THE ROLE OF THE GUARDIAN UNDER TEXAS LAW

Transcription

1 THE ROLE OF THE GUARDIAN UNDER TEXAS LAW STEPHEN JODY HELMAN UPDATED BY: MICHAEL B. KNISELY JASON S. SCOTT OSBORNE, HELMAN, KNEBEL & SCOTT, LLP 301 Congress Avenue, Suite 1910 Austin, Texas (512) AND TOM RUFFNER COURT INVESTIGATOR TRAVIS COUNTY PROBATE COURT NUMBER Guadalupe Street, Room 217 Austin, Texas (512) Tom.Ruffner@traviscountytx.gov

2 Contents I. SCOPE... 1 II. QUALIFICATION OF THE GUARDIAN... 1 A. Filing Oath and Bond... 1 B. Criminal Background Checks for Family Members Serving as Guardian... 1 C. Requirements and Amount of Bond... 2 D. Safekeeping Agreements... 2 III. POWERS AND DUTIES OF GUARDIAN OF THE PERSON... 3 A. General Powers and Duties... 3 B. Consent to Administration of Psychoactive Medication and Electroconvulsive Therapy... 4 C. Creation of Trust... 4 D. Case Law Limitations on Authority... 4 IV. GENERAL DUTIES OF GUARDIAN OF THE ESTATE... 4 V. NOTICES TO CREDITORS... 5 A. General Publication Notice... 5 B. Notice to Unsecured Creditors... 5 C. Notice to Secured Creditors... 5 D. Notice to Comptroller... 5 E. Penalty for Failure to Give Notice... 6 VI. INVENTORY, APPRAISEMENT AND LIST OF CLAIMS... 6 A. General Requirements... 6 B. Court Action on Inventory... 6 C. Supplemental Inventory... 7 D. Failure to File... 7 E. Importance of Inventory... 7 VII. TAKING POSSESSION OF PROPERTY AND PAPERS... 7 A. General Rule... 7 B. Exceptions Social Security Benefits Revocable Trusts Estate Planning Documents Community Property... 8 C. Segregation of Assets... 9 D. Proper Accounting Procedures... 9

3 VIII. COLLECTION OF CLAIMS AND RECOVERY OF PROPERTY... 9 A. General Rules... 9 B. Limitations on Contingent Fee Contracts C. Power to Bring Suits IX. INVESTMENTS A. General Rules B. Special Rules Standard for Management and Investments Safe Harbor Rule for Investments Modification of Guardian s Duty Retention of Assets Court-Ordered Investment Plan Testamentary Gifts and Survivorship Property Other Investments Reporting Loans Tax-Motivated Gifts; Contributions X. DISTRIBUTIONS FOR THE WARD S SUPPORT A. General Rule Requiring Court-Ordered Monthly Allowance B. Special Rules Payment of Allowance if Multiple Guardians Parental Support Obligation Support of Ward s Spouse or Dependents Ratification of Certain Expenditures XI. SALE OF CERTAIN PERSONAL PROPERTY XII. OTHER SALES OF PROPERTY A. Real Estate B. Personal Property C. Special Sale Provisions XIII. NATURAL DEATH ACT ISSUES XIV. DISPUTING WARD S TITLE XV. PURCHASING ESTATE PROPERTY XVI. CLAIMS AGAINST THE ESTATE XVII. ANNUAL ACCOUNTS A. Guardian of the Estate Filing Requirements... 19

4 2. Contents Court Action on Account B. Problems Determining What is Income C. Guardian of the Person XVIII. COURT APPROVAL NECESSARY FOR CERTAIN ACTIONS A. Powers Limited by Court Order B. Certain Actions Do Not Require Prior Court Approval C. Many Actions Require Court Approval D. Court Approval Always Possible XIX. LIABILITY FOR WARD S ACTIONS XX. HEARING BY SUBMISSION XXI. COMPENSATION A. Guardian of the Estate B. Guardian of the Person C. Five Percent Limitation D. Other Important Compensation Issues XXII. GUARDIAN S EXPENSES XXIII. FEDERAL INCOME TAXES XXIV. ANNUAL REVIEW OF GUARDIANSHIP XXV. FINAL ACCOUNT A. Grounds for Closing the Estate B. Duties of the Guardian of the Estate Filing Final Account Notice Requirements Court Action on Account C. Duties of Guardian of the Person D. Duty to Provide Information about Ward E. Failure to File Final Account XXVI. EXPENDITURES BY GUARDIAN OF PERSON ENTITLED TO RECEIVE GOVERNMENTAL FUNDS 30 XXVII. CLIENT IDENTIFICATION ISSUES XXVIII. PROBLEMS INCIDENT TO SALES AND PURCHASES OF PROPERTY XXIX. COMMON LAW DUTIES XXX. CONCLUSION XXXI. ACKNOWLEDGMENTS... 33

