not-resuscitate order in an out-of-hospital setting has been expanded to include (1) licensed nurses and (2) anyone providing health care services in an out-of-hospital setting.  Health & Safety Code § 116.102.  [78^th Leg., R.S., ch. 1228, § 7 (S.B. 1320), effective June 1, 2003.]  Emergency medical services personnel responding to a call for assistance, however, may honor only a properly executed or issued out-of-hospital DNR order or a prescribed DNR identification device.

        2.  Minors

                An out-of-hospital do-not-resuscitate order may now be executed for a minor by the minor’s parents, guardian, or managing conservator only if the minor has first been diagnosed by a physician as suffering from a terminal or irreversible condition.  Health & Safety Code § 116.085.  [78^th Leg., R.S., ch. 1228, § 6 (S.B. 1320), effective June 1, 2003.]

    In publishing this article, the author is not engaged in rendering legal, accounting or other professional service. If legal advice is required, the service of a competent professional should be sought.

Ó 2003 Gerry W. Beyer