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Instructions to Independent Executor
Congratulations on being appointed
Independent Executor. As an Independent Executor, you have assumed a
major responsibility. The law imposes upon you certain powers, duties
and responsibilities. These legal requirements have developed over the
last 150 years in Texas and are designed to protect the beneficiaries
of an estate, while at the same time allowing for freedom of action by
the independent executor. These instructions will attempt to introduce
you to basic aspects of the law. If you have any questions, please
contact our office at any time.
1) INTRODUCTION
You have been appointed "independent"
executor. The term "independent" means that you are largely free of
court control. Except in limited circumstances, your decisions cannot
be changed by the judge. In naming you as "independent executor", the
decedent has placed his or her trust in you that you will follow his
or her last wishes.
Independent administration is a direct
result of the Spanish influence upon the history of Texas. It existed
as early as 1873 and until recent years, only the states of Washington
and Texas allowed it. However, its advantages have been recognized by
many states in the union. Today, over one-third of the states in the
United States have adopted systems based upon Texas law developed well
over 100 years ago.
2) POWERS
(i) Introduction. You are to be
guided in the exercise of your powers by the terms of the decedent's
will. As independent executor, you can obtain assistance from others
but you may not delegate your ultimate decision making power. The
responsibility for making decisions is yours and yours alone.
(ii) The Power to Sell Real Estate. If the decedent's will
grants you the power of sale, you may sell real estate belonging to
the decedent at a public or private sale on such terms as you deem
best or as the will directs. If the will does not include a power of
sale you may sell real property only when necessary to pay certain
expenses, allowances and claims or if you deem it to be in the best
interest of the estate. Without a power of sale, the law establishes
the requirement that at least 20 percent of the sale price must be
paid in cash and that any notes received by the estate earn interest
of at least 4 percent per annum.
Special forms of deeds are required to
convey property from an estate. It is not acceptable for you to use
the common general warranty deed. If you decide to sell real estate,
you will need to contact our office so that we can review the sales
contract and so that we can prepare a special warranty deed to
accurately reflect your powers to sell the property. Finally, Section
6324 of the Internal Revenue Code establishes a lien upon all real
estate for the payment of estate taxes. If you desire to sell real
property, you should contact us so that we can explain to you the
consequences and liability of estate taxes. The transfer of real
property without the payment of estate taxes can render you personally
liable for this tax.
(iii) Sales of Personal Property.
You may find that your estate has in it certain things that will
perish, waste or deteriorate in value if not immediately sold.
Examples include perishable items in inventory, stocks which are
subject to price fluctuations, or race horses and livestock which
require substantial amount of day to day attention. As soon as
possible you should sell items of this nature and deposit the proceeds
in the estate's account. You may sell other items of personal property
if the will authorizes it or if the sale is in the best interest of
the estate. If possible, you should consult with the beneficiaries of
the estate before selling any items of personal property in order to
preserve for the family, items of a historical nature or of
sentimental value.
(iv) Purchase of Estate Property by
the Executor. You may purchase property from the estate for your
own use if it is in the best interest of the estate. Special notice
provisions apply and you should contact our office before you make any
such purchases. As a general rule, because of the potential for
conflict, we discourage executors from purchasing items from the
estates they handle.
(v) Collecting Assets. You have
the power to gather all of the assets belonging to the decedent. If
necessary, you may file lawsuits on behalf of the estate to collect
property or money due it. Special rules apply to attorney's fees in
this situation so before you hire a lawyer to file a lawsuit, please
contact us. You have the right to possess all of the items of the
estate pending distribution to the individuals named in the will. If
necessary, you can enforce your right to possession through court
order. A common problem occurs when the decedent's property is already
in the hands of the distributees. Since you are responsible for the
property, you may compel the distributees to return it to you if you
deem it to be in the best interest of the estate.
(vi) Operation of a Business. You
may continue to operate the decedent's business, farm, ranch, factory
and may act in the place of the decedent who is a partner in a general
partnership if allowed by the terms of that partnership. Operating a
business is usually a substantial undertaking and you will need
frequent assistance from our office.
(vii) Borrowing Money and Pledging
Estate Assets. You may borrow money and pledge estate assets if
necessary to raise money to pay taxes or valid expenses of
administration. You should let us review any loan documentation before
you execute it.
