The Contested or Nonperforming Administration -- Handling the Hot Administration Without Burning Yourself

A. Scope. This presentation is intended as an overview of common probate procedures and a sampling of probate problem areas for experienced legal secretaries. Space and time prevent a complete discussion of these subjects, and other interesting areas, such as guardianships, have been excluded. Opinions ventured by the author are those of the author and do not represent positions of his firm or clients in any pending matter.

B. A Hypothetical Case. Last week, your attorney was hired to probate the Will of one John Dowell, a prominent local merchant who recently died. John was survived by Merry Dowell, a former cocktail waitress who is the young widow of his second marriage, two infant children of that marriage, and two adult children of the first marriage. The two branches of the family are “inclined toward hostility.”

John's Will was executed shortly before he died. It names Merry as his independent executrix, and leaves his estate in trust to Merry as trustee, to be used for the support of Merry and all the children, with the remainder to the children of the first marriage. You have now learned that John's business was having financial problems before he died, and he was acting oddly at times. The children of the first marriage have filed an answer to the application, alleging that Merry should not be appointed as executrix. The bank and two trade creditors have already delivered demand letters threatening to file claims.

II. THE ARENA -- UNIQUE ASPECTS OF THE PROBATE PROCEEDING

Before we consider contested proceedings, it will be helpful to review the nature of probate proceeding in general. To a person accustomed to regular civil litigation, this is a very peculiar sort of proceeding ....

A. In Rem Proceeding.

Probate proceedings are in rem proceedings. Prob. C., § 2(e). In other words, the judgments are not for or against any person, but determine the status of the estate, which is the subject matter of the proceeding. Turcotte v. Trevino, 499 S.W.2d 705 (Tex. Civ. App. -- Corpus Christi 1973, writ ref. n.r.e.), later app. 544 S.W.2d 463, rev'd on other grounds, 564 S.W.2d 682 (Tex. Sup. 1978). The entire administration of the estate, from the filing of the application for probate to the final discharge of the last personal representative, is one proceeding for the purposes of jurisdiction. As a proceeding in rem, the actions of the probate court, if authorized by statute and regular in form, are binding on everyone having an interest in the estate. Gardner v. Union Bank & Trust Co., 159 S.W.2d 932 (Tex. Civ. App.--Fort Worth 1942, writ ref. w.o.m.).

Note that since the proceedings are in rem, a person need not have been joined as a party to be adversely affected by the proceedings!

B. One Proceeding but Multiple Final Orders.

Perhaps the oddest aspect of the probate proceeding for a person accustomed to the concept of a civil trial culminating in a single, final judgment, is the probate concept of the "final order." As mentioned above, there is but one proceeding in the usual probate case, from the initial application to the final discharge of the last personal representative. However, each "final order" in the probate process is appealable to the applicable court of appeals. Prob. C. § 5(e). To be a final order, the decision or order need not be one that fully and finally disposes of the entire probate proceeding. An order is a final order if (1) There is an express statute (such as one for declaration of heirship) that declares that phase of the probate proceeding to be final and appealable; or (2) There is a severance order; or (3) The order disposes of all issues in the phase of the proceedings for which it was brought. Crowson v. Wakeham, 897 S.W.2d 779 (Tex. Sup. 1995); Kelly v. Barnhill, 188 S.W.2d 385 (Tex.Sup. 1945); Fischer v. Williams, 331 S.W.2d 210 (Tex.Sup. 1960).

Examples of such "final orders" are the following:

--Granting or denying an application for letters testamentary or of administration, Coombs v. Bush, 15 S.W.2d 602 (Tex.Sup. 1929);

--Appointing or refusing to appoint a temporary administrator, Long v. Richardson, 62 S.W. 964 (Tex. Civ. App. 1901, no writ);

--Making permanent the appointment of a temporary administrator, Goldstein v. Susholtz, 105 S.W. 219 (Tex. Civ. App. 1907, writ ref.);

--Approving or classifying claims against an estate, Sections 312(e) and 317(c), Prob. C.;

--Approving or modifying the inventory, Anderson v. Anderson, 535 S.W.2d 943 (Tex. Civ. App.-- Waco 1976, no writ); and

--Confirming or disapproving a report of sale, § 355, Prob. C.

C. Who are Parties.

The possibility of the existence of multiple matters in the same proceeding can make it a challenge to determine who are parties to a given proceeding and who must be given notice. Note that a contest over the appointment of an administrator may be of little interest to those involved in a contested claim against the estate. This issue can be especially important since the proceeding is in rem and actual notice may not be required in order for a determination to be binding.

The mechanism provided by the Probate Code for dealing with this problem is § 33(j), Request for Notice, which provides that any person interested in an estate may file a written request with the Clerk to be notified of all papers, or of particularly designated papers filed in the estate. The section states that the Clerk is to send copies of the requested documents. However, it also provides that “failure to comply with the request shall not invalidate any proceeding,” so the section is only a partial solution. In my experience, the Clerk’s compliance with requests for notice is uncertain and variable. However, this notice is also binding on other counsel, so it is worth sending it out in a contested estate.

The only real solution to this problem is to frequently check with the Clerk’s office to be sure that your office has received copies of all papers which have been filed before the Court enters a ruling on the merits.

D. Scope of Jurisdiction.

The County Courts at Law, and the constitutional county court, have exclusive jurisdiction to hear “all matters incident to an estate.” § 5(c), Prob. C. The judges of such courts may hear any probate matter sitting for the judge of any of such courts.

So, what matters are “incident to an estate”? These matters obviously include: Probate of wills, issuance of letters testamentary or letters of administration, determination of heirship. § 5A(a), Prob. C. However, they also expressly include:

– All claims by or against an estate;

– All actions for the trial of title of land incident to and estate and for the enforcement of liens incident to an estate;

– All actions for the trial of the right of property incident to an estate;

– Actions to construe wills;

– Generally, all matters relating to the settlement, partition, and distributions of estates of deceased persons.

Note that the phrase “incident to an estate” is defined differently for district courts and statutory probate courts. Because of the difference in the breadth of the definitions in the two different classes of courts, the following matters are reserved to the district courts and statutory probate courts:

– The interpretation and administration of testamentary trusts;

– The applying of constructive trusts. § 5A(b), Prob. C.

E. Transfers and Appeals.

If the probate matter is filed in a county court at law or other statutory court exercising the jurisdiction of a probate court, then that court is to hear and determine the entire probate proceeding, and a transfer to the district court is unauthorized and void. Meek v. Mitchusson, 588 S.W.2d 665 (Tex. Civ. App.-- Eastland 1979, writ ref'd n.r.e.).

All appeals of final orders of any court exercising original probate jurisdiction are to the Courts of Appeals. Prob. C., § 5(e).

F. Citation and Notice.

No person need be cited or otherwise given notice except where the Probate Code expressly requires it, or where ordered by the Court. § 33(a), Prob. C. Citations by personal service, posting, or publication are returnable on the Monday next after the expiration of TEN (10) days after the date of service. § 33(f), Prob. C., not the twenty days you may be accustomed to in civil court. The only form of citation requiring 20 days notice is citation by mail.

Since the probate proceeding is in rem, citation on an application for probate of a written will produced in court or for letters of administration is by posting, and no personal service is required. §128(a), Prob. C. Citation upon an application to probate a lost will must be by personal service on heirs who are residents of Texas whose address is known, and by publication for all other heirs, including unknown heirs.

No application for probate or for issuance of letters can be acted upon until service of citation has been made.

III. ROUTINE ISSUES -- WILLS, INVENTORIES, AND ACCOUNTS.

In this section I will discuss several procedures which are the core of routine probate business. This is not intended as a full exposition of the law, but as a (hopefully) helpful commentary when facing some common issues.

A. Will Proof.

Texas recognizes both the holographic (hand-written) will and the more usual written will signed by the testator and witnessed by two or more witnesses. Texas also recognizes the noncupative or oral will, but this is very rarely encountered. A will may be made self-proved, but this not essential.

§ 84, Prob. C., sets forth the elements of proof of a written will produced in court. However, this must be read together with the provisions of § 81, Contents of Application for Letters of Testamentary, and § 88, Proof Required for Probate and Issuance of Letters Testamentary or of Administration.

