advanced real estate drafting course 2002 updated … · insurance and non probate assets,"...

ADVANCED REAL ESTATE DRAFTING COURSE2002

Updated 2011

“HE’S DEAD?”Real Estate in a Decedent’s Estate

JERRY FRANK JONESOF COUNSEL

IKARD & GOLDEN, P.C.Austin, TX [email protected]

JERRY FRANK JONESOF COUNSEL:

IKARD & GOLDEN, P.C.106 East 6 Street, Suite 500th

Austin, TX 78701Phone: (512) 476-2929Fax: (512) 472-3669

[email protected]

Education: Williams College, Williamstown, Mass., B.A. 1967; University of Texas-Austin,J.D, 1971.

Background: Board Certified, Estate Planning and Probate by the State Bar of Texas, Fellow,American College of Trust and Estate Counsel; Instructor: University of Texas, Legal AssistantProgram, Estate Planning & Probate.

Real Estate, Probate and Trust Law Section of the State Bar of Texas: Chair (2001-02),Legislative Liaison (1997-present) and Council Member (1994-98).

Author: Probate, Guardianship and Trust, TEXAS LEGISLATIVE REPORTS 1997, 1999 &2001; "A TOPICAL GUIDE: Advanced Estate Planning and Probate Course Articles;" "ATOPICAL GUIDE: Advanced Drafting: Estate Planning and Probate Course Articles;"COMMUNITY PROPERTY FOR ACCOUNTANTS;” "The 706 for Country Lawyers and OtherSimple People;" "DEATH AND TAXES: An Introduction To Taxes Concerning A ProbateAttorney," "Estate Planning for PWAs (Persons With AIDS);""Divorce: Effect Upon LifeInsurance and Non Probate Assets," 1988, Probate & Property, magazine of the Real Property,Probate and Trust Section, American Bar Association.

ADMITTED TO PRACTICE LAW: All Courts in the State of Texas, United States DistrictCourt for the Eastern and Western Districts of Texas, U. S. Court of Appeals 5th Circuit, andUnited States Tax Court.

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TABLE OF CONTENTS

1. Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. References and Abbreviations.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. Evidencing and Transferring Title.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24. Probate the Basics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

a. Probate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2b. Property Passes 3 Ways. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2c. Vesting At Death. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

5. Homestead, Family Allowance and Exempt Property... . . . . . . . . . . . . . . . . . . . . . . . . 2a. Homestead.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2b. Other Exempt Property. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3c. Allowance In Lieu of Exempt Property.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3d. Family Allowance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

6. Intestacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3a. Community Property.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3b. Separate Property.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3c. Other Rules. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

7. Avoiding Probate (Administration): Non Judicial Solutions. . . . . . . . . . . . . . . . . . . . 4a. Affidavit of Heirship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

i. Statutory Form.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5ii. Prima Facie Evidence.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5iii. May Be Refuted... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5iv. Affidavits Commonly Accepted.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5v. Will Attached... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5vi. No Debts or Administration.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5vii. Heirs May Convey... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5viii. Purchasers Beware.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

b. No Community Administration Needed.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6c. Unqualified Community Administrator. Section 160.. . . . . . . . . . . . . . . . . . . . 6

8. Avoiding Administration: Judicial Solutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7a. Collection of Small Estate by Affidavit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7b. Determination of No Administration Needed... . . . . . . . . . . . . . . . . . . . . . . . . . 7c. Proceeding to Determine Heirship.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

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9. Executors, Administrator and Personal Representatives: Dependent andIndependent Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8a. Executors.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8b. Administrators.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8c. Personal Representatives.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8d. Dependent Administration.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8e. Independent Administration.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8f. Successors in Interest.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

10. Probate: Dependent Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9a. Necessity For Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9b. Sale of Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

i. Court Order Required. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10ii. When Can a Sale Be Ordered.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10iii. Other Considerations For Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

(1) Abatement. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10(2) Tax Apportionment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10(3) Most Advantageous... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

c. Court Ordered Sales: The Many Legged Dog.. . . . . . . . . . . . . . . . . . . . . . . . . 10i. Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10ii. Posting Citation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11iii. Hearing... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11iv. Notice to Beneficiaries.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11v. Order of Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11vi. Report of Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11vii. Decree Confirming Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11viii. Administrator’s Deed & Release of Funds.. . . . . . . . . . . . . . . . . . . . . . 11ix. No Shortening of Times. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11x. Increase of Bond. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11xi. Safekeeping Alternative.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11xii. Joinder by Heirs.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

d. Documents To Be Recorded.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12e. Power of Sale in the Will.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12f. Creditors: Secured by Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

i. Election of Claim Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12ii. Foreclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

(1) Non Judicial: Before Administration.. . . . . . . . . . . . . . . . . . . . 13(2) Non Judicial: During Administration.. . . . . . . . . . . . . . . . . . . . 13(3) Court Supervised: During Administration... . . . . . . . . . . . . . . 13

g. Federal Estate Tax Lien.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14i. Priority.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14ii. Exceptions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14iii. Unrecorded Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14iv. Reliance on Inventory... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

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v. Taxable Estates.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14vi. Release of the Lien.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

h. Special Recorded IRS Liens.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15i. Mineral Leases.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15j. Renting Real Estate... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15k. Exoneration of Liens... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15l. Closing and Distribution.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

i. Mandatory Procedure... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15ii. Partition.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15iii. Deeds.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15iv. Documents To Be Recorded.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16v. Minor Heirs.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

11. Probate: Independent Administrations.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16a. No Necessity Required.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16b. Sales of Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

i. Authority In The Will... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17ii. Restrictions in Will.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17iii. Restrictions on Limitations.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17iv. Priority of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17v. No Authority In Will To Sell: Implied Authority.. . . . . . . . . . . . . . . . 17vi. Other Considerations For Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

(1) Abatement. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17(2) Tax Apportionment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17(3) Most Advantageous... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17(4) No Authority Over Homestead.. . . . . . . . . . . . . . . . . . . . . . . . . 18

c. No Court Ordered Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18d. Documents To Be Recorded.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18e. Joinder by Heirs.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18f. Problems in Sales by Independent Personal Representatives... . . . . . . . . . . . 18g. BFPs: Examine the Record.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19h. Creditors: Secured by Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

i. Election of Claim Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19ii. Foreclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

i. Federal Estate Tax Lien.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19i. Unrecorded Lien, Reliance on Inventory & Taxable Estates.. . . . . . . 19ii. Release of the Lien.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

j. Special IRS Liens.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19k. Partition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19l. Mineral Leases.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20m. Renting Real Estate... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20n. Exoneration of Liens... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20o. Closing and Distribution.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

i. No Action.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

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ii. Closing Affidavit.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20iii. Closing Upon Application of Distributee.. . . . . . . . . . . . . . . . . . . . . . . 20iv. Deemed Closed.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20v. Conveyances to Beneficiaries.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20vi. Minor Beneficiaries... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21vii. Documents To Be Recorded.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

12. Deed Without Warranties.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2113. Estate Not an Entity.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2114. Representative May Not Purchase From The Estate... . . . . . . . . . . . . . . . . . . . . . . . . 2115. Representative May Purchase From Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 2216. Multiple Personal Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2217. Community Property.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2218. Foreign Wills.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

a. Recording In The Deed Records.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22b. Probate Filing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

19. BFP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2320. Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

a. Affidavit of Heirshipb. Notice to Secured Creditorc. Application to Release Liend. Certificate Releasing Lien e. Application to Sell Real Estatef. Order of Saleg. Report of Saleh. Decree Confirming Salei. Administrator’s Deedj. Affidavit of No Debts or Taxesk. Affidavit Of Taxes Paidl. Executor’s Distribution Deed Without Warranties.

