- Key Terms
- Initial Considerations
- Appointing a Personal Representative
- Notifying Creditors
- Notifying Beneficiaries and/or Heirs
- Collecting and Inventorying Estate Assets
- Homestead, Exempt Property and Family Allowance
- Creditors’ Claims
- Distributing and Closing the Estate
Dealing with the loss of a loved one is emotional and difficult. The process of grieving alone can be trying and draining. Resolving and settling the decedent’s financial affairs makes it no easier, but the two are often inseparable. Heirs and creditors alike have something at stake, and clients so frequently find themselves facing a process that they never asked for, but one they must endure nonetheless.
Probate, or estate administration, is the broad term we apply to a variety of procedures used to gather a decedent’s assets, pay their debts and transfer property to their beneficiaries or heirs. What it entails, how long it takes and how much it costs is almost entirely dependent on facts and circumstances unique to each case. The following discussion highlights some of the different requirements that a client may encounter in these types of cases.
Personal representative – the term used to refer to either an independent executor or a dependent administrator.
Independent executor – the legal representative of an estate. They are the person appointed by the Court to collect all of the Decedent’s assets, resolve proper debts and distribute the remaining assets according to the Decedent’s last will and testament. With a few exceptions, an independent executor acts independently of the probate court’s control. Even these independent representatives must apply for the position and be approved by the court. Independent executors are also required to prepare an Inventory, Appraisement and List of Claims, and file proof of required legal notices to creditors and beneficiaries.
Independent administrator -similar to an independent executor, in that they administer the estate free of court supervision. An independent administrator may be appointed when all of the executors named in the will are either deceased, not qualified, or decline to serve. The court may also appoint an independent administrator when the will does not provide for an independent administration (for example, a holographic will) or when the Decedent died without a will, and all of the heirs agree on having an “independent administration.”
Dependent administrator -the legal representative of an estate. They are usually appointed when the Decedent died without a will. Like an independent executor, they collect all of the Decedent’s assets, resolve proper debts and distribute the remaining assets according to the laws of intestate succession. With a few exceptions, a dependent administrator acts almost entirely under the probate court’s control. Like independent executors, dependent administrators are required to prepare an Inventory, Appraisement and List of Claims, and file proof of required legal notices to creditors. Unlike independent executors, they must obtain approval to sell estate assets. They also must file annual accountings and request court approval to close the estate and distribute the estate to the heirs.
Probate Estate -all of the Decedent’s assets that are subject to his or her last will and testament.
Non-Probate Estate – all of the Decedent’s assets that pass by written contract–assuming the Decedent named a beneficiary–to the persons designated. Bank accounts, investment accounts, life insurance policies, and retirement accounts are common non-probate assets. When properly executed, the written contracts for these accounts allow them to pass to the persons designated by the Decedent, without regard to a will.
Beneficiaries -those persons who are entitled to receive the Decedent’s estate under the Decedent’s last will and testament (and any applicable codicils, which are amendments to a will).
Heirs -those persons who are entitled to receive the Decedent’s estate under the laws of intestacy (the law that applies in the absence of a will).
Find the Will (if there is one)
Knowing whether or not the Decedent left a will is critical to the entire probate process. If you know that there is a will, secure it. If you think that there is a will, find it. Many loved ones craft wonderful estate plans and subsequently tell their families where these important documents are left. Others fail to do so.
Fortunately, there are some common places to begin your search. Check the safe deposit box, or your loved one’s financial “file-cabinet”, or call up the attorney who drafted the will. Generally, only the original document will suffice (although under rare circumstances, a copy of the will can be probated). Once the original will is secured, an attorney should review it carefully to determine if there might be any challenges in proving the will. Proving the will means having it admitted to probate (the process of having the will take legal effect).
Funeral arrangements are among the first plans made following the death of a loved one. Whoever makes the funeral arrangements should request an itemized written statement before signing any contract. Funeral services and products are also typically paid for with funds belonging to the Estate of the Decedent. Read any contract carefully for language that might make the surviving planners responsible for the bill themselves.
Texas law grants funeral expenses a high priority in the pecking order of claims against an estate. For example, the first $15,000 must be paid before any other claims. Sums over this are paid in the same manner as other unsecured debts. If a relative or friend pays the funeral home personally, they are entitled to reimbursement from the assets belonging to the Estate.