In some areas there seems to be some confusion about the effect of a self-proved will, with some attorneys having the impression that no proof need be offered on the application if the will was made self-proved. The Probate Code does not support this view. § 88, Proof Required, is divided into five sections, and the first contains the general proof required pursuant to any application, whether to probate a will or for letters. These elements are:

1.That the decedent is dead and four years have not elapsed since his death (the fact and date of death cannot be assumed);

2. That the court has jurisdiction and venue over the estate (that the Decedent was a resident of the county or had the major part of his property there is not assumed);

3.That citation has been served and returned as required by law; and

4.That an applicant for letters testamentary or letters of administration is entitled thereto and not disqualified.

Some testimony is needed to establish that the name on the Will is that of this Decedent, and that the executor named in the Will is the same person as the applicant. In addition, § 88(b)(3) requires proof that the will was not revoked by the testator, even if the will was made self-proved.

The requisites of a will are contained in § 59, Prob. C.:

"Every will and testament, except where otherwise provided by law, shall be in writing and signed by the testator in person or by another person for him by his direction and in his presence, and shall, if not wholly in the handwriting of the testator, be attested by two (2) or more credible witnesses above the age of fourteen (14) years who shall subscribe their names thereto in their own handwriting in the presence of the testator..."

The will may be made self-proved, so that the will may be admitted to probate without the testimony of any subscribing witness by having the testator and the witnesses execute a self-proving clause, which must be substantially in the form set out in § 59, Prob. C. This is the most common form of will.

To be self-proved, a will must first have been properly executed under the rules governing wills generally. The self-proving clause, if used, is not a part of the will but is considered as a separate document. If a witness has failed to sign the will then a signature in the self-proving clause can supply the missing signature, but in that case the will is not considered to be self-proved and testimony as to proper execution is required. This is much more forgiving than the rule prior to 1991, when the absence of a necessary signature in the will could not be supplied from the self-proving affidavit, with the result that the purported will could not be admitted to probate. Boren v. Boren, 402 S.W.2d 728 (Tex.Sup. 1966). Thankfully, the Boren rule is dead.

If the will has not been made self-proved, then the due execution of an attested written will may be proved by the testimony or affidavit of either of the witnesses, taken in open court. Prob. C., § 84(b)(1). If neither of the attesting witnesses is available for the reasons set out in § 84, a wide variety of alternatives is provided in subparagraphs (b)(2) and (3) of §84. If the will is holographic (wholly in the handwriting of the testator) then the will, if not made self-proved, may be proved by two witnesses to the handwriting of the decedent. §84(b), Prob. C. In either case, the testimony may be furnished by depositions.

If no administration of the estate is necessary and the probate of the will is necessary only to document the passage of ownership of property or the like, then the court is authorized to enter its order admitting the will to probate as a "Muniment of Title" only. § 89C, Prob. C. The Probate Code requires specific proof that there are no unpaid debts owing by the Decedent’s estate, excluding debts secured by liens on real estate. §§ 89B(a)(4) and 89C(a), Prob. C. This requirement was added by the 1997 amendments and only applies to the estates of persons who died on or after September 1, 1997.

B. Inventory, Appraisement, and List of Claims.

The executor or administrator is required to file a sworn inventory and list of claims within 90 days after issuance of letters testamentary or of administration, unless the court permits a longer time or requires an earlier inventory. Prob. C., §§ 250 and 251. The claims to be listed are the claims of the estate against others, not claims against the estate. § 251, Prob. C. Although there is provision for the appointment of appraisers on the request of any party or if the court deems it necessary, § 248, Prob. C., appraisers are seldom used in present times, and the order typically waives the appointment of appraisers.

Since the U. S. estate tax return and the Texas inheritance tax return are due within nine months after date of death in taxable estates, it is fairly common for the applicant to request the court to extend the deadline for the inventory in these estates. The extension permits the same values to be used for both, and there seems to be little harm in granting the extension unless an interested party requests an earlier filing.

The judge is to review the inventory and list of claims when filed and either approve the inventory or, if disapproved, order the return of a new inventory within 20 days. § 255, Prob. C. There are provisions for removal of the personal representative for failure to file an inventory, as discussed later under "Radical Surgery -- Removing the Personal Representative."

C. Annual Accounts.

Except for independent executors, the estate's representative is required to file annual accounts. § 399, Prob. C. Independent executors are not ordinarily required to file annual accounts, since by definition no other action is to be had in relation to the settlement of the estate other than the probating and recording of the will and the return of the inventory, appraisement and list of claims. Prob. C., § 145(b). Actions to compel accounts in such estates are discussed below under the section relating to the nonperforming executor or administrator.

Annual accounts are the primary tool that a beneficiary has available to monitor the performance of the personal representative, and the simple necessity of making and filing an annual account is of powerful assistance to the attorney in holding the personal representative to his or her duties. Unlike some of the Probate Code, the provisions governing annual accounts are easy to find and easy to understand, as are the penalties for noncompliance. The judge who is presented with a nonconforming account may wish to conduct a hearing to determine why the personal representative or his attorney cannot follow the checklist provided by § 399(a), Prob. C.

The supporting information required to be attached to the annual account is specified in § 399(d), which may be summarized as follows:

1.Proper "vouchers", or in the absence of vouchers, then evidence satisfactory to the court, for each item of credit claimed in the account;

2.An official letter from the bank or other depository holding money of the estate, showing the amounts in general or special accounts;

3.Proof of the existence and possession of securities owned by the estate, as well as other assets held by a depository subject to orders of the court.

When filed, the annual account is to remain on file for ten days before action by the judge. § 401, Prob. C. This section specifically provides that: "No accounting shall be approved unless possession of cash, listed securities, or other assets held in safekeeping or on deposit under order of court has been proved as required by law." § 401(d), Prob. C.

The approval of the annual account is made an important event in the administration by the provisions of § 401(e), Prob. C., which require the court to order the full or partial payment of unpaid claims when approving the account.

Annual accounts are to be filed each year until the estate is closed. § 399(b), Prob. C.

D. Sales.

A well-drafted will that provides for independent administration will usually also authorize the Independent Executor/Executrix to sell property (§ 332, Prob. C.), but many wills do not, especially older wills. If the will does not include this power, and in all dependent administrations, no sale of estate property is to be made without a court order authorizing the sale. § 331, Prob. C. While the following discussion mentions real property, sales of personal property are also to conform to the same requirements, so far as is possible. § 334, Prob. C.

Where real property is to be sold, the application must describe the real estate with an adequate legal description, and must have an exhibit verified by affidavit, showing in detail the condition of the estate, claims outstanding, property remaining on hand, and other facts to show the need for the sale. § 342, Prob. C. The judge is to make a written order for a hearing, § 343, Prob. C., and citation must be issued by posting. § 344, Prob. C. This means that at least 10 days will elapse between the filing of the application and the hearing.

If the court is satisfied that the sale should be authorized, an order of sale is signed. It must specify the property to be sold, whether the sale will be public or private (usually private), the reason for the sale, the terms of the sale, and whether an increased bond will be required. § 346, Prob. C. Note that the executor or administrator cannot be the purchaser, except if authorized by the will, or if the contract for sale was executed before the Decedent’s death, or upon special authorization by the court after personal notice to each distributee and pending creditor. § 352, Prob. C.

Within 30 days after the sale is made, the personal representative must file a report of sale describing the actual terms of sale and usually stating that the purchaser is ready to comply. § 353, Prob. C. Five days must elapse between the date of filing the report of sale and the entry of an order confirming sale, not counting the date of filing and the date of an order confirming sale. § 355, Prob. C. Thus, the minimum time between the date of the order of sale and the date of the order confirming sale is actually six days, if calculated under the usual rules provided by Rule 4, Tex. R. Civ. P. Only then can the personal representative deliver a deed. § 357, Prob. C.

E. Temporary Administrations.

The appointment of a temporary administrator is provided by the Probate Code in two very distinct situations -- emergencies, and during the pendency of contested appointments. Under § 132, Prob. C., a temporary administrator may be appointed pending a contest of the probate of a will or a contested application for letters of administration. The court is authorized to give the temporary administrator full power to process claims against the estate and to preserve the estate, as in a regular permanent administration, with a commensurate bond. Note that the powers of temporary administrators are only those expressly granted by the court, and acts of a temporary administrator which have not been expressly authorized are void. § 133, Prob. C. In the event of a will contest which is commenced after the appointment of an executor, the independent executor continues to serve pending the will contest and any appeal. Corpus Christi Bank & Trust v. Alice Nat’l Bank, 444 S.W.2d 632 (Tex. Sup. 1969).