1

ADVANCED REAL ESTATEDRAFTING COURSE

March 2002


©

Jerry Frank JonesOf Counsel

Ikard & GoldenAustin, Tx

1. Disclaimer. This writer is not a realestate attorney. This paper and the attachedforms are from the point of view of aprobate lawyer who works with real estatelawyers, both in assisting those lawyers andin obtaining assistance from them. Use thispaper and especially the forms with thatcaution in mind. Also, I am using themasculine pronoun generally. I know betterbut it is just too much trouble to be correct. And when my female assistance abandonedher efforts to be correct several years, Iassumed it was safe for me as well.

2. References and Abbreviations. Thesources frequently referred to in this outlinehave been shortened in description asfollows:

a. Section when not otherwiseexplained means a section of the TexasProbate Code.

b. Johanson means StanleyJohanson’s “Texas Probate Code Annotated. This one volume book is the basic tool forthis area. It includes not only the Texas

Probate Code (as well as the most importantannotations and Professor Johanson’scomments) it also includes most of the otherrelevant statutes and constitutionalprovisions.

c. Texas Practice meansvolumes 17 and 18 of the Texas PracticeSeries “Probate and Decedents’ Estates,” byWoodward and Smith. One reference is alsomade to another two volume set from thatsame series when discussing intestacy, thatreference to “Texas law of Wills,” byLeopold and Beyer is clearly distinguishedin the text.

d. Advanced Estate Planningand Probate Articles means articles from theannual course for probate and estateplanning lawyers which the State Bar hasput on since 1976. Many of these articles areavailable and can be downloaded atwww.reptl.org. It is necessary to be amember of the Real Estate Probate and TrustLaw Section of the State Bar to access thosematerials.

e. Standards and Comments toStandards means those Standards and

http://www.reptl.org.

2

Comments set out in “Texas TitleExamination Standards,” Title 2- Appendixfollowing Section 5.151 of the TexasProperty Code.

3. Evidencing and Transferring Title.When someone dies holding title to realestate, new rules are needed to evidenceownership and to transfer ownership. Obviously the decedent cannot provide hissignature. Powers of attorney terminate atdeath. Someone must succeed to his interest. An orderly mechanism is needed to settle hisaffairs. To understand the various solutions,a brief discussion of wills, intestacy andprobate are necessary.

4. Probate the Basics.

a. Probate. Probate is theprimary process used in Texas to wind upthe affairs of the decedent. The purpose ofprobate is to provide an orderly mechanismto resolve the decedent’s affairs and transferhis property to his successors (or evidencethe new ownership). That process has fourcomponents:

i. Collect and protectthe assets;

ii. Pay the lawful debts;iii. Pay the taxes; and, iv. Distribute the

remaining assets to the beneficiaries (under awill) or heirs (under intestacy).

A probate proceeding hasbeen likened to a bankruptcy. It is a forumfor settling the claims of the decedent andclaims against the decedent.

b. Property Passes 3 Ways. Atdeath property passes one of three ways: Bywill, by intestacy or by third partyarrangements (trusts, multi party accounts,IRAs, life insurance, joint tenancy with rightof survivorship). This article focusesprimarily on the first two.

c. Vesting At Death. It is truethat a decedent’s property passes to his orher heirs or devisees immediately upondeath. Subject to exemptions, debts andadministration, the heirs can convey theirinterest in the property immediately.

i. For a generaldiscussion of the property being subject toadministration, see Texas Practice, Section191.

ii. The decedent’sproperty is also subject to the federal estatetax lien, See IRC 6324, see discussion infra.

iii. And, the decedent’sproperty is subject to any homestead,allowance in lieu of exempt property andfamily allowance rights of the survivingspouse and children of the decedent, seeinfra.

5. Homestead, Family Allowance andExempt Property. In addition to creditors,the decedent’s family has certain protectionsthat must be accommodated.

a. Homestead. Section 270 etseq and Texas Constitution Article 16Sections 50 et seq set out the Texashomestead rights. The homestead is notsubject to administration; this means anadministrator cannot sell or encumber ahomestead. Also see Johanson’s Commentat Section 270 distinguishing the possessoryhomestead from the homestead exempt from

3

creditors. Johanson says that if there is aconstituent member of the decedent’s familysurviving that the homestead is exempt fromcreditors, even if that family member doesnot have any right to live in the home.

b. Other Exempt Property. Section 271directs the court to set aside theproperty exempt from forced sale.

c. Allowance In Lieu ofExempt Property. Sections 273 et seqallows for an allowance in lieu of exemptproperty and sets out the procedure to befollowed. Up to $15,000 may be paid in lieuof a homestead and $5,000 in lieu of otherexempt property.

d. Family Allowance. Sections286 et seq provide a family allowance forthe surviving spouse and/or minor children. The court is to fix an amount necessary tosupport the spouse and minor children for ayear. Also see Texas Practice Sections 841 -894 and Roger Beebe, “Special Rights ofSurviving Spouse--Homestead, ExemptProperty and Family Allowance,” 1994Advanced Estate Planning & Probate, Tab I.

6. Intestacy . Our intestacy rules areprimarily in Sections 38 (separate property)and Section 45 (community property). Theonly recent change provides that communityproperty passes to the surviving spouse if allof the decedent’s children are children of thesurviving spouse, Section 45.

a. Community Property. Section 45 controls the intestate dispositionof community property. Note there isalways a surviving spouse with communityproperty. Also, what is set out below is

accurate. If you read Section 45 it willsuggest a different result. It is truly amisleading statute but which was construedas set out below in Jones v. State, 5 S.W.2d973 (Tex. Comm. App. 1928).

i. No survivingdescendants: All to spouse;

ii. All survivingdescendants are descendants of the survivingspouse: All to spouse.

iii. A survivingdescendants is not the descendant of thesurviving spouse: All to the descendants.

b. Separate Property. Section38 controls the intestate disposition ofseparate property.

No surviving spouse

�All to descendants

� No descendants, to mother andfather. ��If only one is living, 1 portionto surviving parent and 1 portion tosibling or their descendants. �� If no surviving siblings ortheir descendants, all to the survivingparent.

�If no surviving parents, all tosurviving siblings or theirdescendants.

� If none of the above, in twomoities: 1 paternal, and 1 maternal.

4

Surviving spouse

� And descendants ��Spouse takes

��1/3 personalty�� life estate in 1/3 ofrealty

��Descendants��2/3s personalty��All realty subject to 1/3life estate

�And no descendants. ��-Surviving spouse

��All personalty��½ realty

�� Other ½ of realty passes by“rules of descent and distribution”see above, b ii (1), (2) and (3). �� If there is no survivingsiblings or their descendants, then allto the surviving spouse

c. Other Rules. The precedingcovers about 90% of the intestate situationsbut there are numerous other rules from thecommon law and the Probate Code. See:

i. The other two volumeset in this area, Texas Practice series,“Texas Law of Wills.” Sections 2.1 through12.4.

ii. Also, while a bit old,a very good survey is provided by BarbaraFerguson in “Who Are Your Descendants,Adoptions, Half-Bloods, Surrogates Etc.,”1987 Advanced Estate Planning and ProbateTab F.

iii. Finally, the Texas Probate Code

�Section 37 Passage of Title UponIntestacy,

�Section 37A and B: Disclaimers,�Section 39: No DistinctionBecause of source (Father orMother),�Section 40: Adopteds,�Section 41: Persons Not In Being,Half Bloods, Aliens, Convictions andSuicides,�Section 42: Childrens’ Inheritancefrom Mothers and Fathers,�Section 43: Per Capital and PerStirpes,�Section 44: Advancements,�Section 46: Joint Tenancies, and�Section 47: Survival by 120 Hours.