5 THE ROLE OF THE GUARDIAN I. SCOPE This work discusses the duties and responsibilities of a guardian under Texas law. The discussion covers all aspects of guardianship administration from the initial qualification of the guardian to the closing of the guardianship. Forms are also provided to assist the practitioner in drafting some of the documents that must be prepared or filed by the guardian. Although this outline discusses the statutory duties and common law fiduciary obligations of a guardian, it is important to note that a guardian may also be required to take certain actions under local court rules. Since these rules can vary greatly from county to county and court to court, a consideration of these rules is beyond the scope of this paper. However, the cautious practitioner will review any applicable local rules before providing the guardian with advice regarding his or her duties and responsibilities in administering the guardianship. II. QUALIFICATION OF THE GUARDIAN A. Filing Oath and Bond A guardian must qualify before they are authorized to act as guardian. To qualify, the guardian must file their oath of office and any required bond with the probate court, and the bond must be approved by the Court. Texas Estates Code These steps should be taken within twenty (20) days after the date of the order granting letters of guardianship. Texas Estates Code The twenty (20) day time period for qualification does not apply when a guardian is appointed for a minor ward under Texas Estates Code and the guardianship will not take effect until after the ward s eighteenth birthday. Texas Estates Code The probate court can revoke the appointment of a guardian who fails to qualify within the time period prescribed by law. Texas Estates Code , , (a)(1). These provisions apply to a guardian of the person and a guardian of the estate. Forms for a guardian s oath and bond are attached to this outline as Exhibits 1 and 2, respectively. B. Criminal Background Checks for Family Members Serving as Guardian In 2015, the Texas legislature amended Texas Estates Code (a) and to remove the exemption from criminal background checks for family members serving as guardians. See H.B (84 th Regular Session). The criminal background check should be completed prior to hearing for the appointment of a guardian. Although Texas Estates Code Section prescribes that it is the duty of the court s clerk to obtain this information, Section provides that any person may submit this information to the clerk not later than the 10 th day before the date of the hearing. The process of qualifying as guardian (i.e., filing of oath and bond) may involve an applicant s attorney obtaining this information and submitting it to the clerk s office. Prior to the 2015 legislative changes, the requirement of a criminal background check was already in place for private professional guardians, each person who represents the interests of a ward as a guardian on behalf of a private professional guardian, certain employees of private professional guardians, and employees/volunteers of guardianship programs. 1

6 C. Requirements and Amount of Bond Texas Estates Code Section provides that the filing of a bond is mandatory in all guardianship proceedings unless: 1. The guardian is a corporate fiduciary, as defined in Texas Estates Code ; 2. The guardian is a guardianship program operated by a county; or 3. The bond requirement for a guardian of the person has been waived by the ward s surviving parent in a will that has been admitted to probate by a Texas court, or in a written declaration other than a will. The probate court is required to fix the bond for a guardian of the estate in an amount sufficient to protect the guardianship and the guardianship s creditors. Texas Estates Code (a). This amount is defined by statute as the estimated value of the ward s personal property, plus the ward s anticipated revenue for the next twelve (12) months from designated sources other than federal social security payments. Texas Estates Code (a). If the bond is for a guardian of the person and there is no guardian of the estate, the court will consider a number of different factors in determining the amount of the guardian s bond, including the familial relationship between the guardian and the ward, the guardian s ties to the community, the guardian s financial condition, the guardian s past history of compliance with the court, and any reasons the guardian may have previously been denied a corporate surety bond. Texas Estates Code (c). Any interested person may apply to increase the amount of the guardian s bond if the bond is insufficient or defective, or if the bond and the record of the bond have been lost or destroyed. Texas Estates Code (b). The probate court can require the guardian to file a new bond for the same reasons, either with or without an initial hearing. Texas Estates Code (a). D. Safekeeping Agreements The amount of the guardian s bond can be reduced if cash or other assets of the ward s estate are deposited with a financial institution (as that term is defined in Section of the Texas Finance Code) having its main office or a branch office in this state, subject to a safekeeping agreement. Texas Estates Code (a), (c). The terms of such an agreement must be approved by the probate court, and the agreement must provide that the funds or other assets in safekeeping cannot be withdrawn or released without an order of the court. Texas Estates Code (a), (d). The guardian s bond may also be reduced if the probate court allows the guardian to deposit his own cash or securities with a qualified depository subject to a safekeeping agreement. Texas Estates Code A form that can be used to deposit funds or other assets of the ward s estate in safekeeping is attached to this outline as Exhibit 3. In 2015, the Texas legislature specifically authorized the use of safekeeping agreements prior to the guardian s qualification in order reduce the initial bond amount. Specifically, Section was added to the Texas Estates Code, and provides as follows: 2