The other situation is where immediate action is needed in the interest of a decedent’s estate -- usually to collect or preserve an estate. § 131A, Prob. C. This appointment is made immediately by written order, and the duration of the appointment cannot exceed 180 days unless the appointment is made permanent. The order must appoint the designee as “temporary administrator” for the designated period, define the powers conferred, and set the bond. The appointee must notify the known heirs by certified mail on the date the Clerk issues letters of appointment. If a contestant files a request for hearing within 15 days after the letters of appointment were issued, a hearing must be held within 10 days, but if no request for a hearing is made before the 15^th day, the appointment continues for the period specified in the order.

F. Closing Estates.

Estates which are administered by independent executors are often left open, as there is no statutory requirement that they be closed, absent complaints under §§ 149A, 149B or 152, Prob. C., which are discussed below. An independent administration may be closed by the executor by filing an affidavit, and no action by the court is required in this case. § 151, Prob. C.

In a regular dependent administration of a decedent’s estate under court supervision,

the estate is to be closed when all debts known to exist against the estate have been paid, at least so far as the assets permit, and when there is no further need for administration. § 404, Prob. C. To close the estate, the administrator files an account for final settlement with the court (§ 405), the court sets a hearing date, a copy of the final account is served on each distributee (§ 407), and at the hearing the court orders a distribution to be made (§ 408). When the distribution has been made, the administrator files a motion to close estate with receipts for the distributions which have been made, and if the court finds the distributions to have been properly made, the court orders the estate closed [§ 408 (d)].

The contents of the account for final settlement are specified in § 405, Prob. C. This account can reference and adopt the contents of prior proceedings, but it must show the persons entitled to receive the estate and any advancements which have been made to the beneficiaries, in addition to the usual statement of assets, claims, receipts and disbursements. It must also show that all necessary tax returns have been filed and the taxes paid, and that the administrator has paid all required bond premiums. The names and shares of the heirs to the estate will usually have been previously determined in a proceeding to determine heirship under §§ 48-56, Prob. C., and the names of the creditors and the sums to be paid them will have been determined by the claims process.

Citation on the account for final settlement is issued by the Clerk. It must state the time and place when the final account will be considered by the court. This notice must be given to each heir or beneficiary of the decedent’s estate by certified mail, and must include a copy of the account for final settlement. The court is given the authority to require further notice, or to waive notice. § 407, Prob. C.

The action of the court is to satisfy itself that citation has been duly served, and then to examine the account, and audit or restate it if necessary. § 408(a), Prob. C. If any estate remains in the hands of the administrator, the court is to order the partition and distribution to be made. If no property remains, the court is to simply order the estate closed. A final account is not to be approved unless the court finds that all inheritance taxes due the State of Texas have been paid. § 410, Prob. C.

IV. REPRESENTATIVE TYPES OF PROBLEM ESTATES.

A. The Contested Application for Appointment.

The contested application usually comes up in one of two situations, which may be combined: (1) The other beneficiaries are concerned that the applicant cannot or will not do the job right; or (2) This is the first skirmish in a battle for an interest in the estate. We will look at this situation more closely in a moment.

B. The Nonperforming Executor or Administrator.

This is the situation in which the executor, administrator, or guardian (the personal representative) is not reporting to the other heirs, is not filing required accounts, or perhaps is mismanaging the estate.

C. The Insolvent or Illiquid Dependent Administration.

Special care is required where there may not be enough estate to go around. We will look at some key issues in an estate such as John Dowell's, including ranking the claims and passing on requests for homestead and family allowances.

D. The Will Contest.

A full discussion of the will contest is well beyond the limits of our allowable time. However, the prompt appointment of a good temporary administrator will simplify the rest of the issues.

V. THE CONTESTED APPLICATION FOR APPOINTMENT.

A. Separate Issue from Will Contest.

In our sample estate, no will contest has been filed -- yet. The issue is going to be whether you can get Merry, the widow, appointed as independent executrix.

B. Timing of the Contest.

The proposal of a temporary administration is likely to come up in any event if the will is contested or if the appointment of a personal representative is contested.

If a disinterested and efficient administrator is appointed early in the case, it is possible that the administration will be substantially complete before the contest is completed, and that very little will be left to do besides to distribute the estate according to the directions of the will or the laws of descent and distribution, depending on the outcome of the contest. I recommend that every effort be made to have the court appoint a qualified temporary administrator with broad powers when faced with a temporary administration during the pendency of a contest.

As previously discussed, the court has authority to appoint a temporary administrator under § 132 to administer the estate during the pendency of a contest of a will or the contest of the appointment of an executor or administrator. Although § 131A, Prob. C., authorizes the appointment of a temporary administrator, there are significant limitations on the effectiveness of the administration that can be conducted under this section. The duration of the appointment must be specified in the court's order of appointment and cannot exceed 180 days unless made permanent. A § 131A appointment, if granted, is obviously not suited for the administration on the contested estate, and should probably be converted to a § 132 temporary administration if a contest later develops.

C. Qualifications Required. To be qualified for appointment as executor or administrator, the person appointed must not be disqualified under § 78 of the Probate Code. The preceding § 77 of the Code specifies the order in which persons are to be granted appointment:

--The executor named in the will;

--The surviving spouse;

--The principal devisee or legatee;

--Any devisee or legatee under the will;

--The next of kin in order of descent;

--A creditor of the deceased;

--Any person of good character residing in the county who applies for appointment; and

--Any other person not disqualified.

The order of persons to be considered is complicated by § 79, Prob. C., which allows the surviving spouse or heirs to waive appointment in favor of another qualified person, who in effect takes on the status of the person waiving appointment. Stevens v. Cameron, 101 S.W. 792 (Tex.Sup. 1907); Schwalbe v. Cooper, 211 S.W.2d 585 (Tex. Civ. App.--Waco, 1948, writ ref'd. However, in order for the right to appoint another to be effective, the person renouncing must have the superior right to be appointed, and must not himself be disqualified, or the designation will not be effective. Zamora v. Garza, 129 S.W.2d 401 (Tex. Civ. App.--San Antonio 1939, no writ).

D. Disqualifying conditions.

Although the list of disqualifying conditions in § 78, Prob. C., is short, there is a fairly substantial body of law on the subject of disqualified fiduciaries. The list of persons who are not qualified to serve as an executor or administrator may be summarized as follows:

--A minor;

--An incompetent;

--A convicted felon, unless duly pardoned or his civil rights restored;

--A non-resident who (or which) has not filed with the court an appointment of a resident agent for service;

--A corporation not authorized to act as a fiduciary in Texas; and

--A person whom the court finds unsuitable.

So, whom may the court find unsuitable?

Section 178 (b) of the Probate Code might seem to provide a separate statutory ground of disqualification. It provides for letters of administration to issue where the executor fails to qualify within 20 days of appointment or neglects for 30 days to present the will for probate. However, several cases have indicated that some fairly substantial delay will not, standing alone, disqualify the executor. Higginbotham v. Alexander Trust Estate, 129 S.W.2d 352 (Tex. Civ. App.--Eastland 1939, writ ref'd); Alford v. Alford, 601 S.W.2d 408 (Tex. Civ. App.--Houston [14th Dist.] 1980, no writ). The latter case involved a delay of 50 days in filing the application.

The contest of the appointment need not be made by another applicant. Any "interested person" may make application for the appointment of an administrator if the person named as executor is disqualified. Prob. C., § 76 (c). The definition of “interested person” includes heirs, devisees, spouses, creditors, and any others having a property right in, or claim against, the estate being administered. Prob. C., § 3 (r); Boyles v. Gresham, 309 S.W.2d 50 (Tex.Sup. 1958). While the early Texas courts seemed to take the position that a person has an absolute power to select his own independent executor, Higginbotham v. Alexander Trust Estate, supra, more recent cases seem to indicate that the usual fiduciary qualifications are required.

Certainly there is substantial discretion allowed to the trial court in finding a disqualification for the appointment of an administrator. Both Haynes v. Clanton, 257 S.W.2d 789 (Tex. Civ. App.--El Paso 1953, writ dism'd by agr.), and Bays v. Jordan, 622 S.W.2d 148 (Tex. App.--Fort Worth 1981, no writ) have used this language:

"Clearly, one whose personal interests are so adverse to those of the estate or the beneficiaries thereof that both cannot be represented by the same person is not a proper person to administer the estate."

and

"In the case of an administrator claiming ownership, the estate's title is denied by the claimant. In such a case ... the administrator could only represent himself without embarrassment, he could not represent the estate."

