HOW THE LEGISLATURE HAS CHANGED YOUR DOCUMENTS Thomas M. Featherston, Jr. Mills Cox Professor of Law Baylor University School of Law Waco, Texas 2008 Estate Planning, Guardianship & Elder Law UTCLE August 14, 2008 ©Copyright 2008, Thomas M. Featherston, Jr., All Rights Reserved. How the Legislature Has Changed Your Documents 2 TABLE OF CONTENTS I. INTRODUCTION........................................................4 A. Background. ......................................................4 B. The Role of the Court. ..............................................4 II. TYPES OF TESTAMENTARY GIFTS.......................................5 A. Specific Gifts......................................................5 B. General Gifts......................................................5 C. Demonstrative Gifts.................................................5 D. Residuary Gifts. ...................................................5 III. RULES OF WILL CONSTRUCTION. .......................................6 A. Surviving the Testator...............................................6 B. Predeceasing the Testator.............................................6 1. ANTI-LAPSE STATUTE ......................................6 2. 1991 AMENDMENT .........................................7 3. TESTATOR’S INTENT. ......................................7 4. STRICT CONSTRUCTION ....................................7 C. Fractional Gifts. ...................................................7 D. Class Gifts........................................................8 E. Abatement........................................................8 1. COMMON LAW ABATEMENT . ..............................8 2. STATUTORY ABATEMENT. .................................8 3. TESTATOR’S INTENT. ......................................9 4. NONPROBATE ASSETS . ....................................9 (a) Multiple Party Bank Accounts.. 9 (b) Life Insurance .........................................9 (c) Qualified Employee Benefits..............................9 (d) Revocable Trust Assets..................................9 (e) Joint Tenancies.........................................9 (f) Sec. 450(b) of the Texas Probate. 9 (g) Uniform Fraudulent Transfer Act. 9 5. UNRESOLVED ISSUES......................................1 0 6. ADMINISTRATION OF COMMUNITY. 1 0 F. Apportionment....................................................1 0 G. Dissolution of Testator’s Marriage. ...................................1 1 H. Texas Redesignation Statutes. .......................................1 1 I. ERISA Death Benefits..............................................1 1 J. Debtor/Beneficiary.................................................1 2 IV. RULES AFFECTING ONLY SPECIFIC GIFTS. 1 2 A. Ademption by Extinction............................................1 2 1. TEXAS DECISIONS ........................................1 2 2. INVOLUNTARY CONVERSIONS.............................1 3 3. CHANGES IN FORM . ......................................1 3 4. TESTATOR’S INTENT. .....................................1 3 B. Accessions and Accretions...........................................1 3 C. Sec. 70a(a), Texas Probate Code . ....................................1 3 D. Exoneration......................................................1 4 E. Contents.........................................................1 4 3 How the Legislature Has Changed Your Documents F. Insurance. .......................................................1 4 V. RULES AFFECTING GENERAL AND RESIDUARY GIFTS.. 1 4 A. Satisfaction.......................................................1 4 B. Pecuniary Bequests. ...............................................1 5 C. Interest on Pecuniary Bequests. ......................................1 5 D. Sec. 378b, Texas Probate Code.......................................1 5 E. § 116.051. Determination and Distribution of Net Income. 1 6 F. Residuary Estate ..................................................1 7 G. Apportionment Within the Residuary. 1 8 1. THE ARGUMENTS.........................................1 8 2. ANALYSIS................................................1 8 3. MCKINNEY CASE .........................................1 9 VI. OTHER RELATED CONCEPTS...........................................1 9 A. Equitable Election.................................................1 9 1. COMMUNITY PROPERTY ELECTION.. 1 9 2. THE TEXAS RULE..........................................1 9 3. PROCEDURE..............................................2 0 B. Pour Over Planning ................................................2 0 C. Negative Will.....................................................2 0 D. Duties of Life Tenant...............................................2 0 E. Acceleration of Future Interests.......................................2 0 F. Disclaimers by Surviving Spouse. ....................................2 1 G. Effect of Disclaimer on Devisee’s Creditors. 2 1 H. Representation....................................................2 1 I. Community Property Inheritance......................................2 1 J. Pretermitted Children...............................................2 2 K. Cy Pres and the Rule Against Perpetuities.. 2 2 L. Division and Combination of Trusts...................................2 2 M. Non-Marital Children...............................................2 2 N. Adoption. .......................................................2 2 O. Devise to an Attorney. .............................................2 3 VII. CONCLUSIONS........................................................2 3 APPENDIX NO. 1.............................................................2 6 How the Legislature Has Changed Your Documents 4 HOW THE LEGISLATURE HAS in a way that avoids the need to resort to the CHANGED YOUR DOCUMENTS rules construction to determine the proper distribution of the estate (i.e., the testator’s I. INTRODUCTION intent is clearly expressed for all possibilities within the will’s four corners). A. Background However, over the last thirty years or A will, being a revocable disposition so, the legislature has passed a number of of property that becomes effective at the statutory provisions which either override, testator’s death, creates numerous modify or confirm many of the rules of the opportunities for ambiguity and uncertainty common law that had added a measure of because many years can pass before the certainty to the administration of estates and testator dies and the will is probated. During the drafting of wills. During this same time the intervening period of time, the size, nature, period, another phenomena has occurred. The extent and value of the testator’s estate can will has been replaced by the revocable trust, change considerably; intended beneficiaries of as the key dispositive document, in increasing the estate can die or become incapacitated; numbers of estate plans. This outline will other persons of interest may be born or attempt to identify these changes and discuss adopted. how they affect the estate practice. A will which does not anticipate these For example, in some states, statutes changes in property and beneficiaries through have been passed that direct that a revocable the clear expression of the testator’s intent in trust, being a will substitute, should be view of all of the possibilities that could occur interpreted and construed as a will. after the date of execution will likely need Revocable trusts in Texas are still governed either interpretation or construction following generally by the law of trusts. Other will probate. Although frequently used substitutes, like life insurance and retirement interchangeably, the two concepts will be benefits, are also being widely used. distinguished in this article. Interpretation However, the law of wills remains the focal will be described as the process of point due, in large part, to the absence of determining the actual intent of a testator from established rules of construction in these other the four corners of the will and any other areas, and throughout the outline, the admissible extrinsic evidence; it is factual in differences in results when using a will nature. Will construction will be used to substitute rather than a will will be noted. describe the legal process of ascertaining the One conclusion that will be reached is that testator’s "deemed intent" when the rules of there are relatively few generally accepted interpretation do not reveal the testator’s rules of construction for the will substitutes. actual intent. Historically, a court resolved the controversy by applying an established, or B. The Role of the Court creating a new, rule of construction where the testator failed to express his or her intent in The Texas Supreme Court has the will itself. described the role of a court in the interpretation and construction of a will. The Accordingly, the rules of will focus should be on the testator’s intent, intent construction are important not only to the to be ascertained from the language found probate lawyer representing the personal within the four corners of the will. The focus representative or beneficiaries of the estate but should not be on what the testator intended to also to the estate planner whose understanding write, but the meaning of the words actually of the rules can help the planner prepare a well used. Accordingly, courts are not to redraft drafted will that does not need construction in wills to vary or add provisions “under the the future. In other words, a well drafted will, guise of construction of the language of the