A. Choice of Law
Issues regarding the transfer of real property at death are governed by the law of the state in which the land is located. On the other hand, the law of the decedent’s domicile at the time of death governs personal property matters. Thus, you may need to apply the probate law of several states to determine the proper distribution of a decedent’s estate.
B. Survival
To be an heir, the individual must outlive the decedent. At common law, survival for only a mere instant was sufficient. This rule lead to many proof problems as family members tried to establish that one person outlived the other or vice versa. Some of these cases read like horror novels as the courts evaluate evidence of which person twitched, gurgled, or gasped longer. See Glover v. Davis, 366 S.W.2d 227 (Tex. 1963).
To remedy this problem, Probate Code § 47 imposes a survival period of 120 hours (5 days). If a person survives the decedent but dies prior to the expiration of the survival period, the property passes as if the person had actually predeceased the decedent.
C. Assignment or Release of Inheritance
- 1. Before Intestate’s Death.
Because a living person has no heirs, an heir apparent does not have an interest which rises to the level of being property. Instead, the hopeful heir’s interest is a mere expectancy. The person whom the heir apparent hopes will die intestate may prevent the expectation from being fulfilled by taking a variety of steps such as writing a will, selling the property, or making a gift of the property. Accordingly, an heir apparent has nothing to transfer.
The heir apparent, however, may agree (1) to transfer the inheritance once received, or (2) not to claim a future inheritance. As long as the agreement meets all the requirements of a contract (e.g., offer, acceptance, and consideration), the court is likely to enforce the agreement if the heir apparent fails to perform upon the intestate’s death. See Mow v. Baker, 24 S.W.2d 1 (Tex. Comm’n App.-holding approved 1930) and Birk v. First Wichita Nat’l Bank of Wichita Falls, 352 S.W.2d 781 (Tex. Civ. App.-Fort Worth 1961, writ ref’d n.r.e.) (the court made the anomalous statement that “[a]n expectancy may be conveyed” but actually decided on contract grounds).
- 2. After Intestate’s Death
Once an heir receives the property through intestate succession, the heir may assign his/her interest in the property to a third person under Probate Code § 37B. Unlike with a disclaimer under § 37A, the heir will be liable for transfer taxes and the property will become subject to the creditors of the heir.
D. Disclaimers
An heir may disclaim or renounce the person’s interest in the intestate’s estate. In the normal course of events, heirs do not disclaim. Most people like the idea of getting something for free. However, there are many good reasons why an heir might desire to forego the offered bounty. Four of the most common reasons are as follows: (1) the property may be undesirable or accompanied by an onerous burden (e.g., littered with leaky barrels of toxic chemical waste or subject to back taxes exceeding the value of the land); (2) the heir may believe that it is wrong to benefit from the death of another and refuse the property on moral or religious grounds; (3) an heir who is in debt may disclaim the property to prevent the property from being taken by the heir’s creditors; and (4) the heir may disclaim to reduce the heir’s transfer tax burden (a “qualified disclaimer” under I.R.C. § 2518).
Probate Code § 37A provides the formal requirements for effectuating a disclaimer. The heir must disclaim in a written and acknowledged (notarized) document. The writing must be filed in the court handling the estate of the decedent not later than 9 months after the deceased’s death. The heir must give notice of the disclaimer to the executor or administrator of the estate by personal service or by registered or certified mail.
The heir or beneficiary may “pick and choose” which assets to disclaim but if the person accepts the property, the right to disclaim is waived. Even a relatively small exercise of dominion or control over the property may prevent disclaimer. See Badouh v. Hale, 22 S.W.3d 392 (Tex. 2000) (holding that a beneficiary who used property she expected to receive under a will as collateral for a loan prior to the testator’s death could not disclaim because such a use was the exercise of dominion and control).
Once a valid disclaimer is made, the disclaimant is treated as predeceasing the person from whom the disclaimant is taking. The disclaimed property then passes under intestacy as if the heir had died first. The disclaiming heir cannot specify the new owner of the disclaimed property. See Welder v. Hitchcock, 617 S.W.2d 294 (Tex. Civ. App.-Corpus Christi 1981, writ ref’d n.r.e.) (holding that the disclaimed property passes as if the disclaiming person is dead vis-à-vis the disclaimed property, not the entire estate).
Once made, a disclaimer is irrevocable.
Disclaimers are an effective method for a debtor to prevent property to be inherited from falling into the hands of a creditor. The disclaimer is not a fraudulent conveyance and thus it may not be set aside by the disclaimant’s creditors. However, the United States Supreme Court has held that a disclaimer will not defeat a federal tax lien. Drye v. United States, 528 U.S. 49 (1999.
E. Advancements
An advancement is a special type of inter vivos gift. The advancer (donor) anticipates dying intestate and the advancee (donee) is an individual who is likely to be one of the advancer’s heirs. Although the gift is irrevocable and unconditional, the advancer intends the advancement to be an early distribution from the advancer’s estate. Thus, the advancee’s share of the advancer’s estate is reduced to compensate for the advancement.
When the advancer dies intestate, the advanced property is treated as if it were still in the advancer’s probate estate when computing the size of the intestate shares. Thus, the advancee receives a smaller share in the estate because the advancee already has part of the advancer’s estate, that is, the advancement. This equalization process is referred to as going into hotchpot.