To the same effect is Formby v. Bradley, 695 S.W.2d 782 (Tex. Civ. App.--Tyler 1985, writ ref'd n.r.e.). In Bays v. Jordan, supra, the Court of Appeals held that the probate court had abused its discretion in appointing an administrator who was also claiming ownership to property claimed by the estate.

The list of exclusions under § 78, Prob. C., is not exhaustive and other disqualifications can exist. Stevens v. Cameron, 101 S.W. 791 (Tex.Sup.); Haynes v. Clanton, supra. It has been stated that, "A person applying for letters of administration has always been required to have the character, and to possess the degree of honesty and integrity, required of a trustee." Cain v. Haas, 18 Tex. 616 (1857); Harris v. Hicks, 34 S.W. 983 (Tex. Civ. App. 1896); Stevens v. Cameron, supra; Haynes v. Clanton, supra. This is logical since the personal representative has the same standard of care as a trustee. Humane Society of Austin and Travis County v. Austin National Bank, 531 S.W.2d 574 (Tex.Sup. 1975), cert. denied 475 U.S. 976 (1976).

E. Counterstrokes and Defenses.

Contesting an application for appointment has its hazards, and it has recently become more hazardous. If the will contains a "no contest" clause, the hazard is obvious for a potential heir. However, there are other, less obvious hazards:

1. Frivolous Claims. In the Texas Civil Practice and Remedies Code at §§ 9.001 et seq. are sanctions for frivolous claims, and these sanctions are echoed to some extent in the amended Rule 13, Tex. R. Civ. Proc. In essence these impose sanctions upon the party or the attorney signing a pleading that makes claims which are both groundless and brought in bad faith, or groundless and brought for an improper purpose such as unnecessary delay or the needless increase in the cost of litigation.

2. Wrongful Interference With Inheritance Rights. With Texas' recognition of the tort of wrongful interference, either the estate contestant or the claimant acting in violation of established law may face a claim of tortious interference where the contest is in connection with a prospective inheritance or administration and the opposing party's actions are demonstrated to be unfounded. King v. Acker, 725 S.W.2d 750 (Tex. App.--Houston [1st Dist.] 1987, no writ), cited with approval, Weatherly v. Martin, 754 S.W.2d 790 (Tex. App.--Amarillo 1988, no writ). See, however, Neill v. Yett, 746 S.W.2d 32 (Tex. App.--Austin 1988, err. den.) which suggests considerable incertitude about this theory of recovery.

3. Rule for Costs. § 12, Prob. C., provides that when a person other than the personal representative of an estate files an application, complaint, or opposition in relation to the estate, that party can be required to give security for the probable costs of the proceeding. Rule 143, Tex. R. Civ. Proc., makes similar provision, and provides that the order for costs may be made by the court on its own motion. For an example of the rule for costs in the context of a will contest, see Clanton v. Clark, 635 S.W.2d 567 (Tex. Civ. App.-- 1982), aff'd 639 S.W.2d 929. I find it difficult to imagine when the court would not grant such a motion, as it is to the benefit of the court officers and the estate not to have uncollectible costs accrue. Note that the personal representative is not required to post security for costs. § 12(c), Prob. C.

VI. THE NONPERFORMING EXECUTOR OR ADMINISTRATOR: HEREIN OF ANNUAL ACCOUNTS, REMOVALS, AND CLOSINGS.

Our second typical problem area in estate administration revolves around what I call the "non-performing administrator." As an illustration of a typical set of problems, let's assume that about 18 months ago your attorney got the court to appoint Merry Dowell, the widow, as the independent executrix of old John Dowell's estate. No will contest was actually filed and the other side of the family couldn’t persuade the court that Merry was disqualified to serve. She was appointed to serve without bond, as the will provided.

Now, a fresh round of pleadings has been filed, claiming that Merry won't account for the estate or for her actions, that the bills aren't being paid, and that she should be removed or punished. Let's also keep in mind what might happen if, instead of an independent executrix, this were a regular dependent administration.

Where do the other heirs stand, and what might the other side do to force the Independent Executrix to administer the estate properly?

A. Getting the Facts -- Accountings and Disclosures.

If you are dealing with an independent executor rather than a regular dependent administrator or executor, the primary source for information will be through a demand for an accounting under § 149A of the Probate Code. This section, which was added by a series of amendments between 1971 and 1977, authorizes accountings to be required from the independent executor at any time after 15 months from the date of the order appointing the independent executor. The accounting may be required by any "interested person", and must be furnished within 60 days after receipt of the demand. After the first accounting, subsequent accountings may be required at intervals of not less than 12 months. The interested person may apply to the court for enforcement if the § 149A accounting is not provided within the 60 day limit.

If as much as two years have elapsed since appointment of the independent executor, a person interested in the estate may also directly petition the court for an accounting and distribution under § 149B of the Probate Code. Unless or to the extent that the court does not find that there is a continued necessity for administration, the court is to order a distribution of the estate.

Under the facts of our example, since more than 15 months have elapsed following the appointment of Merry Dowell as independent executrix, the heirs can compel an accounting but cannot yet compel a distribution under these two sections.

Of course, the reporting and accounting provisions are much more comprehensive in the regular dependent administration than in the independent administration. If we were to suppose that Merry, our widow/independent executrix, were instead an administrator with will annexed or a regular dependent administrator, she would be required to file annual accountings, unless waived by the court. § 399, Prob. C. In addition, after the inventory has been filed in a dependent administration, anyone entitled to a portion of the estate may upon written complaint require the executor or administrator to be cited to appear and render under oath an exhibit of the condition of the estate. Prob. C., § 262.

B. Forcing Compliance -- Bonds and Penalties.

Several provisions of the Probate Code and the common law offer the heirs and the probate judge substantial assistance in getting the attention of the wayward executor or administrator. These include some surprisingly harsh or inventive remedies.

1. Recovery of Fees and Expenses. Section 245 of the Probate Code allows recovery against the personal representative and his sureties for costs of removal, unauthorized expenditures, and reasonable attorneys fees incurred in removing him and in obtaining his compliance regarding any statutory duty he has neglected. This is express statutory authority to shift the burden of noncompliance from the heir to the nonperforming executor.

In my opinion, the probate courts should use this section, which in effect punishes the executor for failure to perform statutory duties, in very much the same fashion as the discovery sanctions for failure to make discovery. The same considerations apply: So long as the courts are willing to allow the obligated party to shirk his duties, there is every reason to expect that the noncompliance will continue. So long as the courts were unwilling to effectively enforce the civil discovery rules, every advantage lay with the party who failed to comply with the rules, and it was not until the courts began to enforce the discovery rules seriously that the discovery "games" abated. Similarly, so long as a probate judge allows the executor to "stonewall" requests for accountings, the executor has the resources of the estate at his disposal, in effect fighting the heirs with their own money. At the first sign of a problem administration, a touch of the whip, in the form of an award of attorney's fees against the executor or administrator, may forestall a serious loss and inequity to the heirs of the estate.

2. Common-law Suit for Settlement of Estate and devastavit. Texas recognizes the beneficiary's right at common law to bring suit against the executor for an accounting and distribution of the estate. Oldham v. Keeton, 597 S.W.2d 938 (Tex. Civ. App.--Texarkana 1980, writ ref'd n.r.e.). This action invokes the general powers of the court under the Declaratory Judgments Act, and authorizes the court to settle the fiduciary's accounts, order a distribution if appropriate, and surcharge the fiduciary in a claim for devastavit, usually defined as mismanagement or waste of the estate. Gerrard v. McKenzie, 61 Tex. 40 (1884); Griggs v. Brewster, 62 S.W.2d 980 (Tex.Sup. 1933). This remedy is also expressly authorized against trustees. Texas Trust Code, § 115.001(a). Where the situation is complicated, this may be the wronged heir's best overall remedy. This is especially true in view of the statutory limitations on the power of the statutory county courts at law (and the constitutional county courts) which prevent these courts from imposing a constructive trust to follow misapplied property. Prob. C., § 5A(a), Ragland v. Ragland, 743 S.W.2d 758 (Tex. App.--Waco 1987, no writ).

One court has mentioned the tort of wrongful interference with inheritance rights as permitting action against an executor individually for making and receiving payments without just cause. Weatherly v. Martin, 754 S.W.2d 790 (Tex. App.--Amarillo 1988, no writ). However, this is probably only an alternate theory for the long recognized action for devastavit.