7. Avoiding Probate(Administration): Non Judicial Solutions. In certain circumstances title can beevidenced or transferred without a probateproceeding. One mentioned frequently isplacing real estate into a revocable trust,sometimes referred to as a living trust. However, that involves title issues in a trustand is beyond this outline. For a discussionof real estate and revocable trusts see“Transferring Real Estate For EstatePlanning and Probate Purposes,” Tibbets,1998 Advanced Real Estate Course Tab, EE.The focus here will be on the moretraditional title problems arising from wills,probate and intestacy.

a. Affidavit of Heirship. Thisis the oldest of our non probate solutions. Infact it first arose by case law. See Johanson,Commentary following Section 52. Theyare most appropriate when the decedent hadno will and more than four years has passedsince his death.

5

i. Statutory Form. In1999 the Texas Legislature enacted Section52A. Now there is a non exclusive statutoryform for affidavits of heirship. This statutewas backed by the title insurance industryand presumably will be viewed with favor.A completed example of that affidavit isattached. That statutory form is attached. However, a copy can be downloaded inWordPerfect form from the Texas Legis-lature’s website, www.capitol.state.tx.us.

ii. Prima FacieEvidence. Section 52 says an affidavit ofheirship is prima facie evidence of title in acourt proceeding, if:

(1) It is properlyexecuted and acknowledged or sworn; and,

(2) It has been onfile for 5 years in the county in which thereal estate is located.

iii. May Be Refuted.Section 52 goes on to say that the “true factsmay be proved by anyone interested in theproceeding in which the affidavit orinstrument is offered in evidence.

iv. AffidavitsCommonly Accepted. Despite theselimitations, title companies frequently acceptaffidavits of heirship within four years of thedate of death and waive the requirement of aprobate proceeding or a judicialdetermination of heirship. Standard 11.70authorizes an examiner to “rely upon anaffidavit of heirship with respect to thefamily history and the identity of the heirs ofthe decedent.”

v. Will Attached.Sometimes, in an effort to avoid probate, anunprobated will is attached to the affidavit.When a will is attached the heirs at law andthe beneficiaries under the will sign theaffidavit (in addition to the two disinterestedwitnesses) or a separate agreement. The

beneficiaries then promise in the affidavit orseparate agreement that they will not offerthe will for probate. The Comment toStandard 11.50 requires that a deed besigned by the heirs at law as well as allbeneficiaries of any unprobated will. ThisStandard might be clearer if it referred to“all” unprobated wills. There is always therisk that the last dated will is invalid forsome reason not obvious on its face (fraud,forgery, lack of capacity or undue influence). Then the next will, which may have verydifferent beneficiaries, would be the properwill for probate.

vi. No Debts orAdministration. Title companies willrequire the affidavit of heirship (or someother affidavit) to state that there are nounpaid debts or taxes and that noadministration is pending. Standard 11.20.

vii. Heirs May Convey.With the affidavit the heirs can convey thereal estate.

viii. Purchasers Beware.Purchasers, however, must be wary of asubsequent administration; they take titlesubject to any debts or any subsequentadministration. Texas Practice at Section191.

(1) If there is asale in a subsequent administration to paydebts the purchaser’s title will be defeated. Again see discussion at Texas PracticeSection 191

(2) There is a casethat says the purchaser’s title is not defeatedif the sale is to effect a partition, Littlefieldv. Ungren, 206 S.W.2d 152(Tex.Civ.App–1947, writ ref’d n.r.e.)

(3) While thereare no cases on point, a sale to payadministrative expenses, taxes, familyallowance or other appropriate obligation,

http://www.capitol.state.tx.us.

6

presumably are deemed “debts” which willdefeat the purchaser’s title.

(4) For thecircumstances under which anadministration will be established, seeDependent Administrations, infra.

(5) The purchaserfrom an heir will probably have even greaterproblems if a will is subsequently produced,see Independent Administrations, infra.

b. No CommunityAdministration Needed. Section 155 saysno administration is necessary if thecommunity estate passes to the survivingspouse. This is true even if the there aredebts because Section 45 says all communityproperty “...passes charged with the debtsagainst it...” While this is available it israrely used and could create problems for apurchaser.

i. William Roundtree inhis excellent article for the Advanced RealEstate Course in 1989, “Roadmap OfGetting Real Estate Titles Through Probate,”Tab Q, sets out the following issues for thepurchaser to resolve:

(1) That thesurviving spouse really took all of thecommunity property;

(2) That thedecedent died intestate,

(3) That theproperty is community property,

(4) That theproperty is free of debt,

ii. Roundtree says “...acautious attorney should be reluctant to relyon Tex. Prob. Code Section 155 alone.”

iii. He says a deed underSection 160 affords the purchaser a greatdeal more protection.

c. Unqualified CommunityAdministrator. Section 160. Section 160allows a surviving spouse to deal withcommunity property without any courtproceeding. This is endorsed by Standard11.80.

i. If there is not anadministration pending and there is asurviving spouse and debts of the decedent,that surviving spouse may “...sell, mortgage,lease or otherwise dispose of communityproperty for the purpose of payingcommunity debts;...” See, Burns v. Burns,439 S.W.2nd 452 (Tex Civ App Texarkana1969, writ ref’d n.r.e.) and Texas Practice,Sections 543 and 544.

ii. The right to pay offcommunity debts even includes selling thereal estate to reimburse a surviving spousewho has paid for the decedent’s funeral orlast illness expenses. Texas Practice,Sections 544. Martin v. McAllister, 63 S.W.624 (Tex. 1901) and David v. MagnoliaPetroleum Co., 134 S.W.2d 1042 (Tex.1940).

iii. The surviving spousecan sell even if the decedent’s ½ passes tohis children, Davis v. Magnolia PetroleumCo., 134 S.W.2d 1042 (Tex. Comm. App.1940).

iv. If the proceeds aregreater than the community debt, thesurviving spouse holds those proceeds astrustee for the rightful heirs.

v. A deed using thisprocedure should clearly state that there isno administration pending, that the propertyis community property, that communitydebts are owed and that the grantor is thesurviving spouse.

vi. Since anadministration cannot be initiated more than

7

four years after the decedent’s death, a 160deed may be the only way to sell theproperty to pay a debt after four years.

8. Avoiding Administration: JudicialSolutions

a. Collection of Small Estateby Affidavit. Sections 137 and 138 allowthe transfer of a small estate by an affidavitwhich is filed with and approved by theprobate court. This is limited to estates ofless than $50,000, not counting homesteadand exempt property. While the affidavit isgood to transfer all personal property to theheirs, it is not effective as to any real estateexcept the homestead, Section 137(c). If theapproved affidavit is to be used to“transfer” title to the homestead it must be1

recorded in the deed records, Section 137(c)Also see Texas Practice Sections 481-485.

b. Determination of NoAdministration Needed. Section 180allows a court to determine that noadministration is necessary. This procedureis rarely used. However, it could provide agreat deal of protection to a purchaser or acreditor seeking to foreclose and should beconsidered.

c. Proceeding to DetermineHeirship.

i. A proceeding todetermine heirship, under Sections 48 et seq, is generally coupled with an application forappointment of a dependent administration.

However, the administration is notnecessary.

ii. If all of the heirs arein agreement and competent, an heirshipproceeding may be necessary, orappropriate, rather than just an affidavit ofheirship if

(1) A titlecompany will not accept an affidavit, or

(2) There is someissue regarding the proper heirs that needs to be resolved, such as a possible illegitimatechild or a person claiming to be a commonlaw spouse.

iii. An heirshipproceeding requires personal service orwaiver by all heirs

iv. As of September 2001citation by posting (Section 50(b)) and theappointment of an ad litem (Section 53(c)) isrequired in all cases.

v. A parent, managingconservator, guardian or ad litem may waiveservice for a minor under 12 years of age. Section 50(e). However, if the child is 12 orolder, they must be personally served withcitation and no waiver is possible.

vi. Anyone not servedwith actual notice has four years to challengethe judgment, Section 55(a). However, bonafide purchasers are protected even if thejudgment is later set aside, Section 55(b).

vii. Once the judgment isentered, the heirs can convey and thepurchaser has the protection of a court order.

d. Muniment of Title. Sections89A, 89B and 89C permit the probating of awill merely as a muniment of title.

i. This is used when noadministration is needed or anadministration is not available. A will is

The statute uses the word1

“transfer.” “Evidence” of title is probably amore accurate description.

