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.

What Happens When the Deceased Had Filed for Bankruptcy?

Bankruptcy is pretty common these days, given the current state of our economy. Most people are aware that a person who had sought protection from the Bankruptcy Courts is generally not subject to suit in any other court while the bankruptcy case is active. Using an overly simplified generalization (which has a number of exceptions), the Bankruptcy Court has exclusive jurisdiction over most matters affecting the debtor and his property. Death of the debtor does not, perhaps surprisingly, automatically result in discharge or dismissal of the bankruptcy case.

Probate Courts also have exclusive jurisdiction over matters affecting a deceased’s estate (property) in most circumstances. So, what happens when the debtor in bankruptcy dies while his bankruptcy case is pending? Which court should have control over the deceased’s property?

The matter is complex. First, the Probate Court will have jurisdiction to admit the deceased’s will to probate and appoint any executors, trustees or other fiduciaries named under the will. If the debtor dies without a will (intestate), the Probate Court has the ability to appoint an administrator to handle the deceased’s estate. Essentially, the Bankruptcy Court has no jurisdiction to determine the validity of the deceased’s will or make decisions about administration of the probate estate. However, it may be prudent to file a motion to lift the “automatic stay” imposed by the Bankruptcy Code to seek permission to initiate probate proceedings.

A second concern is determining which court controls the deceased’s property. Most cases interpreting the Texas Probate Code and the U.S. Bankruptcy Code have determined that “exempt property” – in other words, property that would be exempt from execution to collect a civil judgment under Texas law – is within the jurisdiction of the Probate Court and can be administered by the estate’s executor without interference from the Bankruptcy Court. Similarly, any property that has been abandoned by the Bankruptcy trustee would be within the control of the probate estate.

“Non-exempt property” – in other words, property that would otherwise be subject to execution to satisfy a civil judgment under Texas law – remains within the control of the Bankruptcy Court.

Additionally, the executor of the probate estate does not automatically step into the debtor’s shoes. The Bankruptcy Court will look to its own rules (in particular, Bankruptcy Rule 1016) to decide how to proceed if the debtor has died while the case is pending. The Bankruptcy Court may decide to appoint a trustee, convert the case to another type of bankruptcy, or dismiss the case entirely.

These matters are complex. If the deceased was involved in bankruptcy proceedings prior to his or her death, you should take the precaution of advising the debtor’s bankruptcy counsel, as well as seeking advice from a probate attorney, to determine the best way to proceed with handling the deceased’s property.

Austin Lawyer Tip: The Most Important Words in Your Will

There are two fairly simple things that you can do before you die to help ease the financial burden of your passing on your family. One is to buy a good amount of life insurance. The other is to prepare a simple Will that uses the phrase, “I appoint Mary Smith as my independent executor, to serve without bond.” (Of course, replacing “Mary Smith” with your own choice.)

This very simple phrase will allow your family to probate your estate using the process known in Texas as an “independent administration,” and will further allow your executor to avoid the necessity of obtaining a substantial cash or surety bond before the court can legally recognize his or her authority to act on behalf of your estate. Both matters will help save a substantial amount of administrative costs and attorneys’ fees, which would otherwise be deducted from your estate before it is passed to your beneficiaries, while helping to expedite the transfer of title to your property from your estate to your beneficiaries. (See our related BLOG topic briefly describing an “independent administration.”)

If, for whatever reason, the deceased’s Will does not contain this phrase or words of similar effect, or if the deceased failed to prepare a Will, all is not lost. So long as all of the deceased’s heirs agree, the probate court can appoint an executor or administrator to act independently of the court and/or can waive the requirement for the executor or administrator to post a bond. Obviously, however, it will not always be possible to obtain the agreement of every single heir, perhaps due to family disagreements or difficulty in locating or communicating with an heir. For this reason, we recommend that you review your current Will to ensure that you are taking full advantage of this important phrase or, if you do not have a Will, that you consider preparing a simple Will in the near future.

Simpler Probate for Certain Estates in Texas

What can you do to avoid expensive probate costs when there are very few assets or very little money in the deceased person’s estate? In Texas, there are a variety of methods to help these “small estates.”

The Texas Probate Code recognizes an expedited probate process called “Small Estate Administration,” when the deceased died without a Will, a condition lawyers call “intestate.” This procedure is available when the total value of the deceased’s assets, excluding the value of his or her residence and other exempt property, does not exceed $50,000.00. (For a discussion of exempt and non-exempt property under Texas law, please see Cary & Lippincott’s Collection Blog – http://carylippincott.blogspot.com/). For most individuals, the residence is their most valuable asset. By taking the residence (and a few other fairly common items, such as a motor vehicle, IRAs, and 401(k)s out of these calculations, many persons in the middle income class bracket will qualify to probate their estate as a small estate affidavit. However, a small estate affidavit may not be the best method for transferring title of certain types of assets from the deceased to his or her heirs. These assets typically include items such as stocks in publicly-traded companies, brokerage accounts, and partnership interests. You should always contact the person or entity acting as transfer agent for such assets to determine whether they will accept a small estate affidavit before initiating this type of probate procedure.