7 Sec DEPOSIT OF ESTATE ASSETS. (a) (b) At the time or after an order appointing a guardian is signed by the court but before letters of guardianship are issued, a court may, on the request of a party, require the deposit for safekeeping of cash, securities, or other assets of a ward or proposed ward in a financial institution described by Section (b). The amount of the bond required to be given by the guardian under Section shall be reduced in proportion to the amount of the cash or the value of the securities or other assets deposited under this section. III. POWERS AND DUTIES OF GUARDIAN OF THE PERSON A. General Powers and Duties A guardian of the person is entitled to take charge of the ward s person, and his duties correspond with his or her rights as guardian. Texas Estates Code (a), (b). This authority gives a guardian of the person the right to have physical possession of the ward and the right to establish the ward s legal domicile. Texas Estates Code (c)(1). A guardian of the person also has the general power to consent to medical, psychiatric, and surgical treatment for the ward. Texas Estates Code (c)(4). However, these powers and duties should be viewed in conjunction with the rights retained by the ward. In 2015, the Texas legislature added a bill of rights for wards that lays out those rights, which can be found in Section of the Texas Estates Code. In addition, although a guardian of the person has the right to establish the ward s legal domicile, the guardian is required to give notice prior to moving a ward to a more restrictive care facility except in cases of emergency. Texas Estates Code (e). A guardian of the person may only place the ward in a more restrictive care facility, except in cases of emergency, if the guardian provides notice of the proposed placement to the court, the ward, and any person who has requested notice. Texas Estates Code (e). The guardian of the person cannot move the ward until the eighth business day after the court receives the notice, if the court does not schedule a hearing on the proposed placement before that day. Texas Estates Code (e)(2). If the ward or another person objects to the proposed placement before the eighth business day after the person s receipt of the notice, then the court must order the placement at a hearing on the matter. Texas Estates Code (e)(1). A guardian of the person is under a statutory duty to supervise, protect and care for the ward, and to provide the ward with clothing, food, medical care and shelter. Texas Estates Code (c)(2), (3). However, a guardian of the person has no authority to admit the ward to an inpatient psychiatric facility unless the ward is under eighteen (18) years of age, or the ward is subject to a guardianship with limited authority, has the capacity to consent to the admission and does so. Texas Estates Code (a), (b). Similarly, a guardian of the person has no authority to admit the ward to a residential care facility unless the ward is subject to a guardianship with limited authority, has the capacity to consent to the admission and does so, or the admission is for emergency care or respite under Sections or of the Texas Health and Safety 3

8 Code. Texas Estates Code (a), (c). Notwithstanding these limitations, a guardian of the person has the authority to apply to a court to commit the ward to a mental health facility under various provisions of the Texas Health and Safety Code, and also has the power to transport the ward to an inpatient mental health facility for a preliminary examination in accordance with Subchapters A and C of Chapter 573 of the Texas Health and Safety Code. Texas Estates Code (a). B. Consent to Administration of Psychoactive Medication and Electroconvulsive Therapy If a ward who is not a minor is under a protective custody order as provided by Subchapter B of Chapter 574 of the Texas Health and Safety Code, the guardian of the person of the ward may consent to the administration of psychoactive medication prescribed by the ward s treating physician, without regard to the ward s expressed preferences concerning treatment with psychoactive medication. Texas Estates Code (b). In addition, if a ward who is sixteen (16) years of age or older has been adjudicated incapacitated to manage his personal affairs, the guardian of the ward s person has the authority to consent to electroconvulsive therapy by executing a written consent form that satisfies the requirements of Section of the Texas Health and Safety Code. See Health and Safety Code (c). C. Creation of Trust A guardian of the person has the authority to establish a trust in accordance with 42 U.S.C. 1396p(d)(4)(B) to enable the ward to qualify for medical assistance under Chapter 32 of the Texas Human Resources Code. Texas Estates Code (c)(5). The creation of such a trust must be approved by the probate court. Id. D. Case Law Limitations on Authority Texas courts have held that a guardian s authority to consent to medical and surgical treatment for the ward is limited to the steps taken to effect a cure of an injury or disease... including examination and diagnosis as well as application of remedies. Little v. Little, 576 S.W.2d 493, 495 (Tex. Civ. App. San Antonio 1979, no writ). In Little, the court applied this standard and held that, absent approval of the probate court, a guardian of the person did not have the power to consent to the removal of one the ward s kidneys for the purpose of transplanting the kidney in the ward s brother. In an earlier case, Frazier v. Levi, 440 S.W.2d 393 (Tex. Civ. App. Houston [1st Dist.] 1969, no writ), the court held that a guardian of the person did not have the power to consent to the sterilization of an incapacitated ward. IV. GENERAL DUTIES OF GUARDIAN OF THE ESTATE Except as otherwise provided in certain provisions of Title 3 of the Texas Estates Code, a guardian of the estate is under a duty to take care of and manage the ward s estate as a prudent person would manage his own property. Texas Estates Code (a). A guardian of the estate is also required to account for all rents, profits, and revenues that the ward s estate would have produced by such prudent management. Texas Estates Code (b). The guardian 4