Early in probate cases, most clients typically ask how many death certificates they will need. Clients usually order a number of them when the funeral arrangements are made. To determine how many might be necessary, it is important to think of how the documents might be useful in the future.
First, the death certificate provides many of the facts that must also be alleged in the initial pleading to probate the will or open an estate administration. Having all of the information at hand is efficient. The attorney doesn’t have to bill the client for locating facts and the client doesn’t have to spend his or her own time hunting those facts down either.
Second, the personal representative could need a death certificate for a variety of reasons. Many of the transactions that the representative handles often require a death certificate. Transferring stock certificates, collecting insurance proceeds and even gaining access to a safe deposit box are a handful of examples.
If the death occurred within Dallas County, Texas, you may visit http://www.dallascounty.org/department/countyclerk/deathcertificates.htm for more information about requesting certified copies of death certificates. It is also a good idea to notify the Social Security Administration of your loved one’s death. Visit http://www.ssa.gov/pgm/links_survivor.htm for more information. If the Decedent was a member of the armed forces, you should consider contacting the veteran’s administration at http://www.cem.va.gov.
Lock Things Up
Vacant homes are a prime target for all sorts of headaches. Mail and newspapers piling up, overgrown grass and the like are all a virtual welcome mat for crime and vandalism. Take the appropriate measures to keep the property safe and secure.
In the time between death and the appointment of a representative of the Estate, there is usually no one person technically responsible to hold the keys to the home. The best practice is to keep the home locked and cooperate and coordinate to the extent that others need or want access to the Decedent’s residence or belongings.
Determine Your Loved One’s Residence and Domicile
Generally, a will must be probated in the county where the Decedent lived at their death, or in the county where their principal property was located on the day that they died.
Obtain Information about Estate Assets and Debts
A significant part of probate is the collection of assets and resolution of debts. The more you know about these items, the better prepared you are to deal with them efficiently. The information will help determine whether the estate is solvent or insolvent and what sort of probate proceeding is appropriate under the circumstances.
Some clients know the Decedent’s finances intimately, while others begin the process almost entirely in the dark. Gathering this information may involve reviewing the Decedent’s important documents and prior tax returns, collecting his or her mail for bills and statements and even visiting with professional acquaintances of the Decedent, like a CPA or financial advisor.
Obtain Information about the Personal Representative and Beneficiaries/Heirs
Gather the name, addresses and telephone numbers of the person named in the will to serve as the executor, as well as the beneficiaries named in the will. These individuals are going to be involved in the administration at some point. The earlier that their assistance can be gained, the better. If there is no will, start locating the names, addresses and telephone numbers of your loved one’s legal heirs. Time and money can both be saved in an heirship proceeding if this information is available from the beginning.
Under Texas law, every person of sound mind and appropriate age can execute a valid will, ensuring that their estate is probated with minimal expense and minimal court involvement. This is known as “independent administration,” and it is an efficient system unique to Texas. Independent administrations can provide a smooth and efficient path for Texas estates. Independent executors have very broad powers. Only the Decedent’s will and the Texas Probate Code limit them. Most actions by independent executors are simply taken. By comparison, other administrators typically must ask for the court’s permission to take the same actions.
Typically, once an independent executor is appointed and files an inventory, appraisement a list of claims with the court, he or she may administer the estate without any further involvement from the Court. The independent executor may pay debts and expenses, pay creditors, sell property, and make distributions without court authority.
Some estates do not require the appointment of a representative, independent or otherwise. If at the time a Decedent’s will is probated, the estate owes no debts, except for those secured by real property (like a mortgage), and there is nothing to administer, the will could be probated as “muniment of title.” In these cases, no administration is created. No legal representative is appointed, even though one might be named in the will. There simply isn’t any work for them to do. To transfer title, the will and the court’s Order admitting the will to probate as a muniment of title are recorded in the deed records. In this way, the will and the Order act as a deed themselves, and transfer property to the beneficiaries just as the Decedent intended.
In contrast, when someone dies without a valid will, he or she gives up their personal right in favor of a default system that may not match their intentions. The estate passes to the person’s heirs-at-law. We identify these heirs by applying a set of statutes commonly referred to as intestacy. Aside from the loss of control, the process typically costs more and takes longer.
