Dallas Court of Appeals Goes Against Arbitration Trend

Over the past few years, Texas courts have been busily encouraging parties to avoid litigation in favor of binding arbitration. Enforcement of arbitration clauses against parties who did not enter into a written agreement is sometimes possible. In some contexts, arbitration has also been required of third parties who were the “intended beneficiaries” of another party’s contract.

But in Rachal v. Reitz, 347 S.W.3d 305 (Tex. App.—Dallas 2011, pet. filed), the Dallas appellate court found that a clause in the settlor’s trust instrument requiring arbitration of disputes between the trustee and the beneficiaries was not enforceable. The panel of judges took the position that the trust’s beneficiaries were not parties to the trust instrument; as a result, they had not agreed to waive their right to litigation and could not be required to arbitrate their claims.

The case has been submitted for review by the Texas Supreme Court. Stay tuned for future updates.

Article by Cynthia W. Veidt, Attorney

Closing an Estate under Independent Administration

Although it is not strictly required that an independent executor take action to close the estate, some executors may prefer that the record reflect that at least from the executor’s perspective, he or she has completed their administration and will not be taking further action.

The Probate Code offers a few options for those wishing to close the estate. Arguably the simplest and most cost effective way to accomplish this is to file a “Notice of Closing Estate” with the court as authorized by Section 151(b) of the Probate Code.

The Notice of Estate Closing is essentially an affidavit executed by the independent executor and filed with the court that asserts that independent executor has discharged his or her duties.

The Notice of Estate Closing must state (1) that all debts known to exist against the estate have been paid or have been paid to the extent the assets of the estate allowed and (2) must list each distributee to whom assets of the estate had been distributed, including the address of each distributee.

The Notice of Estate Closing must also assert that each distributee has been provided a copy of the Notice prior to filing, and must include any proofs necessary to establish such delivery. Therefore, the Notice should be executed and mailed to each distributee by a method that allows tracking (certified mail return receipt, fax, etc.), and the executor should be prepared to attach such tracking as an attachment to the Notice of Estate Closing.

Given the requirement that the Notice be fully executed and delivered to the distributees prior to filing, the Notice must anticipate that proofs of delivery will be attached when filed with the Court, and language to that effect must therefore be anticipated and included in the Notice prior to delivery to the distrbutees.

If the Independent Executor is delivering a copy of the Notice to a distributee represented by counsel, where that attorney has not actually made an appearance before the Court, it is also advisable to attach documentation with the Notice that demonstrates why the Independent Executor believes that such distributee is represented by counsel such that the delivery of the Notice by and through that counsel would be effective (for example, correspondence from that counsel asserting representation of the distrbutee).

Once the Notice has been delivered to the distributees and the proofs of such delivery have been gathered and attached, the Notice of Estate Closing may then be filed with the Court. Upon filing of the Notice of Closing of Estate with the Court, the estate will be considered “closed” after 30 days.

It is important to note that the closing of an estate by way of a Notice of Closing Estate does not relieve the Independent Executor of any potential liability in discharging his or her duties while administering the estate. However, the Notice of Estate Closing can nevertheless be a valuable tool for ensuring the record reflects the Independent Executor’s belief that no further administration is necessary. This record notice can prompt distributees to bring forward any potential claims so that they can be dealt with in a timely fashion while evidence is still fresh and while damages that might stem from any potential liability may be limited. Additionally, filing the Notice may also set up a potential equitable defense based on laches in the event a distributee asserts a claim against the Independent Executor years later after having received notice that the estate was closing. The Notice may also be helpful in establishing the maximum timeframe for when the clock should be running for purposes of calculating the statute of limitations that may run on potential liability claims arising out of the administration of the estate by the Independent Executor.

How to Revoke Your Will in Texas

In Texas, a testator can revoke a will either by (1) a subsequent writing, or (2) by a physical act. Texas Probate Code § 63.

A subsequent writing can be a new will, a codicil, or a declaration in writing. New wills contain a clause that the revoke all prior wills and codicils. A codicil is a formal supplement or amendment to your original will.

It is important to note that document revoking a will must be in writing and executed under the same formalities required for the will. Simply writing a letter or a note will not suffice.

A will can also be destroyed by physical act such as tearing or burning. The physical act has to be done by the testator or at the testator’s instruction in his or her presence. The physical act also has to be coupled with the intent to revoke the will. So accidentally tearing a will does not revoke it and a third party destroying a will without being instructed to does not revoke it.

Requirements for revoking a holographic (handwritten) will differ slightly and will be discussed in a later post.

If you wish to update or revoke a will, you should contact an attorney to determine the best solution for your particular needs and situation.

Article by Sarah F. Berry.

What if my Texas Will says something different than my Beneficiary Designation?

People often make “beneficiary designations” when they open bank accounts, investment accounts, retirement accounts and similar types of accounts, or when they obtain life insurance policies or similar contractual agreements. But what if your account or policy identifies a different beneficiary than under your last Texas will and testament? If you are an estate representative or account manager faced with such a conflict, what happens?

All other things being equal, if your will and your beneficiary designation are in conflict, Texas courts will enforce the beneficiary designation rather than your will. To understand why this is the case, it helps to realize what makes wills and beneficiary designations different. Both serve to transfer assets or property after death, but wills only affect “probate assets” and do not affect “non-probate assets.”

Determining what is and what is not a “probate asset” is a topic for another blog entry, but essentially your accounts and life insurance policies are considered to be a contract between you and the broker/entity who manages that asset. Your contractual agreements concerning a beneficiary designation make that account or policy a “non-probate asset” – unless you have designated your own estate as the beneficiary, or you have named someone who is incapable of receiving the benefit (such as someone who died before you, a spouse you have divorced, or a minor child).

