DOCKET CALL IN PROBATE COURT

Transcription

1 THE SAN ANTONIO ESTATE PLANNERS COUNCIL S DOCKET CALL IN PROBATE COURT PITFALLS OF THE NOT SO SIMPLE PROBATE MARY C. BURDETTE Calloway, Norris, Burdette & Weber 3811 Turtle Creek Blvd., Suite 400 Dallas, Texas February 17-18, 2005

2 TABLE OF CONTENTS I. DISPUTED CREDITOR CLAIMS... 1 A. Introduction B. Duties Owed to Creditors... 1 C. Independent Administration Notice to Creditors... 1 a. Notice by Publication b. Notice to Secured Creditors... 1 c. Penalty for Failure to Give Required Notices... 1 d. Permissive Notice Presentment of Claim by Secured Creditor Non-Judicial Foreclosure a. Prior to Administration... 2 b. During Administration Presentment of Unsecured Claim Enforcement of Claims by Suit Liability of Independent Executor Unliquidated Claims D. Dependent Administration Notices Presentment of Claims Exceptions to Presentment Action by Personal Representative with Respect to Claims a. Form of Claim b. Objections to the Form of Claims... 5 c. Endorsement of Claim d. Limitations on Claims... 6 e. Rejected Claims E. Classification of Claims Duty of Personal Representative Claims for Child Support a. Child Support Accrued Before Death... 7 b. Child Support Accrued After Death c. Credit for Social Security Death Benefits Debts Due to the United States Order of Payment of Claims Secured Creditors... 9 a. Election by Secured Creditor... 9

3 b. Time for Election... 9 c. Matured Secured Claims... 9 d. Preferred Debt and Lien F. Setting Aside Exempt Assets Action by Personal Representative Delivery of Exempt Assets Homestead Partition of Homestead Homestead Free from Debts Title to Exempt Assets G. Setting Allowances Family Allowance a. Time for Setting b. Amount of Allowance c. Payment of Allowance Allowances in Lieu of Exempt Property a. Setting Allowances b. Delivery of Allowances Timely Setting Allowance H. Non-probate Assets II. RECOVERING TANGIBLE ASSETS A. Right to Possession B. Show Cause Order C. Order Under Sections 232, D. File Suit and Seek Injunctive Relief E. Contempt Actions Authority of the Court to Find Contempt Definitions Direct Contempt Constructive Contempt Distinguishing Contempt Due Process a. Notice b. Pleadings (1) Specificity (2) Ambiguity (3) Opportunity to Purge c. Miscellaneous Provisions (1) Continuance of Hearings... 19

4 (2) Appointment of Counsel (3) Officers of the Court (4) Monetary Sanctions (5) Delay III. CONVERTING BETWEEN INDEPENDENT AND DEPENDENT ADMINISTRATIONS A. Converting from Independent to Dependent B. Converting from Dependent to Independent Administration IV. ADMINISTERING COMMUNITY PROPERTY IN DISPUTED ESTATES A. Introduction Probate Code 177(b) Fiduciary Duties Inventory Probate Code Powers of Executor V. DEALING WITH THE NON-PAYING CLIENT A. Representing the Independent Executor Engagement Letter Retainer Non-payment B. Representing the Dependent Administrator C. Representing a Beneficiary

5 PITFALLS OF THE NOT SO SIMPLE PROBATE PITFALLS OF THE NOT SO SIMPLE PROBATE I. DISPUTED CREDITOR CLAIMS A. Introduction A decedent s estate can be a trap for the unwary creditor who is seeking to enforce a lien or collect a debt against a deceased debtor. A creditor must be aware of Texas law in both independent and dependent administrations and act appropriately in order to protect its claim against an estate. How a personal representative deals with creditors claims, allowances and exempt assets can materially affect the assets passing to the family members. B. Duties Owed to Creditors Although some prior cases indicated to the contrary, a recent Houston Court of Appeals case specifically held that an executor s statutory duty to approve and pay claims does not give rise to a fiduciary duty, and the executor does not hold the estate property in trust for those with claims against the estate. FCLT Loans, L.P. v. Estate of Bracher, 93 S.W.3d 469 (Tex. App. Houston th [14 Dist. 2002, no writ). Compare Cochran s Administrators v. Thompson, 18 Tex. 652 (1857); Farmers & Merchants Nat. Bank v. Bell, 31 Tex. Civ. App. 124, 71 S.W. 570 (1902, writ ref d). C. Independent Administration 1. Notice to Creditors. Sections 146 and 294 of the Texas Probate Code provide for the notices that a personal representative in an independent administration is required to give to creditors. a. Notice by Publication Within one (1) month after receiving letters, the personal representative of an estate shall publish in some newspaper, printed in the county where the letters were issued, a notice requiring all persons having claims against the estate being administered to present the same in the time prescribed by law. The notice shall include the date of issuance of letters held by the representative, the address to which the claims may be presented and an instruction of the representative s choice that the claims be addressed in care of the representative, in care of the representative s attorney or in care of Representative, Estate of. A copy of the printed notice together with the publisher s affidavit that the notice was properly published shall be filed in the court where the cause is pending. Published notice is required in all independent administrations. b. Notice to Secured Creditors A personal representative in an independent administration must also give notice to secured creditors in accordance with Section 295 of the Code. Within two (2) months after receiving letters, the personal representative shall give notice of the issuance of such letters to each and every person known to the personal representative to have a claim for money against the estate of a decedent that is secured by real or personal property of the estate. If the personal representative does not have actual notice of such a creditor within two (2) months of receiving letters, then within a reasonable time after obtaining actual knowledge of the existence of a secured creditor, the personal representative shall give notice to that person of the issuance of letters. Notice to secured creditors shall be given by certified or registered mail, with return receipt requested, addressed to the record holder of such indebtedness or claim at the record holder s last known post office address. A copy of each notice to a secured creditor, a copy of the returned receipt, and an affidavit of the representative stating that the notice was mailed as required by law, giving the name of the person to whom the notice was mailed, shall be filed with the Clerk of the Court from which the letters were issued. c. Penalty for Failure to Give Required Notices. Pursuant to Probate Code Section 297, if a personal representative fails to give notice by publication or to a secured creditor, the representative and the sureties on the representative s bond shall be liable for any damage which any person suffers by reason of such neglect, unless it appears that such person had notice otherwise. 1

6 PITFALLS OF THE NOT SO SIMPLE PROBATE d. Permissive Notice. Section 146 provides that a personal representative in an independent administration may give notice permitted under Section 294(d) of the Code and bar a claim under that subsection. Section 294(d) provides that permissive notices may be given to unsecured creditors at any time before an estate administration is closed. Such notice may be given by certified mail with return receipt requested to an unsecured creditor having a claim for money against the estate expressly stating that the creditor must present a claim within four (4) months after the date of the receipt of the notice or the claim is barred, provided the claim is not already barred by the applicable statute of limitation. A notice must include: (1) the date of issuance of letters held by the representative; (2) the address to which claims may be presented; and (3) the instruction of the representative s choice that the claim be addressed in care of: (a) the representative; (b) the representative s attorney; or (c) Representative, Estate of (naming the estate). It is also suggested that the notice instruct the creditor that the claim must be in the form required by the Texas Probate Code and that the attorney for the estate cannot give advice as to the proper procedure for filing a claim, so the creditor should contact an attorney of its choice with respect to the procedures for filing the claim. This should decrease the number of phone calls received by the attorney for the personal representative from creditors asking for help in filing claims. It also puts the creditor on notice that the claim needs to be in a particular form. See Appendix A. 2. Presentment of Claim by Secured Creditor. A major difference between a dependent administration and an independent administration is the form in which a claim must be presented by a creditor. Pursuant to Section 146(b), a secured claim for money must be presented within six (6) months after the date letters are granted, or within four (4) months after the date notice is received if the notice was sent more than two (2) months after the date letters were issued, whichever is later. A creditor with a claim for money secured by real or personal property must give notice to the independent representative of the creditor s election to have the creditor s claim approved as a matured secured claim to be paid in the due course of administration. If this election is not timely made, the claim is classified as a preferred debt and lien against the specific properties securing the indebtedness and shall be paid according to the terms of the contract that secured the lien, and a claim may not be asserted against other assets of the estate. The independent representative may pay the claim before the claim matures if paying the claim before maturity is in the best interest of the estate. If a secured creditor s claim is considered a preferred debt and lien, then the creditor may not seek any deficiency against the other assets of the estate. Prior to this addition to Section 146, the secured creditor was not bound to such an election and could still seek a deficiency against the estate in an independent administration. 3. Non-Judicial Foreclosure a. Prior to Administration It has long been the law in Texas that, in a dependent administration, an attempted exercise of a power of sale in an extrajudicial foreclosure is void. Pearce v. Stokes, 291 S.W. 2d 309 (Tex.1956); Hury v. Preas 673 S.W. 2d 949 (Tex.App--Tyler 1984, writ ref d n.r.e.); Bozeman v. Follitt, 556 S.W. 2d 608 (Tex.Civ.App. Corpus Christi 1977, writ ref d n.r.e.). Consequently, if a secured creditor foreclosed upon a deceased person s assets prior to a dependent administration being opened, the foreclosure would be void, but the foreclosure would stand if an independent administration was opened. Taylor v. Williams, 101 Tex. 388, 108 S.W. 815 (1908); Fischer v. Britton, 125 Tex. 505, 83 S.W.2d 305 (1935). Further, a nonjudicial foreclosure while a dependent administration is pending is void, as the administration suspends the power of sale. Because of the changes in Section 146, does a secured creditor also take a risk by foreclosing prior to the opening of an independent administration? There are no cases addressing this point since the changes to Section 146. However, in Bozeman v. Folliott, the Court seems to base its decision on the fact that in an independent administration, a creditor cannot enforce its claim against the executor in probate court. However, in a dependent administration, the creditor is required to seek permission from the probate court to foreclose and to enforce its 2

