HBA-RBT C.S.H.B. 1852 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 1852 By: Thompson Judicial Affairs 5/5/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Historically the Real Estate, Probate and Trust Law section of the State Bar of Texas has identified provisions of the Texas Probate Code that are in need of revision. Many revisions are necessary as a result of court rulings, some are intended as general improvements to the code and others are simply conforming changes that result from changes to other codes. As in the past, the Real Estate, Probate and Trust Law section of the State Bar has identified the following revisions for the 76th Legislature. Muniment of Title. When a will is probated as a "muniment of title" the will itself is sufficient evidence of title. This procedure eliminates the need for an administrator or an administration. The transfer is carried out without a lengthy, costly probate process. For example, a wife whose deceased husband's will has been probated as muniment of title may simply present the will and order admitting it to probate when claiming assets such as bank accounts or stock certificates. Not only is this process easier on beneficiaries, it is also the only solution available when a decedent has been dead longer than four years at the time the application is filed. While nonsubstantive revisions to the Probate Code during the 75th Legislature clarified the procedure for muniment of title, some sections of the code were not completely updated with the changes. As such, it is currently unclear if a will can be probated as muniment of title after four years. Nor is it clear if a will can be probated as muniment of title for other causes, even if there are no debts. Release of Independent Executors. Currently, state law does not prescribe a procedure for independent executors of estates to obtain a release. These independent representatives are the only fiduciaries without such a remedy. As such, an executor can be forced by beneficiaries, via litigation, to distribute all assets and defend any subsequent lawsuits with executor's own money. Even if the executor ultimately wins a suit brought by beneficiaries, the executor must look to the beneficiaries for payment. If the beneficiaries have spent all of the estate's funds the executor has no remedy. On the other hand, changes to the law must be drafted to avoid allowing an unscrupulous executor to demand a release before making distributions from the estate. Liability of Homestead for Debts. In recent years there have been several revisions to state law regarding the liability of homesteads for debt. The most notable, of course, was home equity lending legislation passed by the 75th Legislature. It is now necessary for conforming updates to be made to the Texas Probate Code's homestead provisions. Allocation of Interest. Currently interest on estate taxes is charged to the principal rather than to interest income. This practice is contrary to general accounting principles and often results in an unfair allocation between beneficiaries. To prevent such unfair allocations, a change is necessary to allow the administrator the discretion to allocate the interest as is just and equitable. C.S.H.B. 1852 simplifies the process for the administration of a decedent's estate by clarifying the conditions under which a will may be probated as muniment of title. This bill also outlines the procedures for releasing independent executors from fully disclosed transactions. Furthermore, this bill conforms the Texas Probate Code to the homestead liability laws of the State of Texas. Finally this bill authorizes the administrator to allocate interest due on the estate between income and principal. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Part 4, Chapter V, Texas Probate Code, by adding Section 128B, as follows: Sec. 128B. NOTICE WHEN WILL PROBATED AFTER FOUR YEARS. Provides that before the probate of a will, notice must be given by service of process to all al the testator's heirs whose address can be ascertained by the applicant with reasonable diligence, unless the heir has provided the court with an affidavit stating that the heir does not object to the offer of probate. Sets forth the required contents of the notice. Provides for the appointment of an attorney ad litem for those heirs whose address cannot be ascertained. In the case of multiple wills offered for probate, this section applies to a beneficiary of the probated will instead of the testator's heirs. SECTION 2. Amends Section 149A(b), Texas Probate Code, to make a nonsubstantive change. SECTION 3. Amends Section 149B(a), Texas Probate Code, to make a nonsubstantive change. SECTION 4. Amends Section 149C(a), Texas Probate Code, to make a nonsubstantive change. SECTION 5. Amends Part 4, Chapter VI, Texas Probate Code, by adding Sections 149D, 149E, 149F, and 149G as follows: Sec. 149D. DISTRIBUTION OF REMAINING ESTATE PENDING JUDICIAL DISCHARGE. (a) Provides that the independent executor must distribute to the beneficiaries of the estate any of the remaining assets or property of the estate that remains in the hands of the independent executor after all of the estate's debts have been paid, except for a reasonable reserve of assets that the independent executor may retain in a fiduciary capacity pending court approval of the final account, on or before filing an action under Section 149E. (b) Authorizes the court to review the amount on reserve and order further distributions if necessary. Sec. 149E. JUDICIAL DISCHARGE OF INDEPENDENT EXECUTOR. (a) Authorizes an independent executor, upon final settlement of the administration, to file a final account and request discharge for fully disclosed transactions. (b) Requires each