Take, for example, a life insurance policy where Husband names Wife as his beneficiary during their marriage, but then divorces Wife. If Husband marries New Wife (and creates a will bequeathing “everything I have” to her), the policy will be paid to New Wife as the beneficiary identified in his will upon Husband’s death. Although the beneficiary designation would normally obligate the insurance company to pay the Ex-Wife, and the funds would automatically pass directly to her under the insurance contract, Texas has passed statutes which typically render that beneficiary designation invalid since most people would not have wanted that result to occur (Ex-Wife benefiting over New Wife). However, Texas courts have held that if the insurance company did not receive notice of the divorce before it paid the policy proceeds to Ex-Wife, New Wife will be stuck trying to recover the funds from Ex-Wife and has no recourse against the insurance company.

End result: everyone is going to be fighting (probably in court) over who gets the insurance proceeds, making the transfer of Husband’s insurance proceeds to his intended beneficiary (New Wife) much more expensive and time-consuming – and hopefully, Ex-Wife hasn’t spent all the money by the time New Wife gets a judgment awarding her the policy proceeds.

To avoid this problem, check your beneficiary designations periodically and make sure that they are up to date and do not conflict with the terms of your will or your overall estate plan.

Blog prepared by Matt Lloyd.
Blog edited by Austin Attorney Cynthia W. Veidt. 

Do Adopted Children and Stepchildren Inherit Property in Texas when there is No Will?

When a person dies without a will in Texas, inheritance and distribution of that person’s property is determined by Texas law. Generally, property is inherited by relatives and depends on how closely the relative was related. Families with adopted and/or stepchildren need to consider who will inherit if a family member dies without a will.

A stepchild that is not legally adopted by the stepparent will not inherit from the stepparent if that stepparent dies without a will. This is because an un-adopted stepchild is not considered to be legally related to that stepparent. This result is often not what was wished or intended by a stepparent who raised a stepchild. For a stepchild to inherit from a stepparent, the stepparent should either adopt the child, or prepare a will with instructions that the stepchild should inherit.

An adopted child can inherit property when an adoptive parent dies without a will. An adopted child is treated the same as a natural born child. A child who is adopted as a minor can also inherit property from his or her natural parents, but an adult who is adopted may not inherit from his or her natural parents.

Natural parents cannot inherit from an adopted child or adult if the adopted person dies without a will. This can be important if an adopted child seeks out the identity of his or her natural parents and rekindles the relationship.

Blog by Austin Attorney Sarah F. Berry

Do I need to "file" my Texas will? If so, where?

In Texas, you are not required to “file” your will anywhere before you die. Upon your death, the custodian of your will, the person named as the executor, or any persons interested in the estate can admit your will to probate. Interested persons are those that have a property right in, or claim against, the estate.

Although you are not required to “file” your Texas will, you can choose to do so and it may be a good idea for some people. Filing your will gives you a place to store your will, removing potential confusion upon your death as to where your will is located or who should file it. You can file your will with the county clerk of the county in which you reside. You can also include names and addresses of the people you want to be notified of the deposit of the will after your death. Upon your death, the clerk will notify these people that the will is on deposit. If you do not list anyone to be notified, the clerk will notify the executor, if one is named. If there is no executor named or the executor fails to take the will, the clerk will notify the other individuals named in the will. Upon request, the clerk will deliver the will to the individuals notified. Subsequently, one of these individuals will admit your will to probate.

There is no legal significance to choosing to file your Texas will with the county during your lifetime. Your will, for purposes of probate, will be treated the same whether or not you file it with the Texas county clerk during your lifetime. If you choose to file your will with the county but create a more recent will, the more recent document will be admitted to probate in lieu of the will that you originally filed as long as it proves to be your last will and testament.

This article was prepared by Sarah Raley and edited by Austin Lawyer Sarah Berry.

What’s the First Thing an Executor under the Will Must Do?

Your relative has passed away and you’ve found her Will. After reading it, you realize that you’ve been named as the executor of her estate. What do you do now?

First, you need to realize that simply being named in the Will does not give you any legal authority to act on behalf of her estate. In order to obtain authority to act on behalf of the estate, you will need to file an application with the appropriate probate court. After notice has been given concerning your application, the probate court will hold a hearing and determine whether you qualify for appointment as executor of the estate. If you meet the qualifications, the court will then sign an order appointing you as the executor and authorizing the issuance of a document called “letters testamentary.”

You will also need to take an oath to uphold your legal obligations as executor of the estate. Now you have the legal authority necessary to gather the deceased’s property and begin the process of contacting banks, savings & loans, mortgage companies, credit card companies, tenants, government agencies, and all other persons to whom the estate owed money or who owed money to the estate. You also have the legal authority to transfer title, sell or otherwise dispose of the deceased’s property, at least to the extent that you are authorized by law and under the Will to do so.

You also have “fiduciary obligations” as a result of being appointed executor of the estate. These are important duties and obligations, which should not be taken lightly. Most probate courts will provide you with some guidance concerning your duties as executor, and explaining the consequence of undertaking those obligations. An example of the type of instructions provided by the Travis County Probate Court can be found at http://www.co.travis.tx.us/probate/pdfs/Independent_Executor.pdf.

As we’ve mentioned in other entries in this Blog, there are a large number of different probate procedures available in Texas. Because of the complexity in determining the correct procedure, and to ensure that you are provided with guidance in meeting your duties as an executor, we strongly recommend seeking the advice of an attorney who is familiar with probate proceedings prior to taking any action on your own. A good probate attorney can help you save time and money, as well as avoid confusion or conflicts related to your duties as executor. The probate attorney’s fees are paid out of any property in the deceased’s estate, not by the executor. It’s advice well worth seeking.