7 PITFALLS OF THE NOT SO SIMPLE PROBATE claim. In Section 146, a secured creditor is now put to an election, and that election must be made within six months. Since a secured creditor in an independent administration is now put to an election, and an independent executor has the right to pay the claim in accordance with the contract, does this some how change the law with respect to nonjudicial foreclosures prior to the opening of an independent administration? If a creditor forecloses prior to the opening of an independent administration, do the provisions of Section 146 not apply to that estate? In the Supreme Court decision of Pearce v. Stokes, the Court s decision seems to turn more on the fact that the Court felt that a sale of property pursuant to a nonjudicial foreclosure prior to the opening of an administration would always interfere with the due administration of an estate. The Court held that the secured creditor is protected in the payment of his debt when the property is brought into administration. He has a choice of methods he may pursue in obtaining payment. Now that the secured creditor is put to the same election and choices in both an independent and dependent administration, can it be argued that a nonjudicial foreclosure before the opening of an independent administration is voidable? b. During Administration A power of sale under a deed of trust may be validly exercised during the pendency of an independent administration, and the sale is not voidable by the independent executor. Robertson v. Paul, 16 Tex. 472 (1856); Fischer v. Britton, 83 S.W.2d 307 Itex. 1935); Taylor v. Williams, 101 Tex. 388, 108 S.W. 815 (1908); Pottinger v. Southwestern Life Ins. Co., 138 S.W.2d 645 (Tex. Civ. App. Waco 1940, no writ); Bozeman v. Folliott, 556 S.W.2d 608 (Tex. Civ. App. Corpus Christi 1977, writ ref d n.r.e.). This same rule applies to federal tax lien foreclosures. I.T. 2918, XIV-2 Cum. Bull A foreclosure sale conducted during an independent administration remains valid even though the administration is later brought under court supervision. Bozeman v. Folliott, supra. Notice of the foreclosure sale pursuant to a deed of trust is given to the independent executor in the same manner as would have been given to the decedent, as prescribed by Texas Property Code and the applicable provisions of the deed of trust. Fenimore v. Gonzales County Savings and Loan Association, 650 S.W.2d 213 (Tex. Civ. App. San Antonio 1983, writ ref d n.r.e.). Conducting a nonjudicial foreclosure sale pursuant to a deed of trust does not constitute state action for purposes of the due process clause of the United States Constitution. Barrera v. Security Building and Investment Corporation, th 519 F.2d 1166 (5 Cir. 1975); Williamson v. Tucker, 615 S.W.2d 881 (Tex. Civ. App. Dallas 1981 writ ref d n.r.e.); Armenta v. Nussbaum, 519 S.W.2d 673 (Tex. Civ. App. Corpus Christi 1975, writ ref d n.r.e.). An argument can be made based on Section 146(b) that a secured creditor cannot exercise foreclosure rights under the contract until the expiration of six months after the date that letters are granted to an Independent Executor. See Rivera v. Morales, 733 S.W. 2d 677, 679 (Tex. App. - San Antonio 1987, writ ref d n.r.e.) (A claim secured by a mortgage is a money claim under 298 even though it contains a power of sale by way of a non-judicial foreclosure.) 4. Presentment of Unsecured Claim. In an independent administration, an unsecured creditor who has a claim for money against the estate and who has received the permissive four (4) month notice, shall give notice to the independent representative of the nature and amount of the claim no later than the th 120 day after the date on which notice is received, or the claim is barred. Section 146(e) provides that the notice given by either a secured creditor or an unsecured creditor responding to a permissive four (4) month letter must be contained in: (a) a written instrument that is hand delivered with proof of receipt or mailed by certified mail, return receipt requested, 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. These provisions of Section 146 were added by the Legislature in Note that the 120 day requirement is different than the four (4) month requirement that is set forth in the permissive notice letter. Consequently, if an unsecured creditor filed a claim within four (4) th months, but later than the 120 day, there is a question as to whether or not the claim is barred. This author believes that the claim is not barred and that the creditor should have the full four (4) months as provided in the notice. The claim does not have to meet the formal requirements that are 3

8 PITFALLS OF THE NOT SO SIMPLE PROBATE set forth in a dependent administration for the form of claims of creditors, Ditto Investment Co. v. Ditto, 293 S.W. 2d 267 (Tex. Civ. App. Fort Worth 1956, no writ), but the delivery of the notice must meet the requirements of Section 146(e), or the claim is barred. For instance, if the creditor simply sends by regular mail a statement showing the amounts owed, it does not comply with Section 146(e) because it was not hand delivered with proof of receipt or mailed by certified mail. Therefore, a strict reading of the statute requires that the claim be barred. An executor s attorney receiving claims from creditors should always keep the envelope in which the claim is received as proof as to whether or not it was properly delivered. 5. Enforcement of Claims by Suit. Pursuant to Section 147, any person having a debt or claim against the estate in an independent administration may enforce the payment of same by suit against the independent executor; and when judgment is recovered against the independent executor, execution shall run against the estate of the decedent in the hands of the independent executor which is subject to such debt. However, if the estate is insolvent, a creditor who secures judgment against the independent executor cannot have estate property sold under execution and applied to his debt to the exclusion of other creditors. Woods v. Bradford, 284 S.W. 673 (Tex. Civ. App. 1926, no writ). An independent executor is not required to plead to any suit brought against him for money until after six (6) months from the date the independent administration was created and the order appointing an independent executor was entered. Probate Code 147. Consequently, unlike a dependent administration, a claimant may file suit against the executor on its claim at any time provided the statute of limitations has not expired or, if the claimant has received the permissive four (4) month letter, four (4) months have not lapsed. 6. Liability of Independent Executor. An independent executor, in the administration of an estate, may pay at any time, without personal liability, a claim for money against the estate to the extent approved and classified by the personal representative if: (a) the claim is not barred by limitations; and (b) at the time of payment, the independent executor believes the estate has sufficient assets to pay all claims against the estate. Probate Code 146(c). 7. Unliquidated Claims. Section 146 and Section 294 provide for permissive notice to unsecured creditors having a claim for money. Consequently, an unliquidated claim may not be presented and is not subject to a four (4) month bar if a letter under Section 146(a)(2) is sent. Case law has construed all claims for money to require presentment of a claim if the amount can be ascertained with certainty. Examples of such unliquidated claims are tort claims See Wilder v. Mossler, 583 S.W. 2d 664 (Tex. Civ. App. Houston 1964, no writ) and quantum meruit claims for services rendered See Wells v. Hobbs, 122 S.W. 451 (Tex. Civ. App. 1909, no writ); and Moore v. Rice, 80 S.W. 2d 451 (Tex. Civ. App. Eastland 1935, no writ). D. Dependent Administration. 1. Notices. In a dependent administration, the same notices as set forth above for an independent administration are required under Sections 294 and 295 for a dependent administration; therefore, a published notice and notice to secured creditors are required. In addition, the permissive four (4) month notice may be given to unsecured creditors. 2. Presentment of Claims. In a dependent administration, the creditor is required to formally present its claim. The Probate Code authorizes two different methods by which a claim may be presented: (a) the creditor may present the claim directly to the executor or administrator as authorized by Section 298(a); or (b) claims may also be presented by depositing, or filing, same with the Clerk pursuant to Section 308 of the Probate Code. If a claim is deposited with the Clerk, then the Clerk is directed to notify the representative of the estate of the deposit of the claim with the Clerk, but Section 308 goes on to provide that failure of the Clerk to give that notice does not affect the validity of the presentment or the presumption of rejection if the claim is not acted upon within thirty (30) days after it is filed with the clerk. 4

9 PITFALLS OF THE NOT SO SIMPLE PROBATE 3. Exceptions to Presentment. There are a few exceptions to the requirement of presentment of claims in a dependent administration: (a) as discussed in independent administrations above, unliquidated claims need not be presented because Section 298 requires only that claims for money be presented to the administrator; and (b) Section 317(c) eliminates presentment as a requirement with respect to: (1) claims of any heir, devisee, or legatee who claims in such capacity; (2) claims that accrue against the estate after the granting of letters for which the representative of the estate has contracted, such as attorneys fees, accounting fees, or other administration expenses (3) claims for delinquent taxes against the decedent s estate that is being administered in probate in: (a) a county other than the county where the taxes were imposed or (b) the same county in which the taxes were imposed if the probate of the decedent s estate has been pending for more than four (4) years. 4. Action by Personal Representative with Respect to Claims. a. Form of Claim. Section 301 of the Code prohibits an administrator from allowing, and the Court from approving, any claim that is not supported by an affidavit that the claim is just and that all legal offsets, payments and credits known to the affiant have been allowed. Consequently, any time a claim is received in a dependent administration, it should be checked for these magic words. In addition, Section 304 of the Probate Code contains the requirement that if the claim is made on behalf of a corporation, it must provide that the cashier, treasurer or managing official of the corporation made the affidavit authenticating the claim and that it is sufficient to state in such affidavit that the person making it has made diligent inquiry and examination, and that he believes that the claim is just and all legal offsets, payments and credits known to the affiant have been allowed. A corporate representative signing in his or her individual capacity, or simply signing the name of the corporation, with nothing else, is not proper, and the claim should be rejected. b. Objections to the Form of Claims. Under Section 302, an administrator is deemed to have waived any defect of form, or claim of insufficiency of exhibits or vouchers presented in a claim, unless he files a written objection thereto within thirty (30) days after presentment. The dilemma facing the administrator on this subject is whether a defect in a claim is one of form only, or is a fatal defect, rendering the claim a nullity. In City of Austin v. Aguilar, 607 S.W. 2d 310 (Tex. Civ. App. Austin 1980, no writ), the creditor filed two claims in which the authenticating affidavit was not properly executed by a representative of the corporation. The Administratrix rejected both of those claims although the Administratrix made no written objections to either claim. More than ninety days passed after the rejection of the claims. The Administratrix took the position that the claims were barred under Section 313 of the Code. The claimant argued that the claims were null because of its own failure to comply with Section 304. The Court of Appeals disagreed with the claimant and held that the defects in the claims were defects in form only, which were waived by the Administratrix because she filed no written objection as to the form of the claim. The claims were barred because the claimant failed to file suit ninety days after rejection. However, in Boney v. Harris, 557 S.W. 2d 376 (Tex. Civ. App. Houston 1977, no writ), the affidavit filed by the claimant did not comply with Section 301 because the affidavit stated that all legal offsets, payments and credits through a certain date had been allowed, but the affidavit was filed four months after the stated date. No representation was made in the claim concerning any offsets, payments or credits after the date set forth in the claim. The Administrator rejected the claim and the claimant failed to file suit within ninety days thereafter. The Court of Appeals, in reversing the trial court, held that the rejection of the improperly verified claim did not set in motion the ninety day statute of limitation. The Court stated that: A claimant may sue for the establishment of his claim only after rejection of it by the personal representative and only if the claim was legally presented. The Court found the claim at issue to be void and held that the ninety-day limitation period could not run against a void claim. Consequently, a personal representative who receives a claim that is not in the proper form has the dilemma of whether or 5

10 PITFALLS OF THE NOT SO SIMPLE PROBATE not to object to the form of the claim. This author s practice is to reject a claim that is not in the proper form and state that the reason for the rejection of the claim is because the claim does not comply with the form required by the Texas Probate Code. If the creditor fails to timely file a proper claim and does not file suit within ninety days of the rejection, the personal representative can argue that the claim is barred because the claim was rejected. If the personal representative had sent the four month permissive notice under Section 294(d) and the trial court decides to follow the reasoning under Boney, the personal representative could then argue that the creditor failed to file a properly authenticated claim as required by the Texas Probate Code, and therefore, the claim is void, as it was not filed within the requisite four month period. Consequently, a dependent administrator should always consider sending the permissive notice allowed under Section 294(d) because this puts the burden on the creditor to timely file a claim that strictly complies with the requirements of the Code. c. Endorsement of Claim. Under Sections 309 and 310 of the Code, the administrator must endorse on or annex to every claim presented to him, within thirty (30) days after presentment, a memorandum signed by him, stating the time of presentation or filing, and whether he allows or rejects it, or what portion thereof he allows or rejects. The administrator s failure to take any action constitutes a rejection of the claim; and, under Section 310, if the claim is thereafter established by suit, the costs shall be taxed against the estate representative, individually, or he may be removed on the written complaint of any person interested in the claim, after citation and hearing. d. Limitations on Claims. The administrator is expressly prohibited by Section 298(b) from allowing any claim that is barred by limitations. If the administrator allows such a claim, and if the Court is satisfied that limitations has run, Section 298(b) directs the Probate Court to disapprove the claim. Under Section 299 of the Code, the general statutes of limitations are tolled: (1) by filing a claim which is legally allowed and approved; or (2) by bringing a suit on a rejected claim within ninety (90) days after rejection. Also, under Section of the Texas Civil Practice and Remedies Code, the general statute of limitation which would otherwise apply, are tolled for a period of twelve (12) months after a decedent s death or until an executor or administrator of a decedent s estate qualifies, whichever occurs first. The running of the statute of limitations is not tolled by filing a suit to establish a claim which has not been properly presented. See Furr v. Young, 607 S.W. 2d 532, 536 (Tex. Civ. App. - Fort Worth 1975, no writ). e. Rejected Claims. An administrator may reject a claim at any time during the 30-day period following presentation. Probate Code 309. No actual notice of rejection must be given to the creditor. See Russell v. Dobbs, 163 Tex. 282, 354 S.W. 2d 373 (1962); Cessna Finance Corp. v. Morrison, 667 S.W. 2d 580 (Tex. App. - Houston [first dist.] 1984, no writ). The administrator is under a duty to reject any claim barred by the statute of limitation. Probate Code 298(b). If an administrator in a dependent administration rejects a claim, the Court cannot override the rejection unless the rejected claim is established by suit. See, eg, Smith v. State, 493 S.W. 2d 650 (Tex. Civ. App. - Eastland 1973, writ ref d n.r.e.); Small v. Small, 434 S.W.2d 940 (Tex. Civ. App. - Waco 1968, writ ref d n.r.e.). Similarly, the court cannot approve a claim which has not been presented to the administrator. Probate Code 314; Butler v. Summers, 151 Tex. 618, 253 S.W.2d 418 (1952); Clements v. Chajkowski 146 Tex. 408, 208 S.W.2d 841 (1948). When that occurs, the Court may then render a judgment granting the claim and classifying it. Under Section 314, a creditor cannot obtain a valid judgment against an administrator unless he goes through the claims process, including presentment, rejection by the administrator, and obtaining a judgment in a suit on the rejected claim. If an administrator rejects a claim in a dependent administration, then the creditor must, within ninety (90) days of rejection, file suit or the claim is barred Section

