When the Owner Dies (2011 Escrow Officer Version)

Transcription

1 1 When the Owner Dies (2011 Escrow Officer Version) 2 TOPICS Intestate succession who inherits if there is no will? Probate Application for declaration of heirship Independent administration Dependent administration Muniment of title Affidavits of heirship Closing Issues 3 Intestate Succession Intestate means that a person died without a will. If a person dies without a will, the Texas Probate Code describes who will inherit, the intestate heirs. The Probate Code treats community property and separate property differently. 4 Intestate Succession When a married person dies intestate, without a will, property passes differently depending on: Whether it was community property or separate property. When decedent died. Were decedent s children also his wife s children? 5 Intestate Succession Community property First you have to know the difference between community property and separate property. Community property is all property obtained during marriage. We generally go by the Inception of Title Doctrine. Was the owner married or single when he received title to the property? ALL property owned by a married person is presumed to be community property on death or divorce until proven otherwise. This is called the Community Property Presumption. 6 Intestate Succession Separate property Owned before marriage Inherited Received by gift Divided by written agreement 1

2 The Community Property Presumption means that if the decedent was married and you cannot show real property fits one of these descriptions, it is community property. 7 Intestate Succession A chronic problem is that the Probate Code changed who the intestate heirs are on September 1, 1993,... and years later, it keeps coming up! Before September 1, 1993, community real property of a parent who died intestate passed directly to their children. After September 1, 1993, community real property of a parent passed to the surviving spouse, but only if the spouse was also the parent of decedent s children. 8 Intestate Succession Questions Was it community or separate property? When did Joe acquire the property, and when was he married to his wife? Did Joe inherit the property? Was there a prenuptial or postnuptial agreement? When did Joe die? Did he die before September 1, 1993? Afterward? Was Joe s wife the mother of ALL of his children? With different answers to each question, you get a different answer as to who the intestate heirs are. 9 Intestate Succession 10 Intestate Succession 11 Intestate Succession 12 Intestate Succession 13 Intestate Succession 14 Intestate Succession 15 Intestate Succession 2

3 16 Intestate Succession 17 Intestate Succession You may notice that the inheritance is the same if Joe died before September 1, 1993, OR if Joe has children who are not the children of his spouse. When changing the rules for intestate succession, the logic of the 1993 legislature was that if the spouse was the parent of the decedent s children, then that parent would naturally take care of the children. However, if the children were not the children of the surviving spouse, then the surviving parent might not take care of those children, so the legislature decided the real property would still all go to the decedent s children, as it was before the law changed. 18 Intestate Succession Rather than remember the details, remember you have problems with decedent s children being in title if: Decedent died before September 1, The surviving spouse is NOT the parent of ALL of decedent s children. Property was obtained by the decedent either prior to marriage, by inheritance, or by gift. The couple had a formal agreement to divide marital property. 19 Intestate Succession Rather than remember the details, remember you have problems with decedent s children being in title if: Decedent died before September 1, The surviving spouse is NOT the parent of ALL of decedent s children. Property was obtained by the decedent either prior to marriage, by inheritance, or by gift. The couple had a formal agreement to divide marital property. 20 Intestate Succession Comparatively easy Direct descendants inherit It s primarily about determining the point of the pyramid. 21 Intestate Succession If decedent had children, decedent is the point on the pyramid: Children inherit. Grandchildren inherit if children are dead. Great grandchildren inherit if grandchildren are dead. Etc. 3

4 22 Intestate Succession If decedent had no children, then his parents become the point on the pyramid: Decedent s parents inherit. Then the parent s children (decedent s siblings). Then the parent s grandchildren (decedent s nieces and nephews). Etc. 23 Intestate Succession If decedent had no children, his parents are dead, and his parents had no other children, then decedent s grandparents become the point on the pyramid: Decedent s grandparents inherit. Then the grandparent s children (decedent s aunts & uncles). Then the grandparent s grandchildren (decedent s cousins). Etc. 24 Intestate Succession If decedent had no children, his parents are dead, his parents had no other children, and his grandparents are dead with no other children: State of Texas will inherit. Have never seen that happen. 25 Intestate Succession If decedent had no children, his parents are dead, his parents had no other children, and his grandparents are dead with no other children: State of Texas will inherit. Have never seen that happen. 26 Intestate Succession You know who the intestate heirs are, but how do you get them into title? - Probate File Application for Determination of Heirship Prove who the heirs are in court Get an Order Determining Heirship (File order of record in the real property records?) 27 Intestate Succession OR - Affidavit of Heirship Requires TWO independent witnesses, who: Cannot be in the chain of inheritance or related to person in the chain. Cannot have any interest in the real property. Must have personal knowledge. Must have known decedent long enough to trust their knowledge. (Typically ten years or more) 4