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probated as a muniment of title mostcommonly when more than four years haveelapsed since the date of death and anadministration is not available. It is alsofrequently used on the death of the firstspouse and the will leaves everything to thesurviving spouse.

ii. The order admittingthe will to probate establishes title in thebeneficiaries.

iii. The order alsodeclares that there are no debts of thedecedent.

iv. Then the beneficiariescan convey and the purchaser has theprotection of a court order.

9. Executors, Administrator andPersonal Representatives: Dependent andIndependent Proceedings. The following isan explanation of how often confusingwords are used in this outline.

a. Executors. Executors arepersons named in a will to serve as personalrepresentative. They are generallyindependent executors but not always. Aperson named as executor in a will mightchoose to be appointed a dependent executorwith will annexed (Section 145(r)) in anestate with serious creditor problems orwhere a foreclosure needs to be set aside.Also, the will might have appointed anexecutor but failed to make himindependent, in which case the executorwould be dependent with will annexed.

b. Administrators.Administrators are persons appointed by acourt and not named in a will. These aregenerally dependent administrations withintestate heirs. However, there could be a

will where no executor was named or wherenone of the named executors are qualified. In that case, the court would appoint anadministrator who would administer theestate “with will annexed.” Also, the courtappointed administer might be independentof the court pursuant to Section 145 (c),wherein all of the distributees of an estatecan choose an independent administrator.

c. Personal Representatives.Personal representatives are all of the above. The Probate Code defines personalrepresentative, Section 3(aa) as includingexecutors, administrators both independentand dependent. It defines independentexecutor in Section (q) but does not defineexecutors or administrators.

d. Dependent Administration.A dependent administration means theadministrator is strictly controlled by theProbate Code and the court. As mentionedabove, there may be a will but generallythere is not. When there is a will it controlsover the Probate Code.

e. IndependentAdministration. An independentadministration is free of court supervisionand control. Once the inventory is filed thecourt no longer has any control over thepersonal representative except uponapplication specifically authorized by theProbate Code.

f. Successors in Interest.Persons who succeed to a decedent’sproperty have a variety of names. Heirs arepeople who take by intestacy (Section 3(o)). Traditionally people who take under a willwere devisees (takers of real estate) andlegatees (takers of personalty). Now the

9

Probate Code defines both of these asinterchangeably (Sections 3(h) and (s)) aspeople who take under a will without regardto whether they take realty or personalty.The Probate Code also uses distributees(Section (o)) to mean any person entitled toa decedent’s estate whether under a will orintestacy.

10. Probate: DependentAdministration. As mentioned above,dependent administrations generally, but notalways, arise when there is no will and theestate passes by intestacy. While notrequired by statute, most of the statutoryprobate judges will not appoint a dependentadministrator in an intestacy without asimultaneous proof of heirship. Dependentadministrations are subject to very strictProbate Code rules and requirements.

a. Necessity ForAdministration An administration will notbe opened and letters of administration willnot issue unless it is necessary, Section178(b). Section 178(b) says

i. Necessity is “deemed”to exist if there are two or more debts or if apartition is necessary.

ii. Then it states thatthere may be other reasons necessitating anadministration. While case law is sparse,Texas Practice Section 625 suggests suchreasons include:

(1) Collectingseveral claims,

(2) Recoveringseveral assets,

(3) Pursuingclaims collectible only by a personalrepresentative (A. some claims against the

United States, Butler. v. United States, 23F.Supp. 143 (S.D. Tex. 1938), also seeSection 6(e) setting out venue whenadministration for purposes of collectingfrom a governmental source; B. somepersonal injury claims, C. FederalEmployees Liability Act, and D. TexasWrongful Death Act).

iii. While no case wasfound, it is assumed that taxes, familyallowances and allowances in lieu of exemptproperty are “debts.”

iv. No administrationwill be permitted if there is only one debt,Rogers v. Barbee, 32 S.W.2d 666 (Tex.Civ.App.–Dallas, 1930 no writ hist.), or oneclaim or the only estate asset is thehomestead which is exempt from creditors,Cohn v. Saenz, 211 S.W. 492(Tex.Civ.App–SA, 1919 ____________)and Parker v. Miller, 258 S.W. 602(Tex.Civ.App–Austin, 1924; rev’d on othergrounds 268 S.W.726 (Tex. 1925).

v. According toO’Donniley v. Golden, 860 S.W.2d 267(Tex.App–Tyler, 1993, original mandamusproceeding) the finding of necessity isrequired even when an administrator isappointed with will annexed. However,under a will there may be additional reasonsto need an administrator, for example toallocate assets between two or morebeneficiaries such as a bypass trust and amarital trust.

vi. There is not a“necessity” rule for the issuance of letterstestamentary, see Section 178(a) andIndependent Administrations, infra.

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b. Sale of Real Estate

i. Court OrderRequired. Section 331 requires a courtorder to sell real estate.

ii. When Can a Sale BeOrdered. Section 341 allows a sale to

(1) Pay expensesof administration, funeral expenses,expenses of last illness, allowances andclaims. This subsection provides for sale ofproperty to pay all of the typical expenses ofan estate. While the statute does not refer totaxes, family allowance or allowance in lieuof exempt property, they are no doubtincluded under “expenses of administration”or “claims.”

(2) Or, if it is inthe best interest of the estate.

Also see Texas Practice at Section969 including pocket part.

iii. OtherConsiderations For Sale Before a sale willbe allowed under Section 341, the abatement(Section 322B), apportionment (Section322A) and most advantageous (Section 340)statutes have to be considered. Thesestatutes control when there is no will or thewill is silent as to the payment of claims,administrative expenses and taxes.

(1) Abatement. Section 322B, the abatement statute, gives ahierarchy of asset liability for debts andadministration expenses.

(a) Whilethe statutory priority is fairly detailed whenthere is a will, all it says for intestacy is thatintestate property is first subject to debts andadministrative expenses.

(b) Thestatute does not say within intestacy whetherpersonalty is to be used first. However,either because the statute is based on Sinnottv. Gadney, 322 S.W.2d 507 (Tex. 1959), orSinnott v. Gadney still controls in intestatesituations, it is generally believed thatwithin intestate property, personal propertymust be sold before real estate.

(2) TaxApportionment. The liability of assets forpaying death taxes is different. Section322A, the tax apportionment statute, givesan apportionment rule for paying federalestate taxes. Thus Blackacre may be subjectto sale because it causes some of the federalestate tax, but is not liable for any debts oradministrative expenses if there is sufficientpersonal property available.

(3) MostAdvantageous. Section 340 says the realestate to be sold “shall be that which thecourt deems most advantageous to theestate...”

c. Court Ordered Sales: TheMany Legged Dog. If, after consideringSections 322A, 322B, 340 and 341, the courtconcludes that the sale of real estate isproper, then the sale has several additionalsteps:

i. Application. Asdiscussed above, Section 341 requires anapplication to the court to sell real estate.

(1) While not apart of the statute, most probate courtsrequire an application to sell to include

(2) An appraisaland

(3) The proposedearnest money contract or listing agreement

11

(a) Apersonal representative may seek permissionto list the property. However, the personalrepresentative may present a proposedearnest money contract to the court.

