HOW THE LEGISLATURE HAS CHANGED YOUR … the Legislature Has Changed Your Documents 2 ... A....

HOW THE LEGISLATUREHAS CHANGED YOUR DOCUMENTS

Thomas M. Featherston, Jr.Mills Cox Professor of LawBaylor UniversitySchool of LawWaco, Texas

2008 Estate Planning, Guardianship & Elder LawUTCLE

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4A. Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4B. The Role of the Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

II. TYPES OF TESTAMENTARY GIFTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5A. Specific Gifts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5B. General Gifts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5C. Demonstrative Gifts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5D. Residuary Gifts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

III. RULES OF WILL CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6A. Surviving the Testator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6B. Predeceasing the Testator.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

1. ANTI-LAPSE STATUTE .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62. 1991 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73. TESTATOR’S INTENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74. STRICT CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

C. Fractional Gifts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7D. Class Gifts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8E. Abatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

1. COMMON LAW ABATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82. STATUTORY ABATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83. TESTATOR’S INTENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94. 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.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106. ADMINISTRATION OF COMMUNITY. . . . . . . . . . . . . . . . . . . . . . . . . 10

F. Apportionment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10G. Dissolution of Testator’s Marriage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11H. Texas Redesignation Statutes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11I. ERISA Death Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11J. Debtor/Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

IV. RULES AFFECTING ONLY SPECIFIC GIFTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12A. Ademption by Extinction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

1. TEXAS DECISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122. INVOLUNTARY CONVERSIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133. CHANGES IN FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134. TESTATOR’S INTENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

B. Accessions and Accretions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13C. Sec. 70a(a), Texas Probate Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13D. Exoneration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14E. Contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

3 How the Legislature Has Changed Your Documents

F. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

V. RULES AFFECTING GENERAL AND RESIDUARY GIFTS. . . . . . . . . . . . . . . . . . . . 14A. Satisfaction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14B. Pecuniary Bequests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15C. Interest on Pecuniary Bequests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15D. Sec. 378b, Texas Probate Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15E. § 116.051. Determination and Distribution of Net Income. . . . . . . . . . . . . . . . . . 16F. Residuary Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17G. Apportionment Within the Residuary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

1. THE ARGUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182. ANALYSIS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183. MCKINNEY CASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

VI. OTHER RELATED CONCEPTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19A. Equitable Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

1. COMMUNITY PROPERTY ELECTION.. . . . . . . . . . . . . . . . . . . . . . . . 192. THE TEXAS RULE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193. PROCEDURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

B. Pour Over Planning .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20C. Negative Will. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20D. Duties of Life Tenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20E. Acceleration of Future Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20F. Disclaimers by Surviving Spouse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21G. Effect of Disclaimer on Devisee’s Creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21H. Representation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21I. Community Property Inheritance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21J. Pretermitted Children.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22K. Cy Pres and the Rule Against Perpetuities.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22L. Division and Combination of Trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22M. Non-Marital Children.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22N. Adoption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22O. Devise to an Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

VII. CONCLUSIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

APPENDIX NO. 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26


HOW THE LEGISLATURE HASCHANGED YOUR DOCUMENTS

I. INTRODUCTION

A. Background

A will, being a revocable dispositionof property that becomes effective at thetestator’s death, creates numerousopportunities for ambiguity and uncertaintybecause many years can pass before thetestator dies and the will is probated. Duringthe intervening period of time, the size, nature,extent and value of the testator’s estate canchange considerably; intended beneficiaries ofthe estate can die or become incapacitated;other persons of interest may be born oradopted.

A will which does not anticipate thesechanges in property and beneficiaries throughthe clear expression of the testator’s intent inview of all of the possibilities that could occurafter the date of execution will likely needeither interpretation or construction followingprobate. Although frequently usedinterchangeably, the two concepts will bedistinguished in this article. Interpretationwill be described as the process ofdetermining the actual intent of a testator fromthe four corners of the will and any otheradmissible extrinsic evidence; it is factual innature. Will construction will be used todescribe the legal process of ascertaining thetestator’s "deemed intent" when the rules ofinterpretation do not reveal the testator’sactual intent. Historically, a court resolved thecontroversy by applying an established, orcreating a new, rule of construction where thetestator failed to express his or her intent inthe will itself.

Accordingly, the rules of willconstruction are important not only to theprobate lawyer representing the personalrepresentative or beneficiaries of the estate butalso to the estate planner whose understandingof the rules can help the planner prepare a welldrafted will that does not need construction inthe future. In other words, a well drafted will,in the author’s opinion, is one that is drafted

in a way that avoids the need to resort to therules construction to determine the properdistribution of the estate (i.e., the testator’sintent is clearly expressed for all possibilitieswithin the will’s four corners).

However, over the last thirty years orso, the legislature has passed a number ofstatutory provisions which either override,modify or confirm many of the rules of thecommon law that had added a measure ofcertainty to the administration of estates andthe drafting of wills. During this same timeperiod, another phenomena has occurred. Thewill has been replaced by the revocable trust,as the key dispositive document, in increasingnumbers of estate plans. This outline willattempt to identify these changes and discusshow they affect the estate practice.

For example, in some states, statuteshave been passed that direct that a revocabletrust, being a will substitute, should beinterpreted and construed as a will. Revocable trusts in Texas are still governedgenerally by the law of trusts. Other willsubstitutes, like life insurance and retirementbenefits, are also being widely used.However, the law of wills remains the focalpoint due, in large part, to the absence ofestablished rules of construction in these otherareas, and throughout the outline, thedifferences in results when using a willsubstitute rather than a will will be noted.One conclusion that will be reached is thatthere are relatively few generally acceptedrules of construction for the will substitutes.

B. The Role of the Court

The Texas Supreme Court hasdescribed the role of a court in theinterpretation and construction of a will. Thefocus should be on the testator’s intent, intentto be ascertained from the language foundwithin the four corners of the will. The focusshould not be on what the testator intended towrite, but the meaning of the words actuallyused. Accordingly, courts are not to redraftwills to vary or add provisions “under theguise of construction of the language of thewill” in order to reach a presumed intent.


The determination of a testator’s actualintent from the four corners of a will requiresa careful examination of the words used. If itis unambiguous, a court should not go beyondspecific terms in search of the testator’s intent.When there is no dispute about the meaning ofwords used in a will, extrinsic evidence is notadmissible to show that the testator intendedsomething outside of the words used. On theother hand, a court may consider evidenceconcerning the situation of the testator, thecircumstances existing when the will wasexecuted, and other material facts in order forthe court to place itself in the testator’sposition at the time, when a term is open tomore than one construction. San AntonioArea Foundation v. Lang, 35 S.W.3d 636(Tex. 2000).

Only when the testator’s actual intentcannot be determined from the “four corners”or any admissible evidence are rules ofconstruction to be applied to determine thetestator’s presumed intent.

II. TYPES OF TESTAMENTARYGIFTS

Traditionally, the terms "bequest,""legacy" and "devise" have referred todiffering types of testamentary gifts (giftsunder a will) and their differences dependedprimarily on the nature of the property thatwas the subject matter of the gift. Modernterminology frequently uses these termsinterchangeably as testamentary gifts of realand/or personal property. Tex. Prob. Code §3(h),(i) &(s). To avoid any confusion, thisoutline will use the more generic term,"testamentary gift." However, it is importantto distinguish the four basic types oftestamentary gifts because the rules ofconstruction can apply differently to differenttypes of gifts. See Hurt v. Smith, 744 S.W.2d1 (Tex. 1987).

A. Specific Gifts

A "specific gift" is a testamentary giftof a particular item of real or personalproperty that is distinguishable from all otherassets of the testator’s probate estate.

Generally, it can be satisfied only bydelivering the subject of the gift to theintended beneficiary. In other words, thebeneficiary has a right to the specific propertyitself. Common examples include: (i) "Idevise Blackacre to my son Charles"; (ii) "Ibequeath my 1000 shares of IBM commonstock to my daughter Ann"; (iii) "I give myNationsBank checking account to my sisterSue"; and (iv) "I give the money owing to mefrom brother Mike to my sister Sue."

B. General Gifts

A "general gift" under a will is one thatcan be satisfied out of the general assets of theestate, but it is not a gift of a specific item ofproperty. In other words, a certain quantity ortype of property is the subject of the gift. Theintended beneficiary is not entitled to anyspecific item in the probate estate as of thetime of the testator’s death. In effect, at thetestator’s death, the intended beneficiary hasa "claim" against the estate to be satisfied bythe executor selecting what asset to distributeamong several choices or perhaps purchasingthe subject of the gift for the beneficiary withestate assets. Common examples include: (i)"I give $5,000 dollars to my sister Sue"; (ii) "Ibequeath 1,000 shares of Exxon stock to mybrother Bill"; and (iii) "I devise 500 acres ofland to my son Charles."

C. Demonstrative Gifts

A testamentary gift is "demonstrative"if the testator intends for it to be satisfiedinitially from a particular source, but if theindicated source is insufficient or unavailableto satisfy the gift, the executor is directed tosatisfy it out of the general assets of the estate.In effect, it is a hybrid, taking on thecharacteristics of both specific and generalgifts. An example is: "I bequeath to mybrother Bill $10,000 from the sale of myhome, otherwise from the general assets of myestate." These gifts are not very common.

D. Residuary Gifts

A "residuary gift" is a testamentary giftthat is a type of general gift (although a

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particular will may direct that a specific itembe included as part of the residuary, thus beingspecific as to that asset). It is the dispositionof the assets of the estate remaining after thedistribution of the specific, general anddemonstrative gifts. It is also usually definedto refer to the estate after the satisfaction ofthe claims and other obligations of the estate.The absence of a residuary clause will likelyresult in some assets of the probate estatepassing by intestate succession.