Additionally, if the deceased dies with a Will, but owned few assets, the Texas Probate Code recognizes a procedure known as the “Muniment of Title.” In essence, the Will is filed in connection with the affidavits of persons with knowledge of the deceased’s financial affairs and family relationships. Once approved by the Probate Court, the Will itself is filed as a public record and acts as the instrument authorizing the transfer of title from the deceased to his or her beneficiaries.

Finally, Texas permits a procedure known as the “Affidavit of Heirship.” This process does not involve filing anything in the Probate Court, but merely filing certain affidavits in the public records of any counties in which the deceased owned property. Extreme caution should be used when considering this process, however, because it does not pass title to the deceased’s property “free and clear” of alleged debts or encumbrances, will likely not be recognized as a valid transfer of title for most assets by entities such as banks and title companies, and may lead to future problems which actually increase the costs of probate or other methods to obtain clear title. Always consult with a probate lawyer before considering the use of an Affidavit of Heirship.

When should I probate a will?

Generally, a will should be probated as soon as possible. In Texas, the law requires that a will be offered for probate within four years of the date of death. (Texas Probate Code § 73). Under limited circumstances, a will can be offered for probate if the person offering it is not at fault for failing to present it within the four year period.

Texas Probate Administration and the Estate Inventory

In part, the probate administration of an estate involves gathering the assets of the person who died. Part of this process includes preparing an “Inventory, Appraisement, and List of Claims” to be filed by the estate’s representative (also called the “executor” or “administrator”) no later than the 90th day after the court has entered the order appointing that representative.

The “inventory” portion must list all items of property that belonged to the person who died (called the “Decedent”). It must identify all real estate located in the State of Texas, oil & gas leases, bank accounts, brokerage accounts, stocks/bonds, retirement accounts, life insurance policies (but only if made payable to the estate, rather than a specific beneficiary), cars, boats and other vehicles, fine jewelry, fine art, antiques, household furnishings, and every other item of personal property – including clothing and personal effects. Some categories can be grouped together for ease of reference, but it is best to identify each item of significant value separately. Finally, the list should describe whether the item was part of the Decedent’s separate property or community property (which may be hard to understand without legal advice).

The “appraisement” portion means that the estate’s representative must assign a value to each item of property listed in the inventory. Although the representative is not required to hire professional appraisers (unless ordered to do so by the Court), he or she must try to ascertain the fair value of each item and not merely make a wild guess. He should review property tax appraisals, vehicle buyers’ guide (such as Kelly Blue Book or Edmund’s), invoices or receipts from recent purchases, and similar references. For particularly difficult-to-value items, such as fine art or an ownership interest in a business, he should consider hiring an accountant or appraiser. The fees for these consultants may be paid from the estate (as “administrative costs”).

The “list of claims” portion of this document does not mean the claims that creditors, heirs or beneficiaries may have against the Decedent’s property. Instead, it is a list of claims that the Decedent may have had against others for debts owed or property kept by third parties. For example, if the Decedent died in an accident, his estate may have a “claim” against an insurance carrier or another person for medical expenses or wrongful death.

The Inventory, Appraisement and List of Claims is one of the most important documents filed in any probate proceeding. Because few people have had experience with preparing such legal documents, because the method for apportioning property between separate and community can be difficult to grasp, and because the method for valuation may be complex, the representative should always work with an attorney (and may wish to work with other professionals) in preparing this document.

Notices to Beneficiaries By Executors Under Texas Wills

When someone dies with a will (the “Decedent”) in the State of Texas, the representative of his estate (also called the “executor” or “administrator”) must give notice of the probate proceeding to every beneficiary under that will, which includes the following information:

• The name and address of the beneficiary to whom the notice is given;
• The Decedent's name;
• That the Decedent's will has been admitted to probate;
• That the beneficiary to whom the notice is given has been named as a beneficiary in the will;
• The estate representative's name and contact information; and
• Attach a copy of the will admitted to probate, as well as the court’s order admitting the will to probate.

A beneficiary is any “person, entity, state, governmental agency of the state, charitable organization, or trust entitled to receive real or personal property under the terms of a Decedent's will.”

The notice is required by Texas Probate Code § 128A. It must be sent by registered or certified mail, return receipt requested, no later than the 60th day after the order admitting the Decedent’s will to probate, unless: (a) the beneficiary has signed a “waiver” that acknowledges receipt of a copy of the Decedent’s will and specifically waives the right to receive notice under Section 128A; or (b) the beneficiary has entered an appearance in the probate action prior to the date of the order admitting the Decedent’s will to probate. However, most Texas courts will not require this statutory notice when there is only one beneficiary under the Decedent’s will and that beneficiary is also the estate’s representatives.

Notice under Section 128A is required in all proceedings related to a Decedent’s will, including actions admitting the will to probate only as a “muniment of title.”

The estate’s representative must also file an affidavit with the probate court no later than the 90th day after the Decedent’s will is admitted to probate which states that he or she complied with the provisions of Section 128A.