(b)SUBJECT TO COURT APPROVAL. Ineither event the personal representativeSHOULD NOT SIGN any earnest moneycontract or listing agreement unless it clearlystates that the “CONTRACT IS SUBJECTTO COURT APPROVAL.”

ii. Posting Citation.Section 344 requires the posting of citationand the order of sale cannot be entered untilthe return date. The return date (seeSections 33(f)(2) and 33(g)) is the firstMonday 10 days after the date of posting. Ifyou file on a Thursday you can have ahearing on the second following Monday. Ifyou file on a Friday you have to wait untilthe third following Monday. There is noknown way around this time frame.

iii. Hearing. Section 342says a hearing shall be set and held by thecourt. As a practical matter the court signsthe order after the return date if there is noopposition and the applicant has compliedwith the statutory (and court’s)requirements. Some courts automaticallycalendar and sign the order of sale, otherrequire a presentment.

iv. Notice toBeneficiaries. There is no requirement thatthe personal representative notify thebeneficiaries of the proposed sale. Thecautious personal representative may avoidproblems later on if he gives fair notice ofthe planned sale before it is too late toreverse the process.

v. Order of Sale. Afterproper citation and hearing, if necessary, thecourt may enter an order of sale, Section

346. Pursuant to Sections 344 and 33((f)(2)say the application must be posted for 10days before an order can be entered. Thatorder generally approves the earnest moneycontract and authorizes the personalrepresentative to close the sale.

vi. Report of Sale. Afterthe closing in escrow, or mock sale as it hassometimes been described, the personalrepresentative has to file a report of sale,Section 353. The best report attaches a copyof the closing statement showing exactlywhat charges are made against the estate’sinterest and what the estate receives from thesale.

vii. Decree ConfirmingSale. After the report of sale has been onfile for five days, Section 355, the court mayexecute a decree confirming sale. There isno known way around this time frame.

viii. Administrator’sDeed & Release of Funds. This transactionconcludes with the recording of theadministrator’s deed and the disbursement offunds. See discussion infra regarding DeedsWithout Warranties.

ix. No Shortening ofTimes. There is no known authority for shortening the 5 day period or the 10 dayposting period: No matter how desperate theissues.

x. Increase of Bond. Sections 346 and 354 both require the courtto review the adequacy of the bond beforeentering the order and decree. If necessary,the order or decree confirming sale mustincrease the amount of the bond.

xi. SafekeepingAlternative. An alternative is for the decreeconfirming sale to require the title companyto pay the proceeds into a safekept accountunder Section 194 subsection 5. With theproceeds held in an account that is not

12

available to the administrator except bycourt order, the court does not have to raisethe bond.

xii. Joinder by Heirs. Title companies sometimes ask for thesignatures of the heirs.

(1) Support forthat demand is set out in the Comment toStandard 11.40,

Unless it is clear to the examiner thatan administrator has the authority toconvey, all heirs of the decedentmust join the administrator in anyconveyance.

(2) Standard11.40 covers dependent administrators andnot independent executors (they are coveredby Standard 11.30). It is easy to understand atitle company’s demand, in somecircumstances, for the joinder of thebeneficiaries in an independentadministration. However, it is hard toperceive the situation in a dependentadministration where the administrator’sauthority would not be clear, if the properorder of sale and decree confirming salehave been signed.

d. Documents To BeRecorded. When the estate’s real estate is ina county other than the county of probate,the following documents should be recordedin the deed records of the county where thereal estate is located.

i. Application toAppoint Administrator

ii. Returned Citation onApplication to Appoint Administrator

iii. Order AppointingAdministrator

iv. Recent Letters ofAdministration

v. Application to SellReal Estate

vi. Returned Citation onApplication to Sell

vii. Order of Saleviii. Report of Saleix. Decree Confirming

sale, andx. The administrator’s

deed.

e. Power of Sale in the Will. Ifthere is a dependent administrator with willannexed, he may sell without a court order ifthere is a power of sale clause in the will,Section 332. However, such a sale will belimited by any provisions in the will. Seediscussion under IndependentAdministrations, infra.

f. Creditors: Secured by RealEstate

i. Election of ClaimStatus. Section 295 requires the personalrepresentative to give secured creditorscertified mail notice of the administrationwithin two months of receiving letters ofadministration.

(1) Under Section306(b) within four months of receivingnotice the secured creditor must elect to betreated as either

(a) Amatured secured claim (Section 306(a)(1))or

(b) Apreferred debt and lien (Section 306(a)(2).

(2) If no suchelection is made the creditor is treated as apreferred debt and lien.

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(3) A preferreddebt and lien means the creditor can lookonly to the collateral and may not pursue anydeficiency claims. However, the proceedsfrom the collateral first goes to the creditorand are not subject to any other claims orcharges. The lien holder can only pursue aforeclosure if the required payments are notmade; and then only six months after theadministration is established..

(4) On the otherhand, a matured secured claimant has rightsin the collateral at sale (Class 3 claimantunder Section 322) and may pursue adeficiency like any other unsecured creditor(Class 8 claimant, Section 322). Theproceeds from the collateral will first go topay Class 1 claims (funeral and last illnessexpenses) and Class 2 claims(administration expenses including attorneysfees). Also, with the matured secured statusthe creditor loses his rights to foreclose.

(5) One differenceis well illustrated in Cessna Finance Corp. v.Morrison, 667 S.W.2d 580 (Tex.App.–Hous[1 Dist.] 1984, no writ). The decedentst

bought and financed a plane with Cessna. He flew it to South America where itcrashed and he was killed. A probate wastaken out in Harris County and Cessnaelected preferred debt and lien status. Thecourt of appeals held that under that electiontheir sole remedy was to go to SouthAmerica and pick up their collateral. Theyhad no Class 8 claim against the estate.

ii. Foreclosure Once adebtor dies the rights of a secured creditorchange.

(1) Non Judicial:Before Administration. If a securedcreditor forecloses after the death of thedebtor but before any administration is taken

out, a subsequently appointed administratormay set the foreclosure aside, Pearce v.Stokes, 291 S.W.2d 309 (Tex. 1956). Onlyfour years after the decedent’s death doessuch a foreclosure become final, Wiener v.Zweib, 141 S.W. 771 (Tex. 1912). Also seeTexas Practice Section 921. As a result, theonly safe procedure for a secured creditor isto apply for an administration of thedecedent’s estate.

(2) Non Judicial:During Administration. After theestablishment of an administration, any nonjudicial foreclosure is void, Pearce v. Stokes,supra.

(3) CourtSupervised: During Administration.Section 306(f) sets out the procedure forforeclosing when preferred debt and lienstatus has been elected. For a thoroughdiscussion see “Claims Procedures inProbate and Guardianship,” Schwartzel 1996Advanced Estate Planning and Probate TabD and “Handling Claims Against Decedent’sEstates,” Horrigan, 1997 Advanced EstatePlanning and Probate Tab K. Worth notinghere:

(a) Thesecured creditor cannot do anything duringthe first 6 months after letters are issued. Of course if the property is sold ordistributed to an heir, Section 306(e), thecreditor will be paid out of the proceeds..

(b) Theadministrator does not have to make anypayments during that 6 months, Section306(e).

(c)However, if he does not pay all “maturitieswhich have accrued...” the creditor mayapply for a sale of the property orforeclosure of the lien after six months,Section 306(e)

14

(d) Beforea hearing on the foreclosure application, anyinterested person can seek a continuance tohave time to have the property appraised,Section 306(h).

(e) At thehearing the judge can allow the foreclosureor he can order a sale, Section 306(i)((1).

(f) If heallows a foreclosure, he may set a minimumprice, provided only that it may not exceedthe fair market value of the property, Section306(i)(2).