11 PITFALLS OF THE NOT SO SIMPLE PROBATE E. Classification of Claims. 1. Duty of Personal Representative. In both an independent and dependent administration, a personal representative is required to classify claims; however, Section 146 provides that the independent executor classify the claims free from the control of the Court in the same order of priority, classification, and proration described in the sections of the Code dealing with dependent administration. In a dependent administration, whenever a claim is allowed by the personal representative, the Court classifies the claim. Under Section 312(b) of the Probate Code, the Court classifies a claim within ten (10) days after the administrator has allowed it and the claim has been placed on the claims docket. The Court can approve the claim in whole, in part or reject it. Section 322 of the Probate Code sets forth the eight classes in which the creditor s claim may be classified: Class 1: funeral expenses and expenses of last sickness for a reasonable amount to be approved by the Court, not to exceed a total of $15,000.00, with any excess to be classified and paid as any other unsecured claim; 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 (the last clause was added to change the result reached in Hope v. Baumgartner, 111 S.W.3d 775 (Tex. App. - Fort Worth 203, no writ) (Attorney s fees awarded to unsuccessful will contestant were a Class 8 claim under 322, not a Class 2 claim)) 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 the principal amount of and accrued interest on delinquent child support and child support arrearages that have been confirmed and reduced to money judgment as determined under Subchapter F, Chapter 157, Texas Family Code (See Section 2 below); Class 5: claims for taxes, penalties and interest owed to the State of Texas; Class 6: claims for cost of confinement established by the institutional division of the Texas Department of Criminal Justice; Class 7: claims for repayment of medical assistance payments made by the State under Chapter 32, Human Resources Code, to or for the benefit of the decedent; and Class 8: all other claims. If there is a deficiency of assets to pay all claims of the same class, then such claims shall be paid pro rata. Probate Code 321. This applies in both independent and dependent administrations. Bunting v. Pearson, 430 S.W.2d 470 (Tex. 1968). 2. Claims for Child Support. a. Child Support Accrued Before Death If a parent who is obligated to make child support obligations is in arrears at the time of such parent s death, the party to whom the child support was owed may obtain a judgment against the estate for the arrearages. The judgment must be obtained from the Court which retains jurisdiction over the minor child, commonly the Family Court which handled the divorce. Tex. Fam. Code Ann (Vernon Supp. 1999) Texas Probate Code 322; Martin v. Adair, 601 S.W.2d. 543 (Tex. Civ. App. Beaumont 1980, on remand); Fleming v. Easton, 998 S.W. 2d 252 (Tex. App. Dallas, no writ) (Probate Court lacked jurisdiction to sign judgment for child support arrearages; continuing exclusive jurisdiction was in District Court that entered Support Order). After a judgment for delinquent child support is obtained, the next friend of such minor child will be considered a creditor of the decedent s estate. Hutchings v. Bates, 393 S.W.2d 338 (Tex. Civ. App--Corpus Christi 1965), aff d 406 S.W.2d 419 (Tex. 1966). The next friend must then present a claim in the amount of the judgement against the decedent s estate. If the decedent s personal representative 7

12 PITFALLS OF THE NOT SO SIMPLE PROBATE denies the claim, the court handling the probate proceedings is authorized to render judgment for such debt against the decedent s estate. Smith v. Bramhall, 556 S.W.2d 112 (Tex. Civ. App-- Waco 1977, writ ref d n.r.e.). b. Child Support Accrued After Death The estate of a deceased person subject to a child support order is not liable for child support accruing after death unless agreed to in writing or expressly provided in the Divorce Decree or Child Support Order. Tex. Fam. Code Ann However, one Court has held that when a child support order is based on the parties written agreement, the order is binding on the obligor s estate if it requires the payment of child support for a definite amount and for a definite period of time and does not require the obligation to terminate at the obligor s death. Estate of Gorski v. Welch, 993 S.W. 2d 298 (Tex. App. - San Antonio 1999, pet. denied). c. Credit for Social Security Death Benefits There is a split of authority among Texas courts as to whether a judgment against a decedent s estate for child support payments should be reduced by the amount of social security or other governmental death benefits paid to the same claimant as a result of the decedent s death. Compare Estate of Gorski v. Welch, 993 S.W.2d 298 (Tex. App-San Antonio 1999, pet. denied) (credit allowed even though agreement silent); and Lake v. Lake, 899 S.W.2d 737 (Tex. App-Dallas, 1995, no writ) (no credit allowed because agreement did not expressly provide for the credit). Effective September 1, 2001, child support payment obligations are reduced by disability benefits and social security old age benefits paid to or for the benefit of the child. Tex. Fam. Code , Debts Due to the United States. Amounts owed to the United States Government must be addressed before the representative can pay any of the claims which are classified under 322 of the Code. The Probate Code does not mention amounts which may be owing to the United States Government. Under 31 U.S.C.A. 3713(a), a claim of the United States Government must be paid before other claims against the estate. Section 3713(a) provides as follows: (a)(1) A claim of the United States Government shall be paid first when - (A) a person indebted to the Government is insolvent and (i) the debtor is without enough property to pay all debts makes a voluntary assignment of property; (ii) property of the debtor, if absent, is attached, or (iii) an act of bankruptcy is committed; or (B) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor. (b) A representative of a person or an estate... paying any part of a debt of the person or estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government. The cases have interpreted Section 3713 to require payment to the IRS above other debts of the estate; however, family allowances, administration expenses and funeral expenses have been determined not to be debts and therefore not subject to the superior priority of the United States claims. United States v. Weisburn 48 F.Supp. 393 (E.D.Pa.1943); Rev. Rul , C.B. 306.; PLR (1983); Schwartz v. Commissioner, 560 F.2d 311 th (8 Cir.1977). Note that only administration expenses have a priority over federal tax claims which are secured by a lien. However, not all cases are consistent on this matter and care should be taken in insolvent estates in determining payment of expenses, debts and claims due to the Federal Government so as not to make the personal representative personally liable for such amounts if assets of the estate were distributed to creditors, family members or beneficiaries instead. 4. Order of Payment of Claims. Although Section 322 provides for the classification of claims, Section 320 provides the order of payment of claims and when claims can be paid. Basically, the order for payment of claims is as follows: (a) funeral expenses and expenses of last illness not to exceed $15,000.00; (b) allowances made to surviving spouse and/or 8

13 PITFALLS OF THE NOT SO SIMPLE PROBATE children; (c) expenses of administration and expenses incurred in preservation, safekeeping and management of the estate; and (d) other claims against the estate in order of their classification. After the date letters are granted and on application by the personal representative stating that the personal representative has no actual knowledge of any outstanding or enforceable claims against the estate, other than those claims that have already been approved and classified by the Court, the Court may order the personal representative to pay any claim that is allowed and approved. No claims for money against the estate of a decedent shall be allowed by the personal representative, and no suit shall be instituted against the personal representative on any such claim after an order for the final partition and distribution is made; but after such an order has been made, the owner of the claim, if it is not barred by limitations, shall have an action thereon against the heirs, devisees, legatees or creditors of the estate limited to the value of the property received by them in distribution from the estate. Probate Code Secured Creditors. a. Election by Secured Creditor. When a secured creditor files a claim for money against an estate, the creditor must specify, in addition to the other matters required in a claim: (1) whether it desires to have the claim allowed and approved as a mature secured claim that may be paid in the due course of administration, in which event, it shall paid if allowed and approved; or (2) whether it is desired to have the claim allowed, approved and fixed as a preferred debt and lien against a specific property securing the indebtedness and paid according to the terms of the contract, in which event it shall be so allowed and approved if it is a valid lien; provided, however, the personal representative may pay said claim prior to maturity if it is in the best interest of the estate to do so. Section 306(a). b. Time for Election. A secured creditor must make the election described above within six months after the date letters are granted, or within four months after the date notice is received under Section 295 of the Code, whichever is later. The secured creditor may present its claim and specify whether the claim is to be allowed and approved either as a matured secured claim or a preferred debt and lien. If the secured claim is not timely presented, or if the claim is presented without specifying how the claim is to be paid, it will be treated as a claim being paid as a preferred debt and lien, and no deficiency may be allowed against any other assets of the estate. Probate Code 306(b). c. c.matured Secured Claims. If a secured claim is allowed as a matured secured claim, the claim shall be paid in the due course of administration, and the secured creditor is not entitled to exercise any other remedies, including foreclosure, in a manner that prevents the preferential payment of claims and allowances as described in the Code. Probate Code 360(c). d. Preferred Debt and Lien. When an indebtedness is allowed as a preferred debt and lien, no further claim shall be made against the other assets of the estate by reason of the claim, but the claim shall remain a preferred lien against the property securing the same, and the property shall remain as security for the debt in any distribution or sale thereof prior to final maturity or payment of the debt. If property securing a claim that is allowed as a preferred debt and lien is not sold or distributed within six months from the date letters are granted, the representative of the estate shall promptly pay all maturities which have accrued on the debt according to the terms of the contract and shall perform all of the terms of any contract securing the same. If the representative defaults in such payment or performance, on application of the claimant, the Court shall require the sale of the property or authorize a foreclosure. The procedures for a foreclosure and sale of the property are set forth in Section 306. F. Setting Aside Exempt Assets In both a dependent and independent administration, the personal representative is required to set aside exempt assets for the use and benefit of the surviving spouse, minor children and unmarried children remaining with the family of the deceased. Exempt property is considered any property of the estate that is exempt from execution of forced sale by the Constitution and laws of the State of Texas. This includes the 9

