Questions of probate privacy raised in the Harold Simmons case

After Texan billionaire Harold Simmons recently passed away, his widow filed to seal documents related to the probate of his estate, including his will.

Regardless of what the judge considering her request ultimately decides, it’s important to think about the issues this case raises.  Generally, documents going through probate court are available to the public.  But families also have concerns about privacy, and the kinds of financial and personal information available on these documents could lead to undesirable exposure.

According to Simmons’ widow, leaving the documents open to the public will pose a security threat to beneficiaries of the will and perhaps endanger certain assets that are listed.

Ultimately, the question is how to best balance the right of the public to know what’s in the documents and the right to privacy and security for individuals going through the probate process.

How do these privacy issues affect Texans?

For some Texans, probate privacy won’t even be an issue; here are a few reasons why:

  • Depending on the assets that make up the estate, probate may not even be necessary.  Certain assets, such as proceeds from life insurance, can be transferred to a beneficiary without the need for probate.
  • Assets held in a living trust also don’t need to go through the probate process.
  • Under some circumstances, an independent executor can file an affidavit instead of filing a full inventory of assets during the probate process.

There are other reasons privacy isn’t always a major issue in these matters.  Most people’s major assets can already be easily discovered and different kinds of personal information (e.g. who’s on your marriage license) are a matter of public record.

In general, probate in Texas is a relatively quick and straightforward process, and in some cases you may not need probate at all.  If you do have concerns about privacy or want to know more about what information could be made public in probate-related documents, you should discuss these issues with a trusted estate planning attorney; an experienced attorney will look after your interests and advise you on the best solutions for your case.

Washington’s New Proposal on Estate and Gift Tax

President Obama recently released his 2013 proposed budget.  Significant estate and gift tax changes would go into effect on January 1, 2013, if the 2013 budget is passed by Congress.  A couple of the changes have fairly far-reaching implications for a significant portion of the American population.  Following is a description of a few of those changes that could greatly impact your estate plan.

Exemptions Level: In late 2010, Congress increased the estate tax exemption to $5 million for each person in the United States and reduced the highest estate tax rate to 35% of someone’s assets over $5 million.  The President’s budget lowers that $5 million exemption to $3.5 million and increases the maximum tax rate for estate and gift transfers exceeding the $3.5 million from 35 percent to 45 percent.  Currently an individual could transfer $5 million tax free.  If the President budget passes, that same individual could only transfer $3.5 million tax free.

Portability:  In 2011, Congress enacted a new “portability” provision that allows a spouse to utilize their deceased spouse’s estate tax exemption.  This is the first time in U.S. history that such a provision has been enacted, and President Obama’s budget introduced last week makes the portability rules permanent.  Because this provision is one that the Republicans also favor, we believe it is likely to pass through Congress.

Valuation Discounts: Finally, the budget makes significant changes to the way that business interests and real property held and transferred among family members is valued.  Until now, families creating family businesses could utilize valuation “discounts” on the transfers of certain business interests.  This is more frequently seen in the context of a Family Limited Partnership.  By utilizing the valuation discounts, families have been able to transfer larger assets without paying gift and estate taxes.  Under the budget proposed last week, the valuation discounts would be effectively eliminated, denying family members the ability to discount minority interest in family-owed businesses, family limited partnerships, and certain real property due to lack of marketability.  This a radical shift that could be incredibly detrimental to a huge number of Americans.

If you have additional questions about the new federal estate and gift tax laws and how they could effect your estate plan contact Ford + Mathiason LLP today for a consultation.

This Week in Probate and Guardianship Appeals

Case: Kappus v. Kappus
Court: Supreme Court of Texas

This case deals with the removal of an independent executor because of an alleged conflict of interest.

In a fairly broad sweeping opinion, the Supreme Court ruled that because a conflict of interest is not listed in the probate code among the several grounds as conditions for removal, it is not a valid reason for removal.