III. RULES OF WILL CONSTRUCTION

When a person dies testate in Texas,the property devised in the decedent’s will,both real and personal, vests immediately inthe devisees of the estate subject to thepayment of the debts of the testator andsubject to the right of possession of a courtappointed personal representative who has theduty to hold such estate in trust to be disposedof in accordance with the Texas Probate Code.Tex. Prob. Code § 37. At common law, realproperty vested in devisees, but personalproperty vested in the personal representative.Although the statute appears to be straightforward, determining the identity of thedevisees and exactly what they are entitled towill likely depend to some degree on certainrules of construction which apply to alltestamentary gifts.

A. Surviving the Testator

As discussed above, the title to thetestator’s real and personal property vests inthe testator’s devisees at the time of death.Since a will is defined as a revocabledisposition that takes effect at the testator’sdeath, it only follows that a devisee under willmust survive the testator in order to receivethe testamentary gift since the testator’s dateof death is the effective date of thedisposition. If the beneficiary predeceases thetestator, the beneficiary does not own aproperty interest that becomes a part of thedeceased devisee’s probate estate. In otherwords, the subject of the testamentary giftdoes not pass to the beneficiary’s heirs and/ordevisees, unless the testator’s will designatesthem as substituted devisees. Carr v. Rogers,

383 S.W.2d 383 (Tex. 1964). Thisfundamental concept was modified when theTexas Probate Code was amended in 1979 torequire a devisee not only survive the testator,in fact, but also that the devisee survive thetestator by 120 hours, unless the will providesdifferently. Tex. Prob. Code § 47(c).

Note: Section 47, by its own terms, alsoapplies to other types of dispositions, lifeinsurance, trusts, including revocable trusts.

B. Predeceasing the Testator

A testamentary gift for an individualbeneficiary who either predeceased a testatoror who is deemed to have predeceased abeneficiary due to Sec. 47 (or the terms of thewill itself) is said to have "lapsed." Further,unless the will provides differently, the subjectproperty of the lapsed gift passes under theresiduary clause of the testator’s will, if any,or if the lapsed gift is the residuary gift itself(or if there is no residuary clause) the lapsedgift passes by intestate succession to thetestator’s heirs at law. See Sewell v. Sewell,266 S.W.2d 924 (Tex. Civ. App.—Texarkana1954, writ ref’d n.r.e.) These common lawconcepts have been recently codified into theTexas Probate Code. See Tex. Prob. Code §68(b) and (d), effective Sept. 1, 1993. Sec.68(b) seems to apply regardless of the exactwording of the residuary clause unless the willexpressly provides that a lapsed specific orgeneral gift is pass elsewhere.

1. ANTI-LAPSE STATUTE

The gift will not, however, lapse if thedeceased devisee was a member of astatutorily defined set of the testator’s familywho died before (or who are deemed to havedied before) the testator leaving linealdescendants of the devisee surviving thetestator (by at least 120 hours). In that event,the subject matter of the lapsed gift passes tothe lineal descendants of the deceasedbeneficiary, as substituted takers under thetestator’s will, unless the will providesdifferently. Tex. Prob. Code § 68(a). It isimportant to note that the lapsed gift does notbecome a part of the deceased beneficiary’s


estate; it does not pass to the deceasedbeneficiary’s heirs and/or devisees in thosecapacities.

2. 1991 AMENDMENT

Prior to 1991, the anti-lapse statutewas limited in application to devisees whowere lineal descendants of the testator. In1991, it was expanded to include linealdescendants of the testator’s parents. See Tex.Prob. Code § 68(a).

3. TESTATOR’S INTENT

The "anti-lapse" statue, Sec. 68(a),applies only if the testator does not indicate acontrary intent in the will. For example, a giftto "my son Bill, if he survives me," or "to mysurviving children" will negate itsapplication. See Sec. 68(e), which wasclarified in 1993 with the addition of someillustrative language. It should be noted thatthe statutory phrase, "to my survivingchildren," is similar to "surviving children ofthis marriage" which has been held to refer tothe testator’s children living at the time thewill was executed. Henderson v. Parker, 728S.W.2d 768 (Tex. 1987).

4. STRICT CONSTRUCTION

Texas courts have held that the "anti-lapse" statute should be applied only in theparticular situations described in the statute.See Logan v. Thompson, 202 S.W.2d 212(Tex. 1947) and Andrus v. Remmert, 146S.W.2d 728 (Tex. 1941).

Note: Section 69, by its own terms, appliesonly to wills.

C. Fractional Gifts

A testamentary gift to two or moreindividuals can trigger an unanticipatedapplication of the concept of lapse and anti-lapse, if the will does not indicate an intent tothe contrary. For example, if Blackacre is leftin a specific gift to the testator’s friends,"Tom, Dick and Harry," the gift is considereda fractional gift of an undivided one-third

interest to Tom, an undivided one-thirdinterest to Dick and an undivided one-thirdinterest to Harry. If Harry predeceases thetestator, the gift of his undivided one-thirdinterest lapses and passes as part of theresiduary estate of the testator, if any, and notto Tom and Dick. If the subject matter of thegift was the residuary estate itself, the gift ofHarry’s undivided one-third interest in theresiduary estate would lapse pursuant to thecommon law rule and pass by intestatesuccession to the testator’s heirs at law. Onthe other hand, if Harry had been a linealdescendant of the testator or a linealdescendant of the testator’s parents, thenHarry’s undivided one-third interest in aspecific, general or residuary gift would passto his lineal descendants who survived thetestator under the anti-lapse statute. SeeJensen v. Cunningham, 596 S.W.2d 266 (Tex.Civ. App.—Corpus Christi 1980); Tabor v.National Bank of Commerce, 351 S.W.2d 126(Tex. Civ. App.—San Antonio 1961), Riley v.Johnson, 367 S.W.2d 83, (Tex. Civ.App.—Waco 1963), Swearingen v. Giles, 565S.W.2d 574 (Tex. Civ. App.—Eastland 1978,writ ref’d n.r.e.), Estate of O’Hara, 549S.W.2d 233 (Tex. Civ. App.—Dallas 1977).This fractional gift rule was modified by thelegislature in 1993. Sec. 68(c) & (d) of theTexas Probate Code now provide that unlessthe "anti-lapse" statute applies:

(c) . . . if the residuary estate isdevised to two or more persons andthe share of one of the residuarydevisees fails for any reason, theresiduary devisee’s share passes to theother residuary devisees, in proportionto the residuary devisee’s interest in aresiduary estate.

(d) . . . if all of the residuarydevisees are dead at the time of theexecution of the will, fail to survivethe testator, or are treated as if theyhad predeceased the testator, theresiduary estate passes as if thetestator had died intestate.

Presumably, however, the fractionalgift rule remains in effect for specific and


general gifts. Further, if gift is made to two ormore individuals who are also described as aclass, the gift is treated as a fractional gift, nota class gift. McGill v. Johnson, 775 S.W.2d826 (Tex. Civ. App.—Austin 1989, aff’d inpart, rev’d in part, 799 S.W.2d 673 (Tex.1990).

D. Class Gifts

If a testamentary gift is left to a classof beneficiaries consisting of linealdescendants of the testator’s parents (ratherthan a fractional gift to a group ofindividuals), and if one of the members of theclass predeceases the testator, a conservativecourt may view the anti-lapse statute as beinginapplicable because the potential member ofclass who predeceased the testator was nevera member of the class, since, under class giftrules, the class opens at the testator’s death.Accordingly, the gift to that person technicallydid not lapse; thus, the anti-lapse statutewould not be applicable. Texas courts have,however, applied the anti-lapse statute to classgifts which otherwise qualify for anti-lapsetreatment. Burch v. McMillin, 15 S.W.2d 86(Tex. Civ. App.—Eastland 1929). Thisconcept was codified into the Texas ProbateCode in 1991. See Tex. Prob. Code § 68(a).If the anti-lapse statute is not applicable, thesurviving members of the class, if any, receivethe gift. Hagood v. Hagood, 186 S.W. 220(Tex. Civ. App.—Ft. Worth 1916, writ ref’d).

E. Abatement

All assets of the decedent’s estate(except the homestead and other exemptpersonal property) are liable for the decedent’sdebts. Tex. Prob. Code § 37. Whichparticular assets should be used to actually paythe debts depends initially on the testator’sintent as expressed in the will. See Kennardv. Kennard, 84 S.W.2d 315 (Tex. Civ.App.—Waco 1935, writ dism’d). In theabsence of a stated intent on the part of thetestator, Texas courts prior to 1987 followedthe common law principal of "abatement."Technically, "abatement" is the reduction oftestamentary gifts if the estate is insufficient topay all of the debts and all of the testamentary

gifts. ATKINSON, WILLS, 754 (1953).Practically, it refers to the order of payment,as well.

1. COMMON LAW ABATEMENT

Under the common law concept,intestate property was to be applied first to paythe debts, then the decedent’s residuary assets,then the other general assets of the and finallythe specific and demonstrative bequests. Ifboth real and personal property were includedwithin a priority category, personal propertywas to be used before any real property withinthat category. See Thompson v. Thompson,236 S.W.2d 779 (Tex. 1951); Avery v.Johnson, 192 S.W. 542 (Tex. 1917); McNeillv. Masterson, 15 S.W. 673 (Tex. 1891).Warren v. Smith, 620 S.W.2d 725 (Tex. Civ.App.—Dallas 1981, writ ref’d n.r.e.).

2. STATUTORY ABATEMENT

In 1987, the Texas Legislature adopteda statutory abatement process. Sec. 322B ofthe Texas Probate Code now directs thattestamentary gifts will abate in the followingorder to pay debts and administrationexpenses:

a. Property not disposed of bywill, but passing by intestacy;

b. Personal property of theresiduary estate;

c. Real property of the residuaryestate;

d. General bequests of personalproperty;

e. General devises of realproperty;

f. Specific bequests of personalproperty;

g. Specific devises of realproperty.