14 PITFALLS OF THE NOT SO SIMPLE PROBATE homestead and any property exempt from execution as set forth in the Texas Property Code. 1. Action by Personal Representative. Section 271 provides that the personal representative, immediately after the inventory, appraisement and list of claims has been approved, shall by order of the Court, set apart for the use and benefit of the surviving spouse, minor children, and unmarried children remaining with the family, all of such exempt property of the estate. An independent executor shall set aside such exempt assets without order of the Court. Before approval of the inventory, the surviving spouse, or any person who is acting or authorized to act on behalf of a minor child of the decedent, or an unmarried child remaining with the family of the deceased, may apply to the Court to have exempt property set aside by filing an application and verified affidavit listing all of the property that the applicant claims is exempt. The applicant bears the burden of proof by a preponderance of the evidence at the hearing on the application. 2. Delivery of Exempt Assets. The exempt property set apart to the surviving spouse and children shall be delivered by the executor or the administrator without delay as follows: (a) if there be a surviving spouse and no children, or if the children be the children of the surviving spouse, the whole of such property shall be delivered to the surviving spouse; (b) if there be children and no surviving spouse, such property, except the homestead, shall be delivered to such children if they be of lawful age or to their guardian if they be minors; (c) if there be children of the deceased of whom the surviving spouse is not the parent, the shares of such children in such exempt property, except the homestead, shall be delivered to such children if they be of lawful age or to their guardian if they be minors; and (d) in all cases, homestead shall be delivered to the surviving spouse if there be one, and if there be no surviving spouse, to the guardian of the minor children or to the unmarried adult children, if any, living with the family. Section Homestead. A homestead can be defined as being either urban or rural. An urban homestead is located within a municipality or subdivision, and is served by police protection, fire protection, and at least three of the following: electricity, natural gas, sewer, storm sewer and water. An urban homestead can consist of no more than ten acres of land in one or more contiguous lots, and includes the improvements thereupon. A homestead is also considered urban if it is both an urban home and a place of business. A rural homestead consists of not more than 200 acres which may be in one or more parcels and the improvements thereupon if the home is occupied by a family; or if the rural home is occupied by a single adult person, it may not be more than 100 acres. 4. Partition of Homestead. The homestead rights of the surviving spouse and children of the deceased are the same whether the homestead be separate property of the deceased or the community property between the surviving spouse and the deceased, and the respective interest of the surviving spouse and children shall be the same in one case as in the other. Probate Code 282. Upon the death of a spouse, the homestead generally retains its prior definition either as urban or rural; however, in the case of a rural homestead, the homestead rights of the decedent s surviving spouse and children continue, but only as to one hundred acres of the rural homestead, as the spouse and child are at that point determined to be single persons. United States v. Blakeman, 750 F.Supp. 216 (N.D.Tex 1990), affirmed in part, reversed in th part, 997 F.2d (5 Cir. 1992), cert denied, 510 U.S (1994). The homestead may not be partitioned among the heirs of the deceased during the lifetime of the surviving spouse, as long as the survivor elects to use and occupy the same as the homestead, or so long as the guardian of the minor children of the deceased is permitted under proper order of the Court to use and occupy the same. Section 284. Note, however, if only an unmarried adult child of the decedent is living in the homestead, it may be partitioned. When a surviving spouse dies or sells his or her interest in the homestead, or elects to no longer use or occupy the same as a homestead, or when the proper court no longer permits the guardian of the minor children to use or occupy the same as a homestead, it may be partitioned among the respective owners thereof in a like manner as other property held in common. Probate Code 285. The rights of the surviving spouse or child 10

15 PITFALLS OF THE NOT SO SIMPLE PROBATE entitled to homestead rights is considered a homestead life estate under case law. The homestead life tenant is required to pay maintenance and upkeep on the property, taxes, and interest on any mortgage against the property. Principal payments on the mortgage and insurance are the responsibility of the remainder beneficiaries. Trimble v. Farmer, 157 Tex. 533, 306 S.W.2d 157(1957); Hill v. Hill, 623 S.W.2d 779 (Tex. App.-- Amarillo 1981, writ ref d n.r.e.). 5. Homestead Free from Debts. Except as provided in Section 270 of the Code, the homestead shall not be liable for payment of debts of the estate. Consequently, if a constituent family member survives the decedent, then the homestead passes free from the claims of creditors, except as to those creditors defined in Section 270, forever. Constituent family members include the spouse, minor children and unmarried adult children remaining with the family. In George v. Taylor, 296 S.W.2d 620 (Tex. Civ. App Fort Worth 1956, writ refused n.r.e.), the homestead is not liable for the decedent s debts following the death of the widow. Anyone who inherits the property receives it free from debt. Further, the homestead passes free from debt if the decedent is survived by a constituent family member whether or not such family member inherits the house. Consequently, if the decedent is survived by a minor child, but such minor child s guardian does not elect to exercise the minor child s homestead rights to live in the home, the homestead passes free from the claims of creditors to the ultimate beneficiaries of the homestead. Nat l Union Fire Ins. Co. v. Olson, 920 S.W.2d 458 (Tex. App. -- Austin 1996, no writ). 6. Title to Exempt Assets. The exempt personal property to be set aside by the personal representative shall include any property that is exempt from execution or forced sale by the Constitution and the laws of the State of Texas. This includes any property described in Sections , et seq. of the Texas Property Code. A traditional list of exempt assets is found in Section , and certain retirement plans, annuity contracts and life insurance are described in Section The definition of exempt property is important because the personal representative has to determine whether or not the 11 estate is insolvent. An estate is considered insolvent if the debts exceed the assets; however, in ascertaining whether an estate is insolvent, the exempt property set apart to the surviving spouse or children, or the allowance in lieu thereof and family allowance shall not be considered as assets of the estate. Probate Code 280. If an estate is insolvent, then upon final settlement of the estate, the title of the surviving spouse and children to the exempt properties and allowances in lieu of exempt property shall become absolute and are not liable for any of the debts of the estate except for Class 1 claims. Probate Code 279. If the estate is solvent, then the exempt property, except for the homestead and any allowance in lieu thereof, shall be subject to partition and distribution among the heirs and distributees of the estate in like manner as the other property of the estate. This can be a very powerful tool in an insolvent estate for setting aside automobiles, household furnishings, jewelry and other valuable exempt assets for the benefit of the surviving spouse, minor children and unmarried children remaining with the family. G. Setting Allowances In both independent and dependent administrations, the personal representative of the estate is required to set certain allowances as required by the Code. In a dependent administration, such allowances are set by application and order of the Court. In an independent administration, the personal representative of the estate sets the allowances without approval of the Court. The author of this paper suggests that in an independent administration, a memorandum of allowance be filed in the probate proceeding setting forth the allowances that have been set by the independent personal representative. This documents the allowances set. See Appendix B. Allowances such as the family allowance, allowance in lieu of exempt assets and allowance in lieu of homestead can allow the surviving spouse and children to retain more assets of the estate. Consequently, personal representatives must always be aware of the necessity for setting such allowances.

16 PITFALLS OF THE NOT SO SIMPLE PROBATE 1. Family Allowance a. Time for Setting. Section 286 provides that immediately after the inventory, appraisement and list of claims has been approved, the Court shall fix the family allowance for the support of the surviving spouse and minor children of the deceased. However, before approval of the inventory, a surviving spouse and any person who is authorized to act on behalf of the minor child of the deceased, may apply to the Court for the family allowance by filing an application and a verified affidavit describing the amount necessary for the maintenance of the surviving spouse and minor children for one year after the date of death of the decedent, and describing the spouse s separate property and any property the minor children have in their own right. The applicant bears the burden of proof by a preponderance of the evidence at any hearing on the application. The Court shall fix the family allowance for the support of the surviving spouse and minor children of the deceased. b. Amount of Allowance. Section 287 provides that the amount of the allowance shall be sufficient for the maintenance of the surviving spouse and minor children for one year from the time of death of the testator or intestate. The allowance shall be fixed with regard to the facts and circumstances then existing and those anticipated to exist during the first year. The allowance may either be paid in a lump sum or in installments as the Court shall order. The family allowance is a community debt and therefore will be satisfied in part out of the surviving spouse s half of the community assets under administration. Miller v. Miller, 235 S.W.2d 624 (Tex. 1951). No allowance shall be made for the surviving spouse when the survivor has separate property adequate for the survivor's maintenance, nor shall such allowance be made to the minor children when they have property in their own right adequate for their maintenance. Section 288. However, it appears that at least one court does not consider property inherited by the surviving spouse, or non-probate assets such as life insurance received by the surviving spouse as a result of the death of the decedent, when setting the allowance, although there was no holding to this effect by the Court. Churchill v. Churchill, S.W.2d 913 (Tex. App. Fort Worth 1989, no writ). c. Payment of Allowance. The family allowance shall be paid in preference to all other debts or charges against the estate except Class 1 claims. Probate Code 290. The family allowance shall be paid as follows: (a) to the surviving spouse if there is a surviving spouse for the use of the surviving spouse and the minor children if such children be the surviving spouse s children; (b) if the surviving spouse is not the parent of such minor children or of some of them, the portion of such allowance necessary for the support of such minor children of which the surviving spouse is not the parent shall be paid to the guardian or guardians of such child or children; (c) if there be no surviving spouse, the allowance to the minor child or children shall be paid to the guardian or guardians of such minor child or children; and (d) if there be a surviving spouse and no minor children, the entire allowance shall be paid to the surviving spouse. Probate Code Allowances in Lieu of Exempt Property a. Setting Allowances. Section 273 provides for allowances in lieu of exempt property if such exempt property is not on hand in the decedent s estate. If there should not be among the effects of the deceased all or any of the specific articles exempted from execution or forced sale by the Constitution and the laws of the State, the Court may make a reasonable allowance in lieu thereof to be paid to such surviving spouse, minor children, and unmarried children remaining with the family. An allowance in lieu of a homestead cannot exceed $15, and the allowance in lieu of other exempted property shall not exceed $5,000.00, exclusive of the allowance for support of the surviving spouse and minor children. Instances where an allowance in lieu of homestead might be appropriate is when the decedent and the family were living in rented property or if the mortgage on the homestead is so high that the surviving spouse or minor children cannot reasonably be expected to pay the mortgage and therefore, the home is unavailable for their occupancy. Ward v. Braun, 417 S.W.2d 888 (Tex. Civ. App. Corpus Christi 1967, no writ).

17 PITFALLS OF THE NOT SO SIMPLE PROBATE The exempt property other than the homestead or an allowance made in lieu thereof, shall be liable for payment of Class 1 claims, but such property shall not be liable for any other debts of the estate, as provided in Section 281. Consequently, an allowance in lieu of homestead is paid before any other claims. An allowance in lieu of exempt property may be liable for payment of Class 1 claims but has priority over all other claims. Further, if the estate is determined to be insolvent under Section 280, then the allowance in lieu of exempt property shall be set aside for the surviving spouse, minor children and unmarried children remaining with the family above any other debts of the estate, except in Class 1 claims. b. Delivery of Allowances. Section 275 provides that the allowance in lieu of exempt property shall be paid as follows: (1) if there be a surviving spouse and no children, or if all of the children are the children of the surviving spouse, the whole shall be paid to the surviving spouse; (2) if there be children and no surviving spouse, the whole shall be paid to and equally divided among them if they be of lawful age, but if any of such children are minors, their share shall be paid to their guardian; and (3) if there be a surviving spouse and children of the deceased, some of whom are not the children of the surviving spouse, then the surviving spouse shall receive one-half (½) of the whole plus the shares of the children of whom the survivor is the parent, and the remaining share shall be paid to the children of whom the survivor is not the parent, or if they are minors, to their guardian. 3. Timely Setting Allowance. By properly setting a family allowance and allowances in lieu of exempt property, the personal representative of the estate can have more non-exempt assets set aside for the benefit of the spouse and children over other claimants against the estate. Consequently, this is an important part of the duties of the personal representative, and a personal representative can be held liable for failure to properly set such allowances. Further, many courts will not set a family allowance if the request is made more than one year after the date of death, the reason being that if the surviving spouse or minor children have managed for more than one year, there is not a need to set allowances to support them for that year. H. Non-probate Assets In most instances, creditors of an estate cannot reach non-probate assets. Non-probate assets such as life insurance, IRA s and qualified plan assets pass pursuant to the beneficiary designations and are outside the reach of the decedent s creditors unless paid to the estate. Parker Square State Bank v. Huttash 484 S.W.2d 429 (Tex. Civ. App Fort Worth 1972, writ refused); Pope Photo Records, Inc. v. Malone 539 S.W.2d 224 (Tex. Civ. App. Amarillo 1976, no writ). However, some non-probate assets, such as multi-party bank accounts and joint tenancy with rights of survivorship may be subject to the claims of creditors. Section 442 of the Code provides that any multi-party bank accounts, including right of survivorship accounts, may be made available as necessary to pay the decedent s debts, taxes and expenses of the administration, including statutory allowances to the surviving spouse and children if other assets of the decedent s estate are insufficient. Further, any party receiving payment from a multi-party account after the death of the decedent shall be liable to account to the decedent s personal representative for such taxes and debts of the decedent, up to the amount passing to the person from the bank account. However, in order for the payee to be liable, the personal representative must receive a written demand from the surviving spouse, a creditor, or one acting on behalf of the decedent s minor child. Any such action must be brought within two (2) years after the decedent s date of death. A financial institution will not be liable for paying such sums on deposit to the payee or beneficiary, unless it receives written notice from the personal representative stating that the sums on deposit are needed to pay debts, taxes and expenses of administration. I. RECOVERING TANGIBLE ASSETS A. Right to Possession A personal representative has both the right of possession and the duty to acquire possession of all estate assets. Probate Code 37 provides: [U]pon the issuance of letters 13