5 28 Intestate Succession Affidavits of Heirship are used strictly to determine who the intestate heirs are. Cannot use if decedent had a will and less than four years since decedent died unless the will leaves property to the same intestate heirs. If the will leaves property to intestate heirs, we will accept an Affidavit of Heirship with Will Attached. Affidavit does not convey title, but title companies rely on them to estop (prevent) heirs from claiming title is different later. 29 Intestate Succession WARNINGS on Affidavit of Heirship TRGC will not accept Affidavits of Heirship until decedent has been dead for six months. We want time for the creditors to become aware of the death and take appropriate action. 30 Intestate Succession WARNINGS on Affidavit of Heirship This is a document determining title that you are depending on, like a deed or a power of attorney. Any time such a document is executed outside of your office, you need to locate that person and: Ratify with the person signing that they signed it. Confirm that they understood what they were signing. Confirm they stand behind the matters they swore to. 31 Intestate Succession Contents of the Affidavit of Heirship Must meet all of the applicable requirements of Section 52A of the Texas Probate Code. You should be familiar with this form. Section 52A is in your written materials accompanying this seminar. We prefer NOT to use corroborating affidavits, but have each person sign a separate affidavit of heirship. Although you have the form, affidavits of heirship should ALWAYS be drafted by an attorney. Some of you use a preliminary questionnaire that follows the Section 52A form, and this is fine for deciding whether you need to have an Affidavit of Heirship drafted. 32 Wills & Probate More vocabulary: The opposite of intestate heirs are testate heirs, being those people who take under a will. A man making a will is a testator, a female is called a testatrix. The executor or executrix is appointed by the court to collect and distribute the assets. Executor has no authority under a will until appointed by a court. An administrator MAY be appointed to administer assets requiring management. 33 Wills & Probate Forms of probate: Independent administration Dependent administration 5

6 Muniment of title Small estate affidavit 34 Wills & Probate Probating a will Four years to probate a will in a conventional probate, whether as a dependent administration or independent administration. Can probate after four years only for good cause, usually requiring a lack of knowledge of reasonable mistake of fact. I didn t ask an attorney, is generally NOT reasonable. Can probate solely as a muniment of title after four years. After four years, a bona fide purchaser for value (in legalese, a BFP ) without notice of the will can take from the intestate heirs free and clear of any claims. We may rely on this when we use an Affidavit of Heirship. 35 Wills & Probate Probating a will the court process File an Application for Probate (either as an independent administration or as a dependent administration). Prove up the will at a court hearing. Typically about 5-10 minutes before the judge. Get an Order Admitting Will to Probate and Appointing Executor. Court issues Letters Testamentary or Letters of Administration (The license for the executor or administrator to act). Inventory, appraisement, and list of claims filed in the court. Does NOT contain claims against the estate, but claims the estate may have against others. 36 Wills & Probate However, when the decedent died AFTER September 1, 2011, a new law provides that if there are no debts of the estate other than probate expenses and taxes, the executor can merely file an affidavit stating that he has provided an inventory and appraisal to each beneficiary of the estate. Any person with an interest in the estate has a right to get a copy of the inventory upon written demand to the executor. 37 Wills & Probate Independent administration theory versus reality Theory, after the independent executor files the inventory, appraisement, and list of claims in the court, the court is prohibited from taking further action under Section 145(h) of the Texas Probate Code. Reality is that there has been an ambiguity in the Probate Code. Section 154(c) says an executor only has power to convey real property if the power is granted by the will. Section 331 provides that an order of the court is required to sell real property. Intelligent attorneys and judges can and do disagree on this issue, and we have had conflicting rulings in different parts of the state. 38 Wills & Probate Independent administration theory versus reality To deal with this reality, if the will does not provide authority for the independent executor to convey real property, you should require either: 39 Wills & Probate Joinder of the heirs in any conveyance by the executor Distribution of real property assets to the appropriate heirs and sale by the heirs Independent executor get a court order allowing sale of real property. (Or a court determination that no order is necessary) 6