3. Bonds. An order for an increased bond furnishes the probate judge a broad arena for the exercise of discretion in the protection of the estate without directly discharging the executor. Under Prob. C. § 149, the independent executor may be required to give bond on the application of any "interested person" and a showing that the independent executor is mismanaging the property or has betrayed or is about to betray his trust, or has in some other way become disqualified. However, the entry of an order requiring a new bond automatically suspends the authority of the personal representative (except to preserve the property of the estate) until the new bond has been given and approved. Prob. C., § 207.

If the order requiring the new bond recites the reasons for requiring it, the practical fact is that the executor may find it difficult or impossible to obtain the new bond, effectively removing the executor or ensuring that the surety will closely monitor his actions.

In addition, the surety can also petition for termination of the bond at any time, halting the acts of an executor in which the surety no longer has confidence. § 210, Prob. C.

4. Wrongful Withholding Penalty. Surely one of the grand champion harsh penalties is the penalty for wrongful withholding. Where the executor wrongfully withholds property after a required distribution, §§ 384 and 414 of the Probate Code provide a penalty of 10% of the value of the property wrongfully withheld for each month or fraction of a month that the property is so withheld! This penalty is the personal liability of the executor, and it has been held that such damages may be awarded against an independent executor. Richardson v. McCloskey, 261 S.W. 801 (Tex. Civ. App.--Austin 1924), rev'd on other grounds, 276 S.W. 680 (Tex. Comm. 1925).

5. Statutory Penalty for Failure to File Reports. Upon written complaint filed by any person interested in the estate, the court may cite "any personal representative" to appear and show cause why he should not file the exhibit or report. Upon hearing, the court may order him to file the exhibit or report and may, unless good cause is shown for the failure, revoke the letters of the personal representative and fine him not over $1,000. Prob. C., § 403. A slightly different and more limited remedy for failure to file annual accounts is provided by § 400, Prob. C., and the fine in that section is limited to a maximum of $500.

6. Criminal Charges. If the wrongful acts by the fiduciary are deliberate, your attorney or client may feel that it is their duty to report the matter to the District Attorney for prosecution.

a. Theft by Fiduciary. If there has been theft or misappropriation, the applicable section will probably be § 32.45, Texas Penal Code, which provides as follows:

"A person commits an offense if he intentionally, knowingly, or recklessly misapplies property he holds as a fiduciary or property of a financial institution in a manner that involves substantial risk of loss to the owner of the property or to a person for whose benefit the property is held."

The offense is a misdemeanor if the value of the property is less than $1,500 and it is a felony if the value is more than $1,500 or more.

b. Perjury. If you are faced with deliberate, sworn misstatements of objective facts, the applicable offense is probably Aggravated Perjury, which is a third degree felony. The elements of the offense are provided in §§ 37.02 and 37.03, Tex. Penal C., and would ordinarily be satisfied by the sworn accountings provided to be made by the Probate Code, although prosecution in this connection seems to be rare.

7.Discovery Sanctions. Although the sanctions provided by the Rules of Civil Procedure are outside the scope of this presentation, they obviously overlap and compliment the remedies unique to the probate setting. The mere threat of striking the pleadings or dismissing one of the parties is likely to marvelously aid the concentration of a party who is not performing in the area of discovery.

8.Master in Chancery; Auditor. Contested accountings tend to be unwieldy from an evidentiary standpoint, and fortunately the court precedents and the Rules of Civil Procedure furnish a way to cut through most of the underbrush. Rule 171, Tex. R. Civ. P., expressly authorizes the appointment of a master in chancery, whose powers are to be specified by the court. The rule provides for requiring the production of evidence and for the parties to compel service of process and the attendance of witnesses. Compensation is taxed as costs of suit.

Although Rule 166(f), Tex. R. Civ. Proc. seems to contemplate the use of a master only in cases when trial is to be to a jury, Texas law has long recognized the power of the probate courts to utilize the services of a master to state the accounts of the contested administration, especially where large sums or large numbers of transactions are involved. Dwyer v. Kaltayer, 5 S.W. 75 (Tex.Sup. 1887); Ray v. Fowler, 144 S.W.2d 665 (Tex. Civ. App.-- El Paso 1940, writ dism'd). The purpose of the appointment is to have the uncontested matters eliminated from the contest. Even on contested facts, the court may receive the master's report as conclusive unless either side files exceptions to his report. Richardson v. McCloskey, 276 S.W. 680 (Comm. 1925). The cases sometimes refer to the master as an auditor.

C. Radical Surgery -- Removing the Personal Representative.

Your client may well conclude that removal of the personal representative is the only effective remedy for a poorly run or dishonest administration. Somewhat different procedures are provided for the removal of independent executors than for the regular dependent executor or administrator. Since the requirements are somewhat more demanding for removal of independent executors, I have dealt with them first. Of course, these grounds are a fortiori included in the grounds for removal of the regular dependent administrator or executor.

The major grounds for removal of an independent executor are as provided in § 149C of the Probate Code. The grounds provided are:

1. Failure to return the inventory within 90 days, unless extended by the court;

2.Sufficient grounds appear to support the belief that the representative has, or is about to, misapply or embezzle property of the estate;

3.Failure to make an accounting required by law;

4.Gross misconduct or gross mismanagement in the performance of his duties;

5.The representative is sentenced to the penitentiary or is legally incapacitated.

No grounds are provided for removal without notice, unlike the grounds for removal of administrators under court supervision. Compare, § 222(a), Prob. C. Under § 149C, removal is accomplished after citation of the independent executor upon motion of any interested person. Apparently the legislature appreciates a good fight, as they have chosen to allow the recovery of costs and reasonable attorneys fees out of the estate by both an independent executor who defends his removal "in good faith", and also (in the court's discretion) by the party seeking removal. Neither allowance is contingent on success. § 149C, paragraphs (c) and (d).

An additional ground for removal is the failure to give bond after order under § 149, Prob. C., which would seem to invoke the provisions of § 213, Prob. C., as follows:

"If at any time a personal representative fails to give bond as required by the court, within the time fixed by this Code, another person may be appointed in his stead." (emphasis supplied).

The rules governing the posting of a new bond by the independent executor under § 149 are sketchy. For instance, the time to be allowed for posting the new bond, the amount of the bond, and the consequences of failure to make the bond are not explicitly stated. However,

§§ 205 et seq of the Probate Code, dealing with bonds of regular dependent administrators, would probably apply.

The provisions for removal of the personal representative under court supervision are considerably more comprehensive than for independent executors. The central provision for removal is § 222, Prob. C., which provides a short list of grounds for removal without notice on the motion of any interested person, or even on the court's own motion. A more comprehensive list of grounds is provided for removal after notice. § 222(b), Prob. C.

D. The End Run -- Removing the Estate from Administration.

If you don't remove the executor from the estate, might you remove the estate from the executor? Texas provides quite a smorgasbord of possibilities for the judge or attorney contemplating the separation of a personal representative from his estate. The following is probably not a complete list, but it should serve to illustrate the breadth of the choices.

1.Accounting and Distribution. Section 149B(b) allows the court to require the independent executor to distribute property not required for administration, upon petition a person interested in the estate presented more than two years after the date that an independent administration was created. Re Estate of Minnick, 653 S.W.2d 503 (Tex. App.-- Amarillo 1983, no writ). In absence of recognized exceptions, the independent executor has no right to withhold the property of the devisees and legatees, or to dissipate the estate by prolonged administration, with its attendant fees and expenses. In re Estate of Lewis, 749 S.W.2d 927 (Tex. App.--Texarkana 1988, writ den.) If the executor is merely failing to transfer assets after the administration is finished, the court may, on the application of a distributee, close the estate, and the order so entered is authority to the custodian, registrar, or transfer agent to transfer the property to the persons named in the will, much as if the will had been probated as a muniment of title. Compare, §§ 152 and 89, Prob. C.

2.Family Settlement. If the executor wants to continue administering an estate over which there is no dispute, the solution may be a family settlement. The heirs, devisees, and legatees of a deceased person have a right to partition all or part of the decedent's estate without the aid of judicial decree. Lynch v. Baxter, 4 Tex. 431 (1849); Curtis v. Aycock, 179 S.W.2d 843 (Tex. Civ. App.-- Waco 1944, writ ref'd w.o.m.). Texas strongly favors this right. Stringfellow v. Early, 40 S.W. 871 (Tex. Civ. App. 1897); Robbins v. Simmons Estate, 252 S.W.2d 970 (Tex. Civ. App. -- Galveston 1952, writ ref'd n.r.e.). Subject to the rights of creditors, the heirs of a deceased person may partition the decedent's estate, even where an administration is pending. Wade v. Wade, 167 S.W.2d 1008 (Tex.Sup. 1943). A person named as independent executor has no standing to object to such a settlement, absent some direct interest in the estate. Re Estate of Hodges, 725 S.W.2d 265 (Tex. App.--Amarillo 1986, writ ref'd n.r.e.).