The Court noted that the grounds to remove an independent executor post-appointment are different than those to disqualify an executor pre-appointment. The evidence in the case showed that the dispute was a good-faith disagreement between the executor and the contestant as to how to split the value of improvements made to land co-owned by the Estate and the Independent Executor. The record contained no evidence of dishonesty or misappropriation on the Executor’s part.

The Court concluded that a good-faith disagreement over the Executor’s ownership share in the estate is not enough, standing alone, to require removal under section 149C. The estate was small; there was no actual harm to the Estate since the trial court resolved the percentage-of-ownership issue; the Independent Executor asserted his claim in good faith; and the Testator knew of the Independent Executor’s co-ownership in the property when he named him as such in his will. Therefore, without more, the Court was unwilling to remove the Independent Executor based on a potential conflict of interest.

What does this mean for you? You need to be vigilant in attacking conflicts of interest prior to appointment. If you see potential danger ahead, do not wait until it’s too late. Contact us today and let us help you to ensure that your matter is handled properly from the start.

Appointees in Guardianship Proceedings (Part 1): The Attorney ad Litem

Guardianship proceedings often involve procedures that can be a bit confusing to most clients, no matter their position in the case. Among the items that makes guardianships unique is the Court’s use of appointed attorneys to fill specific roles. Over the next few posts, I felt it might be useful to outline why the Court appoints different people, as well as discuss the roles that the legislature intended these appointees fill.

In every guardianship proceeding, the Court must appoint an attorney (known as the “attorney ad litem”) for the individual alleged to be incapacitated (generally referred to as the “Proposed Ward”). The Attorney ad Litem is selected by the Judge and must obtain and maintain special certification by the State Bar of Texas in order to be eligible for appointments. By appointing an attorney ad litem to represent the Proposed Ward, the Judge makes sure that the Proposed Ward receives due process – a fair shake in a judicial proceeding. The attorney ad litem becomes the Proposed Ward’s attorney – to represent the Proposed Ward throughout the guardianship process so that his/her rights are not taken away unfairly.

Like every other attorney-client relationship, the attorney ad litem must maintain his or her client’s confidentiality and loyally pursue the lawful objectives as the client instructs. Just like every other attorney-client relationship, the attorney ad litem should meet with the Proposed Ward, review the Court’s file and discuss potential options and outcomes with the Proposed Ward. At the end of the day, the Proposed Ward’s instructions are the attorney ad litem’s marching orders. If the Proposed Ward opposes the guardianship, the attorney ad litem bears the obligation of opposing the guardianship as vigorously as though the Proposed Ward had hired the attorney himself.

In too many cases, I have seen attorneys ad litem take a lackadaisical approach to their obligations – particularly when the Proposed Ward shows outward signs of actually being incapacitated. Sometimes, attorneys ad litem are content to simply go through the motions of acting like their client’s attorney. Nothing could be more detrimental to the process than this. In fact, an attorney ad litem’s minimal efforts or complacency could very well harm the Proposed Ward by inviting an appeal or some other action by an interested party. The saying that comes to mind is, “if it’s worth doing, it’s worth doing right.”

The attorney ad litem should be the first to point out defects in the form or substance of an application or pleading. If there is an issue with a doctor’s evaluation, the attorney ad litem should be the first to call it to the Court’s attention. If the guardianship applicant lacks standing or might be disqualified, the attorney ad litem has an obligation to raise the issue and fulfill their purpose. Attorneys ad litem are appointed to advocate the legal interests of the Proposed Ward, and nothing short of their zealous advocacy provides their client with the due process to which he or she is entitled.

Estate Planning Conversations

For a lot of people, death and their own fragile mortality is the last thing that they want to discuss with anyone – let alone loved ones. We know that we are not going to live forever, but pondering our inevitable demise can steal the sun right out of the day, and so we tend to focus on happier things. For the same reason, parents and children sometimes tend to avoid openly discussing Wills, Trusts and all of that legal business that will be left when someone dies.