18 testamentary or of administration upon any such estate, the executor or administrator shall have the right to possession of the estate as it existed at the death of the testator or intestate, with the exception aforesaid; and he shall recover possession of and hold such estate in trust to be disposed of in accordance with the law. The personal representative shall collect and take into possession the personal property, records books, title papers and other business papers of the estate. Probate Code 232. In addition, the personal representative is required to use ordinary diligence to recover possession of all property of the estate provided there is a reasonable prospect of recovering such property. If the personal representative willfully neglects to use such diligence, he will be personally liable. Probate Code 233. The executor s right of possession is not limited by the fact that there are no debts or that the one claiming the property is the sole distributee. Atlantic Ins. Co. v. Fulfs, 417 S.W.2d 302, 305 (Tex. Civ. App. - Fort Worth 1967, writ ref d n.r.e); Bloom v. Bear, 706 S.W.2d 146, 147 (Tex. App. - Houston [14 th Dist.] 1986, no writ) (Probate court was obligated to sign order directing that prospective devisee deliver decedent s property to independent executor). Upon the issuance of Letters Testamentary, the executor should immediately request that any person having possession of assets, records or other property of the decedent s estate turn over such items to the executor. If these informal requests are not successful, the executor has several options. B. Show Cause Order The most expeditious procedure is a show cause proceeding. A show cause order is a creature of the common law, but the case law is sparse. See Texas Mexican Ry. Co. V. Locke, 63 Tex. 623, 1885 WL 7097 (1885); Turner v. Turner, 576 S.W.2d 452 (Tex. App. - Houston [1 st Dist.] 1978); Green v. Green, 424 S.W.2d 479 (Tex. Civ. App. - Tyler 1968, no writ). Executors and administrators are governed by the principles of the common law, if they do not conflict with the provisions of Texas Statutes. Probate Code 32. A show cause Order is preliminary and inconclusive in nature. It is not used to resolve substantive legal issues. A show cause order requires another to appear and show cause why an order directing some action should not be issued. If no such cause is shown, the order will be entered. Some courts have questioned the use of a show cause order. In Francis v. Beaudry, 733 S.W.2d 331 (Tex. App. Dallas 1987, writ ref d n.r.e.), the Administrator of an estate filed a Motion to Show Cause requesting the court to order two remaining stock holders of a corporation of which the decedent owed an interest to appear and show cause why they should not be required to pay to the Administrator a certain sum of money allegedly owed to the decedent. The two stockholders appeared, and the court conducted a full trial on the issue and entered a money judgment against them. Although the court of appeals affirmed the judgment for other reasons, the court specifically commented in order that future litigants will not be led astray by the procedure used that the proper procedure would have been to file an original petition rather than a motion to show cause. However, the court noted that the trial court conducted the proceedings as though the motion to show cause was in fact an original petition and that neither of the defendants objected to the procedure or raised any point of error concerning the use of the motion to show cause. This case may be distinguishable from other cases on the basis that the show cause proceeding was used to address what appeared to be substantive legal issues. See also Poindexter v. Brandon, 527 S.W.2d 824 (Tex. App. El Paso 1975, no writ). Other cases, however, have made no objection to the show cause procedure. In Powell v. Hartnett, 521 S.W.2d 896 (Tex. App. Eastland, 1975, no writ), the Administrator filed a motion requiring an individual to appear and show cause why he should not be required to deliver certain money in his possession alleged to belong to the decedent. The court ordered and directed the individual to turn over the funds to the Administrator. The court specifically stated that the order does not dispose of the issue of ownership of the money or note, a fact recognized by Powell. It merely places the items under the care and control of the Probate Court until a final determination of ownership be made. Similarly, in Brooks v. Norris, 1997 W. 14

19 L (Tex. App. Dallas) (not for publication), a judgment creditor whose claim had been allowed by the Administrator and approved by the Probate Court obtained a show cause order against Brooks requiring him to show why he should not be required to vacate the decedent s house and deliver all of the decedent s assets to the Administrator. The Probate Court ordered Brooks to vacate the house and surrender the decedent s property. The Court of Appeals affirmed the judgment without commenting on the use of the show cause procedure. See also Texas Mexican R y Co. v. Locke, 63 Tex. 623, 1885 W.L (Tex.) (Although filing a petition may have been better approach, show cause was sufficient for purposes of this case). The usual procedure is to first file a Motion for Show Cause Order, present it to the Judge ex parte and obtain an Order to Show Cause, which directs the party to appear and show cause, if any, why the requested order should not be made. Citation must be served on the defendant and the hearing date set after the Monday following at least ten (10) days from the date of service. Probate Code 33(f)(1). At the hearing, evidence is presented, and an Order on the Order to Show Cause will be signed either granting or denying the requested action. Sample forms are attached as Appendix C. The Section 145(h) limitation on judicial supervision of an independent executor should not prevent an Independent Executor from obtaining a show cause order. Such section prohibits a court from interfering in an independent executor s administration of an estate, but does not prohibit an independent executor from accessing the courts. An independent executor is entitled to the same judicial relief available to other parties. As stated in Etter v. Tuck, 91 S.W.2d 875 (Tex. Civ. App. - Dallas 1936, writ dismissed); An Independent Executor is not a law unto himself. His independence consist largely in his right in the administration of such estate to do without an order of the County Court every act which he could do with such an order, were he acting under the control of such court... His management of the estate is an Administration of the same in contemplation of the law, and for some purposes the estate remains all the while under the jurisdiction of the County Court probating the Will under which he is acting. C. Order Under Sections 232, 233. As previously mentioned, a personal representative is required to immediately collect and take into possession the personal property, records books, title papers and other business papers of the estate and to use ordinary diligence to recover possession of all estate property. Probate Code 232, 233. Although the author has not used this approach, these sections appear to authorize the court to issue an order directing an individual to turn over estate assets to the personal representative. In Bloom v. Bear, 706 S.W.2d 146, 147 (Tex. App. Houston [14 th Dist.] 1986, no writ) the independent executor of an estate had attempted on three separate occasions to have the probate judge sign an order directing an individual to deliver property admittedly belonging to the decedent in such individual s possession, but the probate court had refused. The independent executor filed a mandamus action. Citing Sections 37, 232 and 233 of the Probate Code, the Court of Appeals found that the executor s right to possession and duty to acquire such possession, are enforceable by court order. The Court of Appeals found no authority allowing the individual to maintain possession of the property until the validity of her claim was settled and held that the judge s refusal to sign the order constituted an abuse of discretion. D. File Suit and Seek Injunctive Relief An executor or administrator may file suit to recover estate property and should do so if there is a reasonable prospect of recovering the property. Probate Code 232, 233, 233A. In connection with such a lawsuit, a mandatory temporary restraining order and/or temporary injunction that compels the defendant to turn over the disputed property to the Administrator pending a final determination of ownership could be requested. The rules governing injunctive relief are found in Texas Civil Practice and Remedies Code et. seq. A statutory county court exercising probate jurisdiction or statutory probate court is authorized to issue writs of injunction and all 15

20 writs necessary for the enforcement of the jurisdiction of the court. Tex. Gov. Code See Lucik v. Taylor, 596 S.W.2d 514 (Tex. 1980) (injunctive relief is incident to an estate because it directly bears on the ultimate collection and distribution of estate assets.); Smith v. Lanier, 998 S.W.2d 324 (Tex. App. - Austin 1999, writ denied); Dodson v. Seymour, 664 S.W.2d 158 (Tex. App. - San Antonio 1983, no writ); and Edder v. Tuck, 91 S.W.2d 875 (Tex. Civ. App. - Dallas 1936, writ dismissed). See also Estate of Lee, 981 S.W.2d 288 (Tex. App. - Amarillo 1998, writ denied). Based on the administrator s right to possession of the property during the estate administration and his duty to protect and preserve estate property, and the beneficiarys right to receive the decedent s property, the elements of irreparable injury and lack of an adequate legal remedy should be met. E. Contempt Actions 1. Authority of the Court to Find Contempt If a person ordered to turn over estate property refuses to do so, the Court may use its contempt powers. The statutory probate court, the county court at law with probate jurisdiction, the constitutional county court, and the district court all possess authority to enforce their acts and orders through the use of contempt powers. These courts may punish acts of civil contempt by a fine not exceeding $500, confinement in the county jail for not more than six (6) months, or both a fine and confinement. Tex. Gov. Code (b). Alternatively, the court may order confinement of the party until the contemptor purges the contempt by complying with the court order which gave rise to the contempt. Ex Parte Werblud, 536 S.W.2d 542 (Tex. 1976). While it is correct that a contemptor may be confined until he or she has complied with the court order, a habeas corpus action is proper where the contemptor does not have the power to comply. Ex Parte DeWees, 146 Tex. 564, 210 S.W.2d 145 (1948). In addition to general contempt authority, the Probate Code also permits the county or probate judge to confine executors, administrators and guardians for up to three (3) days for each offense of failure to obey court orders. See Tex. Prob. Code Ann. 24, Definitions Criminal and civil contempt are both subjective in nature and, therefore, should only have decisions rendered on a case by case basis. Neither the Texas Rules of Civil Procedure nor the Texas Civil Practice and Remedies Code furnish us with a definition of the term contempt. Civil contempt has been defined, however, as conduct which impedes, embarrasses, or obstructs the Court; or interferes or prejudices parties or witnesses; and places the authority for administering the law in disrespect or impedes the court s operation. Black s Law Dictionary, th Page 288 (5 ed. 1979). There are recognized two separate and distinct types of contempt criminal and civil. Acts of criminal contempt are those which go against the dignity of the Court. See Ex Parte Landry, 65 Tex. Crim. App. 1912). These are acts which show disrespect to the court or to its process or which obstruct the administration of justice. Ex Parte Arapis, 157 Tex. 627, 306 S.W.2d 884 (1957). Criminal contempt has sometimes been called direct contempt and is an appropriate response for conduct in open court which denounces, insults and slanders the court and which paralyzes its proceedings. Mayberry v. Pennsylvania, 400 U.S. 455, 91 S.Ct. 499, 27 L.Ed.2d 532 (1973). Contrary to criminal contempt actions which are usually assessed as punishment, civil contempt or constructive contempt actions are generally instituted to preserve and enforce the rights of private parties to suits and to compel obedience to court orders and decrees. See Ex Parte Padron, 565 S.W.2d 921 (Tex. 1978). A contempt proceeding is generally by its very nature considered criminal, whether it arises out of a criminal or civil action. Willson v. Johnston, 404 S.W.2d 870 (Tex. Civ. App. Amarillo 1966, no writ). The only recourse provided for a contempt judgment is a habeas corpus in the appellate court. In a habeas corpus proceeding, the guilt or innocence of the person is not at issue and it is only the legality of the detention that is in question. Ex Parte Friedman, 808 S.W.2d 166 (Tex. Civ. App. El Paso , no writ). Additionally, there exist two subcategories of contempt, direct and constructive, each of which is discussed below. 3. Direct Contempt Acts of direct contempt are those which take place in the presence of the court and which are 16

