2013 Probate and Trust
Legislation Affecting
Estate Planning
Glenn M. Karisch
The Karisch Law Firm, PLLC
Austin, Texas
The big picture
Hitting the high points, with an emphasis on
changes affecting estate planners and their
tools
Bill Pargaman’s paper
Glenn’s paper
www.texasprobate.com
The Texas Probate Mailing List
The new Estates Code
Becomes effective January 1, 2014
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The Probate Code is repealed
Estate and guardianship administrations
pending on January 1, 2014, become subject to
the new code
References in various statutes to Probate Code
sections are considered to be references to the
appropriate Estates Code sections
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But what about references in documents?
The new Estates Code
A “non-substantive” codification, but:
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There will be confusion over section numbers
There is some new terminology
Other legislation makes substantive changes to
the new Estates Code
The new Estates Code
New structure – like other codes
 Chapters 31 – 551: decedents’ estates
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Chapters 751 – 752: powers of attorney
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Chapters 1001 – 1253: guardianships
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Chapters 1301 – 1302: management
trusts, pooled trust subaccounts
The new Estates Code
New terminology
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“Appertaining or incident to estate” vs. “probate
proceeding” and “matter related to probate
proceeding”
“Dependent administration” vs. “personal
representative subject to court supervision”
“867 trusts” now “1301 trusts” (or just
“management trusts”)?
“128A notices” now “308.002 notices”?
“294(d) notices” now “308.054 notices”?
Decanting (later)
New statutory durable power of
attorney form
Disclosure statements to principal and agent
Initialing, not crossing out
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(N) – all of the above
Not a general power of appointment
New form becomes effective January 1, 2014
Form is not mandatory and may be modified
Two suggested modifications:
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If (N) is selected, it is a general POA
Construe it as a statutory durable POA
New forms available at texasprobate.com
New medical POA form and
disclosure statement
Incorporates prior change permitting medical
POAs to be notarized, not witnessed
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The form changes
The disclosure statement changes
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Disclosure statement must be substantially in the
statutory form
New forms become effective January 1, 2014
New forms available at texasprobate.com
Will and trust forfeiture provisions
The party seeking to avoid forfeiture has the
burden to prove just cause and good faith by
a preponderance of the evidence
Legislative history: The bill does not repeal
Texas law recognizing that forfeiture clauses
generally will not be construed to prevent a
beneficiary from seeking to compel a
fiduciary to perform his duties, seek redress
from breach of fiduciary duties or to seek a
judicial construction of a will or trust
Non-testamentary transfers
The McKeehan case
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Texas residents
Michigan financial institution
Michigan choice of law provision in the account
agreement
Account agreement does not meet Texas
requirements for right of survivorship
Held: Michigan law applies, so account passes
by right of survivorship
Non-testamentary transfers
New statute
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If more than 50% of the property in the account
belongs to Texas residents, Texas law applies
notwithstanding a choice of law provision
inserted by the financial institution
The new statute also applies to IRA benefits
and similar arrangements
The choice of law provision still applies to
issues between the customer and the financial
institution
Disclaimers: trap for the unwary
Disclaimer is not effective if the beneficiary owes
certain child support arrearages
Every disclaimer must include a statement regarding
whether the beneficiary is a child support obligor
as defined by the statute
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Include this language in every disclaimer (assuming it is
true): “Disclaimant is not a child support obligor
described by Tex. Est. Code § 122.107.”
Failure to do so may keep the disclaimer from being a
qualified disclaimer
Becomes effective January 1, 2014
Decedents’ estates changes
Affidavit in Lieu of Inventory
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Affidavit available even if will “requires”
inventory
No “rock-and-a-hard-place” decision
Remedies for incorrect affidavit
Suggested will language:
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“return of any required inventory”
“return of an inventory or an affidavit in lieu of the
inventory”
Decedents’ estates changes
Heirship Changes
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No statute of limitations
Any creditor can initiate proceeding
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Ad litems
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Required for heirs whose names or whereabouts are
unknown
Permitted for incapacitated heir if “necessary to protect the
interest of the heir”
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Parent may waive citation for child under 12
No final order until affidavit or certificate of notice filed
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Testimony reduced to writing
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Decedents’ estates changes
Addresses not required in application for
administration/letters testamentary
No unsworn declarations for self-proving affidavits, but they
are permitted in other cases, such as for the report of a
guardian of the person
Foreign self-proving affidavits
$1,000 fine for failure to timely file inventory and continued
failure after notice and hearing
Inventory of Successor Representative
If DOD inventory has been filed, successor’s inventory is as
of qualification
Decedents’ estates changes
Exempt Property
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If the Decedent is survived by a spouse or minor child, the
homestead is exempt from all creditors other than
mortgage debt and taxes – adult unmarried children are
out
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Occupancy does not matter
Query: does this work if the homestead is in a trust?
Insurance proceeds paid to an estate as any kind of
beneficiary (not just contingent beneficiary) is exempt
Roth IRAs and inherited Roth IRAs are exempt
Increased allowances in lieu of homestead ($15,000 to
$45,000) and other exempt property ($5,000 to $30,000)
Trust Code changes
Spendthrift protection is not lost if a settlor
becomes a beneficiary by the exercise of a
power of appointment
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Example:
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Husband creates inter vivos QTIP for wife and
gives wife special power of appointment
Wife exercises the power of appointment in trust
for husband after her death
Husband enjoys spendthrift protection after wife’s
death
Trust Code changes
TTC §112.035(d)(2): Spendthrift protection is
not lost solely because the settlor’s interest
was created by the exercise of a POA
TTC §112.035(g): Safe harbor – property will
not be considered to have been contributed
by the settlor in the specific laundry-list of
cases
The TBA Trust Code changes
A corporate trustee may purchase insurance
underwritten or distributed by an affiliate,
subject to its fiduciary duties, unless the trust
instrument prohibits it
Instead of paying trustee compensation onehalf from principal and one-half from income,
the trustee may, consistent with its fiduciary
duties, allocate compensation differently
Decanting
What is decanting?