Yesterday’s New York Times included a great article about those challenging conversations, and the benefit of having them well in advance. The centerpiece of the story is a lawyer in Seattle. He has two children and has been separated from his wife, but not divorced, for around 30 years. He also has a brain cancer, and did not have a Will. In his state, had he died without a Will, his estate would have passed to his wife. He wanted to avoid this and opened up candidly with one of his daughters, who learned of his intentions and helped him find a lawyer to put his plan down on paper.

It’s a nice story and yes, it’s good to know that you can open up to your children to discuss your estate planning. Many of our clients take the same path of least resistance. I’ve drafted countless Wills that leave a client’s estate to the surviving spouse and then equally to the children. But occasionally, depending on the facts, things get changed up. Perhaps the spouse only gets a lifetime interest in the home, and the children inherit everything else, except for the child who receives nothing. Neither the spouse nor the children have any idea about the client’s plan until the client dies and the Will surfaces. Talk about awkward.

Undoubtedly, the client had a perfect reason for putting that plan into effect. It all made sense and the principles behind the decisions were sound. But the principles and reasons were kept by the client. The client never sat down with the spouse or children to share. So the spouse sues – the prodigal child sues – everyone sues because nobody’s happy about that Will. Twelve months and tens of thousands of dollars later, the suits are settled.

I’m not willing to bet that a conversation between the client, the spouse and the kids could have avoided all of that, but it probably couldn’t hurt. So much litigation in our area stems from resentment and the fact that a spouse or child is treated differently in the client’s Will than someone else. The Times article includes the thoughts of some experts, who believe that a series of conversations about these kinds of delicate issues works best. I agree.

Sadly, if a family has some inner turmoil ahead of the client dying, you can usually expect that turmoil to break loose after the fact. I tend to believe that litigation is unavoidable in some cases. But the Times article does make an excellent point for those situations where all it takes is a few conversations with your loved ones to openly discuss your plans.

This Week in Probate and Guardianship Appeals

Starting in 2010, Ford & Mathiason LLP will be writing a weekly entry covering newly released opinions by the Texas Courts of Appeals in the areas of Probate and Guardianship. Jason Brower, Associate in charge of the appellate section of Ford & Mathiason LLP, will be authoring these entries.

Estate of Pauline Moran Allen, Tyler Court of Appeals

This week’s entry comes to us from the 12th District Court of Appeals in Tyler. Dollie Weir appealed the trial court’s order which granted Leonard Allen’s motion for summary judgment. Two Issues were raised by Dollie, (1) that Leonard failed to present any summary judgment evidence to support his motion, and (2) that the thirteen writings, purported to be a codicil to Pauline Moran Allen’s Will, lacked testamentary intent.

Summary Judgment Evidence

The Will of Pauline Moran Allen was admitted to probate as a muniment of title on January 16, 2008. On April 2, 2006, Leonard filed a motion to amend the application and probate as a muniment of title thirteen writings purportedly signed by Pauline on December 27, 2002. Dollie filed a contest to Leonard’s motion, stating that the writings lacked testamentary intent. Leonard filed a motion for summary judgment, asserting that the thirteen writings were prepared, dated, and executed by Pauline, contained the signatures of the two witnesses, and complied with all the formalities of a will except for being entitled a will or codicil. However, he failed to attach any summary judgment evidence to his motion.

Dollie moved for both a no-evidence and a traditional summary judgment (attaching the 13 writings along with other summary judgment evidence) and asserted that the writings lacked the necessary testamentary intent to constitute a will or codicil. The trial court granted Leonard’s motion and denied both of Dollie’s motions. The court found that there was no genuine issue of material fact in Dollie’s contest, that no ambiguity existed with regard to the testamentary intent of Pauline in the codicils and that Leonard was entitled to have the codicils admitted to probate as a muniment of title.