beneficiary of the estate to be personally served with citation, except for a beneficiary who has waived the issuance and service of citation. (c) Authorizes the court to require the independent executor to file a final account that includes any information the court considers necessary to adjudicate the independent executor's request for a discharge of liability. Authorizes the court to audit, settle, or approve a final account filed under this subsection. Sec. 149F. COURT COSTS AND OTHER CHARGES RELATED TO FINAL ACCOUNT IN JUDICIAL DISCHARGE. Entitles the independent executor to pay from the estate legal fees, expenses, or other costs of a proceeding incurred in relation to a final account required under Section 149E. Requires the independent executor to be personally liable to refund any amount not approved by the court as a proper charge against the estate. Sec.149G. RIGHTS AND REMEDIES CUMULATIVE. States that remedies outlined in these sections are in addition to any other remedies granted to the beneficiaries. SECTION 6. Amends Part 3, Chapter VII, Texas Probate Code, by adding Sections 221A and 2221B as follows: Sec. 221A. CHANGE OF RESIDENT AGENT. (a) Authorizes a personal representative to change its resident agent to accept process in probate or other court proceedings, prescribes the contents of the statement of the change and requires the statement to be filed with the court. (b) States that the effective date of the designation is the date it is filed with the court. Sec. 221B. RESIGNATION OF RESIDENT AGENT. (a) Authorizes a resident agent to resign as resident agent upon giving notice of its resignation to the personal representative and filing the statement of resignation with the court. Specifies the contents of the resignation statement. (b) Lists the parties required to receive a copy of the resignation statement and the process by which the copies must be served. (c) States that the effective date of the resignation is the date on which the court enters the order accepting the resignation and prohibits the court from entering the order until the agent has complied with the requirements of this section. SECTION 7. Amends Section 222, Texas Probate Code, by amending subsection (a)(1)(E) to authorize removal of a personal representative whose whereabouts are unknown, avoids service, or is a nonresident and does not have a resident agent to accept service. SECTION 8. Amends Section 270, Texas Probate Code, by adding a list of circumstances under which a lien is valid on a homestead. SECTION 9. Amends Section 378B(a), Texas Probate Code, to require interest due on estate taxes to be allocated between the income and the principal of the estate at the discretion of the executor. SECTION 10. Amends Section 37.005, Civil Practice and Remedies Code, to include an independent executor or administrator among those authorized to have a declaration of rights in respect to a trust or estate, including regarding fiduciary fees and the settling of accounts. SECTION 11. Makes the application of the changes made by SECTION 6 of this Act prospective. SECTION 12. Makes the application of the changes made by SECTION 7 of this Act prospective. SECTION 13. Makes the application of the changes made by SECTION 9 of this Act prospective. SECTION 14. Makes the application of the changes made by the Act, except as outlined in SECTIONS 11, 12, and 13 prospective. SECTION 15. Effective date: September 1, 1999 SECTION 16. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute differs from the original by deleting SECTION 1 of the original, which amended Section 89A(a), Texas Probate Code, to remove the requirement that a social security number be filed with an application for probate and requiring an application to probate a will as muniment of title to state whether there is a reason why no administration of the estate is necessary, even though there are no unpaid debts. The substitute differs from the original by deleting SECTION 2 of the original, which amended Section 89B(a), Texas Probate Code, which made conforming and nonsubstantive changes. The substitute differs from the original by deleting SECTION 8 of the original which was rendered unnecessary by the aforementioned deletions. The substitute differs from the original by adding SECTIONS 3 and 4 to make nonsubstantive changes. The substitute differs from the original by adding SECTION 10 in the substitute. Please see the Section-by-Section Analysis portion of this document. The substitute differs from original by replacing SECTION 3 of the original with SECTION 5 of the substitute. Both SECTIONS relate to distribution of the estate, discharge of the independent executor, court costs, and rights and remedies. The substitute has new Section titles and modifies the language of the original. In Section 149E the substitute requires each beneficiary of the estate to be personally served with citation unless that service is waived, rather than the original's requirement that the beneficiaries be sent notice. In addition, the substitute authorizes the court to audit, settle, or approve a final account, rather than requiring the court to approve the final account absent an objection. Section 149F of the substitute entitles the independent executor to pay from the estate legal fees, expenses, or other costs of a proceeding incurred in relation to a final account required under Section 149E, rather than the original's requirement of allowing the executor's fees and expenses to be charged to the estate as administrative expenses. Makes conforming and nonsubstantive changes. The substitute differs from the original by redesignating SECTIONS 4, 5, 6, 7, 9, 10, 11, 12, 13, and 14, as SECTIONS 6, 7, 8, 9, 11, 12, 13, 14, 15, and 16, respectively.