The general rule favoring family settlements is subject to significant limits. The interests in the estate may be conveyed in the same manner as property acquired by purchase, but only to the extent of the heir's interest therein. A purchaser from an heir takes the property subject to existing liens, encumbrances, and debts of the estate. Even after property has been sold or assigned, it remains subject to sale by the court for the payment of debts. Under the principle that an heir can transfer no greater interest than he acquires, it has been held that an heir who is not a party to a voluntary partition of an estate, or a minor during his minority, is not bound by the agreement.

3. Receivership. Where there is a pending administration, especially an independent administration, and where it is reasonably necessary to preserve the property of the estate, a court of competent jurisdiction may create a receivership. Tex. Civ. Prac. & Rem. Code, § 64.001; Griggs v. Brewster, 62 S.W.2d 980 (Tex.Sup. 1933); Dunn v. Vinyard, 251 S.W. 1043 (Comm. 1923, judgm't adopted); Metting v. Metting, 431 S.W.2d 906 (Tex. Civ. App.--San Antonio 1968, no writ).

Examples of receiverships granted while an independent administration was pending include the following:

--Where the independent executor refused to account to the beneficiaries, O'Connor v. O'Connor, 320 S.W.2d 384 (Tex. Civ. App.--Dallas 1959, writ dism'd), appeal from remand on separate issue, 337 S.W.2d 829 (Tex. Civ. App.--Texarkana 1960, no writ);

--Where there was a dispute about whether the executor mismanaged the estate and whether the estate was ready for distribution, Hake v. Dilworth, 96 S.W.2d 121 (Tex. Civ. App.--Waco 1936, writ dism'd); Griggs v. Brewster, 62 S.W.2d 980 (Tex.Sup. 1933);

-- Where there was an impasse between the independent executors and the will required them to act jointly, Blalock v. Blalock, 424 S.W.2d 646 (Tex. Civ. App.--Texarkana 1968, no writ).

Although it must be shown that the party seeking the receivership has an interest or a probable interest in the property, that the property is in danger of being lost or removed, and that the applicant has no other adequate remedy at law, it has been held that the bonding procedure is not an adequate remedy. See Blalock v. Blalock, supra, and Metting v. Metting, supra.

4. Partition and Distribution Upon Petition. If the estate involved is not an independent administration, the beneficiaries can use the provisions found at §§ 373-387 of the Probate Code to force a full or partial distribution and a partition, if necessary. Any of the heirs, devisees, or legatees may initiate this procedure by written request filed after the inventory has been filed and approved, if only a distribution is desired, or when twelve months have expired from the original grant of letters testamentary or of administration, if both partition and distribution are requested. § 373, Prob. C. At the hearing on the application, the court is to determine the existing and probable future debts and expenses, then determine the residue by subtracting these from the entire assets of the estate. The shares of the persons entitled to the estate are to be determined at the same time. § 377, Prob. C. Failure of the personal representative to comply with the court's order leaves him vulnerable to a complaint for the wrongful withholding penalty of 10% per month provided by § 384, Prob. C.

§ 402, Prob. C., provides a somewhat similar, but redundant, provision allowing the beneficiary of an estate to petition for accountings and distributions. Under this section, any "interested person" may apply for the accounting and distribution, but the action cannot be required until 15 months have expired after the original grant of letters.

VII. THE INSOLVENT OR ILLIQUID ESTATE: DIVIDING THE PIE WHEN EVERYONE IS HUNGRY FOR MORE.

In our hypothetical estate you will remember that John Dowell's business appeared to be having financial problems before he died. Let us now assume that, in addition to having numerous assets, the Decedent was deeply in debt. Assume also that Merry, the widow, waived appointment as independent executrix and the Court appointed the Decedent's first son, Angus "Pinche" Dowell, as administrator with will annexed. Merry and her small children want to live in the house, but everyone from the IRS on down is clamoring for payment. Who gets what, and when?

To determine the answers to this important question, the administrator and the probate judge must sort through at least four sets of issues:

--How does a claimant get in line to be paid and which claimants, if any, don't have to make claims?

--What property of the estate is subject to claims against the Decedent and what property is exempt?

--When are claims to be paid?

--If the assets of the estate are not adequate to satisfy all the provisions of the will, which beneficiaries are preferred and which get nothing?

A. Claims from the Viewpoint of the Creditor.

Considering that the personal representatives of estates are almost always persons or entities closely aligned with the Decedent or his family, it is not surprising that a cool, even disdainful attitude prevails towards creditors among most administrators. However, this attitude is not supported by either the case law or the statutes, except as relates to the homestead and family exemptions. From the very qualification of the personal representative to the closing of the estate, Texas has made comprehensive provision for the protection of the rights of the creditor, while preserving the family unit from calamity. With that said, one must admit that the creditor has plentiful opportunity for error in the claims process.

1. Protection of Creditors.

The purpose of administration is to satisfy the claims of creditors of the decedent and to distribute the remainder of the estate among the heirs. Administration is for the benefit of all creditors, not just those with secured claims or other claims of high priority. Houston v. Mayes' Estate, 17 S.W. 729 (Tex.Sup. 1886); Palfrey v. Harborth, 158 S.W.2d 326 (Tex. Civ. App.--San Antonio 1942, writ ref'd).

When an administration is opened, the law contemplates that all property liable for payment of debts will be brought into administration and used for the payment of debts as provided by law. Pearce v. Stokes, 291 S.W.2d 309 (Tex.Sup. 1956); § 37, Prob. C.; Sinnott v. Gidney, 322 S.W.2d 507 (Tex.Sup. 1959); § 263, Prob. C. The administrator has custody, management and control of the decedent's estate, subject to directions of the probate court, until debts, expenses, and charges are paid and distribution is made. Littlefield v. Ungren, 206 S.W.2d 152 (Tex. Civ. App.--Eastland 1947, writ ref'd, n.r.e.); Atlantic Ins. Co. v. Fulfs, 417 S.W.2d 302 (Tex. Civ. App.--Fort Worth 1967, writ ref'd, n.r.e.). Unless the estate is closed by following the bonding procedure provided by §§ 263 et seq of the Probate Code, an estate must be kept open while any debts remain unpaid and until it has been fully settled. Rowe v. Dyess, 213 S.W. 232 (Comm. 1919, opinion adopted); Houston v. Mayes, 13 S.W. 1036 (Tex.Sup. 1890).

A creditor can even be appointed as the administrator of an estate. The priority of a creditor is low as a potential administrator, but a creditor is ranked ahead of strangers, although after heirs and kindred of the decedent, in the list of persons qualified to serve. § 77(f), Prob. C.

2. Notices to Creditors.

The Probate Code requires the personal representative of the estate to comply with specific duties toward creditors. Within one month after receiving letters, the personal representative is to publish a general notice to creditors "requiring all persons having claims against the estate being administered to present the same within the time prescribed by law." § 294(a), Prob. C. This notice is to be published once in a newspaper of general circulation in the county in which the proceedings are pending. § 33(f)(3), Prob. C. Proof of publication, containing an affidavit of the publisher, with a copy of the notice to creditors, is to be filed in the pleadings. Notice at this time is also required to the Comptroller of Public Accounts of Texas by certified or registered mail if the Decedent remitted or should have remitted taxes administered by the Comptroller. § 294 (a), Prob. C.

Within two months after receiving letters, the personal representative is required to give notice by certified or registered mail to each person known to the personal representative to have a claim for money against the decedent’s estate that is secured by real or personal property of the estate. § 295(a), Prob. C. Proof of service of this notice is also required to be filed with the clerk. Note that the time for giving notice was recently shortened from four months to two months.

Our notice procedure provides actual notice to creditors secured by liens on estate property. However, it now also permits an optional notice to unsecured creditors by certified mail, stating that the creditor must present its claim within four months after receiving the notice (120 days in the case of an independent administration) or the claim is barred. §§ 294(d),298(b), and 146(d), Prob. C. If no notice has been given, a claim which is not otherwise barred may be presented at any time before the estate is closed. § 298(a), Prob. C.