21 subject to summary punishment. Ex Parte Werblud, supra at 546. In such cases, punishment may take the form of fine or commitment to jail, without charges, without notice and without a hearing. Tex. Gov. Code A finding of direct contempt may be oral and the judge may summarily punish the offender by fine and/or confinement. Ex Parte Norton, 144 Tex. 445, 191 S.W.2d 713 (1946). The procedural requirements for a direct contempt order are: 4. Constructive Contempt a. The court must have jurisdiction of both the subject matter and of the parties. Typically, the court has continuing jurisdiction over dependent estates or guardianships; however, in independent estates, one must make sure that the jurisdiction of the Court has been invoked before seeking this extreme relief. b. There must be substantial evidence to validate the contempt judgment. Mere s u s p i c i o n o f disobedience or interference will not do. Deramus v. Thornton, 160 Tex. 494, 333 S.W.2d 824 (1960). c. A written order of commitment either separately, or as a part of the contempt order, must be submitted. Actions of constructive contempt are acts which usually take place outside the presence of the court. Constructive contempt is not presumed to exist and the burden of proof is more stringent. Ex Parte Cragg, 133 Tex. Crim. 118, 109 S.W.2d 479 (1937). The contemptuous acts must be those which tend to belittle, degrade, obstruct, interrupt, prevent or embarrass the administration of justice. See Ex Parte Payle, 134 Tex. 148, 133 S.W.2d 565 (1939). The procedural requirements for constructive contempt are: a. The Court must have jurisdiction of both the subject matter and of the parties. b. There must be a specific written complaint which alleges the facts necessary to form the basis for the contemptuous acts. The person must receive full and unambiguous notification of the accusation of his or her contemptuous conduct. The notice should be in the form of a show cause order personally served on the alleged contemnor, and should state when, how and by what means the contemnor has been guilty of contempt. Ex Parte Friedman, supra, at 169. c. Reasonable notice must be given to the party charged with the acts and omissions. d. There must be a hearing conducted on the charges of contempt. Where the contempt sentence is under six months, there is no right to a jury trial. At the hearing, the alleged contemnor may not be forced to testify and may even refuse to be sworn as a witness. See Ex Parte Werblud, supra, at 548. A jury trial is guaranteed where the cumulative amount of punishment exceeds six months. Punishment for contempt cannot be determined prior to hearing. Ex Parte 17

22 Griffin, 682 S.W.2d 261 (Tex 1984), states that it is incumbent on the trial judge to advise the contemnor of his right to a trial by jury if the potential punishment has serious overtones. Ex Parte Sproull, 815 S.W.2d 250 (Tex. 1991), states that the trial court record must show affirmative notice of the right to a jury trial and a waiver of such right will not be presumed. Ex Parte Mathis, 822 S.W.2d 727 (Tex. App. Tyler 1991, no writ). e. Evidence must be offered to prove the contemptuous conduct. Thus, where a will contestant was ordered to produce a diamond ring taken at the deathbed of decedent and failed to do so, and then produced a different ring, imprisonment for contempt was found to be proper. See Clanton v. Clark, 639 S.W.2d 929 (Tex. 1982). f. The moving party must also show by a preponderance of the evidence that the contemnor has violated a court order. See Whatley v. Whatley, 493 S.W.2d 299 (Tex. Civ. App. Dallas 1973, no writ). g. A written order or judgment reciting the court s jurisdiction and the acts of misconduct 5. Distinguishing Contempt must be entered. Thus, where an attorney agreed to prepare an order to appoint a temporary administrator and to transfer and freeze assets, and the order freezing the assets was never signed, there was no basis for a contempt proceeding. Without the signed order there was not violation upon which a contempt could be based. See Parham v. Wilbon, 746 S.W.2d 347 (Tex. App. Fort Worth 1988, no writ). h. There must be a written order of commitment, or the commitment must be a part of the judgment. Ex Parte Barnett, 600 S.W.2d 252 (Tex. 1980). The method used most often to distinguish a criminal or direct contempt from a civil or constructive contempt is to look at the method used for purging the contempt. When a criminal contempt of court occurs, the penalty is typically confinement for a finite number of hours or days and/or a fine which is solely for the purpose of punishing the contemnor. Beverly v. Roberts, 215 S.W. 975 (Tex. Com. App. 1919). In contrast, the penalty for a civil contempt action is coercive and remedial in nature, and the primary purpose is not to punish, but to bring the contemnor in compliance with the court s order. Imprisonment is conditional upon obedience and therefore, the civil contemnor carries the keys to his prison in his own pocket. Ex Parte Werblud, supra, at Due Process a. Notice Where the court s basis for contempt is not founded on direct acts of the contemnor in open court, a formal Motion for Contempt must be filed and it must be served personally on the person to be held in contempt. Ex Parte Avila, 659 S.W.2d 443 (Tex. Crim. App. 1983). The 18

23 importance of the type of notice provided must be stressed in that a contempt judgment without proper service is void. Therefore, personal service is required regardless of whether the contemnor has counsel. Ex Parte Herring, 438 S.W.2d 801, 803 (Tex. 1969). To accommodate due process considerations in a contempt action, complete and adequate notice of the alleged acts must be furnished the party to be charged. This notice must tell the contemnor when, how, and by what means he or she has been guilty of contempt. Ex Parte Martin, 656 S.W.2d 443, (Tex. Crim. App. 1982); Ex Parte Bagwell, 754 S.W.2d 490 (Tex. th App. Houston [14 Dist.] 1988, no writ). b. Pleadings (1) Specificity - Any party charged with disobedience or failure to comply with a court order or direction, must receive a copy of the specific court order prior to the time that compliance was ordered. Ex Parte Blanchard, 736 S.W.2d 642 (Tex 1987). Be aware that any show cause order which merely directs a person to appear at a date, place and time certain without more specific details would be insufficient to inform that person of the accusations against him and, thus, fail to support an order of contempt. Ex Parte Gordon, 584 S.W.2d 686 (Tex. 1979). A failure to extend the minimum requirements of due process to the party renders a judgment of contempt void. Ex Parte Pink, 645 S.W.2d 262 (Tex. Crim. App. 1982). (2) Ambiguity - A court may not verbally order a person found guilty of constructive contempt confined without a written order. Also, any contempt order must be reduced to writing within a reasonable time. Ex Parte Calvillo Amaya, 748 S.W.2d 224 (Tex. 1988). The contempt order must be unambiguous and correct as to its findings. If the order contains two grounds as a basis for contempt and only one is correct, the entire judgment is void. Ex Parte Lee, 704 S.W.2d 15 (Tex. 1986); Ex Parte Herrera, 820 S.W.2d 54 (Tex. App. Houston th [14. writ). Dist.] 1991 no (3) Opportunity to Purge - A court should, in constructive contempt situations, provide the person, where possible, an opportunity to purge himself from his contemptuous actions. Thus, a judgment would be void and habeas corpus proper, where the conditions for the purging of oneself from contempt cannot be performed. Ex Parte Chennault, 776 S.W.2d 703 (Tex. App. Texarkana 1989, no writ). It is important that the substance of a motion is not to be determined from its caption or heading, but from its body and prayer for relief. Therefore, the grounds for contempt and the actions needed to cure such contempt must be revealed to the contemnor by the pleadings. See Woodruff 19

24 v. Cook, 721 S.W.2d 865 (Tex. App. Dallas 1986, writ ref d n.r.e.). Ex Parte Werblud, supra, at 545. c. Miscellaneous Provisions (1) Continuance of Hearings - Where a contempt action is warranted, and ordered, but is then suspended by agreement, it may not be reurged when noncompliance occurs without a subsequent hearing. In like fashion, when the original order of contempt is suspended for any reason, there must be a subsequent hearing, with notice and evidence, before the court may determine that a breach of the conditions of the suspension exist. In re: Sanchez, 698 S.W.2d 462 (Tex. Civ. App. Corpus Christi 1985, no writ); Ex Parte Pink, supra, at 264; Re: Ross, 749 S.W.2d 289 (Tex. App. Houston [14 th Dist.] 1988, no writ). (2) Appointment of Counsel In a contempt proceeding a probate court or court exercising probate jurisdiction could be required to provide counsel to an indigent person. When a contempt action is instituted, due process requires that before an indigent person may be charged with contempt, he or she must be provided with the assistance of counsel where imprisonment may be imposed as a punishment. Ex Parte Goodman, 742 S.W.2d 536 (Tex. App. Fort Worth 1987, no writ). There is no specific guidance on how the court is to determine that the contemptor is indigent. (3) Officers of the Court - The judge is not permitted to summarily punish an officer of the court even where the conduct is deemed contemptuous. Due process requires that the officer of the court be granted a hearing before another judge. Tex. Gov. Code sec (d). See also, Ex Parte Martin, supra, at 444. The officer of the court should, in most situations, be released on his or her own recognizance, pending the hearing of the contempt proceeding before another judge. (4) Monetary Sanctions - It is important to note that while the imposition of monetary sanctions may be made by the trial court, they must be properly applied. Thus, in Ex Parte Conway, 843 S.W.2d 765 (Tex. App. th Houston [14 Dist.] 1992, no writ), the court denied the application when faced with a claim that the monetary sanctions precluded the litigant s free access to the courts. The imposing of sanctions does not in 20

25 itself restrict access where payment is deferred until final judgment. Branden v. Downey, 811 S.W.2d 922, 929 (Tex. 1991). The trial court can regulate trials, and punish for contempt. Ex Parte Jones, 331 S.W.2d 202 (Tex. 1960). But its power is not unlimited. It must restrict payment u n t i l t h e proceedings have concluded or hold a hearing and make specific findings that the sanction does not violate the l i t i g a n t s constitutional rights. Thomas v. Capital Security Service, Inc., 836 F.2d 866, th (5 Cir. 1988). (5) Delay - Where an order of contempt was not reduced to writing and signed until three days after the contemptor s confinement, the order was void and habeas corpus will issue Ex Parte Jordan, 865 S.W.2d 459 (Tex. Civ. App. 1993). III. CONVERTING BETWEEN INDEPENDENT AND DEPENDENT ADMINISTRATIONS A. Converting from Independent to Dependent 1. This might be considered if it is determined that an estate is insolvent or has substantial unanticipated debts, there are beneficiaries who are unhappy, disputing or making inconsistent demands, or the independent executor has conflicts of interest. It is advisable to have the court supervise the classification priority and payment of claims in an insolvent estate. Where there are substantial debts owed by the decedent, application of the formal claims procedures may eliminate certain creditors. Where there are disputes among the beneficiaries and/or with the independent executor, a dependent administration will offer protection for all parties and avoid unnecessary delay and expense. 2. In order to convert, the independent executor would file an application to resign and for the appointment of a successor. Probate Code 221. If necessary, the court may immediately appoint a successor without citation or notice. Probate Code 221, 220. Otherwise, the notice and hearing requirements prescribed for original applications would apply. Probate Code 223. Under Section 145(r), a resigning independent executor may be appointed as the dependent executor or administrator. The resigning independent executor probably would not be required to file a Final Account, but due to the successor s duty to investigate the actions of the predecessor, it may be advisable if the successor is not the same person as the prior independent executor. See DiPortanova v. Hutchinson, 766 st S.W.2d 856 (Tex. App. -- Houston [1 Dist.] 1989, no writ). Since the successor dependent administrator is not named in the will, he will not have the powers and duties given to the executor named in the will. His powers and duties will be conferred by the Probate Code. Probate Code 224. In addition to the powers conferred by the Probate Code, the court may grant to the dependent administrator certain powers specified in the will under certain circumstances. Probate Code 154. The successor must file an Inventory, Appraisement and List of Claims within ninety (90) days after qualification. Probate Code 227. If the dependent administrator is different from the independent executor, the former independent executor must deliver all of the property and records of the estate to the successor. Probate Code 232. Section 296 provides that the published notice to creditors, the permissive notice to unsecured creditors and the notice to secured creditors need not be repeated by a successor personal representative. However, this provision does not appear to contemplate a change in the type of administration. Due to the difference in the requirement for the form and presentment of claims in a independent administration and a 21