The statute does not affect the right ofa secured creditor to elect a "preferred debtand lien" or "matured, secured claim." SeeSection 322B (b) of the Texas Probate Code.



Statutory abatement applies in allsituations except where the testator providesto the contrary in the will, and the testator mayvery well need to express a different intentdepending on the testator’s owncircumstances. For example, where stock in aclosely held corporation and real estateinvestments are passing as part of theresiduary estate, the testator may wish todirect the executor to liquidate the realproperty prior to the stock in the closely heldbusiness, because, absent such a provision, theexecutor may be forced to first liquidate thestock under Sec. 322B.

4. NONPROBATE ASSETS

Sec. 322B fails to allocate debts to anynonprobate assets although such assets aregenerally reachable by the decedent’s creditorsunless there is a specific statutory exemption.

(a) Multiple Party Bank Accounts

Sec. 442 of the Texas Probate Codeimposes secondary liability on funds ondeposit in "P.O.D." accounts, "trust" accountsor "joint accounts with survivorship rights" ifthe probate estate proves to be insolvent.Further, due to a 2003 amendment, any partyto a multiple party account, other than aconvenience signer, may pledge the account,or otherwise create a security interest in theaccount, regardless of whether there is a rightof survivorship.

(b) Life Insurance

Proceeds of a policy made payable toa beneficiary other than the insured’s estateare generally exempt from the claims of thedecedent’s creditors unless the insuredcommitted fraud in the acquisition of thepolicy. See Pope Photo Records, Inc. v.Malone, 539 S.W.2d 224 (Tex. Civ.App.—Amarillo 1976, no writ) and SanJacinto Bldg. v. Brown, 79 S.W.2d 164 (Tex.Civ. App.—Beaumont 1935, writ ref’d) butconsider the impact of the 1987 amendment toformer Art. 21.22 of the Texas Insurance

Code, now §§ 1108.051 and 1108.052 whichappears to even exempt proceeds payable tothe insured’s estate.

(c) Qualified Employee Benefits

In the past, it has been generallybelieved that benefits payable to theemployee’s estate, like life insurance, will besubject to creditor’s claims, but paymentsmade directly to designated third partybeneficiaries should be protected from theclaims of the deceased employee’s creditors.But consider the impact of Sec. 42.0021 of theTexas Property Code, which was added to theexempt property section of the Texas PropertyCode in 1987 and last amended in 2005.

(d) Revocable Trust Assets

Although there are no definitive caseson point, it is probable that the assets held ina revocable trust will be secondarily liable forthe settlor’s debts, either before or after thesettlor’s death.

(e) Joint Tenancies

In a common law joint tenancy, thedeceased tenant’s interest ceased to exist atdeath and the unsecured creditors of thedeceased tenant could not reach the propertysince it was then owned by the survivingtenant; however, Sec. 46 of the Texas ProbateCode does not authorize true joint tenancies,but joint tenancy by agreement. The author isnot aware of any Texas cases that wouldexempt this property from the deceased jointtenant’s creditors.

(f) Sec. 450(b) of the Texas Probate

Sec. 450 technically takes an asset outof the probate category but does notnecessarily limit the rights of the decedent’screditors. Sec. 450(b) of the Texas ProbateCode.

(g) Uniform Fraudulent Transfer Act

The provisions of this Act may givecreditors an additional theory whereby assets


passing nonprobate or inter vivos can bereached to satisfy the decedent’s debts. Tex.Bus. & Comm. Code §§ 24.001-24.013.

5. UNRESOLVED ISSUES

It should also be noted that Sec. 322Bfails to give direction in a community propertysituation upon the death of the first spouse. Insuch situations, "community debts" areprimarily payable out of the communityproperty of both spouses. Nesbitt v. FirstNational Bank of San Angelo, 108 S.W.2d318 (Tex. Civ. App.—Austin 1937). Atestator’s direction to pay the decedent’s debtsdoes not require the use of the decedent’s one-half to satisfy the whole debts. Grant v.Marshall, 280 S.W.2d 559 (Tex. 1955).Further, where the estate consists of both non-exempt separate and community assets, thereis potential conflict of interest for the personalrepresentative; the expenditure of separatefunds to satisfy the debt will inure to thebenefit of the surviving spouse while usingcommunity funds would accrue to the benefitthe decedent’s estate. Presumably Sec. 3.203of the Texas Family Code would be relevantand the facts and circumstances surroundingthe source of the debt should be considered.For example, is it a purchase moneyindebtedness? Is it tortious or contractual innature? The author is not aware of anydefinitive cases.

6. A D M I N I S T R A T I O N O FCOMMUNITY

During formal administration, thepersonal representative is entitled topossession of not only the deceased spouse’sseparate property but also the couple’s jointcommunity property and the decedent’sspecial community property. The survivingspouse may retain possession of the survivor’sspecial community property duringadministration or waive this right and allowthe personal representative to administer theentire community probate estate. Tex. Prob.Code § 177. This division of authority doesnot affect ownership, and of course, both thepersonal representative and surviving spouseshould eventually account for both halves of

the community in order to settle the estate.The division of authority prescribed by Sec.177 is inconsistent with the Sec. 156, whichprobably imposes at least secondary liabilityon the decedent’s one-half interest in thesurvivor’s special community property in thepossession of the survivor. This division ofauthority dovetails with the contractualmanagement and liability rules of the TexasFamily Code and facilitates the personalrepresentative’s ability to step into thedecedent’s shoes and satisfy his debts. Tex.Fam. Code §§ 3.102 and 3.202.

Note: Obviously, Sections 177 and 156 applyonly in probate administrations.

F. Apportionment

Prior to 1987, Texas courts treateddeath taxes as if they were general debts of theestate to be paid out of the estate as ordinarydebts pursuant to the rules of common lawabatement as discussed in Paragraph III E,supra, unless the will or a particular provisionof the Internal Revenue Code directed thattaxes be apportioned to a certain recipient.See I.R.C. § 2206 (life insurance), 2207(general powers), and 2207A (QTIP property).Also see Sinnot v. Gidney, 322 S.W.2d 507(Tex. 1959). This approach changed in 1987when the Texas legislature passed anapportionment statute, which now provides, ineffect, that in absence a provision in the will,federal estate taxes and state inheritance taxesare to be apportioned to the persons receivingthe assets that are included in the decedent’staxable estate, whether by probate ornonprobate disposition, based upon the"taxable value of each person’s interest in theestate." Tex. Prob. Code § 322A(b)(1). A1991 amendment to Sec. 322A makes it clearthat a will can include a direction forapportionment or non-apportionment for bothprobate and nonprobate assets so long as thewill does not allocate more than a pro ratashare to an interest passing under aninstrument created by another. Bequestswhich qualify for either the federal estate taxmarital deduction or charitable deduction donot have to bear any of the death taxes unlessthe will provides to the contrary. Tex. Prob.


Code § 322A(g). The executor also has a dutyto charge each beneficiary of the estate of bothof nonprobate and probate assets with his orher prorated share of the death taxes. Tex.Prob. Code § 322A(u).

G. Dissolution of Testator’s Marriage

The Texas Probate Code has longprovided that, if a testator is divorced aftermaking a will, all provisions in the will infavor of the testator’s spouse, or appointingsuch spouse to any fiduciary capacity, are tobe deemed null and void. Tex. Prob. Code §69. This section was amended in 2007. Notonly was the section’s title changed, but it’simpact was expanded. For decedents who dieon or after Sept. 1, 2007, if after executing awill, the testator’s marriage is dissolved, allprovisions in the will, including fiduciaryappointments, shall be read as if the formerspouse and each relative of the former spousewho is not a relative of the testator failed tosurvive the testator, unless the will expresslyprovides to the contrary. There is alsoreference to new Sec. 47A. It describes a newprobate procedure to have a marriage of lessthan three years declared void on the groundsthat a party lack mental capacity to marry.Tex. Prob. Code § 47A.

H. Texas Redesignation Statutes

While the divorce of a testatorgenerally voids all provisions in the testator’swill in favor of the now former spouse, Sec.472, enacted in 2005, “revokes” provisions ina revocable trust in favor of the settlor’s nowformer spouse (but not the former spouse’srelatives). Similarly, beneficiary designationsfound in life insurance policies and retirementplans in favor of the former spouse are (butnot the former spouse’s relatives) renderedineffective according to Texas law, if thedivorce occurred on or after Nov. 1, 1987.Tex. Fam. Code.§§ 9.301 and 9.302.

I. ERISA Death Benefits

Notwithstanding Tex. Fam. Code §§9.301 and 9.302, which generally void thedesignation of an ex-spouse as the beneficiary

of a life insurance policy or a retirement plan,Federal law appears to preempt the applicationof those two Texas statutes in situationsinvolving life insurance policies andretirement plans provided by an employer andgoverned by ERISA. In Egelhoff v. Egelhoff,532 U.S. 141, 147, 121 S.Ct. 1322, 1327, 149L.Ed.2d 264 (2001) a resident of the State ofWashington obtained a divorce but did notchange the designation of his former wife asthe beneficiary of a group life insurancepolicy. Upon Egelhoff’s death, his ERISAplan administrator paid the policy proceeds tohis former wife. His children then sued her torecover those proceeds, based on a statestatute that revoked a designation of a spouseas the beneficiary of a life insurance policyupon divorce. The Supreme Court held thatERISA preempts state law, reasoning, thatstate law was at odds with ERISA’s directivesthat a plan administrator must make paymentsto the beneficiary designated by the planparticipant.

In Keen v. Weaver,121 S.W.3d 721(Tex. 2003), the Texas Supreme Court ruledthat, notwithstanding the Egelhoff case, aformer spouse was not entitled to the deathbenefit of the employee’s pension plan afterthe employee failed to change the beneficiarydesignation following his divorce. The courtof appeals had already reversed the trialcourt’s ruling in favor of the former spouse byreasoning that the Texas redesignation statute,applied as federal common law, prevented theformer spouse from receiving the ERISAbenefits. Compare Heggy v. AmericanTrading Employer’s Ret. Account Plan, 123S.W.3d 770 (Tex. App.—Houston 14 Dist.2003).