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Who thinks up these names?
Restatement (3rd) Third of Property: Wills and
Donative Transfers, §17.1 distinguishes decanting
and powers of appointment
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A power of appointment may be exercised in nonfiduciary capacity, is personal to the powerholder and
lapses when the holder dies
A “fiduciary distributive power” must be exercised in a
fiduciary capacity, succeeds to a successor trustee (trust
protector?) and survives the death of the trustee
Decanting
The new Texas statute calls it “Distribution of
Trust Principal in Further Trust”
New Sections 112.071 – 112.088 of the Trust
Code
Shannon Guthrie’s paper: Decanting with
Benefits
Decanting
Prior law
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No “default” statutory provision, but the settlor
could provide for decanting in the trust
instrument
New law:
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Settlor still may expressly provide for decanting
Settlor may expressly prohibit decanting
If the trust instrument is silent, the new
decanting statute applies
Decanting
Why decant? Shannon Guthrie’s list:
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Correct a drafting mistake
Clarify ambiguities in the trust agreement
Correct trust provisions due to mistake of law or
fact to conform to the grantor’s intent
Update trust provisions to include changes in
the law, including new trustee powers
Change situs of trust administration for
administrative provisions or tax savings
Combine trusts for efficiency
Decanting
Why decant? Shannon Guthrie’s list:
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Allow for appointment or removal of trustee
without court approval
Allow appointment of special trustee for limited
time or limited purpose
Change trustee powers, such as investment
options
Transfer assets to a special needs trust
Add a spendthrift provision
Divide pot trust into separate share trusts
Decanting
Why decant? Shannon Guthrie’s list:
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Adapt to changed circumstances of beneficiary,
such as substance abuse, creditor or marital
issues, including modifying distribution
provisions to delay distribution of trust assets
Partition for marital deduction or GST planning
Avoid the rule against perpetuities?
Express vs. statutory decanting power – the
rest of the discussion will focus on the
statutory decanting power
Decanting
“Full discretion” trusts – the trustee’s power to
distribute is not limited in any manner
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Trustee may distribute principal to another trust
for the benefit of one or more of the current
beneficiaries of the first trust
Trustee may give a wholly discretionary
beneficiary a broad power of appointment
If there are multiple trustees and fewer than all
have full discretion, the “full discretion” trustees
may exercise this power without the
participation of any “limited” trustees
Decanting
“Limited discretion” trusts – the power to
distribute is limited (HEMS trusts are limited)
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Trustee may distribute principal to another trust
so long as:
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the current beneficiaries of both trusts are the
same;
the successor and remainder beneficiaries of both
trusts are the same; and
The distribution language of both trusts is the
same
Thus, it is useful only for administrative changes
Decanting
Trustee must act in good faith, in accordance
with the terms and purposes of the trust and
in the interests of the beneficiaries
In no case is the trustee deemed to have a
duty to decant
The power to decant is reduced to the extent it
would cause any intended tax benefits to be
lost
Decanting
The trustee may not:
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Take away a beneficiary’s mandatory distribution
right
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Materially impair the rights of any beneficiary
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Materially lessen the trustee’s fiduciary duty
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Decrease the trustee’s liability or exonerate the
trustee
Eliminate another person’s power to remove the
trustee
Modify the perpetuities period, “unless
expressly permitted by the terms of the first
trust”
Decanting
The trustee must give at least 30 days’ notice to
current beneficiaries and presumptive remainder
beneficiaries (including the AG, if a charity is a
beneficiary)
If no one objects, the trustee may decant without
judicial approval, although the trustee may seek
judicial approval if desired
If a beneficiary other than the AG objects, the trustee
may seek judicial approval but is not required to
do so
If the AG objects, the trustee must seek judicial
approval
Decanting
The trustee may not decant without judicial approval
solely to change the trustee compensation
provisions
The trustee may change compensation provisions if
the change is in conjunction with other changes for
which there are valid reasons, so long as the
change does not provide for unreasonable
compensation under Texas law
Decanting
“The legislature intends [the decanting provisions] to
be a codification of the common law of this state in
effect before the effective date of this Act”
Except as otherwise provided by the trust instrument,
the decanting provisions apply to trusts existing or
created on or after September 1, 2013
Decanting
Decanting drafting suggestions
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Include an express decanting power where appropriate
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Have a plan for having an independent trustee or trust
protector do or direct the decanting
Specifically authorize decanting to a trust:
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Subject to the laws of another state
With one, some or all of the same beneficiaries –
beneficiaries need not be identical – and excluding one or
more beneficiaries
Expressly permit modification of the perpetuities period
Permits the addition of more remote descendants and
persons appointed by a beneficiary holding a power of
appointment as beneficiaries
Decanting
Suggestions about implementing decanting
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If you decant to a trust subject to another state’s laws,
make sure there is a reasonable nexus to the state
Query: Would a Texas two-step work with a HEMS
trust?
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Step one: Decant a Texas HEMS trust “Trust 1”) to a
trust (“Trust 2”) subject to the laws of a state which
permits broader decanting
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Trust 2 must meet Texas standard for limited discretion trusts
Step two: The trustee of Trust 2 later decants to a trust
(Trust 3) with different beneficiaries, or with one or some
but not all of the same beneficiaries, etc.
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The trustee of Trust 1 may breach his duties if it is a prearranged plan