One major drawback of an intestate estate is that the Decedent has no influence on the designation of the estate’s personal representative. Instead, the Court will accept any interested and qualified person that comes forward to apply and take on the job of administering the estate. In many cases, multiple individuals consider themselves best for the job, resulting in contested litigation. If no one applies, and an administration is necessary, the Court can appoint an administrator for an estate, and the Court typically selects an attorney that routinely practices in probate matters.
Almost every action in administering these estates, from identifying the heirs, resolving creditor’s claims, selling property, filing reports with the Court, and distributing assets requires Court supervision. Dependent administrations are strictly regimented. Ask for permission and wait until the Court approves your request. In between the two, the Court typically requires notice to interested persons and a formal hearing on the request. Even when the action is taken, the Court often requires a report, so that the judge can be sure you have done only what he or she approved.
When someone dies without a will and there is no necessity for an administration, title to their assets may pass to the heirs through what is referred to as a “statutory heirship proceeding.” This proceeding serves a similar function as probating a will as a muniment of title. It is often a very useful and effective substitute for an otherwise costly and lengthy dependent administration.
In both types of administrations, within one month of receiving Letters Testamentary or Letters of Administration, a specific notice must be published to the general creditors of the estate. Proof of the notice must be filed with the court.
Notice to Secured Creditors
Independent executors and dependent administrators must give notice to all secured creditors. These are the creditors whose debts are secured by real or personal property. The notice to each secured creditor must be given within two months of the receipt of Letters Testamentary. If this notice is not provided, the independent executor can be held personally liable for any damages suffered as a result of the failure to give the notice.
Notice to Unsecured Creditors
Independent executors and dependent administrators are not required to specifically notify unsecured creditors. Specific notice is permitted, however, and the notice is often used to force these creditors to either present their claim for payment or be permanently barred from seeking payment from the estate (commonly referred to as “permissive notice.”) One significant advantage of this practice is that it can close the door on creditor claims much faster than the applicable statutes of limitation. The notice must take a particular form. For example, in an independent administration, this notice must include:
- The date of the Independent Executor’s appointment;
- The address where the claim may be presented;
- To whom the claim should be addressed;
- A statement that the claim must be presented within four (4) months after the date of the receipt of the notice or the claim is barred; and
- A statement that the creditor’s claim must be contained in:
a. A written instrument that is hand-delivered with proof of receipt, or mailed by certified mail, return receipt requested with proof of receipt, to the independent executor or the executor’s attorney;
b. A pleading filed in a lawsuit with respect to the claim; or
c. A written instrument or pleading filed in the court in which the administration of the estate is pending.
Not later than the 60th day after the order admitting the will to probate is signed, the independent executor must provide a specific notice to each beneficiary named in the will that the will has been admitted to probate. The beneficiaries must be provided with the independent executor’s name and contact information, and either a copy of the will admitted to probate or a summary of the gifts to the beneficiary under the will. Under certain specific circumstances, the notice may not be required, or it may be waived.
Not later than the 90th day after the order admitting the will to probate is signed, the independent executor must file a sworn affidavit (or a certificate signed by the independent executor’s attorney) stating that notice to the beneficiaries was properly given.
There is no similar notice provision to recipients of the estate. If a will is being probated more than four years after the Decedent’s death, however, the applicant must notify the Decedent’s heirs. The notice must include a description of the decedent’s property that will pass to the his or heirs if the will is not admitted to probate and a statement that the person offering the will is not at fault for failing to present the will during the four year period following the decedent’s death.
In a dependent administration, the heirs of the estate typically receive notice at the stage a formal heirship determination is made.
Both independent executors and dependent administrators must file a sworn Inventory and List of Claims. The Inventory is what it sounds like – a list of estate properties that must be carefully prepared, sworn to by the representative and approved by the court. Descriptions of property must be adequate such that interested people could go out and find the property if they wanted to. The property must be valued, and that value must tell the court what the property was worth on the date of death.
Not everything belongs on the Inventory. For example, typical non-probate assets, such insurance policies or retirement accounts are usually not listed. Likewise, debts owed by the decedent do not belong on the Inventory – only the debts that are owed to the decedent.