(viii) Purchase Insurance. You
have the power to purchase liability insurance for the estate and
insurance for the assets of the estate. Further, you have the power to
negotiate and settle claims and to vote stocks.
3) DUTIES
(i) Duty to Collect Assets. The
law requires that you use diligence in recovering possession of the
property of the estate and in collecting any debt owed to the estate.
You must insure the property of the estate and you should not allow
any claims of the estate to be barred by the statute of limitations.
(ii) Notice to Creditors. The law
requires that you notify creditors of the death of the decedent and
your appointment as independent executor. Notice is given in several
ways depending upon the type of creditor. The failure to give notice
may result in you becoming personally liable for any damages suffered
by the creditor.
1) Publication. After appointment
our office will arrange for a notice to be published in the Commercial
Recorder giving general notice to all creditors of your appointment.
2) Special Notice to Unsecured
Creditors. An unsecured creditor is one who does not have a lien
upon estate property. For a person dying on or after September 1,
1991, you must give notice by registered or certified mail, return
receipt requested within four months of your appointment to all
creditors of the estate. You must inform creditors of the creation of
the estate and direct them to present their claims within the time
period prescribed by law. Our office will prepare the notices for you
if you wish, or you may do it yourself.
3) Special Notice to Secured
Creditors. A secured creditor is one who has a lien upon estate
property. Within four months after receiving your appointment, you
must give notice by registered or certified mail, return receipt
requested to all creditors whose claims are secured by a deed of
trust, mortgage, vendor's lien, mechanic's lien, or other contractor's
lien which was duly recorded prior to the decedent's death. Moreover,
a copy of your notice and a signed and sworn affidavit executed by you
must be filed with the court. Contact our office promptly if you
discover that the decedent had any secured debts.
4) Estate Taxes. If the decedent
owed any taxes to the Texas Comptroller of Accounts, (unemployment
taxes or sales taxes) a special notice must be sent to the
Comptroller. Contact our office for assistance.
5) Taxes owed to the Internal Revenue
Service. You must notify the Internal Revenue Service of your
appointment as independent executor by filing Internal Revenue Service
Form 56. We strongly advise all of our clients to immediately retain a
Certified Public Accountant (CPA) to assist you in preparing the
decedent's last tax return as well as in managing any estate taxes. If
you do not have a CPA, please contact our office and we will refer you
to several who have the experience necessary to properly handle these
matters. The penalties and interest levied by the IRS for late or
erroneous filings can be substantial. Professional advice is strongly
recommended.
6) Charities. Effective September
1, 1989, special notice provisions apply if the decedent left property
to a charitable organization. The notice provisions are strict and you
should contact our office for assistance with these matters.
7) Inventory. Within 90 days of
your appointment you must file an inventory. The inventory will
summarize the property in the estate and any claims owed to the estate
(not against the estate). It should indicate the fair market value of
each asset on the date of death and must be signed by you under oath.
Our office will assist you in the preparation and filing of the
inventory. It is your responsibility to assist us in locating the
assets.
8) Locating Assets. Often times
it is difficult to locate all of the assets of an estate. The decedent
may have been the type of person who made a habit of hiding the assets
or the assets may be so extensive and the investments so wide spread
that it is difficult to be sure that you have identified and located
all of them. The best way to find assets is to conduct a thorough
search of every drawer and box in the decedent's home and office. Look
for ad valorem tax statements, financial statements, bank statements,
income tax returns, safe deposit box keys or receipts and mail. All of
these documents or items may lead you to assets of the estate. If
necessary, professionals can be hired to assist in tracing assets.
However, these experts are usually very expensive and should be used
only as a last resort.
If you cannot locate the decedent's
bank, the best way to find it is to visit in an ever widening circle,
every bank within a certain radius of the decedent's home or business.
Most people tend to do their banking at a convenient location. Usually
you will be able to locate the decedent's bank by following this
method. Be sure and take with you copies of your letters testamentary.
Without them, bank officials are prohibited by privacy statutes from
sharing any information with you.