26 dependent administration, the safer approach would be to reissue the notices to the creditors whose time to file a claim has not expired. B. Converting from Dependent to Independent Administration 1. Converting from a dependent administration to an independent administration will be required if a lawful will is discovered after letters of administration have been issued. Probate Code 220(e). Conversion also might be considered where an anticipated insolvent estate or one involving substantial creditor or beneficiary disputes turns out to be less controverted or the problem areas are resolved and conversion would save administration expenses. 2. The steps for converting from dependent to independent are the same as discussed above except that a resigning dependent administrator s application to resign must be accompanied by a final account. The court may immediately accept such resignation and appoint a successor if necessary but shall not discharge the resigning representative until his final account has been approved. Probate Code Immediately upon the appointment of an independent executor, the independent administration begins and the former dependent administration ceases, despite the fact that the dependent administrator has not yet been officially discharged. The probate court is not authorized to withhold funds in the registry of the court from the independent executor pending final discharge of the dependent administrator. D Unger v. DePena, 931 S.W.2d 533 (Tex. 1996). IV. A D M I N I S T E R I N G COMMUNITY PROPERTY IN DISPUTED ESTATES A. Introduction Difficult issues can arise where the surviving spouse is not the sole beneficiary of the decedent spouse s share of the community property and the character of the property as community or separate is in dispute. If the named executor is not the surviving spouse and is a beneficiary under the will, serving as the personal representative presents tremendous 22 potential for conflicts of interest. The author strongly suggests that, under such circumstances, a beneficiary should decline to serve as the personal representative or serve only as a dependent administrator. Some of the potential issues are discussed below. 1. Probate Code 177(b) The personal representative of the decedent s estate administers all of the jointly managed community property, including the surviving spouse s one-half, pursuant to Probate Code Section 177(b), which provides as follows: When an executor of the estate of a deceased spouse has duly qualified, such executor is authorized to administer, not only the separate property of the deceased spouse, but also the community property which was by law under the management of the deceased spouse during the continuance of the marriage and all of the community property that was by law under the joint control of the spouses during the continuance of the marriage. The surviving spouse, as surviving partner of the marital partnership, is entitled to retain possession and control of all community property, which was legally under the sole management of the surviving spouse during the continuance of the marriage, and to exercise over that property, all the powers elsewhere in this part of this Code authorized to be exercised by the surviving spouse when there is no administration pending on the estate of the deceased spouse. The surviving spouse may by written instrument filed with the clerk waive any right to exercise powers as community survivor, and in such event, the executor or administrator of the deceased spouse shall be authorized to administer upon the entire community estate. 2. Fiduciary Duties Since the executor of the deceased spouse s estate administering 177(b) property holds property belonging to, and for the benefit of, the surviving spouse, the executor is a fiduciary and owes the fiduciary duties of a trustee in

27 connection with the administration of all of the community estate. See Probate Code 37; Bailey v. Cherokee Cty. Appraisal Dist., 862 S.W2d 581 (Tex. 1993); Ertoel v. O Brien, 825 S.W.2d 17 (Tex. App. Waco 1993, writ denied); McLendon v. Mandel, 862 S.W.2d 662 (Tex. App. Dallas 1993, writ denied); Humane Soc y v. Austin Nat l Bank, 531 S.W.2d 574, 577 (Tex. 1975). An Arizona case clearly defines this fiduciary relationship. Estate of Shano v. Fiduciary Services, Inc., 177 Ariz. 550, 869 P.2d 1203 (1994) (because the administrator was entitled to possess and administer the survivor s community property, the administrator owed the surviving spouse fiduciary duties.) The fiduciary duty of loyalty prohibits the executor from using his position to gain any benefit for himself at the expense of any beneficiary. Slay v. Burnett Trust, 187 S.W.2d 377, 388 (Tex. 1945). A transaction is unfair if the fiduciary significantly benefits from it as viewed in light of circumstances existing at the time of the transaction. Estate of Towns v. Towns, 867 S.W.2d 414, 417 (Tex. th App. Houston [14 Dist.] 1993, writ denied) The executor should not be allowed to benefit at the expense of the Section 177(b) property, either in an individual capacity or on behalf of the estate. This type of conflict would arise if the executor took a position regarding the character of probate assets that was adverse to the surviving spouse and beneficial to the executor as a beneficiary (i.e., that certain assets were the decedent s separate property rather than community property. Such a conflict probably would render the administrator incapable of performing his duties. See Hitt v. Dumitrov, 598 S.W.2d 355, 356 (Tex. Civ. App. Houston [14 th Dist.] 1980, no writ). In Estate of Shano v. Fiduciary Services, Inc., the Arizona Court of Appeals held that the competing interests between the administrator of the decedent s estate in his role as manager of the survivor s interest in the community property prevented the administrator from exercising the independent judgment necessary to discharge his fiduciary duty to the surviving spouse. The court quoted an old proverb to define this dilemma, no man can serve two masters. See Id. at 556. In Home Insurance Company v. Wynn, 229 Ga. 220, 493 S.E.2d 622, 626 (1998), the Georgia Court of Appeals also described this type of conflict of interest: It is generally, if not always, humanly impossible for the same person to act fairly in two capacities and to represent antagonistic interests on behalf of two interests in the same transaction. Consciously or unconsciously [s]he will favor one side as against the other. If one of the interests involved is that of trustee personally, selfishness is apt to lead [her] to give [her]self an advantage. If permitted to represent antagonistic interests the trustee is placed under temptation and is apt in many cases to yield to the natural prompting to give [her]self the benefit of all doubts. The executor would have a conflict of interest in taking any position regarding the character as estate property as community or separate and would violate his duty of loyalty to the surviving spouse if any community funds were spent to pursue a position adverse to the surviving spouse. These conflicts are less likely to occur in a dependent administration because court approval is required to take any action, including expenditure funds, payment of claims, and filing suit. If these issues arise after an independent administration has been established, consideration should be given to converting to a dependent administration to avoid breach of fiduciary duty claims against the executor. If this is not practical, it may be necessary to recognize that the personal representative may not be able to serve both as executor of the decedent s estate and as manager of the Section 177(b) property. 3. Inventory If the character of property as separate or community is in dispute, even the filing of an inventory can present potential fiduciary issues for the executor. The inventory is required to specify what property is separate and what is community property. Probate Code 250. The executor should not file the inventory in a manner that is beneficial to some beneficiaries and harmful to others if there is a bonafide dispute. Although an inventory that has been approved does not conclusively determine the character of the property, it does serve as prima facie evidence of the property s character. Also, an order approving an inventory is a final, appealable order. McKinley v. McKinley, 496 S.W.2d 540 (Tex. 1973); Krueger v. Williams, 163 Tex. 545, 359 S.W.2d 48 (1962); Garner v. Long, 106 S.W.3d 260 (Tex. App. Fort Worth 2003, no 23

28 pet. h.). Thus, if an inventory is filed pending a dispute that is contrary to a beneficiary s position, the beneficiary should object to the inventory. If the inventory is approved, the order should be appealed. Otherwise, the order approving the inventory will become final and would appear to reverse the community property presumption. In order to comply with the fiduciary duty of loyalty to all beneficiaries of the property under administration, the executor should remain neutral in connection with disputed matters. The author suggests that where the separate and community property character of estate assets are in dispute, that a preliminary inventory be filed reflecting the disputed property without characterizing it as separate or community, indicating the nature and existence of the dispute, and stating that an amended inventory will be filed when the dispute has been resolved. 4. Probate Code 156 Section 156 provides that the decedent s sole management community property and the joint management community property continue to be subject to the deceased spouse s liabilities upon death. The personal representative of the deceased spouse s estate must keep a separate, distinct account of all community debts allowed or paid in the administration and settlement of such estate. Should the decedent s personal representative also segregate the surviving spouse s one-half interests in the community property or in the disputed community property? In order to properly account to the surviving spouse, properly allocate receipts and expenditures and pay community debts, segregation would seem to be required. 5. Powers of Executor In a 177(b) administration; the issue is whether the executor of the deceased spouse s estate derives his powers and duties relating to the administration of the surviving spouse s interests in the community estate from the decedent s will or from the Probate Code. Although no Texas case has addressed this issue, it would seem that the powers should be governed by the Probate Code rather than the decedent s will since the will covers only the decedent s property. This raises numerous issues regarding the executor s ability to take actions relating to the surviving spouse s property, including the need for prior court approval to expend or sell any of the 177(b) property, compensation of the executor (which probably would be limited to the statutory commission under 241(a) as to the survivor s property under administration), accountings by the executor, bond requirements, and the allocation and payment of expenses relating to the administration of community property. For further discussions of these issues, See Ikard, ADMINISTRATION OF COMMUNITY PROPERTY AFTER A SPOUSE S DEATH, 1996 Annual Advanced Estate Planning and Probate Course; and Hopwod & Patterson, PROBATE DISPOSITION - COMMUNITY ADMINISTRATION, 2003 Annual Advanced Estate Planning and Probate Course. V. DEALING WITH THE NON- PAYING CLIENT A. Representing the Independent Executor 1. Engagement Letter As with all clients, it is important to have an engagement letter that specifies the scope and nature of the legal representation, the relative responsibilities of the attorney and the client, and defines the attorney s compensation and reimbursement of expenses. The engagement letter should state that the attorney represents the executor solely in his fiduciary capacity and not individually, if he also is a beneficiary of the estate. In addition, the engagement letter should state that attorney s fees and expenses are estate administration expenses payable out of estate assets. If the estate has liquidity problems, the agreement should specify how legal fees will be paid. If a sale of property will be necessary in order to pay fees, it may be advisable to specify the property to be sold to avoid any misunderstandings. The terms of the will and the abatement provisions of Section 322B of the Probate Code should be considered in determining what property would be sold. Section 322B provides for the sale of a decedent s property for debts and expenses of administration (other than estate taxes) in the following order: (1) property not disposed of by will, but passing by intestacy; (2) personal property of 24