The Court of Appeals agreed with the Trial Court on the basis that even though Leonard did not attach any summary judgment evidence in his motion, when both parties move for summary judgment, the trial court may consider the combined summary judgment evidence. Therefore, because Dollie had included all the evidence needed to establish Leonard’s motion, the granting of such motion was not in error.

Lack of Testamentary Intent

Dollie’s second issue revolved around her claim that the thirteen writings lacked testamentary intent. The Court of Appeals first noted that any writing introduced as a will or codicil must contain an explicit statement declaring that the writings are wills or codicils or that the property division will take place only after the decedent’s death. The Court then further noted that the intent of the testator must be ascertained from the language used within the four corners of the instrument offered for probate. Commonly called the “Four Corners Rule” this means that unless there is some ambiguity in the language of the instrument, outside evidence cannot be used to add or contradict the writing or show that the testator intended something different than what is on the instrument.

Leonard, in his motion for summary judgment, was in effect saying that these thirteen writings are unambiguous, executed with all requisite formalities of a codicil, and therefore no outside evidence of testamentary intent is needed or even allowed. Dollie disputed this however, and stated that none of the writings are referred to as wills or codicils, and contain no words evidencing that Pauline intended for these to dispose of her property only upon her death, and therefore lacked the requisite testamentary intent to be regarded as codicils.

The Court of appeals agreed with Dollie. They stated that nowhere in the writings did they find testamentary language, such as words of grant or devise, nor were there words from which a bequest could reasonably inferred. Because no amount of outside evidence could supply the absent testamentary intent, such writings were not a codicil. The trial court therefore erred in granting Leonard’s motion for summary judgment and the Court of Appeals reversed such judgment.

What does all of this mean for you? If you want to ensure proper disposal of your property upon your death, do not draft your own documents. Instead, call us today and schedule an appointment to discuss your estate planning needs.

Alternatives to Guardianships for Minors: Section 867 Trusts

In many cases, the Court’s creation of a guardianship of the estate for an incapacitated individual or a minor may be inevitable. It may be the least restrictive option for the Court. However, many times I am approached by clients for whom there are lesser-restrictive and more efficient mechanisms or processes that can achieve many of the same goals.

When faced with the situation that a minor child is supposed to inherit some money from a parent or grandparent, the Courts cannot allow the minor to receive the property outright. Likewise, the law does not allow a parent to collect the money on their behalf without some formal procedure like a guardianship.

Take, for example, a father’s $50,000.00 life insurance policy naming his minor child as the sole beneficiary. The surviving parent wants to collect the funds owed to the child so that they can be used for the ordinary expenses of raising the minor, or perhaps the funds will be tucked away for college. In either event, the mother wants to collect the funds, and the insurance company wants to pay them but cannot pay the minor child directly. As par for the course, the insurer usually demands that a guardianship be created. They don’t want to be liable to the child by delivering the funds to the mother without some kind of security that the mother will be accountable for the funds. Guardianship of the minor’s estate seems like the best choice, if not the only one. But is it?

As with most attorney answers – it depends. The mother could request that the Court appoint her as the Guardian of the minor’s Estate. But this choice often comes with some significant downside. The mother would need to post a bond for the policy proceeds, and the proceeds will be reduced by the fees and expenses of creating the guardianship. Moreover, the guardianship must be maintained, which means that additional expenses will be incurred annually until the child turns 18. Again, the proceeds would be reduced, sometimes significantly, over time. The overall process might be inefficient and challenging, if not impossible under certain circumstances.

One alternative available to the mother might be a trust created by the Court under Section 867 of the Texas Probate Code. Under this law, a financial institution, and sometimes a person, can be appointed by the Court to act as Trustee of a trust created by the Court for the benefit of the minor. The trust comes equipped with very specialized terms that permit the Trustee to collect the insurance proceeds and use them for the benefit of the minor until anywhere from the age of 18 to 25. Every year, the Trustee reports to the Court and accounts for the trust’s activities.