3. Presentment of Claims.

Although a more liberal claims procedure is followed in independent administrations, in a dependent administration, presentment of claims, unless suit was already pending against the decedent at the time of his death, is an absolute prerequisite to establishment of the claim. § 314, Prob. C. A court may not render a judgment authorizing payment of a claim that has not been presented to the personal representative. Clements v. Chajkowski, 208 S.W.2d 841 (Tex.Sup. 1948). Indeed, the pendency of a non-independent administration suspends both the power to execute upon a judgment against the decedent and the power to foreclose upon a security interest. Cocke v. Smith, 179 S.W.2d 954 (Tex.Sup. 1944); Pearce v. Stokes, 291 S.W.2d 309 (Tex.Sup. 1956). A foreclosure not made through the claims process in such an estate is void, and the administrator can even recover the value of the use of the property during the period the purchaser had possession. Texas Loan Agency v. Dingee, 75 S.W. 866 (Tex. Civ. App. 1903, writ ref'd); Tiboldi v. Palms, 79 S.W. 23 (Tex.Sup. 1904); American Savings & Loan Ass'n. of Houston v. Jones, 482 S.W.2d 62 (Tex. Civ. App.--Houston [14th Dist.] 1972, writ ref'd n.r.e.).

In presenting claims to a dependent administrator, the creditor must strictly follow the provisions of the Probate Code, although the administrator may waive defects that are not fundamental. The Probate Code is unequivocal:

"...[N]o personal representative of a decedent's estate or of the estate of a ward shall allow, and the court shall not approve, a claim for money against such estate, unless such claim be supported by an affidavit that the claim is just and that all legal offsets, payments and credits known to the affiant have been allowed. If the claim is not founded upon a legal instrument or account, the affidavit shall also state the facts upon the claim is founded...." (emphasis supplied). § 301, Prob. C.

It has been held that the affidavit is required even if the claim is based upon a judgment rendered against the decedent during his lifetime. Ayers v. Waul, 44 Tex. 549 (1876); Dent v. A. Harris & Co., 255 S.W. 221 (Tex. Civ. App.-- Dallas 1923, no writ). Substantial compliance with the required language is required, or the claim may be treated as a nullity. Boney v. Harris, 557 S.W.2d 376 (Tex. Civ. App.--Houston [1st Dist.] 1977, no writ). The claims that must be presented are only claims for money, and this term has been construed to mean essentially the same thing as liquidated claims "where the amount of the claim is fixed and definite, not contingent and indeterminate, and which are susceptible of verification by affidavit." Hume v. Perry, 136 S.W. 594 (Tex. Civ. App. 1911, writ dism'd). It follows that contingent claims that are not definite in amount, and tort claims, need not be presented. Seay v. Hall, 677 S.W.2d 19 (Tex.Sup. 1984).

The Probate Code specifies the persons authorized to furnish the required authentication of a claim for a corporation or in a representative capacity. § 304, Prob. C. The Probate Code allows the personal representative to waive defects of form unless written objection thereto is filed with the clerk within 30 days after presentment. § 302, Prob. C. At first glance the provision for the administrator to waive non-fundamental defects seems beneficial to the creditor. However, it is actually a trap:

"The failure of a representative of an estate to timely allow or reject a claim ... shall constitute a rejection of the claim...." § 310, Prob. C.

"When a claim or a part thereof has been rejected by the representative, the claimant shall institute suit thereon in the court of original probate jurisdiction in which the estate is pending or in any other court of proper jurisdiction within ninety days after such rejection, or the claim shall be barred." (emphasis supplied). § 313, Prob. C.

As you can see, this is an unusually short limitations period within which to bring suit. Moreover, actual endorsement of allowance is required. Mere oral assurances to the creditor that the claim will be allowed will not avoid the operation of the limitations period. Russell v. Dobbs, 354 S.W.2d 373 (Tex.Sup. 1962).

4. Election of Secured Status.

The secured creditor must be especially careful in presenting his claim to be certain that it furnishes the information required for the claim to be classified as the appropriate class of secured claim, or his secured position may be illusory. § 306, Prob. C., which governs the handling of secured claims, provides that the claimant must specify whether the debt is to be classified as a matured secured claim to be paid in due course of administration, or as a preferred debt and lien against the specific property securing the debt. If classified as the latter, no further claim shall be made against other assets of the estate but the claim shall remain a preferred lien against the security. If the allowed claim is not paid within 12 months from the original grant of letters, the creditor can force a sale of the property and the application of the proceeds to the debt.

A striking illustration of the application of these rules is found in Cessna Finance Corp. v. Morrison, 667 S.W.2d 580 (Tex. App.--Houston [1st Dist.] 1984, no writ). In this case, Cessna failed to specify that the claim was to be treated as a matured, secured debt to be paid in course of administration. The debt was therefore treated as the default category of secured lien -- a preferred debt and lien against specific property. Unfortunately for Cessna, the security was an aircraft which had been lost in the jungles of South America, and Cessna was not allowed to share in the other assets of the estate.

5. Claims in Independent Administrations.

The creditor has considerably fewer restrictions under an independent administration than under a dependent administration. In an independent administration, the handling of claims is governed by § 146, Prob. C. The creditor is not required to present his claim to the independent administrator in any particular form, the 90-day limit for filing suit does not apply, and the creditor may bring suit or foreclose without waiting for the claim to be rejected. Fischer v. Britton, 83 S.W.2d 305 (Tex.Sup. 1935); Bunting v. Pearson, 430 S.W.2d 470 (Tex. Sup. 1968); Bozeman v. Folliott, 556 S.W.2d 608 (Tex. Civ. App.--Corpus Christi 1977, writ ref'd n.r.e.). However, the independent executor has six months from the grant of letters in which to answer a suit for money. Prob. C., § 147. The creditor of an estate administered by an independent executor has the further assistance of § 148, Prob. C., which allows any creditor, by written complaint, to force the distributees to elect either:

--to execute a bond for the smaller of the creditor's claim or the value of the estate, or

--to convert the estate to a dependent administration.

B. Claims from the Viewpoint of the Administrator and the Probate Judge.

It is often not understood that both the judge and the administrator have an active role in the processing of claims in the non-independent administration.

1. Role of the Probate Judge.

It is the judge, not the administrator, who is charged with the sensitive task of classifying and approving claims. Although § 312(a), Prob. C., permits the court to adjudicate claims in the familiar adversarial setting, other paragraphs of that section clearly expect a more activist role by the court.

Consider the explicit authorization of § 312(c):

"Although a claim may be properly authenticated and allowed, if the court is not satisfied that it is just, the court shall examine the claimant and the personal representative under oath, and hear other evidence necessary to determine the issue. If not then convinced that the claim is just, the court shall disallow it."

While the court is authorized to independently reject a claim allowed by the personal representative, the court has no authority to allow a claim that has been rejected by the personal representative. Gibson v. Hale, 57 Tex. 405 (1882); Poole v. Rutherford, 199 S.W.2d 665 (Tex. Civ. App.-- Fort Worth 1947, writ ref'd n.r.e.); Lopez v. Wallace, 453 S.W.2d 383 (Tex. Civ. App.-- El Paso 1970, no writ); Small v. Small, 434 S.W.2d 940 (Tex. Civ. App.-- Waco 1968, writ ref'd n.r.e.), later app. 464 S.W.2d 734 (Tex. Civ. App.-- Dallas 1971, writ ref'd n.r.e.).

Of course, the claims are to be ranked by class, and claims of a lower class are not to be paid until the claims of a higher class have been paid in full. If there are insufficient funds to pay the claims of a given class, they are to be paid pro-rata as the funds become available. § 321, Prob. C.

2. Failure of Executor/Administrator to Act.

If the personal representative fails to allow or reject the claim within 30 days, causing it to be considered rejected by law, and if the claim is later established by suit, the costs are to be taxed against the representative individually, or the representative may be removed upon the usual complaint and citation. § 310, Prob. C.

In view of the rather strict rules controlling the approval of claims, the provisions of § 297, Penalty for Failure to Give Notice, can loom large in an insolvent estate. If the representative fails to give the required notice to creditors or secured creditors, and as a consequence the creditor loses his claim or his priority, the personal representative and his surety are liable for the resulting damages. Tiboldi v. Palms, 78 S.W. 726 (Tex. Civ. App. 1904) aff'd 79 S.W. 23. Even worse, if the personal representative should fail to pay a claim ordered by the court to be paid when funds are available, he and his sureties may be liable for the claim, interest, costs, and damages at the rate of five percent per month on the unpaid claim. § 328, Prob. C.