9) Allowances. Allowances are
special provisions in the will made to protect surviving spouses and
children of the decedent. If the decedent had a surviving spouse and
children and did not provide for them in the will, you may be required
to set aside certain assets as an "allowance" for them. Our office
will advise you if the allowance statutes apply to your situation. If
you have any questions do not hesitate to contact us.
10) Payment of Debts and Expenses.
Hopefully your estate has sufficient assets to pay all of the
decedent's debts and expenses of administration. If so, you can be
flexible in the order in which you pay debts. However, if the decedent
owed more than he has in his estate, you must classify the creditors
and pay them in order of their classification. The law establishes the
following classes and payment should be made in the following order:
| Class 1 |
Funeral
expenses and expenses of the last illness up to $5000; |
| Class 2 |
Expenses of administering and preserving the estate; |
| Class 3 |
Claims
secured by mortgage or other lien, up to the value of the property
subject of the lien; |
| Class 4 |
Claims
for estate taxes, penalties and interest; |
| Class 5 |
Claims
for cost of confinement established by the Texas Department of
Corrections; |
| Class 6 |
Claims
for repayment of medical assistance payments made by the state
under the Human Resources Code; |
| Class 7 |
All
other claims presented within six months of your appointment as
independent executor; and |
| Class 8 |
Claims
presented to you after six months from your appointment. |
If the assets are insufficient to pay
all of the claims in a particular class, the claims in that class
should be paid prorata.
In addition to paying the claims in a
certain order, you will have to identify what portion of the estate to
use to pay the claims. This is often difficult since it may eliminate
or limit a bequest in the will. Assets from the estate should be used
in the following order to pay the debts described above:
1. Property passing by intestacy;
2. Personal property in a residuary state;
3. Real property in a residuary state;
4. General bequests of personal property;
5. General devises of real property;
6. Specific bequests of personal property; and
7. Specific devises of real property.
Handling an estate with more debts than
assets can be a difficult and trying experience. You will need extra
legal help to insure that all of the rights of the creditors and the
heirs are properly protected.
11) United States Taxes. You are
responsible to ensure that the estate prepares and files the
decedent's last tax return, an income tax return for subsequent years
if the estate earns any income, and an estate tax return, if
necessary. The failure to properly pay taxes may make you personally
liable for the tax, penalty and interest owed to the United States. We
strongly advise that you hire a Certified Public Accountant
experienced in these matters to assist you. The fees of the CPA are
expenses of administration and can be paid from the estate.
12) Compensation and expenses.
You are entitled to be paid for your services as independent executor
of the estate. The law allows you to receive a five percent commission
on the income of the estate and expenses paid by the estate. No
commissions are paid on the initial principal of the estate or on life
insurance proceeds. If the work you perform on behalf of the estate is
extensive and your commission would be unreasonably low, the court has
the authority to increase it. Contact our office for assistance in
presenting these matters to the court.
You should keep track of all of your
expenses in administering the estate including your long distance
phone calls, mileage and parking, professional fees for attorneys and
certified public accountants, copying expenses, and any other
expenses. You are entitled to reimbursement from the estate for all of
these expenses.
It has been our experience that people
who are being paid for their work generally do a better job. Being an
executor is difficult, demanding work which involves substantial
responsibility. For these reasons, we recommend that you do not waive
your commission and right to reimbursement.
4) PRACTICAL CONSIDERATIONS
(i) Bank Accounts. Immediately
after receiving your letters testamentary, you should visit each of
the decedent's banks and have the decedent's bank accounts restyled
from the decedent's name to your name. The accounts should be styled
"Estate of (Name of Decedent), by (Your Name), Independent Executor".
Order new checks for the estate. Sign each check with your name
followed by the words "independent executor". All expenses of estate
administration should be paid for with estate checks, no matter how
small the expense. Carefully notate on each check the purpose for the
expenditure so if there is ever a question you will have written
documentation to back up the expenditure. Also, indicate on each
deposit slip the source of any income to the estate.
(ii) Secure the Property.
Immediately visit the decedent's home and other properties and make
sure that they are secured. As a precautionary measure, we recommend
that you have all of the locks to the decedent's home or property
rekeyed and that the new key be delivered to you. If the decedent has
property that could be damaged or lost, you may wish to find off-site
storage for it. Generally, storage facilities where you keep the key
are adequate; however, if the property is particularly valuable you
may wish to consider a bonded storage company.