Probate Code § 44 provides that property given during an intestate’s life to an heir is an advancement only if (1) the decedent acknowledges the advancement in a contemporaneous writing at the time of or prior to the transfer or (2) the heir acknowledges in writing, at any time, that the transfer of property is be treated as an advancement.
Here are some examples showing how advancements operate under Texas law.
- 1. Intestate had three children, Arthur, Brenda, and Charles. Intestate made a $100,000 advancement to Arthur. Intestate died with a distributable probate estate of $500,000. What is the proper distribution of Intestate’s estate?
Arthur receives $100,000, Brenda receives $200,000, and Charles receives $200,000. Because the $100,000 gift to Arthur was an advancement, that amount is treated as if it were still in Intestate’s estate. Thus, Intestate’s estate is distributed as if it contained $600,000. Intestate had three children and thus each child is entitled to a per capita share of $200,000. Because Arthur has already received $100,000 by way of the advancement, he is entitled only to an additional $100,000 from Intestate’s estate. Brenda and Charles each receive their share from Intestate’s estate. The hotchpot process ensures that each child receives an equal share from Intestate accounting for both inter vivos and at-death transfers.
- 2. Intestate had three children, Arthur, Brenda, and Charles. Intestate made a $100,000 advancement to Arthur. Intestate died with a distributable probate estate of $50,000. What is the proper distribution of Intestate’s estate?
Arthur receives none of Intestate’s estate, Brenda receives $25,000 and Charles receives $25,000. Like other inter vivos gifts, advancements are irrevocable. Thus, Arthur is under no obligation to actually return the advanced amount to Intestate’s estate. Arthur is not indebted for the advanced amount. Instead, Arthur simply does not share in Intestate’s estate because he has already received property in excess of the share to which he would be entitled under a hotpotch computation. Thus, Intestate’s entire estate is distributed to Brenda and Charles.
- 3. Intestate had three children, Arthur, Brenda, and Charles. Intestate advanced two assets to Arthur, a house worth $100,000 at the time of the advancement and a car worth $30,000 at the time of the advancement. Intestate died with a distributable probate estate of $500,000. At the time of Intestate’s death, the house had appreciated to $300,000 and the car had depreciated to $1,000. What is the proper distribution of Intestate’s estate?
Arthur receives $80,000, Brenda receives $210,000, and Charles receives $210,000. Advancements are valued as of the date of the advancement under Probate Code § 44(b). Thus, subsequent appreciation and depreciation of advanced property is ignored when going into hotchpot. The house valued at $100,000 and the car valued at $30,000 come into hotchpot. The value of the hotchpot, that is, advancements plus Intestate’s estate, is $630,000. Each of the three children is entitled to $210,000. Because Arthur already received advancements valued at $130,000, he receives only $80,000 from the estate. Brenda and Charles each receive a full $210,000 share because neither of them had received an advancement.
- 4. Intestate had three children, Arthur, Brenda, and Charles. Intestate made a $100,000 advancement to Arthur. Arthur died survived by his two children, Sam and Susan. Subsequently, Intestate died with a distributable probate estate of $500,000. What is the proper distribution of Intestate’s estate?
Under Probate Code § 44(c), the advancement is not considered because Arthur did not survive Intestate and thus hotchpot does not occur unless Intestate specified in writing that the advancement is to be brought into hotchpot even if Intestate predeceases Arthur. Accordingly, Brenda and Charles would each receive 1/3 of Intestate’s probate estate (approximately $166,666) while Sam and Susan would each receive 1/6 (approximately $83,333). The policy behind this approach is that the advancee’s heirs may not have received the advanced property or its value from the advancee’s estate.
The analogous concept to advancements in a will context is called satisfaction and is governed by Probate Code § 37C.
F. Equitable Conversion
If the intestate was in the midst of a real estate transaction at the time of death, it may be significant to determine whether the intestate’s interest is real or personal property, especially if the intestate was married and the property is separate. Texas courts hold that equitable conversion occurs. Thus, after a contract for the purchase and sale of real property is signed but before closing, the seller is treated as owning personal property (the right to the sales proceeds) and the buyer as owing real property (the right to specifically enforce the contract). See Parson v. Wolfe, 676 S.W.2d 689 (Tex. App.-Amarillo 1984, no writ).
G. Ancestral Property
The common law policy of keeping real property in the blood line of the original owner lead to the development of the principle of ancestral property. This doctrine applied if an individual inherited real property and then died intestate without surviving descendants or first line collateral relatives. Under this doctrine, real property inherited from the intestate’s paternal side of the family would pass to the paternal collateral relatives and property inherited from the maternal side would pass to the maternal collateral relatives.
Probate Code § 39 provides that the doctrine of ancestral property does not apply in Texas by stating that the intestate is treated as the original purchaser of all the intestate’s property.
H. Liability for Debts of Predeceased Intermediary
Heirs are entitled to their full inheritances without reduction for debts owed by a predeceased intermediary. It does not matter that the predeceased intermediary owed the debt to the intestate or to third parties. In other words, a debt owed to the intestate is not charged against the intestate share of any individual except the actual debtor. If the debtor fails to survive the intestate, the debt is not taken into account in computing the intestate share of the debtor’s descendants. See Powers v. Morrison, 30 S.W. 851 (Tex. 1895).
Excerpted from the article The Basics of Texas
Intestate Succession Law at www.professorbeyer.com and reproduced with permission from the author.
Gerry W. Beyer is Governor Preston E. Smith Regents Professor of Law, Texas Tech University School of Law.
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