29 the residuary estate; (3) real property of the residuary estate; (4) general bequests of personal property; (5) general devises of real property; (6) specific bequests of personal property; and (7) specific devises of real property. The above provisions apply absent a different intent expressed in the will. Similarly, if the executor will need to borrow money to pay administration expenses, this should be specified. The agreement also should include a right to withdraw for non-payment of fees. 2. Retainer Attorney s fees for representing the executor are administration expenses payable from estate assets. Unless the executor also is the sole or primary beneficiary of the estate, it may be difficult to obtain a significant retainer prior to probate of the will. The fee agreement could provide for payment of a specific retainer upon admission of the will to probate and qualification of the executor. 3. Non-payment If the independent executor fails to pay attorney s fees and expenses, the attorney may withdraw from the representation. Rule 1.15(b)(5) of the Texas Disciplinary Rules of Professional Conduct. As a creditor of the estate, the attorney may file suit against the estate to recover fees for services rendered for the benefit of the estate. As in any suit to recover fees from a former client, the risk of a malpractice counterclaim exists. However, this claim would be tried before a probate judge having special expertise in the subject matter of the representation. require the heirs or the independent executor to post bond for an amount equal to the creditors claim under Sections 148 and 149, respectfully. If an order requiring a bond is signed, it suspends the powers of the executor and he may not pay out any money of the estate or do any other official act, except to preserve estate property, until the new bond has been approved. Probate Code 207. If the bond is not timely filed, the executor may be replaced. Probate Code 213. B. Representing the Dependent Administrator Non payment of attorneys fees should not be an issue in a dependent administration because attorneys fees are approved and ordered paid by the court. C. Representing a Beneficiary It is important to have a specific engagement letter when representing a beneficiary as they often are inexperienced in legal matters and in dealing with attorneys. A retainer is highly recommended as a reality check for what is often a highly emotionally-charged situation for the client. The attorney may want to consider a provision in the fee agreement by which the beneficiary agrees that the executor may pay his or her attorney s fees and expenses directly to the attorney out of the beneficiary s share of the estate. The Agreement also should provide for costs, particularly litigation costs such as depositions, medical, bank or other records and expert witness fees, to be paid directly by the client. The agreement also should include a right to withdraw for non-payment of fees. If a judgment for fees is obtained, the attorney, as a judgment creditor, could seek to 25

30 26

31 APPENDIX A SAMPLE OF LETTER Date «FirstName» «LastName», «JobTitle» «Company» «Company2» «Address1» «City», «State» «PostalCode» RE: «Decedent» «AccountNo» Dear «Title» «LastName»«Company»: You are hereby given notice that «Decedent» is deceased. He/She died on «Dateofdeath». Letters of Administration were issued to «Administrator» on «Dateofletters» in Cause No. «CauseNo» in the Probate Court Number «Probatecourt» of Tarrant County, Texas. Our records indicate that «Company» «Company2» may have a claim against the estate. You must properly present a claim for the amounts owed to you within four (4) months after the date of receipt of this notice or your claim is barred (if your claim is not already barred by the general statutes of limitation). The claim should be addressed to «Administrator», c/o. I represent the Administratrix of the Estate and therefore cannot provide you with legal assistance on your requirements in filing this claim with the Court. If you have additional questions regarding your duties in filing a claim, you should consult with an attorney in Texas. Sincerely yours,

32 APPENDIX B NO. ESTATE OF IN THE PROBATE COURT NO. DECEASED TARRANT COUNTY, TEXAS MEMORANDUM OF ALLOWANCES TO THE HONORABLE JUDGE OF SAID COURT: Now comes, Independent Executor of the Estate of and files this his/her Memorandum of the allowances set aside by Independent Executor in accordance with the Texas Probate Code. Prior to the approval of the Inventory, Appraisement and List of Claims in this Estate, the Independent Executor in accordance with Section 146 of the Texas Probate Code set aside a family allowance in the amount of $ to compensate the surviving spouse and minor child for one year taking into account the circumstances of the family. The family allowance was delivered to the surviving spouse since the minor child is also the child of the surviving spouse. Also, in accordance with Section 146 of the Texas Probate Code, Independent Executor delivered to surviving spouse an allowance in lieu of exempt property in the amount of $ to compensate the surviving spouse and minor child for exempt assets not on hand at the time of death. This allowance was delivered to the surviving spouse since he is also the parent of the minor child. The total allowances were allocated to the community estate. Respectfully submitted, SWORN TO AND SUBSCRIBED before me this day of, 200_, by,, of the Estate of, to certify which witness my hand and seal of office. My Commission Expires: Notary Public in and for the State of Texas

33 APPENDIX C NO P IN RE: ESTATE OF IN THE PROBATE COURT JOHN SMITH, OF DECEASED DALLAS COUNTY, TEXAS MOTION FOR ISSUANCE OF SHOW CAUSE ORDER TO JANE SMITH, Independent Executor of the Estate of John Smith, Deceased ( Movant ), files this Motion for Issuance of Show Cause Order to Jane Smith ( Jane Smith ) and, in support thereof, would respectfully show the Court as follows: 1. John Smith ( Decedent ) died on October 1, 2003, survived by his fourth wife, Jane Smith, and his two natural children and two step-children. The Last Will and Testament of John Smith (the Will ), was admitted to probate in this cause, and Movant was appointed Independent Executor of the Estate of John Smith (the Estate ). 2. Disputes have arisen among the beneficiaries of the Estate regarding the ownership and/or character of certain property as being the Decedent s separate property of the community property of Decedent and Jane Smith. 3. All records relating to Decedent s separate property and the community property of Decedent and Jane Smith jointly controlled during their marriage, Decedent s personal memorabilia and separate property as well as the community personal property of Decedent and Jane Smith (the Items ), are in the possession, custody and/or control of Jane Smith or her agents. As the Independent Executor, Movant is entitled to possession of these Items. Despite having the legal right to possession of the Items, Movant has made many attempts to work out a fair and mutually agreeable arrangement to give the Estate and all the beneficiaries equal and unrestricted access to the Items, but all such attempts have been either rejected or ignored by Jane Smith. Jane Smith has refused, and continues to refuse, to deliver the Items to Movant.

34 Cause No P 4. Jane Smith resides at. Movant requests the Court to order Jane Smith to appear at a time and place to be set by the Court and Show Cause why she should not deliver, or cause to be delivered, to Movant all of the Items described above; and to account for the Items that are no longer in her possession, custody and/or control. 5. Due to the actions of Jane Smith, it has been necessary for Movant to incur attorney s fees and expenses. Movant requests that the Court order Jane Smith to pay Movants reasonable and necessary attorney s fees and costs incurred to obtain the records described herein. WHEREFORE, PREMISES CONSIDERED, the Independent Executor of the Estate of John Smith, Deceased, requests the Court to order Jane Smith to appear at a time and place set by the Court and show cause why she should not deliver, or cause to be delivered, to Movant all Items described above, to account for the Items that are no longer in her possession, custody and/or control, and for any other further relief, at law or in equity, to which they may show themselves to be justly entitled. Respectfully submitted, Attorneys for Independent Executor

35 NO P IN RE: ESTATE OF IN THE PROBATE COURT JOHN SMITH, OF DECEASED DALLAS COUNTY, TEXAS ORDER TO JANE SMITH TO SHOW CAUSE ON THIS day came on to be considered the Motion for Issuance of Show Cause Order to Jane Smith filed by the Independent Executor of the Estate of John Smith, Deceased ( Movant ), and the Court, after considering said Motion, is of the opinion that the Motion should be GRANTED. IT IS, THEREFORE, ORDERED that Jane Smith appear before this Court at o clock, a.m. on the day of, 2004, and Show Cause why she should not deliver, or cause to be delivered, to Movant all records relating to John Smith s separate property and the community property of John Smith and Jane Smith jointly controlled during their marriage, John Smith s personal memorabilia and separate personal property, as well as the community personal property of John Smith and Jane Smith that are in the possession, custody and/or control of Jane Smith or her agents, and to account for such items that are no longer in her possession, custody and/or control. IT IS, FURTHER, ORDERED, that the Clerk of this Court issue Notice to be personally served on Jane Smith at, Dallas Texas, together with a copy of the Motion for Issuance of Show Cause Order to Jane Smith and a copy of this Order, by any Sheriff or Constable of the State of Texas or by any other person who is not a party and is not less than eighteen (18) years of age, directing and requiring that Jane Smith appear in the Courtroom of the Probate Court of Dallas County, Texas at o clock, at.m, on the day of, 2004, to Show Cause why she should not deliver, or cause to be delivered, to Movant all records relating to John Smith s separate property and the community property of

36 John Smith and Jane Smith jointly controlled during their marriage, John Smith s personal memorabilia and separate personal property, as well as the community personal property of John Smith and Jane Smith that are in the possession, custody and/or control of Jane Smith or her agents, and to account for such items that are no longer in her possession, custody and/or control. Signed this day of, JUDGE PRESIDING

37 NO P IN RE: ESTATE OF IN THE PROBATE COURT JOHN SMITH OF DECEASED DALLAS COUNTY, TEXAS ORDER ON ORDER TO SHOW CAUSE On the day of, 2004 at a regular term of court pursuant to Order to Jane Smith to Show Cause and to appear before the court on, 2004, Jane Smith appeared in person and by and through her attorney of record, and, Independent Executor of the Estate of John Smith, Deceased, appeared in person and by and through her attorney of record, and the Court proceeded to call the matter on the Court s docket, and the parties announced in open court that an agreement had been reached in regard to certain matters addressed in the Order to Jane Smith to Show Cause; and the Court having sworn Jane Smith and as witnesses inquired of each of them whether the agreement that had been reached was in fact their agreement and based upon such agreement the court makes the following orders. IT IS ORDERED that Jane Smith make available, on or before, 2004, the premises known as, Dallas, Texas for inventorying and appraising the personal property located in such premises as well as the premises at a storage facility in Dallas for inventorying and appraising such property located in such storage unit and to deliver the property in such storage unit to, Independent Executor of the Estate of John Smith, Deceased; and IT IS FURTHER, ORDERED that Jane Smith deliver a automobile and owned by the Estate of John Smith, Deceased to, Independent Executor of the Estate immediately; and

38 Cause No P IT IS FURTHER, ORDERED that this matter be continued on the court s docket until further orders of the Court. SIGNED this day of, JUDGE PRESIDING

39 APPENDIX D NO P IN RE: THE ESTATE OF IN THE PROBATE COURT JOHN SMITH, OF DECEASED DALLAS COUNTY, TEXAS APPLICATION TO APPOINT PERSONAL REPRESENTATIVE OF ESTATE COMES NOW, BANK OF TEXAS and files this application, pursuant to Article III of the Last Will and Testament of John Smith, for the appointment of a successor corporate personal representative and would show the Court as follows: I. BANK OF TEXAS has submitted and filed its resignation as Independent Executor of the Estate of John Smith, Deceased. II. The Estate of John Smith, Deceased, is still in administration and a necessity exist for the continued administration of such estate. III. The Last Will and Testament of John Smith provides in Article III that in the event of the resignation of Bank of Texas, the Probate Court of Dallas County, Texas, upon application made therefore, shall appoint a successor corporate independent executor, who shall be a bank or trust corporation situated in the City of Dallas, Texas having trust powers and having an unimpaired capital and surplus of not less than Ten Million Dollars ($10,000,000.00). Pursuant to such provision, this Court should appoint a successor corporate independent executor.

40 IV. In the event that this Court is unable to find a bank or trust corporation meeting the requirements provided in the Last Will and Testament of John Smith, which is willing to serve as successor independent executor, Bank of Texas would be willing to serve as Dependent Administrator With Will Annexed under the Probate Code. WHEREFORE, PREMISES CONSIDERED, BANK OF TEXAS prays that the Court hear this application and appoint a successor corporate independent executor pursuant to the terms of the Will of John Smith, or, in the alternative, appoint a successor Dependent Administrator With Will Annexed, and grant such other and further relief as the Court may deem appropriate. Respectfully submitted, Attorneys for Applicant STATE OF TEXAS COUNTY OF DALLAS I,, a Vice President of Bank of Texas acting for and on behalf of Bank of Texas do by these presence acknowledge that I have read the above and foregoing Application to Appoint Personal Representative of Estate and that the contents thereof are true and correct to the best of my knowledge and belief. SWORN TO AND SUBSCRIBED TO before me by the said on this day of, Notary Public, State of Texas