(g) All ofthis allows the judge to maximize any equityin the property for the benefit of othercreditors or the heirs.

g. Federal Estate Tax Lien. Atdeath an estate tax lien is automaticallyimposed. It continues in place until releasedor for ten years from the date of death, IRCSection 6324.

i. Priority. Federal taxliens appear to have absolute priority. IRC3713 says the federal debt takes priority overall other debts. Debts include distributions tobeneficiaries, Want v. Commissioner, 280F.2d 777 (2 Cir. 1960).nd

ii. Exceptions. However, several exceptions have beenallowed:

(1) Cost ofadministration, Abrams v. U.S., 274 F.2d 8,12-13 (8 Cir. 1960);th

(2) Familyallowance, Schwartz v. Commissioner, 560F.2d 311, 314 (8 Cir. 1977);th

(3) Funeralexpenses, last illness and wages owed toemployees of the decedent’s household,Rev. Rul. 80-112; and,

(4) Securedcreditors whose lien was perfected beforethe decedent’s death, United States v. Bond,279 F.2d 837, 841 (4 Cir. 1960).th

iii. Unrecorded Lien.This lien is different from the typical IRSlien which is recorded at the courthouse. This lien is not recorded but is automaticallyin place.

iv. Reliance onInventory. Quite often real estate attorneysrely on the inventory to determine if theestate is taxable and subject to the lien. Infact, Standard 11.60 says “...an examinermay rely upon a court approved inventory...”Despite this authorization, it is clear that theinventory is not a reliable indicator. This isacknowledged in the third paragraph of theComments to this Standard saying thatinformation in the inventory “...may beerroneous or incomplete...” The inventorydoes not reflect non probate assets nor priortaxable gifts. Quite often the probateinventory will show an amount substantiallybelow the taxable threshold ($1,000,000 in2002), but the life insurance, retirementbenefits, multi-party accounts and priortaxable gifts turn it into a taxable estate.

v. Taxable Estates.Although it may change at any time, federalestate taxation occurs when the taxableestate and prior taxable gifts reach:

2002-3 $1,000,0002004-5 $1,500,0002004-8 $2,000,0002009 $3,500,0002010 Estate Tax Repealed2011 Estate Tax Reinstated

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vi. Release of the Lien.There are several solutions for passing titlefree of or in spite of the federal estate taxlien:

(1) IRS will issuea release of lien upon application, U.S.Treas. Reg. 301.6325-1(b)(1).

(2) Althoughrarely used, the executor can post a bond,U.S. Trea. Reg. 301.6325-1(a)(2).

(3) The lien isalso automatically released for property soldunder court order to pay debts andadministration expenses, IRC 6324(a)(1).This is not available for claims approvedsolely by an independent administrator, seeinfra.

(4) The lastComment to Standard 11.60 says anexaminer upon satisfaction that there are“adequate liquid assets” may rely on theexecutor’s affidavit that the “taxes will bepaid.”

(5) Titlecompanies appear to regularly accept lettersfrom the attorney for the estate that no taxesare owed or even that there are sufficientother assets to pay the taxes. Attorneyssigning such a letter should be careful. While the title companies do not ask for anylanguage making the attorney responsible, itis easy to envision the title company lookingto the attorney if a problem ever arises.

(6) When thetaxes have been paid, the executor shouldfile an affidavit in the probate proceedingstating that all taxes have been paid. Copiesof the IRS closing letter and the estate’scanceled checks should be attached.

h. Special Recorded IRSLiens. There are additional liens that arisewhen taxes are deferred under Section IRC

6166 (IRC Section 6324A) or to secure anyadditional tax that might arise from thespecial use valuation under IRC Section2032A (IRC Section 6324B). These arerecorded liens.

i. Mineral Leases. Section 367et seq sets out the procedure for a dependentpersonal representative to enter into amineral lease.

j. Renting Real Estate. Theadministrator may rent out real estatewithout court permission for one year orless. For longer periods court permission isnecessary. Section 359.

k. Exoneration of Liens. Seebelow in independent administrations forspecial treatment if a beneficiary isspecifically bequeathed real estate that issubject to a mortgage.

l. Closing and Distribution.i. Mandatory

Procedure. In a dependent administration afinal account and discharge are required,Sections 404 through 414.

ii. Partition. When thedebts and taxes are paid and all other mattersof the estate are completed, the administratormust conclude the estate. First, he mustdetermine if there is any property that shouldbe partitioned, sold or distributed inundivided interests. If he concludes itshould he must follow the partition rules inSections 373 through 387.

iii. Deeds. In a dependentadministration, unless there is a partition ornon prorata distribution ordered, there maynot be any need for deeds.

(a) If thereis a will, see the discussion infra regardingindependent administrations.

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(b) If thereis no order declaring heirship (or affidavit ofheirship), deeds will be necessary.

(c) In anyevent, deeds will be helpful to subsequenttitle examiners.

iv. Documents To BeRecorded. The following documents shouldbe recorded when there is real estate in acounty other than the county where theadministration is pending:

(a)Application to Appoint Administrator

(b)Returned Citation on Application to AppointAdministrator

(c)Judgment Declaring Heirship

(d)Affidavit That Debts and Taxes Are Paid.

(e) OrderClosing Estate.

(f)Distribution Deed to Heirs or Beneficiaries,if any.

v. Minor Heirs. If anyheir or beneficiary of the estate is a minor,the administrator should carefully consideroptions before making out a deed or closingthe estate.

(1) Theadministrator may want to apply to the courtto transfer the minor’s share to a custodianto Custodian under Uniform Transfers toMinors Act, Texas Property Code Section141.001 et seq.

(a) Section141.006 allows an executor or trustee toconvey to a custodian if authorized by thewill or trust.

(b) Section141.007 allows a fiduciary (including apersonal representative under a will) to

convey to a custodian even withoutauthorization in the will. First the executoror court must determine:

(i)That it is in the best interest of the

minor; and(ii)

That a transfer to a custodian is notprohibited or inconsistent with the will.

(c) Adependent administrator must get courtpermission.

(2) If this solutionis not available, or not appropriate, theadministrator may have to require theappointment of a guardian. The alternative isto deed the property to the minor.

11. Probate: IndependentAdministrations. Section 145 through154A control independent administrations.Independent administrations seldom have toresort to court orders and there is no courtsupervision. Independent administrationsgenerally arise because the testatorappointed someone in his will to serveindependent of court control. However, it isalso possible under Section 145(c) (whenthere is no will or there is no independentexecutor named) to have an independentadministrator appointed if all of the heirs ordistributees agree.

a. No Necessity Required.Under Section 178(a) the applicant does nothave to show necessity to obtain theissuance of letters testamentary.

b. Sales of Real Estate. If thewill gives the executor authority to sell realestate, that governs and not the ProbateCode. See Standards 11.30.

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i. Authority In TheWill. Wills generally give a very broadauthorization to sell. If authorized by willthe independent personal representative maysell without court order, Section 332.

ii. Restrictions in Will.If the authorization under the will is limited,the authority to sell is controlled by thoselimitations, Section 332. Standard 11.30says the personal representative may convey“...if not prohibited by the will...”

iii. Restrictions onLimitations. However, the testator cannotmake restrictions that prevent the estateobligations from being paid. That is true,again however, the testator cannot make itimpossible for the payment of debts andexpenses.

iv. Priority of Assets.The testator may provide the priority ofitems to be sold (Section 322B(d) andSection 322A(b)(2) to pay debts, taxes orexpenses of administration.

v. No Authority In WillTo Sell: Implied Authority. If there is nopower of sale clause, the executor can sellwithout court order under the samecircumstances that a dependentadministrator could obtain courtauthorization, Texas Practice, Section 499.

vi. OtherConsiderations For Sale Since a judge isnot involved, the personal representativemust make those same determinations that ajudge would in a dependent administration.However, all of these provisions areoverridden by any contrary provision in thewill.