The Texas Supreme Court in Keenconcluded that, while Tex. Fam. Code § 9.302was preempted by ERISA, the former spouse,as part of the original divorce proceeding, hadeffectively waived her interest in theemployee’s ERISA benefits. The waiver wasenforceable under federal common law in thatERISA’s anti-alienation provisions did notapply to such a waiver. It is interesting to notethat the U.S. Supreme Court denied the formerspouse’s writ of certiorari. See Keen v.


Weaver, 540 U.S. 1047, 124 S.Ct 808, 157 L.Ed. 2d 695 (2003).

J. Debtor/Beneficiary

If a beneficiary of the estate isindebted to the testator at the time of thetestator’s death, the testator in the will mayforgive the indebtedness as a form oftestamentary gift. McNabb v. Cruze, 125S.W.2d 288 (Tex. 1939). If the indebtednessis not forgiven by the testator, the share of thetestator’s es ta te passing to thedebtor/beneficiary should be reduced by theamount owed by the beneficiary to the estate,unless the will provides differently, accordingto the common law concept of "retainer" or"offset." In some jurisdictions, even a debtthat has been barred by the statute oflimitations can be set off against thebeneficiary’s share of the estate. The neteffect of this concept of retainer is to reducet h e s h a r e d i s t r i b u t ab le to thedebtor/beneficiary and to increase the amountavailable for others. This principle has beenrecognized in Texas in intestate situations.Oxsheer v. Nave, 40 S.W. 7 (Tex. 1987).However, a specific devisee who was indebtedto the estate was entitled to the gift. Russell v.Adams, 299 S.W. 889 (Tex. Com. App. 1927,approved). No Texas cases were foundaddressing general or residuary legatees orbeneficiaries of life insurance, retirementplans or revocable trusts.

IV. RULES AFFECTING ONLYSPECIFIC GIFTS

Because a specific gift in a will isusually one of a specific item of propertyowned by the testator on the date the will isexecuted, the subject of the gift may not beowned by the testator at the time of death or itmay have been pledged as the collateral for anindebtedness of the testator or it may havegone through a significant change in value. Inother words, a change in the property itselfmay have a significant effect on the testator’swill when it becomes effective.

A. Ademption by Extinction

If the subject of specific gift is not partof the testator’s probate estate at the time ofthe testator’s death, the testamentary gift is anullity unless the current owner of theproperty at the time of the testator’s death(either pursuant to inter vivos transaction or anonprobate disposition of the testator) is put toan express or equitable election. See VI, infra.Although frequently criticized as being anunduly harsh rule particularly in thosesituations where there is a clearly traceablemutation of the subject of the gift remaining inthe testator’s probate estate, Lord Thurlow’s"strict identity test" has been followed by thecourts unless an apparently adeemed specificgift is construed to be a general ordemonstrative one. See O’Neill v. Alford,485 S.W.2d 935 (Tex. Civ. App.—Houston[1st] 1972).

1. TEXAS DECISIONS

"Absent a contrary intention expressedin the will, the alienation or disappearance ofthe subject matter of a specific bequest from atestator’s estate adeems the devise orbequest." Shriner’s Hospital v. Stahl, 610S.W. 147 (Tex. 1980). The Stahl case alsoadopts the "strict identity test" by failing torecognize the concept of traceable mutationsso that the proceeds received upon theproperty’s sale pass under the residuary clauseand not to the specific devisee. A specific giftof the testator’s residence described at thetime the will has executed does not include anafter acquired residence. Wolf v.Hartmangruber, 162 S.W.2d 112 (Tex. Civ.App.—Ft. Worth 1942). Texas courts haveeven suggested that ademption can occur if thesubject matter of the gift is subject to aspecifically enforceable contract to sale at thetime of the testator’s death, thereby causingthe proceeds of the sale during administrationto pass to the residuary beneficiary, rather thanthe intended specific devisee. See Willie v.Waggoner, 181 S.W.2d 319 (Tex. Civ.App.—Austin 1944, writ ref’d); Lampman v.Sledge, 502 S.W.2d 957 (Tex. Civ.App.—Waco 1973, writ ref’d n.r.e.); andParson v. Wolfe, 676 S.W.2d 689 (Tex. Civ.


App.—Amarillo 1984). Texas courts havealso recognized partial ademptions. Rogers v.Carter, 385 S.W.2d 563 (Tex. Civ. App.—SanAntonio 1964, writ ref’d).

2. INVOLUNTARY CONVERSIONS

Common law courts justified thesometimes harsh results of the "strict identitytest" by reasoning that the testator was awareof the inter vivos disposition of the subject ofthe specific gift and could have changed thewill, if that was what the testator would havedesired. For that reason, some states havecreated exemptions to the rule when the intervivos disposition of the testator occurred whenthe testator was not competent and could nothave changed the will. See Morse v.Converse, 113 A. 214 (N.H. 1921); Estate ofMason, 397 P.2d 1005 (Ca. 1965); In re Estateof Anton, 731 N.W.2d 19 (Iowa 2007).

3. CHANGES IN FORM

If the change subsequent to the date ofthe will’s execution is one merely of form,rather than of substance, some courts haverelaxed the "strict identity test" and refused toadeem the gift. For example, a specificbequest of certain common stock should notbe adeemed because the corporation changedits name. See Goode v. Reynolds, 271 S.W.600 (Ky. 1925). Texas has recognized thisexception. See Shriners v. Stahl, supra. Anaspect of this concept was incorporated intoSection 70A(a) of the Texas Probate Code asit applies to corporate securities. See IV C,infra.


A specific gift of corporate stock"together with all dividends, rights andbenefits thereon" was found to include thestock of a holding company in which thespecific stock had been merged. Guy v. Crill,654 S.W.2d 813 (Tex. App.—Dallas 1983).See IV C, infra.

B. Accessions and Accretions

The increase or decrease in value ofthe subject matter of a specific gift prior to thetestator’s date of death does not affect thespecific gift in the will. Stock splits willlikewise pass to the specific devisee of thestock in existence prior to the split. Morriss v.Pickett, 503 S.W.2d 344 (Tex. Civ.App.—San Antonio 1973, writ ref’d n.r.e.).This rule has also been applied to a generalgift of so many shares of corporate stock.O’Neill v. Alford, 485 S.W.2d 935 (Tex. Civ.App.—Houston [1st Dist.] 1972). On theother hand, it also generally held that thedevisee of a specific gift is not entitled to anyof the pre-death income the subject of thespecific gift generates, unless the will providesthe contrary. Texas codified this principle in1993 as it applies to corporate securities. SeeTex. Prob. Code § 70A(b). Post-date of deathincome is, however, payable to the specificdevisee. Hurt v. Smith, 744 S.W.2d 1 (Tex.1987). This principle was also codified in1993. See Tex. Prob. Code § 378B(c).

C. Sec. 70a(a), Texas Probate Code

Section 70A(a) of the Texas ProbateCode, effective Sept. 1, 1993, provides thatunless the will clearly provides differently, aspecific devise of securities includes (i)securities of the same organization acquiredbecause of stock splits, stock dividends, andnew issues of stock acquired in areorganization, redemption, or exchange(other than securities acquired through theexercise of purchase options or through a planof reinvestment) and (ii) securities acquired asa result of a merger, consolidation,reorganization, or other distribution by theorganization or any successor, related, oracquiring organization. Tex. Prob. Code §70A(a) Further, unless the will providesdifferently, a devise of securities does notinclude a cash distribution accruing beforedeath, whether or not the distribution is paidbefore death. Tex. Prob. Code § 70A(b).

Note: Section 70A, by its own terms, appliesonly to wills.


D. Exoneration

At common law, a beneficiary of aspecific gift is generally entitled to receive thesubject matter of a specific gift free and clearof any encumbrances. In other words, unlessthe will provides differently, a specific deviseehad a right to have any indebtedness securedby the subject matter of the specific gift paidout of the residue of the estate, if the testatorwas personally liable for debt. Texas courtsadopted this common law concept. See Curriev. Scott, 187 S.W.2d 551 (Tex. 1945). In2005, the Legislature changed the rule. Forwills executed on or after Sept. 1, 2005, aspecific devise passes to the beneficiarysubject to any debt secured by the property onthe date of death. While a general direction inthe will to pay all debts does not give thebeneficiary a right of exoneration, a specificprovision stating that the devise passeswithout the debt will be given effect. Tex.Prob. Code § 71A.

Note: Section 71A, by its own terms, appliesonly to wills.

E. Contents

Sec. 58(c) of the Texas Probate Codeprovides that, unless the will provides to thecontrary, a specific gift of personal propertydoes not include any of the subject property’scontents and a specific devise of real propertydoes not include any personal property locatedon or associated with the subject matter. Realproperty is defined as land and generallywhatever is erected or growing upon, oraffixed to, land. Personal property is definedbroadly to include everything subject toownership not falling within the definition ofa real property. San Antonio Area Foundationv. Lang, 35 S.W.3d 636 (Tex. 2000). Theterms "contents" and “titled personalproperty” have also been defined. See Tex.Prob. Code § 58(c). Terms such as "personalbelongings," "furnishings" and "householdfurnishings" are not defined words of art in theprobate code or in the cases. See Goggans v.Simmons, 319 S.W.2d 442 (Tex. Civ.App.—Fort Worth 1958, writ ref’d. n.r.e.);Erwin v. Steele, 228 S.W.2d 882 (Tex. Civ.