9 and the sureties on his bond can be held liable for any losses that the ward s estate sustains as a result of the guardian s failure to perform this duty. V. NOTICES TO CREDITORS A. General Publication Notice Within one (1) month after receiving letters of guardianship, a guardian of the estate must publish a general notice to creditors in a newspaper printed in the county where the letters of guardianship were issued. Texas Estates Code (a)(1). A copy of the printed notice, together with a sworn affidavit of the publisher, must be filed with the probate court. Texas Estates Code A form for the required publication notice is attached to this outline as Exhibit 4. B. Notice to Unsecured Creditors Within four (4) months after receiving letters of guardianship, a guardian of the estate must give notice of the issuance of letters to each person with an outstanding claim for money against the ward s estate if the guardian has actual knowledge of the claim. Texas Estates Code (a)(2). This notice must be given by certified mail or registered letter with return receipt requested. Texas Estates Code (b). The term claim for money includes liquidated claims that can be verified by affidavit. See, e.g., Hume v. Perry, 136 S.W. 594 (Tex. Civ. App. 1911, writ dism d). It does not include contingent claims or unliquidated liabilities. See, e.g., Barlow v. Anglin, 45 S.W. 857 (Tex. Civ. App. 1898, no writ). If a guardian of the estate desires to accelerate the time within which a claim for money must otherwise be presented, the guardian can include a provision in the notice which states that a creditor must file his claim within one hundred and twenty (120) days after receipt of the notice or the claim will be barred. Texas Estates Code A form for the required notice to unsecured creditors that does not include the special provision to accelerate the presentment of claims under Texas Estates Code Section is attached to this outline as Exhibit 5. C. Notice to Secured Creditors Within four (4) months after receiving letters of guardianship, a guardian of the estate must give notice of the issuance of letters to each person with an outstanding claim for money against the ward s estate if the claim is secured by a deed of trust, mortgage, vendor s, mechanic s, or other contractor s lien on real property of the ward s estate. Texas Estates Code (a)(1). This notice must be given by certified mail or registered letter, with return receipt requested. Texas Estates Code (b). A copy of this notice, together with the return receipt and an affidavit of the guardian to prove proper notice, must be filed with the probate court. Texas Estates Code (c). The form attached to this outline as Exhibit 5 can be used to give the required notice to secured creditors. D. Notice to Comptroller 5

10 If the ward remitted or should have remitted taxes to the Texas Comptroller of Public accounts, the guardian must give notice of the issuance of letters of guardianship to the Comptroller. The notice must be given within one (1) month after receiving letters and should be sent by certified or registered mail. Texas Estates Code (a)(2). The form attached to this outline as Exhibit 5 can be used to give required notice to the Comptroller. E. Penalty for Failure to Give Notice If a guardian of the estate fails to give one or more of the required notices to creditors, the guardian and the sureties on his bond can be held personally liable for any damages that a creditor sustains as a result of the guardian s neglect, unless the creditor received notice otherwise. Texas Estates Code (b). VI. INVENTORY, APPRAISEMENT AND LIST OF CLAIMS A. General Requirements Within thirty (30) days after qualification, a guardian of the estate must file a sworn inventory, appraisement and list of claims of the ward s estate with the probate court. Texas Estates Code The time for filing the inventory, appraisement and list of claims can be extended by the court. Texas Estates Code (a). The inventory, appraisement and list of claims must include a significant amount of information, including a listing of all real property of the ward s estate situated in the State of Texas; a listing of all personal property of the ward s estate, wherever situated; the fair market value of each item of property of the ward s estate, determined as of the date of issuance of letters of guardianship; the assets of the ward s estate that are community property and separate property, and a detailed description of all claims owed to the ward on the date of issuance of letters. Texas Estates Code , The description of claims must include the name of each person indebted to the estate and the person s address, if known; the nature of the debt; the date of the debt and the date on which the debt is or was due; the amount of the debt; and the terms regarding the payment of interest on the debt. Texas Estates Code Effective September 1, 2011, if the ward owned property or a claim as a tenant in common with other persons, the inventory, appraisement and list of claims is no longer required to identify the names and relationships of the other co-owners. Texas Estates Code (a)(2)(B), (2)(E). A form that can be used to draft the inventory, appraisement and list of claims in a guardianship is attached to this outline as Exhibit 6. B. Court Action on Inventory If the probate court approves the inventory, appraisement and list of claims filed by the guardian, an order approving the inventory is entered in the guardianship proceeding. Texas Estates Code (b). Court approval of the inventory does not finally adjudicate ownership, but it is prima facie evidence of the ward s ownership interest in the property. See Adams v. Sadler, 696 S.W.2d 690 (Tex. Civ. App. Austin 1985, write ref d n.r.e.). If the court does not approve the inventory, an order to this effect is entered in the guardianship proceeding. Such an order will also require the guardian to file another inventory, appraisement and list of 6