(1) Abatement. Section 322B, the abatement statute sets outthe hierarchy of asset liability for debts andadministration expenses:

(a) Firstproperty not disposed of by a will,

(b) Thenpersonal property in the residuary,

(c) Thenreal estate in the residuary.

(d) Thengeneral bequests of first personalty and thenrealty

(e) Andfinally specific bequests of first personaltyand then realty.

(2) TaxApportionment. If there are any death taxesthey are apportioned under Section 322A. That means each assets bears it proportionalpart of the tax it has incurred. This is adetailed statute and has to be reviewed withcare by the personal representative.

(a)Subsection (t) allows the personalrepresentative to withhold a portion of theproperty equal to the amount of the tax owedby that beneficiary.

(b)Subsection (u) says the representative “shallrecover...the unpaid amount of the estate taxapportioned...”

(c)Subsection (o) gives the representative aright of reimbursement and authorizes himto petition a court to determine that right ofreimbursement.

(d) Thestatute does not expressly authorize sale ofreal estate but it is either implied or the rightof reimbursement petition should includethat relief.

(3) MostAdvantageous. Section 340 says the realestate to be sold “shall be that which thecourt deems most advantageous to theestate...” again, absent contrary instructions

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in the will, the personal representativeshould consider this in selecting the realestate for sale.

(4) No AuthorityOver Homestead. The representative is notauthorized to sell the homestead. Homesteadare not subject to probate administration.

c. No Court Ordered Sales The entire sales procedure set out inSections 331 and 341 through351 does notapply to independent administrations. If asale is necessary and there is a questionabout the representatives authority to sell,the only judicial remedy would be adeclaratory judgment action. Titlecompanies sometimes demand a court order. Such an order is probably of no force andeffect and most judges will not even signsuch an order.

d. Documents To BeRecorded. When the estate’s real estate is ina county other than the county of probate,the following documents should be recordedin the deed records of the county where thereal estate is located.

i. Application toProbate Will and Appoint Executor

ii. Returned Citation onApplication

iii. Order Probate Willingand Appointing Administrator

iv. Recent LettersTestamentary

v. Willvi. Executor’s deed.

e. Joinder by Heirs. Titlecompanies sometimes ask for the signaturesof the heirs.

i. Support for thatdemand is set out in the Comment toStandard 11.40,

Unless it is clear to the examiner thatan administrator has the authority toconvey, all heirs of the decedentmust join the administrator in anyconveyance.

ii. If the purchaser hasany doubts about the representativesauthority to sell, his easiest remedy is toseek joinder by the beneficiaries. Inaddition, the beneficiaries can give himwarranties in the deed.

f. Problems in Sales byIndependent Personal Representatives. Because of the freedom from courtsupervision and court orders, a different setof issues arise in sales in independentadministrations.

i. If there is no authorityto sell in the will, the purchaser must satisfyhimself:

(1) That there twoor more debts that need to be paid. If thereare no debts, the sale might be declaredvoid, Blanton v. Mayes, 58 Tex. 422 (1993),or

(2) That there isother good reason for the sale

ii. Even if there is anauthorization to sell, the purchaser mustsatisfy himself:

(1) That thepersonal representative qualified

(2) That asuccessor personal representative has notbeen qualified.

(3) That theprobate proceeding is in proper order.

(4) That theadministration has not been closed. Theexecutor’s power terminates when the estateis closed. Since the formal closing procedureis seldom used, the purchaser cannot always

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be sure if the executor still has authorityeven by examining the probate record..

g. BFPs: Examine the Record.There is authority for protecting the BFP,Dallas Services for Visually ImpairedChldren, Inc. v. Braodmoor II, 635 S.W.2d572 (Tex.App.–Dallas 1982, writ ref’dn.r.e.) if they have reviewed the probaterecord. Dallas Services says to be innocentunder Section 188 you must have reviewedthe probate record.

h. Creditors: Secured by RealEstate

i. Election of ClaimStatus. The procedural rules in dependentadministrations do not apply to independentadministrations. However, Section 146(b)allows a secured creditor to elect maturedsecured status. If he does not it is treated asa preferred debt and lien. See the discussionof Dependent Administrations, supra, for thedifferences between these two lien remedies.

ii. Foreclosure In anindependent administration, the rights of thecreditor do not change as dramatically. Asdistinguished from a dependentadministration, a non judicial foreclosurecan occur before or during an independentadministration and not be subject to setaside, Pearce v. Stokes, supra, and Pottingerv. S.W. Life Insurance Co., 138 S.W.2d 645(Tex.Civ.App.–1940, no writ).

iii. In Bozeman v.Folliott, 556 S.W.2d 608(Tex.Civ.App.–1977, writ ______), thecourt held that the subsequent replacementof an independent executor with a dependentadministrator did not permit the setting asideof a foreclosure.

In particular the court said

“The assumption of control by theprobate court does not invalidate theacts of the independent executor orchange the prescribed procedureapplicable while the executor hadindependent control of the estate. Itwas stated in Taylor v. Williams, 101Tex. 388, 108 S.W. 815, 817(1908).”

iv. If matured securestatus has been elected, there is noforeclosure available.

v. If preferred debt andlien has been elected, then the creditor mayforeclose without judicial permission if thereis a default.

vi. Schwartzel, supra,and Horrigan, supra, also discuss claims andforeclosures in independent administrations.

i. Federal Estate Tax Lien.Again, at death an estate tax lien isautomatically imposed for ten years from thedate of death, IRC Section 6324.

i. Unrecorded Lien,Reliance on Inventory & Taxable Estates.All of the discussion under a dependentadministration, supra, apply except for thecourt ordered payment of expenses anddebts.

ii. Release of the Lien. All of the solutions set out under DependentAdministrations are available except that thelien is not released by an independentexecutor approving the claims. In Kleine v.US, 539 F.2d 427 (5 Cir. 1976) the courtth

held that this procedure does not apply whenan independent administrator approves aclaim. However, the case goes on to suggestthat the release would occur if a district

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court approved the claim. j. Special IRS Liens. See

discussion under dependent administrations.k. Partition Before closing and

distributing the estate, the personalrepresentative must determine if there is anyproperty that must be partitioned or sold.

i. The executor maypartition if given that authority under thewill.

ii. The executor maymake non prorata distributions if given thatauthority under the will.

iii. However, if the willdoes not give any power to partition or makenon pro rata distributions, the executor mayapply to the court under Section 150 foreither a partition and distribution or an orderof sale for any portion incapable of a fairpartition and distribution.

iv. Once Section 150 isinvoked Sections 373 et seq control.

l. Mineral Leases. Section 367et seq appears to only cover dependentadministrations and not independents.Section 367(b) says personal representatives”acting solely under court order may beauthorized by the court...” to enter intoleases. See Marshall v. Hobert Estate, 315S.W.2d 604 (Tex.Civ.App–Eastland 1958,writ ref’d)

m. Renting Real Estate. Gatesville Red-Mix, Inc. v. Jones, 787S.W.2d 443 (Tex.Civ.App.–Waco 1990,writ denied) says an independent executormay not enter into a long term lease if notauthorized by the will ands there is noshowing that the rental income wasnecessary for the payment of debt or otherestate obligation.

n. Exoneration of Liens. Ifdecedent made a specific bequest of realestate and makes no provision regarding anyliens against the real estate, that specificbequest passes free and clear of those liens,Currie v. Scott, 187 S.W.2d 551 (Tex.1945). Also see Texas Practice at Section969 including pocket part.

o. Closing and Distribution.

i. No Action. In mostindependent administrations there is noformal closing. The examination of theprobate record will not show any evidencethat the estate has been closed. Further, anexamination of the deed records will notshow any evidence that the estate has beenclosed or that the property has beendistributed to the beneficiaries. This createsissues for the purchaser, see Problems inSales by Independent PersonalRepresentatives, supra.

ii. Closing Affidavit.Section 151 provides a mechanism for anindependent personal representative to closean estate by filing an affidavit whichprovides certain information. While rarelyused, this makes clear that the estate isclosed and third parties may now deal withthe beneficiaries. Notice that there is norequirement that the court approve theaffidavit.

iii. Closing UponApplication of Distributee. Section 152also permits closing upon application of adistributee. The court may enter an orderrequiring the executor to file a Section 151affidavit, close the estate, terminate thepowers of the executor and release the suretyon a bond. Subsection (b) says that order issufficient legal authority for all persons todeal with the distributees.