7 Independent administration theory versus reality To deal with this reality, if the will does not provide authority for the independent executor to convey real property, you should require either: 40 Wills & Probate Joinder of the heirs in any conveyance by the executor Distribution of real property assets to the appropriate heirs and sale by the heirs Independent executor get a court order allowing sale of real property. (Or a court determination that no order is necessary) SB 1198 creates Sections 145A, 145B, and 145C of the Texas Probate Code, effective only for estates where decedent dies after September 1, A. the court may include in an order appointing an independent executor under Section 145 of this code any general or specific authority regarding the power of the independent executor to sell real property that may be consented to by the beneficiaries 145B any action that a personal representative subject to court supervision may take with or without a court order may be taken by an independent executor without a court order 41 Wills & Probate SB 1198 creates Sections 145A, 145B, and 145C of the Texas Probate Code, effective only for estates where decedent dies after September 1, C Unless limited by the terms of a will, an independent executor, in addition to any power of sale of estate property given in the will, and an independent administrator have the same power of sale for the same purposes as a personal representative has in a supervised administration, but without the requirement of court approval. The procedural requirements applicable to a supervised administration do not apply. 42 Wills & Probate Section 145C further contains shelter provisions: 1) A person who is not a devisee or heir is not required to inquire into the power of sale of estate property of the independent executor or independent administrator or the propriety of the exercise of the power of sale if the person deals with the independent executor or independent administrator in good faith and: (A) a power of sale is granted to the independent executor in the will; (B) a power of sale is granted under Section 145A of this code in the court order appointing the independent executor or independent administrator; or (C) the independent executor or independent administrator provides an affidavit, executed and sworn to under oath and recorded in the deed records of the county where the property is located, that the sale is necessary or advisable for any of the purposes described in Section 341(1) of this code. 43 Wills & Probate Section 145C further contains shelter provisions: 1) A person who is not a devisee or heir is not required to inquire into the power of sale of estate property of the independent executor or independent administrator or the propriety of the exercise of the power of sale if the person deals with the independent executor or independent administrator in good faith and: (A) a power of sale is granted to the independent executor in the will; (B) a power of sale is granted under Section 145A of this code in the court order appointing the independent executor or independent administrator; or (C) the independent executor or independent administrator provides an affidavit, executed and sworn to under oath and recorded in the deed records of the county where the property is located, that the sale is necessary or advisable for any of the purposes described in Section 341(1) of this code. 44 Wills & Probate If decedent died after September 1, 2011, you must have evidence of either: Power of sale is in the will Power of sale is granted in the court order appointing the independent executor or independent administrator An affidavit (to be filed of record) from the independent executor or administrator that the sale is necessary or advisable to Pay expenses of administration, funeral expenses and expenses of last sickness of decedents, and allowances and claims against the estates of decedents. 45 Wills & Probate Dependent administration A dependent administration has either a dependent executor or a dependent administrator. 7

8 A dependent executor or dependent administrator CANNOT sell real property (or do much else) without a court order. They also cannot contract for the estate without a court order. Make sure your realtor gets their listing agreement approved by the court as well. 46 Wills & Probate Dependent administration There are FOUR statutory hurdles to meet before a dependent administrator can sell real property. Application to Sell Real Property (TPC Sec. 341) Order Authorizing the Sale of Real Property (TPC Sec. 342) Report of Sale of Real Property (TPC Sec. 353) Confirmation of Sale of Real Property (TPC Sec. 355) 47 Wills & Probate Dependent administration Application to Sell Real Property Asking PERMISSION to sell the property. Requires a notice of hearing be posted. Order Authorizing the Sale of Real Property (TPC Sec. 342) Permission to accept contracts for sale, contingent on court approval. Report of Sale of Real Property (TPC Sec. 353) Approve the contract Approve the HUD Approve the closing Confirmation of Sale of Real Property (TPC Sec. 355) Cannot be entered until FIVE (5) Days after Report of Sale is filed. Your closing will not fund for FIVE (5) Days after closing at least. 48 Wills & Probate Probate as a muniment of title Same probate procedure, but no executor appointed. Executor, if named in will, is never appointed, and has NO authority. The Order Admitting Will to Probate as a Muniment of Title, with a copy of the will attached, is filed in the real property records. Title is vested in the heirs named in the will. Warning! the will must be clear as to who the heirs are. If the will is not clear, and probate was filed within four years of death, you can reopen it and create an administration. 49 Dealing With Probate Title Exceptions Typical exception: In connection with the estate of JOHN DOE, deceased, we should be furnished satisfactory evidence to the effect that all claims, debts and taxes, if any, have been paid, together with current letters of testamentary issued to JOHN DOE. 50 Dealing With Probate Title Exceptions TRGC will normally accept an opinion letter from an attorney or CPA that there will be sufficient assets in the estate to pay all debts and taxes. 8