Executors and administrators have 90 days from the date of qualification to file their Inventory. Extensions are fairly common, and routinely granted if the circumstances warrant them. Regardless, efforts to compile the Inventory can begin almost immediately after death. Invariably, obtaining the details of the assets takes more effort and time than everyone anticipates. An early start will save a headache down the road.
Not all property passes pursuant to a decedent’s will or the laws governing intestacy. Some property is never subject to administration by an executor or administrator. Instead, these assets pass under contract law to beneficiaries designated within the assets themselves. We call these types of assets non-probate. Life insurance proceeds payable to a named beneficiary are a classic example. At death, the proceeds are distributed outright to the beneficiary rather than to the Executor or the Administrator. While the Inventory does not list these non-probate assets, they must usually be reported in the Decedent’s estate for federal tax purposes.
Whether or not the decedent’s home was a “homestead” is a critical consideration. In the case of a surviving spouse or surviving minor children, the impact on the estate can be significant.
The surviving spouse and minor children have the right to occupy the homestead, regardless of whether the homestead was the decedent’s separate property or the community property of the decedent and the surviving spouse. The right to occupy has nothing to do with title in the home. This means that even if somebody else inherits the decedent’s interest in the house, they inherit that interest subject to the spouse’s or children’s right to occupy. Even more, a surviving spouse’s right to occupy does not disappear if they remarry, although the minor child’s right terminates when they reach the age of majority.
The surviving spouse in this case, often called a “life tenant,” has specific rights and obligations. He or she is prohibited from committing waste, or otherwise allowing the property to fall into disrepair. The life tenant is obligated to protect the interest of remaindermen (future owners) from being lost, and to do this the life tenant is required to:
- Pay property taxes;
- Reasonably maintain the property; and
- Pay the interest portion on any mortgage.
The probate court can “set aside” certain property in an estate so that it will be exempt from creditors. This is typically done immediately after an inventory is filed. The surviving spouse and minor children of the decedent have the right to use the decedent’s exempt personal property during the pendency of the estate administration.
According to the Texas Property Code, the “exempt personal property” set-aside consists of a certain amount of personal property, such as furniture, clothing, provisions for consumption, jewelry, vehicles, tools of the trade, sporting equipment, firearms, two horses, mules or donkeys and a saddle, 12 head of cattle, 60 head of other livestock, 120 fowl, and household pets, etc. The aggregate value of the property cannot exceed $60,000 for a family, or $30,000 for a single adult. Setting aside this property will protect it from most creditors’ claims and forced sale.
The exempt personal property will not be liable for any estate debts other than Class 1 claims, which include funeral expenses and expenses of last sickness. As with the homestead, the exempt personal property remains subject to debts secured by valid liens on the property. In addition, exempt personal property is most likely not protected from federal tax liens.
When the estate is finally settled and if it is solvent, then the exempt property is subject to being partitioned and distributed among the heirs and distributes as any other property.
The decedent’s surviving spouse and minor children can request the court grant them a “family allowance” that is sufficient to maintain them for a period of one year after the decedent’s date of death. The family allowance is typically sought immediately after the inventory has been approved.
In a dependent administration, application is typically made to the court. In an independent administration, the executor usually sets the family allowance. Once the inventory is approved, the court loses jurisdiction over the estate in an independent administration. In that case, if the independent executor is not cooperative, the applicant can file suit against the independent executor to collect the allowance.
The family allowance takes precedence over almost all other claims, except those for funeral expenses and expenses of last sickness up to $15,000 and secured creditors. The allowance “shall be in an amount sufficient for the maintenance of the surviving spouse and minor children (and an adult incapacitated person) for one year from the time of death.” The allowance is based on the circumstances then existing and those anticipated to exist during the first year after death. The court must consider the amount of the surviving spouse’s separate property that could be used for his or her support and maintenance. If the surviving spouse has adequate separate property, a family allowance should not be allowed.
The family allowance is paid entirely out of the Decedent’s estate–primarily the Decedent’s one-half community estate. Property specifically devised or bequeathed to another may be taken or sold to raise funds for the allowance only if other available property is insufficient to provide for the allowance. It is important to note that the allowance is not treated as an advancement to be offset against future estate distributions–rather it is a sum of money literally “carved out” of the estate.