App.—Dallas 1950, writ ref’d n.r.e.).Similarly, the terms "cash," "money," "funds"have vague meanings. See Stewart v. Selder,473 S.W.2d 3 (Tex. 1971); In re Estate ofStrubar 728 S.W.2d 437 (Tex. Civ.App.—Houston [1st] 1987); Paul v. Ball, 31Tex. 10 (1968).

Note: Section 58, by its own terms, appliesonly to wills.

F. Insurance

A specific gift does not include thepolicies of insurance covering the subject ofthe gift unless the will provides to thecontrary. See Springfield Fire & Marine v.Boon, 194 S.W. 1006 (Tex. Civ.App.—Texarkana 1917 writ ref’d) and In reBarry’s Estate, 252 P.2d 437 (Okla. 1952).Consider the impact of this rule when coupledwith the concept of ademption where thesubject matter of the specific gift is destroyedin the same event that terminates the testator’slife; the specific devisee will be entitled onlyto the subject matter in its damaged conditionon the date of death and the residuarybeneficiary will receive the insuranceproceeds, unless specific gift is defined in thewill to include the insurance.

V. RULES AFFECTING GENERALAND RESIDUARY GIFTS

Changes in the nature, extent and thevalue of the testator’s estate between the dateof the will’s execution and the date of thetestator’s death can also affect the testator’sgeneral and residuary gifts. Because residuarygifts are a type of general gift, the rulesaffecting one usually apply to the other.

A. Satisfaction

Sometimes referred to as "ademptionby satisfaction," the common law concept ofsatisfaction is the testate equivalent ofadvancements in intestate situations; bothrelate to situations where the owner ofproperty makes an inter vivos disposition thatis intended to be either a total or partialsatisfaction of the recipient’s share of the


property owner’s estate at death. Unlike itscousin, ademption by extinction, the conceptof satisfaction is applicable to general andresiduary gifts (an inter vivos disposition of aspecific gift works in ademption byextinction) and is dependent on the testator’sintent at the time of the inter vivos disposition.In other words, the testator’s intent is thedeterminative factor, and there exists apresumption of that intent if the testatortransfers the property of a similar nature tothat devised in the will to the beneficiary andthe beneficiary is a child of the testator or ifthe testator stands in a parental likerelationship to the beneficiary. See Hunsuckerv. Hunsucker, 455 S.W.2d 780 (Tex. Civ.App.—Waco 1970, writ refused n.r.e.). In2003, the Legislature created Sec. 37C of theTexas Probate Code, which states that forwills executed on or after Sept. 1, 2003, aninter vivos gift will be considered asatisfaction of a devise only if the testator’swill provides for the deduction of the gift, orthe testator so declares in a contemporaneousdocument, or the devisee so acknowledges inwriting.

In 1993, the legislature amendedSection 44 of Texas Probate Code, relating tointestate advancements, to include non-testamentary dispositions to an heir apparent(such as a life insurance beneficiarydesignation) as possible advancements and torequire written evidence signed by either thetestator or the recipient. Further, anadvancement is now to be valued at the timethe heir came into possession or at the time ofthe intestate’s death, whichever occurs first.Could a non-testamentary disposition to ageneral or residuary beneficiary be considereda partial or total satisfaction? Possibly, Sec.37C says property given in partial satisfactionis to be valued as of the earlier of the date onwhich the devisee acquires possession or thedate the testator dies. But, it does not refer tonon-testamentary transfers.

Note: Section 37C, by its own terms, appliesonly to wills.

B. Pecuniary Bequests

As explained in II C.supra, thebeneficiary of a general bequest has more of aclaim against the testator’s estate than aproperty interest in the specific property of theestate. For example, if the general gift is"$50,000 in cash," the executor has a duty todistribute to the beneficiary upon terminationof the estate $50,000 in cash out of theavailable cash resources of the estate or raisedby the sale of non-cash assets in the residuaryestate. The executor may deliver to thebeneficiary non-cash assets worth $50,000 onthe date of distribution, if the will authorizesthe executor to "fund in kind" or if thebeneficiary agrees to an "in kind" distribution.These common law concepts were codified in1991. See Tex. Prob. Code § 378A(b).Further, if the gift is one intended to qualifyfor the federal estate tax marital deduction andthe executor has been instructed by the testatorto fund at federal estate tax values rather thandate of distribution values, the amountdistributed by the executor to the beneficiarymust be "fairly representative" of theappreciation and depreciation in the availableasset pool. See Tex. Prob. Code § 378A(a).

Note: Section 378 applies to both wills andrevocable trusts.

C. Interest on Pecuniary Bequests

At common law, the beneficiary ofpecuniary bequest was entitled to interest onthe bequest after one year had elapsed. Texascourts modified this rule to provide forinterest once the bequest became "due andpayable" upon the payment of the decedent’sdebts and the other obligations of the estate.Williams v. Smith, 206 S.W.2d 208 (Tex.1947). However, in 1993, the legislature, ineffect, went back to the common law approachwith the passage of Sec. 378B of the TexasProbate Code. The legislature changed therule again in 2003.

D. Sec. 378b, Texas Probate Code

However, Section 378b, as amended in2003, effective as of Jan. 1, 2004, addresses


the allocation of debts, expenses, taxes andallowances, as well as income, but alsoincorporated the then contemporaneouslypassed Uniform Income and Principal Act.The amended version states:

(a) Except as provided bySubsection (b) of this section andunless the will provides otherwise, allexpenses incurred in connection withthe settlement of a decedent’s estate,including debts, funeral expense,estate taxes, interest and penaltiesrelating to estate taxes, and familyallowances, shall be charged againstthe principal of the estate. Fees andexpenses of an attorney, accountant, oro ther profess iona l advisor ,commissions and expenses of apersonal representative, court costs,and all other similar fees or expensesrelating to the administration of theestate and interest relating to estatetaxes shall be allocated between theincome and principal of the estate asthe executor determines in itsdiscretion to be just and equitable.

(b) Unless the will providesotherwise, income from the assets of adecedent’s estate that accrues after thedeath of the testator and beforedistribution, including income fromproperty used to discharge liabilities,shall be determined according to therules applicable to a trustee under theTexas Trust Code (Subtitle B, Title 9,Property Code) and distributed asprovided by Chapter 116, PropertyCode by Subsections (c) and (d) ofthis section.

(c) The income from the propertybequeathed or devised to a specificdevisee shall be distributed to thedevisee after reduction for propertytaxes, ordinary repairs, insurancepremiums, interest accrued after thedeath of the testator, other expenses ormanagement and operation of theproperty, and other taxes, includingthe taxes imposed on the income that

accrues during the period ofadministration and that is payable tothe devisee.

(d) The balance of the net incomeshall be distributed to all otherdevisees after reduction for thebalance of property taxes, ordinaryrepairs, insurance premiums, interestaccrued, other expenses ofmanagement and operation of allproperty from which the estate isentitled to income, and taxes imposedon income that accrues during theperiod of administration and that ispayable or allocable to the devisees, inproportion to the devisees’ respectiveinterests in the undistributed assets ofthe estate.

(e) Repealed (2003).

(f) Repealed (2003).

(g) Income received by a trusteeunder this section shall betreated as income of the trust.

E. § 116.051. Determination andDistribution of Net Income

After a decedent dies, in the case of anestate, or after an income interest in arevocable trust ends, Section 116.051 of theTexas Trust Code provides:

(1) A fiduciary of an estate or of aterminating income interest shall determinethe amount of net income and net principalreceipts received from property specificallygiven to a beneficiary under the rules inSubchapters C, D, and E which apply totrustees and the rules in Subdivision (5). Thefiduciary shall distribute the net income andnet principal receipts to the beneficiary who isto receive the specific property.

(2) A fiduciary shall determine theremaining net income of a decedent’s estate ora terminating income interest under the rulesin Subchapters C, D, and E which apply totrustees and by:


(A) including in net income allincome from property used to dischargeliabilities;

(B) paying from income or principal,in the fiduciary’s discretion, fees of attorneys,accountants, and fiduciaries; court costs andother expenses of administration; and intereston death taxes, but the fiduciary may paythose expenses from income of propertypassing to a trust for which the fiduciaryclaims an estate tax marital or charitablededuction only to the extent that the paymentof those expenses from income will not causethe reduction or loss of the deduction; and

(C) paying from principal all otherdisbursements made or incurred in connectionwith the settlement of a decedent’s estate orthe winding up of a terminating incomeinterest, including debts, funeral expenses,disposition of remains, family allowances, anddeath taxes and related penalties that areapportioned to the estate or terminatingincome interest by the will, the terms of thetrust, or applicable law.

(3) A fiduciary shall distribute to abeneficiary who receives a pecuniary amountoutright the interest or any other amountprovided by the will, the terms of the trust, orapplicable law from net income determinedunder Subdivision (2) or from principal to theextent that net income is insufficient. If abeneficiary is to receive a pecuniary amountoutright from a trust after an income interestends and no interest or other amount isprovided for by the terms of the trust orapplicable law, the fiduciary shall distributethe interest or other amount to which thebeneficiary would be entitled under applicablelaw if the pecuniary amount were required tobe paid under a will. Unless otherwiseprovided by the will or the terms of the trust,a beneficiary who receives a pecuniaryamount, regardless of whether in trust, shallbe paid interest on the pecuniary amount atthe legal rate of interest as provided bySection 302.002, Finance Code. Interest onthe pecuniary amount is payable:

(A) under a will, beginning on the firstanniversary of th date of the decedent’s death;or

(B) under a trust, beginning on thefirst anniversary of the date on which anincome interest ends.

(4) A fiduciary shall distribute the netincome remaining after distributions requiredby Subdivision (3) in the manner described inSection 116.052 to all other beneficiaries evenif the beneficiary holds an unqualified powerto withdraw assets from the trust or otherpresently exercisable general power ofappointment over the trust.