9 TRGC will occasionally accept an affidavit from the executor or heirs on this issue, provided the size of the estate is small. 51 Dealing With Probate Title Exceptions If it appears to be a taxable estate (in 2011 and 2012, any estate over $3.5 million) we will require a Certificate of Release be obtained for both Federal Estate Taxes and State Inheritance Taxes before the transaction may be closed. That determination is made by reviewing the Inventory, Appraisement & List of Claims. That makes us hesitant to insure where the Inventory, Appraisement & List of Claims has not been filed yet. 52 Dealing With Probate Title Exceptions Claims 53 Dealing With Probate Title Exceptions The probate claims process Executor is required to place a statutory notice in the newspaper of the need to present claims against the estate. (TX Probate Code Sections 146 and 294) Claims must be presented to the executor, by filing with the court, before the estate is closed. (TPC 298 and 308) If an unsecured creditor receives a direct notice, it has four months to present the claim. (TPC 294(d) The executor has 30 days to accept the claim, or it is considered rejected (TPC 308). Any person with an interest in the estate has grounds to object to a claim being paid, which generally becomes a suit over validity of the claim (TPC 312) The claimant then has 90 days following rejection of the claim to file suit. If they fail to do so, it is barred. (TPC 313). 54 Dealing With Probate Title Exceptions 55 MERP Claims MERP means MEDICAID ESTATE RECOVERY PROGRAM. MERP was effective for people receiving Medicaid benefits after March 1, Nothing to do with Medicare. To qualify for Medicaid, there must be a responsible relative or potential estate representative who is given notice that the estate of the person receiving Medicaid may be subject to a MERP Claim after they die. The small problem is that Medicaid is not responsible for identifying the correct party to receive notice. MERP was effective for people receiving Medicaid benefits after March 1, MERP Claims MERP does NOT create a lien on real estate. A MERP claim is just another claim in the probate process. If unadjudicated, it constitutes a potential future claim against the property. Attorneys working these claims are on a contingency basis and can be aggressive. 57 Liens Against Heirs Often an heir will have an involuntary lien against him or her, such as an abstract of judgment, child support lien, or federal tax lien. Section 37 of the Probate Code says that heirs are immediately vested in title meaning these liens attach to real property upon the death of decedent. An heir can waive inheritance within nine months of death of decedent to avoid most AJs from attaching. An heir cannot waive inheritance to avoid a federal tax lien or federal AJ from attaching to inheritance. 58 Survivorship Agreements 9

10 Joint Tenancy With Right of Survivorship ( JTROS ) cannot be created in a deed. See Section 46 of the Texas Probate Code. JTROS can only be created by a separate instrument signed by ALL of the owners of the property, and separately filed of record. Property that passes under a JTROS agreement will pass outside of probate, even if property is addressed in the will. TRGC will insure title under a JTROS agreement if it is clear, but an affidavit of death must be filed of record, and a death certificate must be provided to the title company. 59 Minors in Title Probate or intestate succession often leaves a minor in title. Contrary to what some parents think, they do not have authority to convey their child s real property interest. A guardianship or Probate Code Section 889 Proceeding is required to get authority to sell a child s real property interest. In a probate, it is therefore desirable for the executor to dispose of real estate prior to distribution to a child. 60 Alternatives to Guardianship If you re able to plan ahead, before conveyance to a minor or incompetent: Trusts - appoint a trustee of the minor or incompetent to hold title. Uniform Transfer To Minors Act Texas Property Code Section , et seq. 61 A Note on Foreclosures 10