The family allowance is often utilized in cases of second marriages, especially where the Decedent did not adequately make provisions for his or her surviving spouse (usually because the Decedent left the majority of his estate to children from a prior marriage).
In an independent administration, an unsecured creditor generally may present a claim to the independent executor anytime before the general statute of limitations on their claim runs.
One major exception to this rule exists. The independent executor may reduce the general statute of limitations considerably by giving the unsecured creditor “permissive notice.” This forces the creditor to present a claim within a 120 days after receiving the permissive notice.
In an independent administration, the unsecured creditor must present a claim within a specific form. It must be either:
- A written instrument that is hand-delivered with proof of receipt, or mailed by certified mail, return receipt requested with proof of receipt, to the independent executor or the executor’s attorney;
- A pleading filed in a lawsuit with respect to the claim; or
- A written instrument or pleading filed in the court in which the administration of the estate is pending.
An independent executor should not allow a claim barred by the statute of limitations. There is no specific time period in which an independent executor must act on a claim–that is, reject or allow the claim.
In an independent administration, secured creditors must make certain elections. Within six months after the date letters are granted or within four months after the date the secured creditor receives notice, whichever is later, the secured creditor must notify the independent executor of the creditor’s election to have the creditor’s claim approved as a matured secured claim to be paid in due course of administration. A matured secured claim is treated as a “Class 3” claim and enjoys high priority over other creditors.
Alternatively, if the secured creditor does not make an election, the claim is a preferred debt and lien against the specific property securing the indebtedness and is paid according to the terms of the contract. In this case, the creditor may not seek any deficiency from the other assets of the estate. Most secured creditors elect to have their claims treated as a preferred debt and lien.
In a dependent administration, an unsecured creditor may generally present a claim to the dependent administrator (or deposit it with the clerk) anytime before the general statute of limitations on their claim runs.
In a dependent administration, the unsecured creditor must present a claim containing certain statutory language. Essentially, the creditor must swear to the justness of the claim and affirm that any offsets or payments have been allowed. Few unsecured creditors in a dependent administration ever use the correct language, resulting in the dependent administrator rejecting their claims. A dependent administrator should not allow a claim barred by the statute of limitations.
In contrast to an independent administration, where claims are not formally presented, a dependent administrator must allow or reject a claim within 30 days of the claim being presented or deposited with the clerk. Otherwise, the claim is treated as having been “rejected by operation of law.” Once the claim is rejected, an unsecured creditor must file suit within 90 days or the claim is barred. Few creditors are aware of this trap. As a result, many estates can avoid paying massive debts simply because of unwary and inexperienced creditors.
Both independent executors and dependent administrators must classify creditor claims as follows:
- Class 1. Funeral expenses and expenses of last sickness not to exceed fifteen thousand dollars.
- Class 2. Expenses of administration and expenses incurred in the preservation, safekeeping, and management of the estate, including fees and expenses awarded under Section 243 of this code, and unpaid expenses of administration awarded in a guardianship of the decedent.
- Class 3. Secured claims for money under Section 306(a)(1),including tax liens, so far as the same can be paid out of the proceeds of the property subject to such mortgage or other lien, and when more than one mortgage, lien, or security interest shall exist upon the same property, they shall be paid in order of their priority.
- Class 4. Claims for delinquent child support and child support arrearages
- Class 5. Claims for taxes.
- Class 6. Claims for the cost of confinement.
- Class 7. Claims for Medicaid reimbursement.
- Class 8. All other claims.
When the estate has available funds, the independent executor and the dependent administrator, must pay claims in the following priority:
- Funeral expenses and expenses of last sickness.
- Allowances made to the surviving spouse and children.
- Expenses of administration and the expenses incurred in the preservation, safekeeping, and management of the estate (Class 2).
- Other claims against the estate in the order of their classification (Claims 3-8).
When there are not enough estate assets to pay all claims of the same class (other than secured claims for money), the claims are paid pro rata.
Except when paying estate taxes or where the decedent’s will provides otherwise, generally, estate property is liable for debts and expenses of administration in the following order:
- Property not disposed of by will, but passing by intestacy;
- Personal property of the residuary estate;
- Real property of the residuary estate;
- General bequests of personal property;
- General devises of real property;
- Specific bequests of personal property; and
- Specific devises of real property.