Often, such an alternative can be achieved relatively quickly and with significantly lower cost. The insurance company is happy to pay a bank or person who will be accountable for the funds, and the mother is happy that the funds will be available for the same purpose for which they were intended by the deceased father.

Sometimes, guardianship is not just the best choice, but the only one. But, alternatives such as the Section 867 Trusts are prime examples of the legislature working for our citizens to provide reasoned answers to questions and issues that affect more people every day. In the areas of guardianship and probate, there may be a number of achievable alternatives that provide the same, if not better, results for the client, at lower cost and with greater overall benefit.

Powers of Attorney

Even the most basic estate planning counseling will often involve some discussion with clients about powers of attorney, their effect, limitations and the consequences of certain decisions. In nearly every case, these documents can be perfectly effective mechanisms permitting someone to make important decisions for the client at a time when they are no longer able. At the same time, many of our clients are surprised to learn that these simple documents can carry with them some very important legal consequences.

Generally speaking, there are two types of powers of attorney used in Texas – those that cover decisions of a medical nature, and those that cover non-medical decisions, such as decisions regarding property. Today, I thought it might be helpful to discuss some facets of the latter in a bit more detail.

Although the document itself may come with any of a variety of titles, a commonly used non-medical power of attorney is the Statutory Durable Power of Attorney. The document, depending on the wishes of the client, might become effective immediately, or may become effective only on the occurrence of a future event, such as the client’s (or principal’s) incapacity.

Many clients view the document simply as one of convenience, and they can, in fact, be very convenient. It might help, for example, to give a family member or loved one the ability to sign checks for routine expenses, or permit them to deal with a principal’s bank accounts when the principal is not in a position to do so for herself. When the principal selects this responsible person (or agent,) they often do so because there is a natural trust or confidence between the two.

However, even in these naturally-trusting relationships, the potential for abuse exists, even if it is minimal. For example, what happens when the agent changes the mailing address on the bank statements to his address, instead of the principal’s, and fails to keep the principal advised of the financial activities? What happens when the principal receives no response to questions about the agent’s recent actions?

Beyond matters of simple convenience, powers of attorney create a legal relationship between the principal and the agent. When acting, the agent becomes a fiduciary to the principal, and owes certain and specific legal obligations. One of these primary duties is an obligation to act only in the manner that the principal directs. Another duty of the agent, often overlooked in my experience, is a legal obligation to account to the principal.

Texas law requires an agent to inform and account to the principal of his or her actions. Agents should keep careful and accurate records of their activities and transactions, as a principal may demand a detailed accounting of such things at whatever time they choose. If the agent fails to provide it, the principal may revoke the power of attorney, or may even file suit against the agent to compel the production of the accounting. Many times, these steps will not prove necessary, but the remedies serve to remind the agent that it is the principal running the show. Although nobody ever anticipates having to file suit to keep their agent in line, the availability of such a remedy should give agents reason enough to act correctly, and should give principals reason enough to exercise care and caution when selecting their agent.

Non-Probate Assets

Every estate planning client is unique. There are simply far too many variables to boil effective estate planning down to a “one-size-fits-all” approach. Families and loved ones are diverse and dynamic, and assets vary immeasurably from one circumstance to the next. However, there are some common elements in most cases. The coordination of what are typically known as “non-probate assets” is one of those elements that comes up in the case of nearly every estate planning client that I counsel.

In a nutshell, “non-probate assets” are those assets that are specifically designed to pass to a designated beneficiary, or group of beneficiaries, at a future point. They can come in all sorts of shapes and sizes, and insurance policies represent a perfect example. John Doe purchases a $1 million insurance policy and names his wife, Jane, as the sole beneficiary. At John’s death, his insurer holds up their end of the contract and pays Jane once she informs them of John’s death and provides the necessary identification. Seems easy enough.