C. Exempt and Protected Property.

Merry Dowell and her two minor children will be very worried about all the creditors and how they are to live. Fortunately for her, Texas has provided a distinctive system of special protections for the spouse and children of a deceased person. These are the homestead, the exempt property or award in lieu of exempt property, and the family allowance. The awards of these rights are to be made by the judge immediately after approval of the inventory. Since an estate is not subject to the Bankruptcy laws, Bankruptcy Code, § 109, the system of ranking claims and allowing exemptions is uniquely the province of the probate court.

1. Homestead. The Texas Constitution, Art. 16, § 52, guarantees to the surviving spouse or minor children under guardianship the right to use and occupy the homestead during the life of the surviving spouse or so long as the guardian of the minor children of the deceased is permitted by court order to occupy the homestead. This possessory right is exclusive, Cheswick v. Freeman, 287 S.W.2d 171 (Tex.Sup. 1956), and it delays the rights of the other heirs to possession or partition of the homestead. George v. Taylor, 296 S.W.2d 620 (Tex. Civ. App.--Fort Worth 1956, writ ref'd n.r.e.).

§ 271, Prob. C. extends this homestead right to unmarried children remaining with the family of the deceased, but it also extends the exemption to "all such property of the estate as is exempt from execution or forced sale by the constitution and laws of the state." The only debts with which the homestead may be charged are for purchase money, improvements, and taxes due on the homestead. § 270, Prob. C.

The order setting aside exempt property and determining allowances is to be made immediately following the approval of the Inventory, Appraisement and List of Claims, or it may be entered earlier on application of a spouse or child. § 271, Prob. C. When the order has been entered setting this property aside, the homestead is no longer part of the estate. It is no longer subject to administration, and a purported sale of such property is void. Allen v. Ramey, 226 S.W. 489 (Tex. Civ. App.--Texarkana 1921); Roots v. Robertson, 55 S.W. 308 (Tex.Sup. 1900).

If the administration is under an independent executor, it is the independent executor instead of the court which is to set aside exempt property and determine allowances. § 146(a)(4), Prob. C.

2. Exempt Property or Award in Lieu of Exempt Property. If the estate does not include all or part of the specific articles exempted from execution or forced sale, the court (or the independent executor) is to make a reasonable allowance in place of the missing exempt property. This award is limited to $15,000.00 in lieu of a homestead and $5,000.00 for other exempted property. Prob. C., § 273. If there is not sufficient property or money to make up this award, other property of the estate may be ordered sold to create the necessary funds. Prob. C., § 276.

3. Family Allowance. At this time the court (or the independent executor) is to fix a family allowance for the support of the surviving spouse and minor children of the deceased. § 286, Prob. C. The amount of the allowance is an amount sufficient for the maintenance of the surviving spouse and minor children for one year for the time of death of the decedent, taking into account the circumstances anticipated to exist during such year and the separate property available to the surviving spouse and children. §§ 287-288, Prob. C.

4. Apportionment of Taxes. Be aware that in 1987 the Legislature added § 322A to the Probate Code, the general effect of which was to require the payment of a pro-rata share of the estate tax by each person or entity who received a part of the decedent's gross estate as determined for the purpose of estate taxes, unless the decedent's will provides otherwise. Just how the executor is going to go about compelling this payment is not entirely clear. Section 322A has some problems, and it is sufficiently complex to raise in some minds the suspicion that the accounting lobby was seeking an alternative source of business similar to the Internal Revenue Code. If you have an estate involving estate taxes and the decedent died on or after September 1, 1987, you may have the chance to make some new law.

D. Order of Payments and Distributions.

Now that we know who gets paid, when do they get paid?

Although there are several exceptions, a general rule is that the non-independent executor or administrator will need to make payments after passage of the six-month anniversary of the granting of letters and the one-year anniversary.

The actual classification of claims is governed by § 322, Prob. C., and the order of payment is governed by § 320.

The following is a reasonably complete, but not exhaustive, pathfinder through the payment timing/priority maze:

1.Funeral expenses and expenses of last sickness not exceeding $15,000.00. § 320(a)(1), Prob. C. (but see the next paragraph).

2.Claims of the United States of America. 31 U.S.C.A. § 3713. However, under the existing Federal decisions, reasonable expenses of administration and preservation of the estate come ahead of these claims (see discussion under item 5, infra). It is not completely clear whether the family allowance comes ahead of these debts or not. Schwartz v. Commissioner, 560 F.2d 311 (8th Cir. 1977); Federal Reserve Bank of Dallas v. Smylie, 134 S.W.2d 838 (Tex. Civ. App.--Amarillo 1939, no writ). Claims of the United States clearly rank ahead of the expenses of last sickness. Rev. Rul. 80-112. It seems fairly certain that claims made by the U. S. pursuant to commercial lending type activities, such as SBA loans and FHA loans, will not be given special priority under 31 U.S.C.A. § 3713, but will be classed with other creditors of the same class. United States v. Kimbell Foods, Inc., 440 U.S. 715, 99 S.Ct. 1448 (1979).

3.Allowances made to the surviving spouse or children. § 320(a)(2), Prob. C. If the allowance includes property subject to a valid, subsisting lien or encumbrance, the lien ranks ahead of the allowance. § 277, Prob. C.

4.Expenses of administration, preservation, safe-keeping, and management of the estate. Probate code, §§ 320(a)(3) and 322, Class 2. When these expenses are reasonable, they come ahead of claims of the United States, as they are not "debts." Hammond v. Carthage Sulphite Pulp & Paper Co., 34 F.2d 155 (D.C. N.Y. 1928); U. S. v. Weisburn, 48 F.Supp. 393 (D.C. Penn. 1943).

5.Claims secured by liens, including tax liens, so far as the same can be paid out of the proceeds of the property subject to such lien. Prob. C., § 322, Class 3. This would include governmental agencies in their commercial lending activities, United States v. Kimbell Foods, Inc., supra; United States v. S.K.A. Associates, Inc., 600 F.2d 513 (5th Cir. 1979).

6.Claims for taxes, penalties and interest due to the State of Texas or political subdivisions. Probate code, § 322, Class 4.

7.Claims for the cost of confinement established by the Texas Department of Corrections. Prob. C., § 322, Class 5.

8.Claims for repayment of medical assistance (Medicaid) payments made by the state to or for the benefit of the decedent. Prob. C., § 322, Class 6.

9.All other claims. Prob. C., §§ 320(a)(1), 322 Class 1, and 322 Class 7.

At any time after six months have expired after the original grant of letters when the personal representative has no personal knowledge of any outstanding enforceable claims other than those already approved, and in any case after twelve months, the personal representative or a distributee may apply for an order of distribution. There is provision for an application for order of partial distribution at any time after the filing and approval of the inventory. Prob. C., § 373.

No claim for money against the estate is to be allowed after an order for partition and distribution has been made, but the claimant retains his right to proceed against the distributees directly. Prob. C., § 318.

If a non-secured creditor has not been paid within twelve months after the original grant of letters, he can force payment from available funds or force the sale of property to create available funds. Prob. C., § 326.

Unlike the unsecured creditor, the secured creditor who has elected to be classified as a matured, secured claim to be paid in course of administration (§ 306(a)(1)) need not wait the twelve months, but can petition the court for sale of the security and application of the proceeds at any time after the lien has been allowed and approved. Prob. C., §§ 338 and 325.

The claim of the secured creditor who has elected to have his claim classified as a preferred debt and lien against specific property is to be paid according to the contract and is to be brought current within 12 months after the original grant of letters. If not brought current, the court is to order the property sold on application by the lienholder. Prob. C., § 306(d).

E. Abatement of Bequests.

What if there is not enough property left to satisfy all the gifts under the will after paying the creditors and setting aside the homestead and exempt property? Who takes and who gets left out? These decisions are governed by the law of abatement of bequests.

Although Texas formerly had no statute directly governing the order of abatement of bequests, the 1987 amendments to the Probate Code furnished us with § 322B, Abatement of Bequests, and it is no longer necessary to explore the case law to answer most of the questions.

Unless the decedent provides otherwise by will, a decedent's property is liable for debts and expenses of administration in the following order:

1.Property not disposed of by will but passing by intestacy;

2.Personal property of the residuary estate (that is, not made a part of a specific gift under the will);

3.Real property of the residuary estate;

4.General bequests (gifts under the will) of personal property;

5.General devises (gifts under the will) of real property;

6.Specific bequests of personal property;

7.Specific bequests of real property.

This ranking does not change the requirements for payment of a claim classified as a preferred debt and lien against specific property, nor does it affect the statutory plan for apportionment of estate taxes under § 322A, Prob. C.

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