11 claims within a specified period of time not to exceed twenty (20) days after the date of the order. Texas Estates Code (c)(1). C. Supplemental Inventory If a guardian of the estate discovers additional property or claims after filing the inventory, appraisement and list of claims, the guardian is required to file a supplemental inventory, appraisement and list of claims. Texas Estates Code On the written complaint of any interested person, the guardian can be required to file an additional or corrected inventory if the court finds that property or claims of the estate have been omitted from the inventory, or that the inventory is incorrect or unjust in any other respect. See Texas Estates Code , D. Failure to File If a guardian of the estate fails to file the inventory, appraisement and list of claims within the time required by law, including any extension of time granted by the probate court, the guardian can be removed without notice by the probate court. Texas Estates Code (a)(2). E. Importance of Inventory The inventory is an extremely important document because it provides a detailed listing of all properties and claims owned by the ward s estate at the start of the guardianship proceeding. The probate court will rely upon information in the inventory to determine whether the amount of the guardian s bond is appropriate or needs to be adjusted. Creditors of the ward s estate will rely upon the information in the inventory to determine when and how to present their claims to the guardian. From the guardian s point of view, the inventory identifies all of the properties subject to the guardian s management and control, and is the starting point for all accountings that the guardian will file with the court. Given the importance of the inventory, the guardian and their attorney should make sure that the statutory requirements for the inventory are satisfied, and that all of the property descriptions and other information provided in the inventory are correct and complete. VII. TAKING POSSESSION OF PROPERTY AND PAPERS A. General Rule Immediately after receiving letters of guardianship, a guardian of the estate must collect and take possession of all personal property, record books, title papers, and business papers of the ward. Texas Estates Code (a). B. Exceptions 1. Social Security Benefits 7

12 Unless social security benefits are payable to the guardian of a ward s estate in that capacity, the benefits are not property of the ward s estate. Tharp v. Blackwell, 570 S.W.2d 154 (Tex. Civ. App. Texarkana 1978, no writ). 2. Revocable Trusts Texas courts have held that the guardian of a ward s estate is not authorized to revoke a revocable trust executed by the ward unless revocation is first approved by a court of competent jurisdiction. Weatherly v. Byrd, 566 S.W.2d 292 (Tex. 1978). 3. Estate Planning Documents In Baumann v. Willis, 721 S.W.2d 535 (Tex. App. Corpus Christi 1986, no writ), the court concluded that a guardian was not entitled to take possession of a will that the ward had delivered to his attorney with instructions that the will was to be held in safekeeping until the ward s death. However, Texas Estates Code Section now provides that a guardian of the estate can ask the probate court for authority to inspect a copy of a will, codicil, trust or other estate planning document of the ward if access to the document is related to the establishment of an estate plan for the ward under Texas Estates Code Section Texas Estates Code (a). An attorney who complies with a court order requiring the release of a ward s estate planning documents does not violate the attorney-client privilege. Texas Estates Code (c). 4. Community Property If the estate of a married ward includes community property, Texas Estates Code Section provides that the ward s spouse is entitled to serve as community administrator and has the authority to administer all community property, including community property that would otherwise be subject to the sole management, control and disposition of the incapacitated spouse, unless the competent spouse has been removed as community administrator, or the court finds that the competent spouse would be disqualified from serving as guardian under Texas Estates Code Sections (a), (b). If the competent spouse is entitled to serve as community administrator, a court-appointed guardian of the ward s estate is entitled to possess and control only the ward s separate property. Texas Estates Code (a). The Texas Estates Code includes a number of provisions to protect an incapacitated spouse when the other spouse is managing all community property as community administrator. For example, the probate court can remove a community administrator for various reasons, including gross misconduct or gross mismanagement in the performance of his or her duties as community administrator. Texas Estates Code The probate court can also require the community administrator to file an inventory and accountings with the court. Texas Estates Code , In situations where the competent spouse cannot serve as community administrator, Texas Estates Code Section includes provisions that allocate the responsibility for managing different types of community property between the competent spouse and the ward s guardian. Texas Estates Code (c), (d). These provisions allow the probate court to divide joint management community property so that part of it will be manages by the ward s 8