(5) A fiduciary may not reduceprincipal or income receipts from propertydescribed in Subdivision (1) because of apayment described in Section 116.201 or116.202 to the extent that the will, the termsof the trust, or applicable law requires thefiduciary to make the payment from assetsother than the property or to the extent that thefiduciary recovers or expects to recover thepayment from a third party. The net incomeand principal receipts from the property aredetermined by including all of the amounts thefiduciary receives or pays with respect to theproperty, whether those amounts accrued orbecame due before, on, or after the date of adecedent’s death or an income interest’sterminating event, and by making a reasonableprovision for amounts that the fiduciarybelieves the estate or terminating incomeinterest may become obligated to pay after theproperty is distributed.

(6) A fiduciary, without reduction fortaxes, shall pay to a charitable organizationthat is entitled to receive income underSubdivision (4) any amount allowed as a taxdeduction to the estate or trust for incomepayable to the charitable organization.

F. Residuary Estate

In Texas, a residuary estate under awill is presumed to include any lapsed specificor general gift. Shriners Hospital v. Stahl,supra. This concept has been codified. Tex.Prob. Code § 68(b). Further, residuarybeneficiaries are entitled to all of the incomeof the estate not otherwise properlydistributable to specific and general


beneficiaries. Tex. Prob. Code § 378B andTex. Trust Code § 116.0651. In other words,in a typical residuary clause, such as "I devisethe rest residue and remainder of my estate",the clause disposes of that portion of thetestator’s probate estate which was notspecifically or generally given away, includingnot only those assets not expressly mentionedin the will, but also (i) property not evenknown to the testator, (ii) property acquiredafter the execution of the will, (iii) futureinterests owned by the testator, (iv) proceedsof adeemed property, and (iv) bequestsforfeited due to an in terrerorem clause. Inother words, there is a strong constructionalpreference against any property of the estatepassing by intestate succession, if there is aresiduary clause. In fact, the Legislature hasstrengthened this presumption. Section 68(c)now provides that, if the residuary estate isdevised to two or more persons, and the shareof one fails, the share passes to the otherresiduary beneficiaries, rather than by intestatesuccession.

On the other hand, a residuary clausein Texas is not presumed to include anyproperty over which the decedent possessed apower of appointment. Republic NationalBank v. Fredericks, 283 S.W.2d 39 (Tex.1935). This concept was codified as well in2003. Tex. Prob. Code § 58(c). Texas courtshave, however, recognized the concept of"implied exercise" of powers. See RepublicNational Bank, supra. An express exercise ofa testamentary general power of appointmentin a residuary clause is called a "blendingclause, resulting in the property subject to thepower becoming part of the residuary estate --"the doctrine of capture."

Note: As discussed, Section 116.051 applies toboth wills and revocable trusts. However,Sections 68 and 58(c) apply only to wills.Further, “lapsed” specific or general gifts ina revocable trust may not pass pursuant to therevocable trust’s residuary clause, unless thedocument so provides in view of the commonlaw rule that does not imply conditions ofsurvivorship on future interests.

G. Apportionment Within theResiduary

The interrelationship of the fractionalgift rule discussed above and Sec. 322A cangenerate an interesting application of statutoryapportionment, if the residuary estate is left tomore than one beneficiary and at least one ofthe residuary beneficiaries is the recipient of afractional gift that qualifies for the federalestate tax marital or charitable deduction. Forexample, assume that (i) the residuary estate isleft to the decedent’s children by the firstmarriage, the decedent’s surviving spouse, andthe decedent’s favorite charity and (ii) that thewill does not direct how death taxes are to bepaid (or it simply directs death taxes to bepaid out of the residuary estate withoutspecifying if the death taxes are to be paidbefore or after the division into undividedshares), how are the death taxes to beallocated?

1. THE ARGUMENTS

The children will argue that all thedeath taxes should be paid before theresiduary is divided into "thirds." The charityand the spouse will argue their fractionalinterests are exempt from the payment ofdeath taxes since they qualify for the maritalor charitable deduction, causing all of thedeath taxes being generated by the children’sshare to bear all of its share of the taxes,thereby increasing the marital and charitabledeductions and resulting in a decreased overalldeath tax liability of the estate.

2. ANALYSIS

Although this issue has not beenaddressed by the Texas courts, there is,authority from other jurisdictions that supportthe construction offered by the spouse and thecharity. Most courts have reached thisconclusion because most testators who leaveproperty to charity or their spouses want to getthe largest possible tax deduction. Othercourts rely on broader equitable principles andplace the ultimate burden of the federal estatetax on the property which generates the taxand not on the property which does not. With


or without an apportionment statute, moststates tend to exempt from the ultimate burdenof death taxes shares of the estate whichqualify for a deduction.

3. MCKINNEY CASE

A leading case on point is the Matterof McKinney, 101 A.D.2d 477, 477 N.Y.S.2d367 (1984), appeal denied, 63 N.Y.2d 607,482 N.Y.S.2d 1024, 472 N.E.2d 48 (1984).This is a fact situation arising out of NewYork which has an apportionment statutesimilar to Texas’ apportionment statute. Inthat case, the decedent’s will directed that allestate and inheritance taxes "be paid out of mytestamentary residuary estate." She then leftseventy percent of the residue to a hospitaland thirty percent to an individual. The courtaccepted the argument that all the taxes shouldbe allocated to the individual, stating:"Statutory tax apportionment must be appliedwithin the residuary. If the residuary includes.. . a disposition . . . to either a survivingspouse or a charity, those dispositions aretotally exonerated from the payment of taxes.. . . It is presumed that the testatrix intendedthat the St. Agnes Hospital receive themaximum benefit afforded by way of thecharitable deduction authorized by Section2055 of the Internal Revenue Code."Therefore, the 70/30 allocation was to bemade before rather than after the death taxeswere paid. See also "Construction and Effectof Will Provisions Expressly Relating to theBurden of Estate Taxes," 69 A.L.R.3rd 122,211 (1976); “Construction and Application of‘Pay-All-Taxes’ Provisions in a Will, asIncluding Liability of NontestamentaryProperty for Inheritance and Estate Taxes.”56 A.L.R.5th 133 (1998).

VI. OTHER RELATED CONCEPTS

Other concepts and principals of thelaw can have a dramatic effect on thedisposition of the decedent’s estate, if thesituations to which they relate are notaddressed expressly in the will. Many of theseconcepts have been affected in recent years bylegislation.

A. Equitable Election

Whenever any devisee is entitled to abenefit under a will and asked to suffer adetriment under the will, the devisee cannotaccept the benefit without suffering thedetriment. The choice is left to the deviseewho can elect to accept under the will or electagainst the will. The most common exampleof an election is when the testator attempts todispose of property which the testator does notown while at the same time devising otherproperty to the actual owner. See Wright v.Wright, 154 Tex. 138, 274 S.W.2d 670(1955). Dunn v. Vinyard, 251 S.W. 1043(Tex. Com. App. 1923, opinion adopted).

1. C O M M U N IT Y P R O P E R T YELECTION

It is common for one spouse to attemptto leave a community asset to a third partywhile leaving the surviving spouse anotherasset. Such a disposition would put thesurviving spouse to an election, the commonlycalled "widow’s election." The survivingspouse is also put to an election when thedecedent gives the surviving spouse a lifeestate in the entire community estate whileexpecting the survivor to allow her one-half ofthe community to pass under the decedent’swill. Wheeler v. United States, 116 F.3d 749(5th Cir. (Tex.) 1997), United States v. Past,347 F.2d 7 (9th Cir. 1965); Vardell’s Est. v.Comm., 307 F2d 688 (5th Cir. 1962).

2. THE TEXAS RULE

In Wright v. Wright, supra, the TexasSupreme Court explained the Texas rule.First, the will must dispose of property ownedby the surviving spouse while at the same timegranting some benefits to the survivingspouse. Second, the surviving spouse mustelect to allow all or part of his property to passas provided in the will before accepting thebenefits conferred. Third, the will mustclearly put the survivor to an election.


3. PROCEDURE

Where one spouse is incapacitated anda guardianship is likely to be needed followingthe death of the other spouse, the otherspouse’s will could put surviving spouse to anexpress election to allow his or her property topass under the deceased spouse’s will inexchange for a benefit under the will. In otherwords, the language of the will wouldspecifically and expressly set forth the intentto require an election. Calvert v. Ft. WorthNat. Bank, 348 S.W.2d 19 (Tex. Civ.App.—Austin, 1961). If an election is madeby or on behalf of the incapacitated spouse to"accept" the terms of the other’s will, thesurviving spouse’s property would pass into atrust created in the other spouse’s will. Thequestion of whether the survivor is put to anelection is one of the law for the court.Wright, supra. The question of whether thesurvivor has made an election is one of fact.Generally, two factors are involved. First, thesurvivor must have been aware of the choice.Second, the survivor must intend to so elect;however, the totality of the circumstances areconsidered in making this determination.Dunn v. Vinyard, supra. Mere acceptance ofbenefits may be deemed an election to takeunder the will. See Dougherty, "Election",Texas Estate Administration §§ 8.1, 8.2.

B. Pour Over Planning

Section 58A of the Texas ProbateCode was amended in 1993 to permit the"pour over" of probate assets to a trustee of aninter vivos trust ". . . if the trust is identified inthe testator’s will and its terms are in a writteninstrument, other than a will, that is executedbefore, with, or after the execution of thetestator’s will or in another person’s will ifthat other person has predeceased the testator,regardless of the existence, size, or characterof the corpus of the trust." In other words, thetrust "pour over" no longer needs to be eitherin existence prior to the testator’s death or atthe time of the wills execution. Prior to theenactment of Sec. 58A in 1961, the commonlaw concepts of incorporation by referenceand facts of independent significance wereused to validate pour over wills.

C. Negative Will

Section 58 of the Texas Probate Codewas amended in 1991 to eliminate anyreference to the term "expectancy" assomething that can be devised since oneperson does not have the power to devise anexpectuary in another’s estate. In addition,Sec. 58 now permits a testator to disinherit anheir through a testamentary document in orderfor the testator to eliminate the possibility ofa particular person of receiving anything.