However, in many past cases, I have seen decedents’ Wills that attempt to direct who is entitled to certain “non-probate assets,” whether a life insurance policy, retirement account, or other such similar asset. Sometimes they identify the same beneficiary, and sometimes they do not. What if John Doe died leaving a Will that gave his life insurance policy to his girlfriend, and not to Jane, as the policy directed? And so many clients ask the obvious question: When they conflict, do the policy proceeds pass under the Will, or does the insurance policy control where the proceeds go?

The answer, which remains surprising to some, is that the provisions of the Will take a backseat to the provisions of the contract. With very little exception, the Texas Probate Code governs Wills, Trusts and other types of instruments. Insurance policies are not generally governed by the same law. Rather, they are contracts between the insured party and the insurer. When an event (John’s death,) triggers the obligation of the insurer (paying the proceeds to Jane,) the insurer’s obligation is to abide by the contract and pay the proceeds to Jane. Whether or not John left a Will is irrelevant to the insurance company. Similarly, his attempt to direct the proceeds to someone other than his designated beneficiary falls short.

In future posts, look for some discussion of some circumstances where it may work to John’s advantage to coordinate his “non-probate assets” with his Will to achieve the result that he wanted. In the meantime, remember that “non-probate assets” are generally governed by the contract that creates them. Many clients neglect this side of their estate planning, as they are primarily focused on having a well-drafted Will in place. Review the beneficiary designations that you have made on your own “non-probate assets,” and you can be certain that your plan fits together to cover all of your intentions.

Wall Street Journal Article Fails the Test

In the Wall Street Journal’s issue on November 12, 2009, Journal writer Jane Hodges offers a “Cranky Consumer” article in which she compares and contrasts various online programs to create a do-it-yourself Will. The article, entitled “Before It’s Too Late: A Test of Online Wills,” provides a review of how easy each program is to use, and it offers information on costs, services, and technical support for each of the programs reviewed. However, Ms. Hodges seems to fail her own “test.”

The laws related to Wills and trusts vary by state. What may constitute a valid Will in Texas may not be a valid Will in California. Likewise, because of the extreme differences in the probate laws across the various states, the most effective method of planning for your estate in some states may be the creation of a revocable living trust, while in other states the most effective method of handling your estate may involve a traditional Will. Likewise, depending on the overall assets owned by an individual or married couple, including certain tax provisions in a Will or Trust might be useful in saving significant amounts of taxes when one or the other of them dies.

Ms. Hodges article fails to provide a single warning or caution about any of the programs that she reviewed. She does not address whether or not the programs create documents that adhere to the specific laws of the state in which you live (most do not). While she does make passing mention of the fact that only one of the programs even mentioned future taxes, she does not attempt to caution her readers of the fact that this issue along could be significant. Likewise, while she seems to presume that a Revocable Trust is the appropriate method for planning for an estate, she does not point out that this may not be the best advice for each consumer. Most disturbingly, Ms. Hodges makes a cavalier reference to seeking the advice of an attorney, and she seems to suggest that an attorney’s advice is not necessary. However, she does tout the fact that one of the programs allows you to call into their hotline and ask questions.

In reality, do-it-yourself Wills are very often poorly drafted, and they frequently fail to properly conform to the laws of the specific state in which you live. As a result, it can be significantly more expensive to probate the Will at your death, or the Will may be completely invalid because it was not prepared properly. Additionally, the thought that you can call a hotline to have an attorney in California answer “general” questions regarding your Will is preposterous, unless you live in California. You should not accept legal advice from an attorney who is not properly licensed in the state in which you live. In fact, it violates the ethics rules of every state in the country for an attorney to express a legal opinion about laws in a state in which he is not licensed.

While Ms. Hodges’ article may have some value, she should have done a much better job to caution her readers as to the very significant pitfalls that can befall them by using an online Will program rather than seeking the advice of a competent lawyer.