13 guardian, while the other part will be managed by the competent spouse. The court s action in effecting such a division of community property between the guardian and the competent spouse does not constitute a partition of community property between the ward and his spouse. Texas Estates Code (b). C. Segregation of Assets Once the guardian has collected and taken possession of the ward s personal property and papers, the guardian must make sure that the ward s personal property and papers are segregated from those of the guardian. Physical segregation is appropriate for items of tangible personal property that cannot be identified as the ward s property by a certificate of title, bill of sale or other title document. Cash on deposit, securities and some other types of intangible personal property owned by the ward can be segregated from the guardian s property by titling the property to reflect that it is part of the guardianship estate, not property owned by the guardian individually. For example, bank accounts can be titled in the ward s name or in the name of the guardianship estate. Although the guardian should be the only authorized signatory on the accounts, the underlying account documents should clearly reflect that the guardian is authorized to deal with the accounts in their respective capacity as guardian, and not in their individual capacity. D. Proper Accounting Procedures Since the guardian is under a duty to account to the ward and the court for all of their actions as guardian, it is important that the guardian maintain accounting procedures that will enable them to perform this duty. Although the Texas Estates Code does not require the guardian to maintain accounting records in any particular format, the guardian would be well-advised to maintain a separate accounting ledger for the estate that enables the guardian to maintain current, accurate records of the following transactions: 1. All changes in property of the ward s estate; 2. All cash that the guardian receives on behalf of the ward s estate, with receipts of income and principal shown separately; 3. All non-cash assets that the guardian receives on behalf of the ward s estate; and 4. All disbursements that the guardian makes on behalf of the ward s estate. The guardian should also retain all supporting documents for these transactions as part of their records for the guardianship. This will make is much easier for the guardian and their attorney to prepare the annual accounts that must be filed with the probate court each year during the term of the guardianship. See Section XVII of this outline for a discussion of the annual accounting procedure. VIII. COLLECTION OF CLAIMS AND RECOVERY OF PROPERTY A. General Rules 9

14 A guardian of the estate is required to use ordinary diligence to collect all claims and debts owed to the ward, and to recover possession of all property to which the ward has claim or title, if there is a reasonable prospect of collecting the claims or recovering the property. The guardian and the sureties on his bond can be held liable for any losses that the ward s estate sustains as a result of the guardian s willful neglect to perform this duty. Texas Estates Code B. Limitations on Contingent Fee Contracts Subject to court approval, a guardian may enter into a contract with an attorney to convey an interest in the property sought to be recovered as compensation for the attorney s services. Generally, the attorney s recovery cannot exceed one-third (1/3) of the property to be recovered. Texas Estates Code (a). However, in special situations, the attorney s fee may exceed one-third (1/3) of the amount to be recovered if the guardian s contingent fee contract with the attorney is approved by the court before the attorney performs any legal services. Texas Estates Code (b). A contingent fee contract that violates this statutory provision is void unless the probate court ratifies the contract or reforms it to comply with the statute. Texas Estates Code (b). C. Power to Bring Suits A guardian of the estate may bring suit to collect claims or debts owed to the ward, including damages, and to recover title to or possession of property to which the ward has claim or title. Texas Estates Code IX. INVESTMENTS A. General Rules A guardian of the estate is not required to invest funds that are immediately necessary for the education, support and maintenance of the ward or any other persons supported by the ward. Texas Estates Code (b). However, a guardian of the estate is under a statutory duty to invest any other funds and assets available for investment unless the probate court orders otherwise. Texas Estates Code (a). The guardian and the surety on their bond can be held liable for damages (including attorneys fees, litigation expenses and costs) for failing to comply with the duty to make investments. Texas Estates Code The probate court cannot hold a final hearing to determine whether the ward s estate has been invested properly until at least thirty-one (31) days after the guardian has been cited to appear and show cause why the ward s estate is not invested properly. Texas Estates Code (d). B. Special Rules 1. Standard for Management and Investments In managing and investing the ward s estate, a guardian of the estate is required to exercise the judgment and care under the circumstances then prevailing that a person of ordinary prudence, 10