D. Duties of Life Tenant

The second Section 5.009 found in theTexas Property Code was added in 1993 andprovides that, if a life tenant of a legal lifeestate is given the power to sell and reinvestany life tenancy property, the life tenant issubject, with respect to the sale and theinvestment of the property, to all of thefiduciary duties of a trustee imposed by theTexas Trust Code or the common law. Itfurther provides that the life tenant may retain,as life tenancy property, any real propertyoriginally conveyed to the life tenant withoutbeing subject to the fiduciary duties of atrustee, although the life tenant would remainsubject to the common law duties of a lifetenant. A life tenant does not have theauthority to sell the property absent authorityin the disposition that created the life estate.Ellis v. Bruce, 286 S.W.2d 645 (Tex. Civ.App.—Eastland 1956, writ ref’d n.r.e.).

E. Acceleration of Future Interests

Both Sec. 112.010(d) of the TexasProperty Code and Section 37A of the TexasProbate Code were amended in 1993 to makeit clear that a disclaimer of a present interestin a will or a trust will accelerate any futureinterest following the disclaimed presentinterest. Prior to these amendments, it wasnot clear whether or not the following futureinterest was accelerated. See Barrows v. Ezer,668 S.W.2d 854 (Tex. Civ. App.—Houston[14th Dist.] 1984, writ ref’d n.r.e.) and Abergv. First National Bank in Dallas, 450 S.W.2d403 (Tex. Civ. App.—Dallas 1970, writ ref’dn.r.e.).


F. Disclaimers by Surviving Spouse

The 2007 amendments to Sec. 37Awere primarily non-substantive; subsectionswere added and titles given. The onlysubstantive change is one that extends thetime for charities and governmental entities tofile disclaimers. Sec. 37A of the TexasProbate Code was also amended in 1993 tomake it clear that a surviving spouse maydisclaim a specific devise (or other form oftransfer) in favor of a bypass trust (or anyother form of transfer) in which the survivingspouse is a beneficiary. The proposedamendment enables the surviving spouse tomake a qualified disclaimer pursuant to Sec.2518 of the Internal Revenue Code and Treas.Reg. § 25.2518-2(e)(2). Further, the survivingspouse is specifically authorized to disclaimunder a community property survivorshipagreement in order for the deceased spouse’sone-half interest to pass under the decedent’swill or by intestacy. Tex. Prob. Code § 37A.Of course, Sec. 37A was enacted in 1971 tonegate the old common law dichotomy –devisees could disclaim under a will but heirscould not renounce their intestate share. Nowboth devisees and heirs can disclaim.

Note: Section 37A applies to wills, lifeinsurance, multiple party accounts andretirement benefits, but the disclaimer rulesfor revocable trusts are found in the TexasTrust Code. Tex. Trust Code § 112.010.

G. Effect of Disclaimer on Devisee’sCreditors

The 1993 changes also codified theresult of Dyer v. Eckols, 808 S.W.2d 531(Tex. App. —Houston [14th Dist.] 1991, writdism’d), which held that a disclaimant’screditors could not attach the disclaimedproperty. Section 37A was amended in 1993to provide that a disclaimer should relate backfor all purposes to the death of the decedent,thereby exempting the property from theclaims of any creditor of the disclaimant.Similar changes were made to Sec. 112.010(d)of the Texas Property Code and to Sec.24.002(12) of the Texas Business andCommercial Code in order to coordinate all

those sections and provide consistency underTexas law. A Texas court has held that abeneficiary can disclaim even though aturnover order had been entered. Parks v.Parker, 957 S.W.2d 666 (Tex. App.—Austin1971, no writ). However, a disclaimer is noteffective as against a federal tax lien. Dryer v.U.S., 120 S.Ct. 474 (1999). In the Matter ofHomer Simpson v. Penner, 36 F.3d 450 (5thCir. 1994), the Fifth Circuit, in a bankruptcycase, held that a disclaimer under Texas lawdoes not constitute a fraudulent transfer.However, in a recent bankruptcy case inTexas, the court held that a debtor’sdisclaimer filed after her Chapter 7 petitionwas filed could be avoided by the trustee as anunauthorized post-petition transfer afterreviewing the Simpson case. In re Schmidt,362 B.R. 318 (Bankr. W.D. Tex. 2007); seealso In re Frausto, 259 B.R. 201 (Bankr. N.D.Ala. Dec. 12, 2000) [FN 15 “fifth line ofcases”] and 11 U.S.C.A. § 348(f)(1)(A) andBankruptcy Reform Act of 1994, Pub.L. No.103- 394, § 702(b), 108 Stat. 4106, 4150(1994).

H. Representation

Section 43 and Section 45 of the TexasProbate Code were amended in 1991 toprovide that representation for intestatesuccession purposes will be determined using"per capita with representation" for intestacypurposes, inheritance for lineals andcollaterals alike, rather than strict "per stirpes"as was the case for lineal descendants of theintestate. This change went into effect fordecedent’s dying after Sept. 1, 1991.Accordingly, any property passing by intestacywill pass differently if no child of the personin question is surviving, but grandchildren aresurviving.

I. Community Property Inheritance

Sec. 45 of the Texas Probate Code wasamended again in 1993 to provide that, on theintestate death of one of the spouses to amarriage, the community property of thedeceased spouse passes to the survivingspouse, if no child or other descendant of thedeceased spouse is surviving or if all


surviving children and descendant of thedeceased spouse are also children of thesurviving spouse. If there are any children ordescendants of the deceased spouse, thedeceased spouse’s one-half interest passes toall of the deceased spouse’s descendants, as itwas prior to Sept. 1, 1993.

J. Pretermitted Children

Sec. 67 of the Texas Probate Code hadbeen amended in 1993 to broaden the scope ofSec. 67's language "provided for" and"provision is made" to include gifts by thetestator’s will in trust and nonprobatedispositions outside the testator’s will whichwere intended to take effect at the testator’sdeath. In effect, if any provision made for theafter-born or after-adopted child, whether inthe will or by a non-testamentary disposition,then the child is not pretermitted. A 2003amendment made it clear that, if there wereany other children when the will wasexecuted, the preterminated child’s share islimited to a share in the other children’sinterest, whether vested or not. Tex. Prob.Code § 67(A)(1)(B).

K. Cy Pres and the Rule AgainstPerpetuities

Sec. 5.043 of the Texas Property Codewas amended in 1991 to clarify that a non-charitable gift or trust which violates the ruleagainst perpetuities can be reformed so that itdoes not violate the rule in order to avoid theconfusion created by Foshee v. RepublicNational Bank, 617 S.W.2d 675 (Tex. 1981)and Ball v. Knox, 768 S.W.2d 829 (Tex.App.—Houston [14th Dist.] 1989).

L. Division and Combination of Trusts

Sec. 112.057 of the Texas PropertyCode was amended in 2005 to permit a non-judicial division or combination of an existingtrust for any reason, if division or combinationdoes not impair the rights of the beneficiariesor the purposes of the trust.

M. Non-Marital Children

The statute setting forth the standardsof inheritance for non-marital children forintestate succession purposes wassubstantially rewritten in 1989 to provide thata child would be considered the child of thebiological father if the child was born undercircumstances described by the predecessor to§ 160.204 of the Texas Family Code, wasadjudicated to be the child of the father bycourt decree as provided in the predecessor toChapter 160 of the Texas Family Code, wasadopted by the father, or the father executed astatement of paternity as provided in thepredecessor to §§ 160.301 and 160.302 of theTexas Family Code (or like statement propertyexecuted in other jurisdiction). Further, ifnone of those actions took place during thefather’s lifetime, the child may now petitionthe probate court to determine if the allegedfather was the biological father of the child. Ifthe biological link is established, the child isto be treated as if such a child were a natural,legitimate child of the father for intestacypurposes and pretermission purposes, as wellas homestead, exempt property and allowancepurposes. Tex. Prob. Code § 42(b). Forpurposes of inheritance, a non-marital childhas always been deemed to be legitimate tothe child’s mother. Tex. Prob. Code § 42(a). Of course, in a will, what is meant by theterm "child" or "children" will depend on theintent of the testator. Traditionally, the terms"issue" or "children" or "descendants" havebeen construed not to include non-maritalchildren of a father unless the will indicates acontrary intent. Hayworth v. Williams, 116S.W. 43 (Tex. 1909); Tindol v. McCoy, 535S.W.2d 745 (Tex. Civ. App.—Corpus Christi1976 n.r.e.) Will a change in policy forintestacy purposes mean a change inpresumption for will construction purposes?

N. Adoption

Sec. 162.017(c) of the Texas FamilyCode provides that the "term ‘single child,’‘descendent,’ ‘issue’ and other termsindicating the relationship of parent and childinclude an adopted child unless the context orexpress language clearly indicates otherwise."


One court of appeals case has stated that thisadoption statute "is no more than an aid to beemployed in the construction of the will and isnot controlling". Sharp v. Broadway NationalBank, 761 S.W.2d 141 (Tex. App.—SanAntonio 1988 no writ). In Ortega v. FirstRepublicBank, Fort Worth, N.A. Trustee, 792S.W.2d 452 (Tex. 1990), the term "any othergreat grandchildren who may be born after mydeath" was found not to include adoptedchildren. In Lehman v. Corpus ChristiNational Bank, 668 S.W.2d 687 (Tex. 1984),an adopted adult was included under bequestto "descendants" where the will specificallydefined descendants to include adoptedchildren and issue. In Diemer v. Diemer, 717S.W.2d 160 (Tex. Civ. App.—Houston [14thDist.] 1986, writ ref’d n.r.e.), the term "issue"was said to indicate a greater preference toblood relationships thru the term"descendants." In Parker v. Parker, 131S.W.3d 524 (Tex. App.—Ft. Worth 2004), thecourt held that, notwithstanding language inthe will stating children “born of thedaughters’ bodies” would share equally,adopted great-grandchildren were included inthe class of great-grandchildren.