In other words, the independent executor or dependent administrator will use intestate property to satisfy debts before personal property in the residuary, and so on. A specific devise of real property is the last item to be used to pay debts. This statutory order, however, does not affect the requirements for paying a secured creditor who elects to have the claim continued as a preferred debt and lien against specific property.
In an independent administration, the independent executor may sell, rent or lease property without having to obtain court approval.
In a dependent administration, the court must approve all sales of real and personal property. Renting or leasing property longer than one year requires court approval.
Selling real property is somewhat of a cumbersome process. The fundamental steps are outlined below.
Step 1: Request court approval to sell the real property.
Step 2: Market the Property. The contract for sale must include language stating, “this contract is subject to court approval.”
Step 3: Once a contract is signed, a “Report of Sale” is filed (§832), and a copy of the signed contract and a copy of the HUD closing statement to reference the expected net proceeds are attached. These documents inform the Court about the terms under which the administrator desires to sell the property. Although the term “Report of Sale” makes it seem like you have “sold” the property, the sale is not complete without finishing the process.
It is important that the administrator notify counsel about any contemplated sale a soon as possible, so that counsel can finish the rest of the process before the anticipated closing date. Usually, 30-45 days is ample time to complete the remainder of the sales process before the scheduled closing. If everything is completed sooner, the closing date can always be bumped up.
Step 4: Obtain a court hearing on the contemplated sale 5 days after the Report of Sale is filed.
Step 5: Attend the hearing. The administrator will need to attend the hearing on the sale.
If formal appraisal is not provided, the Court will require a letter from a disinterested real estate agent giving their opinion of fair market value of the property (typically this is a range of values, and the sales price is usually in the middle).
The Court will determine the sufficiency of bond, and if found insufficient, a new bond will be required.
Step 6: The Court signs a “Decree Confirming Sale.” The Decree authorizes the conveyance (“closing”) upon compliance by purchaser with terms of sale (§834).
Step 7: Closing. The sale is closed and the administrator delivers the deed when the purchaser meets the terms of the sale. The decree itself vests title to personal property (§818) but not real property, which must be done by deed (§835).
Step 8: If necessary, the administrator will file a new bond with the Court.
An independent administration is considered closed when all debts have been paid and all property has been distributed.
Although the independent executor is not required to formally close the estate, the executor has several options relative to closing the estate with a higher level of formality.
The independent executor may file a “closing affidavit” essentially stating the estate has been fully administered. Filing the affidavit terminates the independent executor’s authority, but it does not relieve the independent executor of any liability. This procedure is rarely used.
In cases where the court required the independent executor or independent administrator to post a bond, the closing affidavit terminates the bond and releases the sureties on the bond or all future acts of the independent executor or independent administrator.
The independent executor may also seek a judicial discharge from any liability in connection with administering the estate. The release only extends to matters that have been fully and fairly disclosed. This essentially requires the independent executor to file a “declaratory judgment action.”
Each beneficiary must be personally served with a copy of the lawsuit. Similar to the “closing by affidavit” method, the independent executor will usually be required to file a detailed accounting and any other information the court may require to adjudicate the executor’s liability. This procedure is also rarely used, but it can be helpful in an anticipation of a potential lawsuit from a beneficiary.
Receipts and Releases
It is a usually a good practice to have a beneficiary sign a receipt for all the property they receive under the terms of a will. Although an executor cannot require the beneficiary to sign a statement whereby the beneficiary agrees to release the executor from any liability concerning the estate administration, it never hurts to ask. Many beneficiaries will gladly sign such a release in exchange for their inheritance.
A dependent administration is considered closed when the administrator receives a “discharge” from the court. Typically this comes after the court has approved the dependent administrator’s final account, and the dependent administrator has filed a report of compliance showing that he or she has distributed the property to the heirs.
Receipts and Releases
The court will require a dependent administrator to obtain a signed receipt from an heir for all the property they receive in an estate. Although a dependent administrator cannot require an heir to sign a statement whereby the heir agrees to release the administrator from any liability concerning the estate administration, it never hurts to ask. Many heirs will gladly sign such a release in exchange for their inheritance.