15 discretion, and intelligence exercise in the management of the person s own affairs, considering the probable income from, probable increase in value of, and safety of the person s capital. Texas Estates Code (a). A guardian of the estate is also required to consider all other relevant factors, including the anticipated costs of supporting the ward, the nature of the ward s estate, other resources reasonably available to the ward, and the ward s age, education, current income, ability to earn additional income, net worth and liabilities. Texas Estates Code (a)(1)-(4). In determining whether the guardian has complied with this statutory duty of care with respect to any investment decision, the probate court shall consider all assets of the ward s estate over which the guardian has management or control, rather than taking into consideration the prudence of only a single investment made by the guardian. Texas Estates Code (b). 2. Safe Harbor Rule for Investments Texas Estates Code Section includes a list of investments that will be deemed to comply with the statutory standard of care for guardianship investments under Texas Estates Code Section (a). The list of permissible investments includes bonds and other obligations of the United States, tax-supported bonds of the State of Texas, federally insured time deposits, certain municipal bond, and other designated conservative investments. Texas Estates Code (1)-(6). 3. Modification of Guardian s Duty The probate court can modify or eliminate the guardian s duty to keep the ward s estate invested, and can also modify or eliminate the standard of care with respect to trust investments. Texas Estates Code Any such action by the probate court must be based on clear and convincing evidence that the action is in the best interests of the ward and the ward s estate. Id. 4. Retention of Assets A guardian of the estate is generally authorized to retain, until the first anniversary of the date of receipt, any property that comprises the initial guardianship estate and any property added to the guardianship estate by gift, devise, inheritance, mutation or increase. Texas Estates Code (a). However, this authority does not relieve the guardian of the duty to manage the retained property as a person of ordinary prudence, discretion and intelligence would in the management of their own affairs. Texas Estates Code (b). The probate court can authorize the guardian to retain assets for longer than the one (1) year period of time provided in Texas Estates Code Section (a) if the retention is an element of a court-approved investment plan. Texas Estates Code (c). A form that can be used to seek approval of a court-ordered investment plan and the retention of certain guardianship assets is attached to this outline as Exhibit Court-Ordered Investment Plan Texas Estates Code Section provides that a guardian of the estate must either invest the assets of the ward s estate pursuant to the requirements of Texas Estates Code Section , or file a written application with the probate court for an order authorizing the guardian 11

16 to develop and implement an investment plan for the ward s estate, authorizing the guardian to invest in or sell securities under a court-approved investment plan, authorizing the guardian to retain assets that are underproductive with respect to income or overall return, or modifying or eliminating the guardian s duty to invest the ward s estate. The application must be filed within one hundred eighty (180) days after the date on which the guardian qualifies, or on another date specified by the court. Texas Estates Code (a). The probate court can grant the relief requested in the application if the court determines that the requested relief is in the best interests of the ward and the ward s estate. Texas Estates Code (a). The court s order must describe the actions authorized by the court, indicate when an authorized investment must be reviewed and reconsidered by the guardian, and state whether the guardian is required to report his future review of an investment to the court. Texas Estates Code (B). The court may approve an investment plan under Texas Estates Code Section (a)(2) without a hearing. Texas Estates Code (b). In addition, no citation or notice is required to invest in or sell securities pursuant to a court-approved investment plan. Texas Estates Code (c). A form that can be used to seek approval of a courtordered investment plan and the retention of certain guardianship assets is attached to this outline as Exhibit 7. The procedures described in Texas Estates Code Section do not apply if a different procedure is prescribed for an investment or sale by a guardian. Texas Estates Code (a). In addition, a guardian is not required to follow the procedures described in Texas Estates Code Section with respect to an investment or sale that is specifically authorized by another law. Texas Estates Code (b). 6. Testamentary Gifts and Survivorship Property The fact that an account or other asset of the ward s estate is subject to a specific or general gift in the ward s will, or is held with a right of survivorship, does not prevent a guardian of the estate from possessing, terminating or closing the account or assets, and does not prevent the probate court from authorizing an action or modifying or eliminating a duty with respect to the possession, control or investment of the account or other asset. Texas Estates Code Other Investments Various provisions of the Texas Estates Code permit a guardian of the estate to invest in different types of investments with prior court approval. See Texas Estates Code (investments in life insurance or annuities), (loans of the ward s funds), (investments in real estate). Depending upon the type of investment, the guardian may be required to obtain the written opinion of an attorney regarding the investment. See Texas Estates Code (c). 8. Reporting Loans 12

