Trustee Guilty of Unauthorized Practice of Law in Texas?

Trustees who are not attorneys beware! You may be guilty of the unauthorized practice of law in the State of Texas.

Texas Trustees are often given the power to sue or be sued on behalf of the trust; it is a necessary power, since a trust must be able to enforce its rights or defend itself from legal action. But the Amarillo Court of Appeals recently found that a non-attorney trustee had no right to proceed in a pro se capacity (i.e., without an attorney) in legal proceedings. See In Re Guetersloh, 326 S.W.3d 737 (Tex. App.—Amarillo 2010, no pet.).

The court’s reasoning: the trustee was not enforcing his or her individual rights, but was instead acting on behalf of others (the trust’s beneficiaries). Since the trustee was not an attorney, he was necessarily engaging in the unauthorized practice of law.

Similar rules bar a corporation’s representative from suing or defending in the name of the corporation without legal counsel.

Article by Cynthia W. Veidt, Austin Attorney

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.

Living Trust Scams

Beware of Living Trust Scams

Many con artists are targeting older Texans with a variety of false claims to sell unnecessary Living Trusts. Not only do these Living Trusts fail to accomplish the goals being advertised, they can often result in increased costs and exposure of your assets to creditors or taxes.

Some of their false claims are:

• Living Trusts will avoid estate/inheritance taxes. Unless you and your spouse’s combined assets are greater than $1 Million, your property will NOT be subject to federal or state inheritance or estate taxes. If they are within the taxable range, a well-prepared estate plan (including a tax-planned will), can achieve the same effect as a Living Trust, for a lower costs without unintended consequences mentioned below.
• Living Trusts will protect your assets from creditors. Actually, this claim is simply a lie. Assets in a Living Trusts are subject to the claims of your creditors before and after your death. There are several legitimate ways to maximize the protections afforded under Texas law to debtors, but these should always be discussed with a licensed attorney and/or a certified public accountant.
• Living Trusts will avoid the excessive time and expense of probate. There are a variety of ways to reduce the necessity for probate and simplify the probate process in Texas. It cannot be repeated enough – probate is NOT an “evil” process; probate is the legal method for passing clear title to your heirs by discharging your existing debts in an orderly fashion and providing your heirs with legal exceptions designed to protect your exempt assets from certain creditors. In fact, the failure to probate your estate through one of Texas’ simplified methods could result in increased costs to your heirs, because it can lead to conflicting claims to your property, often years after you have passed.
• Living Trusts help you qualify for public benefits. Again, this claim is simply wrong. Assets in a Living Trust are included in calculating your ability to qualify for public assistance, including nursing home Medicaid benefits.

Although most do not need one, certain people can benefit from a Living Trust; however, that Living Trust must be tailored to meet the requirements of Texas law. Before responding to an advertisement or salesperson concerning any Living Trust, ALWAYS consult with a licensed attorney with experience in estate planning and probate law, as well as an accountant, banker or financial advisor whom you trust. Don’t make an immediate decision. Any legitimate company or salesperson will understand that you need to take some time and seek professional advice before making important decisions concerning your finances. If you feel pressured, it’s probably a scam!!

TRUSTS

Many people ask us, “What is a trust and why would I want to have one?” A Trust is simply a method by which one or more persons (the “trustee”) holds property for the benefit of another person or group of persons (the “beneficiary”). To establish a trust, someone (the “settlor”) must transfer property, with the specific intent to create a trust, to the trustee who manages and administers that property for the benefit of the beneficiary. In Texas, unless the instrument creating the trust sets out specific instructions, statutes will govern the trustee’s duties and liabilities toward the trust property and the beneficiary.

People often create trusts to manage their property for the benefit of a minor, an incapacitated person, or other persons whom the settlor believes are not yet ready to manage their own financial affairs effectively, such as younger adults. In addition, a trust can be used to aid the beneficiary while protecting the trust property from claims by persons that the settlor does not intend to benefit – such as the beneficiary’s spouse or creditors.

Trusts can be created during the settlor’s lifetime, and the settlor can name himself or herself as a beneficiary of the trust. In addition, the settlor can name himself or herself as the trustee. The only thing a settlor cannot do is be the only settlor, the only trustee, and the only beneficiary. As a result, trusts can be very effective mechanisms for planning one’s financial affairs prior to death, severe illness, or incapacity.