O. Devise to an Attorney

A devise to an attorney whoprepares/supervises the preparation of a will(as well as others related to or associated withthe attorney) is void unless the person is thetestator’s spouse, an ascendant or descendantof the testator, or related within the thirddegree of consanguinity. Tex. Prob. Code §58(b).

VII. CONCLUSIONS

The will of a testator who died thirtyyears ago would have been construed verydifferently than one with identical terms for anindividual who died today. The revocabletrust of a settlor would be construed verydifferently today than a will with essentiallythe same terms. A dispositive document,whether it is a will or a revocable trust, writtentoday may be construed in the future verydifferently than it would be today.

Thus, care must also be taken when anissue arises today in determining the meaningof the will of a testator or settlor who diedyears before. Are the relevant rules ofconstruction that have been adopted insubsequent years applicable or are the rules ineffect years ago the rules to apply?

These difficulties confirm the truismthat a well drafted will or revocable trust isone which does not need the application ofever changing rules of construction todetermine who gets what, when and how!

Accordingly, the following list ofrules for drafting are suggested to help ensurethat the actual intent of a client will be carriedout 10, 15, 25, 35 or 50 years from now:

1. Define who are the beneficiaries. For example, what does the clientactually mean when using terms like"chi ld ren" , "g randch i ld ren" ,"descendants", "issue" or "nieces ornephews"? Are step-children, non-marital children, pretermitted children,adopted children, and adults who areadopted as adults to be includedwithin those terms? What aboutscientifically generated descendants?

Expressly state what happens if anindividual beneficiary, fractional giftbeneficiary or class memberpredeceases the client. Make it clearwhether the beneficiary of a futureinterest must survive the terminationof the preceding interest. Define"survivorship" for the beneficiaries;120 hours, 30 days, 60 days or 90days, etc.

Further, at a minimum have anyproperty passing to a minordistributable be a custodian underT.U.T.M.A. or contingent trustee forthe minor.

2. Avoid implied elections. For example, the plan shoulddistinguish between probate andnonprobate assets. The will should


attempt to dispose of only thetestator’s probate assets andnot any nonprobate assets ofthe decedent passing to a thirdparty beneficiary unless thetestator intends to put therecipient of the nonprobateasset to an express election. Ifmarried, the testator shoulddistinguish between thetestator’s separate property andthe couple’s communityproperty and clearly manifestthe intent to dispose of onlythe decedent’s one-halfinterest in the community. Inother words, do not create animplied widow’s electionsituation. Further, clarifywhether or not the testatorintends to exercise any powersof appointment in the will.Further, do not attempt todispose of any other person’sproperty in the will unless thetestator intends to put thatperson to an express election.

When marital property is to be placedinto a revocable trust, steps shouldgenerally be taken to ensure that theplanning:

(a) Is not deemed fraudulent oreven "illusory" under Land v.Marshall, 426 S.W.2d 841(Tex. 1968). In this case, thehusband placed his solemanagement communityproperty into a revocable trust;upon his death, the wifedisrupted the plan by pullingher one-half interest out of thetrust under the "illusory"transfer doctrine.

(b) Is not deemed void becauseone spouse unilaterallya t tempted to t ransfercommunity property subject tojoint control into the trust.

(c) Does not amount to a“mixing” of the different typesof community property so thatspecial community assetsbecome joint communityproperty.

(d) Does not work a comminglingof community and separatefunds as to risk losing theseparate character of theseparate property.

(e) Does not amount to, nor was itintended to be, a partition ofcommunity property into theirrespective separate estates.

In other words, precautions should betaken in the drafting and funding ofthe trust to document that the retainedequitable interest in community assetsplaced in the trust remain communityduring the balance of the marriage,and if an asset was a spouse’s specialcommunity property, that it maintainsthat character as well unless a differentresult is intended after dueconsideration of the consequences. Ofcourse, a spouse’s retained interest inany separate property should remainseparate in most situations.

3. Anticipate changes in the subjects ofspecific gifts. For example, stipulate whether anyspecific gift is to pass "free of" or"subject to" any indebtedness existingwith the respect of the property at thetime of the decedent’s death. Further,stipulate whether any specific gifts areto include any casualty insurancepolicies in order to negate ademptionby extinction. Anticipate which assetsmay undergo changes of substance orform and state whether or nottraceable mutation thereof, or analternative gifts, is to pass to theintended beneficiary.

4. Return to an employee or an insuredany interest one person, particularly a


spouse, may have in anotherperson’s retirement plan or aninsurance policy on another’slife.

5. Always include a residuary clause andan alternative residuary disposition.Further, expressly provide whathappens if a beneficiary dies beforethe client. Make it clear that, if aspecific or general gift fails, theproperty passes as part of theresiduary.

6. Express specifically how death taxes,debts and administration expensesshould be paid and whether or notassets passing outside of the will areto be burdened to avoid statutoryabatement and apportionment.

7. Clarify what type of representation isdesired by the testator, "per stirpes"or "per capita with representation."

8. Include spendthrift provisions andperpetuities savings clauses for anytrusts created for intendedbeneficiaries.

9. Stipulate whether or not any amountowing by beneficiary to the client,whether enforceable or not, is to betaken into consideration indetermining the beneficiary’s netshare of the estate.

10. Negate any implication that the planis being executed pursuant to acontract. Of course, if there is acontract, the plan should comply withSection 59A of the Texas ProbateCode, if a will is involved. If it is atrust, focus on when the revocabletrust can be revoked by a spouse.

Finally, whether a will or revocabletrust is the key dispositive document,coordinate the disposition of other assets,probate or nonprobate, with the key document.


APPENDIX NO. 1Testamentary and Nontestamentary Dispositions

Statutory Rules of Construction

TEXAS PROBATE CODE

Sec. 37A, 1971Means of Evidencing Disclaimer or Renunciation of Property or Interest Receivable from aDecedent – applies to wills, community property survivorship agreements, joint tenancies,survivorship accounts, life insurance policies, and retirement plan.*

Sec. 37C, 2003Satisfaction of Devise – applies only to wills.

Sec. 47, 1979Requirement of Survival by 120 Hours – applies to wills, community property survivorshipagreements, joint tenancies, life insurance policies and living trusts.

Sec. 58(c), (d), 1993Interests Which Must Pass Under Will (contents defined) – applies only to wills.

Sec. 58(a), 1961Devises or Bequests to Trustees – applies only to wills.

Sec. 58(b), 2001Devises and Bequests That Are Void – applies only to wills.

Sec. 58(c), 2003Exercise of Power of Appointment – applies only to wills.

Sec.6-7, 1955Pretermitted Child – applies only to wills.

Sec. 68(a), 1955Prior Death of Legatee (anti-lapse provisions) – applies only to wills.

Sec. 68(c), (d), 1993Prior Death of Legatee (lapse provisions) – applies only to wills.

Sec. 69, 1955Voidness Arising from Divorce – applies only to wills.**

Sec. 79A, 1993Increase in Securities; Accessions – applies only to wills.

Sec. 71A, 2005No Right of Exoneration of Debts; Exception – applies only to wills.

Sec. 322A, 1987Apportionment of Taxes – applies to wills and any other disposition included in decedent’sgross estate for federal tax purposes.


Sec. 322B, 1987Abatement of Bequests – applies to wills only.

Sec. 378A, 1987Satisfaction of Pecuniary Bequests – applies to wills and revocable trusts.

Sec. 378B, 1993Allocation of Income and Expenses During Administration of Decedent’s Estate – appliesonly to wills.***

Sec. 472, 2005Revocation of Certain Nontestamentary Transfers on Dissolution of Marriage – applies torevocable trusts only.**

*See Tex. Trust Code § 112.010, 1983, Acceptance or Disclaimer by or on Behalf of Beneficiary(applies to revocable trusts).

**See Tex. Family Code §§ 9.301 and 9.3-2, Pre-Decree Designation of Ex-Spouse and Beneficiaryof Life Insurance and Pre-Divorce Designation of Ex-Spouse as Beneficiary in Retirement Benefitsand Other Financial Plans.

***See Tex. Trust Code §§ 116.051, 116.052, 2003, Determination and Distribution of Net Income– applies to wills and revocable trusts. See also Tex. Trust Code §§ 116.101, 116.102 and 116.103.

TEXAS TRUST CODE

Sec. 111.0035, 2005Default and Mandatory Rules; Conflicts Between Terms and Statute – applies to revocabletrusts and testamentary trusts.

Sec. 112.010, 1983, Acceptance or Disclaimer by or on Behalf of Beneficiary (applies to revocable trusts).

Sec. 112.035, 1983Spendthrift Trusts – applies to revocable and testamentary trusts.

Sec. 112.036, 1983Rule Against Perpetuities – applies to revocable trusts and testamentary.

Sec. 112.051, 1983Revocation, Modification or Amendment by Settlor – applies to inter vivos trusts.

Sec. 112.054, 1983Judicial Modification on Termination of Trusts – applies to revocable trusts and testamentarytrusts.

Sec. 113.021, 1983Distribution to Minor or Incapacitated Beneficiary – applies to revocable and testamentarytrust.


Sec. 113.022, 1983Power to Provide Residence and Pay Funeral Expenses – applies to revocable andtestamentary trusts.

TEXAS PROPERTY CODE

Sec. 5.009, 1993Duties of Life Tenant – applies to legal life estates.

Sec. 5.042, 1983Abolition of Common Law Rules – applies to any testamentary or nontestamentarydisposition.

Sec. 5.043, 1983Reformation of Interests Violating Rule Against Perpetuities – applies to any testamentaryor nontestamentary disposition.

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