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iv. Deemed Closed. Ifneither Section 151 nor Section 152 is used,the estate will be deemed closed when all ofthe debts have been paid and all of the assetshave been distributed, Estate of McGarr, 10S.W.3d 373 (Tex.App.–Corpus Christi 2000,writ denied).

v. Conveyances toBeneficiaries. Generally there are no deedsto the beneficiaries and that can createproblems. As seen, a deed can be veryimportant to a purchaser; it shows that theexecutor is no longer exercising control overthe property and the purchaser is safe indealing with the distributee. In addition, itmay be necessary in some circumstances tomake clear who is the taker under the will.

(1) The will maybe clear, “I leave everything to my threekids, Hewey, Dewey and Lewey.” But thatdoes not tell a third party if one predeceasedwhat happened to his share or if there wereany subsequently born children who take asa result of the pretermitted child statute,Section 67.

(2) The phrases“all of my children,” or “my descendants,”will not be clear either. Someonesubsequently accepting a deed from threechildren will not know if there was a fourthor even if he has the right three.

(3) Some willsmake two or more bequests in which theexecutor has to make allocations. The mostcommon example is a tax sensitive willleaving some of the estate to the “bypasstrust” and the rest to a “marital trust.” Inthese situations it is vital to deed the realestate to one trust or the other.

vi. Minor Beneficiaries. See Dependent Administrations, supra.

vii. Documents To BeRecorded. The following documents

should be recorded when there is real estatein a county other than the county where theadministration is pending:

(a)Application to Probate Will and AppointAdministrator

(b)Returned Citation on Application to ProbateWill and Appoint Administrator

(c) Orderadmitting will to probate and appointingadministrator

(d) Will(e)

Affidavit That Debts and Taxes Are Paid.(f)

Affidavit Closing Estate, if any(g)

Distribution Deed to Heirs or Beneficiaries,if any.

12. Deed Without Warranties.Warranty clauses are not binding on anestate or its personal representative, DallasCounty v. Club Land & Cattle Co., 66 S.W.294 (Tex. 1902). Also see, Burlerson v.Whaley, 299 S.W. 718(Tex.Civ.App.–Austin 1927, no writ). Thusit is recommended that executor’s andadministrator’s deeds be without warranty.See Texas Practice Section 995. If apurchaser wants warranties his best solutionis to insist on the joinder of the heirs orbeneficiaries; there is no limitation on theirability to give warranties.

13. Estate Not an Entity. In preparingdeeds the draftsman should insure not toname an estate as a grantor or grantee. Theproper designation is “Joe Blow,

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Administrator of the Estate of Sarah Blow.” In Price v. Estate of Anderson, 522 S.W.2d690, 691 (Tex.1975) and Henson v. Estate ofCrow, 734 S.W.2d 648, 649 (Tex.1987), theTexas Supreme Court has made clear that anestate is not an entity.

14. Representative May Not PurchaseFrom The Estate. Under Section 352 thereis a general prohibition against the personalrepresentative of the estate purchasingproperty of the estate.

a. Section 352 makes threeexceptions:

i. If the will expresslyauthorizes a purchase by the personalrepresentative;

ii. If there was a validcontract, deed of trust etc. pending beforedeath;

iii. If the personalrepresentative serves all of the distributeesof the estate and its unpaid creditors andshows a court that the purchase is in theestate’s best interest.

b. This rule applies to thepersonal representative’s spouse as well,Wall v. Wall, 172 S.W. 2d 181 (Tex. Civ.App. 1943).

c. While there is no case onpoint, it is generally believed that thepersonal representative’s attorney is alsoprohibited from purchasing from the estate,Texas Practice, Section 989, note.

d. A purchase in violation ofSection 352 can be set aside uponapplication of any interested person,subsection (e).

15. Representative May PurchaseFrom Beneficiaries. Section 352 does notprohibit a personal representative frompurchasing from beneficiaries. However,any such purchase will be subject to a verycareful scrutiny to insure the beneficiary hadfull knowledge and there was nooverreaching or fraud. Hickman v. Stone, 5S.W. 833 (Tex. 1887) and Texas PracticeSection 989, note 66.

16. Multiple Personal RepresentativesIf there is more than one personalrepresentative, all personal representativesmust join in conveyances, Section 240. Thisapplies only to real estate. All othertransactions can be performed with only oneof several representatives. Also, if the willprovides differently, the will controls.

17. Community Property. A personalrepresentatives controls not only thedecedent’s separate property but also 100%of the decedent’s sole managementcommunity property and 100% of the jointcommunity property. The surviving spouseretains control over her sole managementcommunity property. There is a rarely usedcommunity administration set out inSections 161 et seq. Also see Standard11.90.

18. Foreign Wills. Sections 95 through107A provide several solutions when thereis a foreign will.

a. Recording In The DeedRecords. Section 96 provides the simplestsolution. Section 96 authorizes the filing inthe deed records a copy of the will andprobate proceeding which bear the

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attestation, seal and certificate. b. Probate Filing. If an

administrator is needed there are twosolutions.

i. If the will wasprobated in the domiciliary state of thedecedent, the executor can file anapplication with the authenticated probateproceeding. No citation is required., Section95(b)(1). Upon filing the will andproceedings, the will shall be admitted toprobate and no further action is necessary. An executor or administrator will beappointed upon application to the courtunder Section 105.

ii. If the will wasprobated in a state that was not thedomiciliary state of the decedent, then theapplication must also include all of theinformation required for a typical Texasprobate with citation issuing to each deviseeand each heir had their been no will, Section95(b)(2).

iii. Section 103 permitsthe probating of a foreign will when it hasnot already been probated in another state.

19. BFP In various places it is clear thatthe courts intend to protect bona fidepurchasers.

a. Those protections arediscussed at various places above.

b. A bona fide purchaser will beprotected when he takes based on a courtdecree, Section 192 Texas Practice. Thispoint is well illustrated in Steele v. Renn, 50Tex. 467 (1878). The purchaser took under aprobated will that was later set aside asfraudulent. The court held that the BFP wasprotected.

c. Likewise, a BFP may rely ona court’s determination that there is no need

for an administration under Section 180,Texas Practice, Section 192.

d. Similarly if communityproperty is titled solely in the name of thesurviving spouse, the purchaser from thatsurviving spouse is protected from thedeceased spouse’s heirs, Texas Practice,Section 193. The heirs complaints must bedirected against the surviving spouse, whoholds the proceeds from their interest.

e. Protection is also provided topurchasers from unqualified communityadministrators, see Texas Practice, Section543 and 544.

f. However, anyone who buysfrom an heir takes subject to anyadministration, Texas Practice, Section 191.

20. Forms A list of the forms attached tothis article are:

a. Affidavit of Heirshipb. Notice to Secured Creditorc. Application to Release Liend. Certificate Releasing Lien e. Application to Sell Real

Estatef. Order of Saleg. Report of Saleh. Decree Confirming Salei. Administrator’s Deedj. Affidavit of No Debts or

Taxesk. Affidavit Of Taxes Paidl. Executor’s Distribution Deed

Without Warranties.