(iii) Insurance. Make sure that
the decedent's home and possessions are insured. If you can identify
the decedent's insurance agent, contact him immediately to verify
insurance. If not, immediately arrange your own insurance on the
premises and the property of the decedent.
(iv) Life Insurance. Life
insurance proceeds generally pass outside of probate unless the
benefits are made payable to the estate. You will need to write each
life insurance company and send them a copy of the life insurance
policy, your letters testamentary and the death certificate of the
decedent. After receiving your letter, the insurance company will pay
the life insurance proceeds to the named beneficiary.
(v) Pets, Livestock and Other Animals.
If the decedent had any pets, livestock or other animals, you will
need to make immediate arrangements for their care and welfare. Dogs
and cats can usually be boarded with a nearby veterinarian or
entrusted to a family member. Larger animals, such as horses and
livestock, require less attention than pets and usually it is possible
to locate and hire an experienced ranch hand to supervise them.
Eventually, you may find it more practical to sell the animals at
auction or private sale rather than continuing to incur expenses to
maintain them.
(vi) Social Security, Veteran's
Administration and Other Benefit Checks. Checks issued to the
decedent after the date of death should not be cashed. Return them by
certified mail, return receipt requested to the government agency that
issued them. You will have to repay any checks that have already been
cashed or placed in the decedent's account by direct deposit after the
date of death. Notify the government agency of the decedent's death
and send them a copy of the death certificate and letters
testamentary. Follow their instructions for refunding the excess funds
to the government. You should always keep in mind that the right to
receive government entitlements ends with the decedent's death. Any
post-death payments are mistakes that must be corrected. The estate
has no legal claim to these funds.
5) DISTRIBUTIONS
(i) Distributions. After you have
paid the debts of the estate, you will want to distribute its
remaining assets to the individuals or organizations named in the
will.
1) Specific Bequests. Specific
items of property should be delivered to the devisees named in the
will. Get a receipt for the delivery of these items.
2) Joint Bequests. Many times
wills leave property to people jointly. If they cannot agree upon a
way to divide the property, you cannot partition it for them unless
the will specifically gives you powers of partition. Without
agreement, it will be necessary to have the court review and partition
the property.
3) Real Property. Land can be
conveyed from the estate by affidavit or by deed of distribution. Deed
of distribution is preferable and this office can assist you in its
preparation. If the property is to be sold, it is generally preferable
to convey it directly from the estate to the purchaser rather than
from the estate to the beneficiary under the will and then to the
purchaser. Conveyances directly from the estate in this situation save
title and closing costs.
4) Stocks and Bonds. Procedures
for transferring these documents are too numerous to describe. You
have to work closely with the stock transfer agent and with your
broker to take care of the necessary paperwork.
5) Automobiles. Contact the local
tax assessor-collector for information regarding transferring title to
motor vehicles. At a minimum you will need the original title, letters
testamentary and a completed Application for New Title form. In Bexar
County, the tax assessor's office is located in the Vista Verde
building and branch offices are located on the north, south and west
sides of town.
6) CLOSING THE ESTATE
There is no statutory requirement that
the estate be closed. As a general rule, we recommend that it never be
closed. In this way, the estate is in place to handle any problems
that may develop in the years ahead or to accept and distribute any
property that might not have been located at the time of the
decedent's death.
7) CONCLUSION
We hope that these instructions have
been helpful to you in understanding some of your rights and
obligations as independent executor. The majority of estates are
handled in a very routine and straight-forward manner. The likelihood
that you will run into difficulties is remote, especially if you
follow the procedures outlined.
The secret to success as an independent
executor is to handle all matters promptly and conscientiously. If you
have a question about how something is to be handled, don't guess -
call our office for proper legal advice. It is much easier to avoid a
problem in the first place than it is to correct one that has already
occurred.
We look forward to working with you and
you may be assured that this office stands ready to assist you in any
way.
Respectfully,
JOHN R. HEARD
MARK STANTON SMITH
Attorneys at Law
HEARD & SMITH, L.L.P.
3737 Broadway, Suite 310
San Antonio, Texas 78209
(210) 820-3737
(210) 820-3777 (Facsimile)
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