17 Unless funds of the ward s estate are loaned to a third person pursuant to a court order, any loan of the ward s funds must be reported to the court in a writing, verified by affidavit, within thirty (30) days after the loan is made. Texas Estates Code Tax-Motivated Gifts; Contributions Subject to prior court approval, a guardian of the estate may make tax-motivated gifts and charitable contributions from available funds of the ward s estate. Texas Estates Code The court can also authorize a guardian of the estate to make transfers of property that will enable the ward to qualify for governmental benefits under applicable federal or state laws. Texas Estates Code The applicable procedures for securing court approval of tax-motivated gifts, charitable contributions or other property transfers are outlined in Texas Estates Code , and The probate court can also approve a multi-year plan for making tax-motivated gifts on behalf of the ward. Texas Estates Code (a). X. DISTRIBUTIONS FOR THE WARD S SUPPORT A. General Rule Requiring Court-Ordered Monthly Allowance If a monthly allowance for the ward is not provided for in the order appointing a guardian of the ward s estate, the guardian of the estate is required to file an application with the probate court to request a monthly allowance for the maintenance and education of the ward, and for the maintenance of the ward s property. Texas Estates Code (a). The application for a monthly allowance must be filed within thirty (30) days after the guardian qualifies or on the date specified by the court, whichever is later. Texas Estates Code (c). A form that can be used to seek approval of a court-ordered monthly allowance is attached to this outline as Exhibit 8. In determining the amount of the monthly allowance, the probate court is required to consider the condition of the ward s estate, together with the income and principal of the ward s estate that is necessary to pay the reasonably anticipated regular expenses for the maintenance and education of the ward and for the maintenance of the ward s property. Texas Estates Code The order fixing a monthly allowance must identify the types of expenditures that the guardian can make on a monthly basis for the ward or the ward s property. Texas Estates Code (a). The order does not affect the guardian s duty to account for expenditures of the allowance in the guardian s annual accounts. Texas Estates Code (d). B. Special Rules 1. Payment of Allowance if Multiple Guardians If different persons are serving as guardian of the ward s estate and guardian of the ward s person, the court s order fixing a monthly allowance shall specify the amount, if any, that the guardian of the estate shall pay for the ward s education and maintenance, and the amount, if any, that the guardian of the estate shall pay to the guardian of the person for the ward s maintenance and education. Texas Estates Code (b)(2). If the guardian of the ward s estate fails to 13

18 pay the required monthly allowance to the guardian of the person, the probate court will enter an order compelling the guardian of the estate to make the payment. Texas Estates Code (c). 2. Parental Support Obligation If a parent is serving as guardian of the person of his minor child, Texas law generally prohibits the parent from using the income or principal of the guardianship estate to provide for the child s support, education or maintenance. Texas Estates Code (a). An exception exists if the parents are able to show by clear and convincing evidence that they are unable without unreasonable hardship to provide for their child s support. In that situation, the probate court can authorize the guardian of the ward s person to spend income or principal of the estate for the ward s support, maintenance or education. Texas Estates Code (b). 3. Support of Ward s Spouse or Dependents Subject to the provisions of Section of the Texas Estates Code (discussed in X.B.2 above), the probate court may order the guardian of a ward s estate to spend funds of the estate for the education and maintenance of the ward s spouse or dependents. Texas Estates Code (a). In determining whether to enter such an order, the court must consider the following factors under Texas Estates Code Section (b): a. The circumstances of the ward, the ward s spouse and the ward s dependents; b. The ability and the duty of the ward s spouse to support himself or herself and the ward s dependents; c. The size of the ward s estate; d. A beneficial interest the ward or the ward s spouse or dependents have in a trust; and e. An existing estate plan, including a trust or will, that provides a benefit to the ward s spouse or dependents. The person who files an application to approve the expenditure of funds for the ward s spouse or dependents must mail notice of the application by certified mail to all interested persons. Texas Estates Code (c). 4. Ratification of Certain Expenditures If a guardian has in good faith made expenditures from the ward s estate for the support and maintenance of the ward, and if the expenditures exceed the monthly allowance fixed by the probate court, the court can approve the excess expenditures if the expenditures were made when it was ot convenient or possible for the guardian to first secure court approval for the expenditures, 14

19 there is clear and convincing evidence that the expenditures were reasonable and proper, the court would have granted authority in advance to make the expenditures, and the ward received the benefit of the expenditures. Texas Estates Code XI. SALE OF CERTAIN PERSONAL PROPERTY After the probate court has approved the inventory, appraisement and list of claims of the ward s estate, the guardian of the estate is required to promptly apply for an order to sell all property of the estate that is liable to perish, waste or deteriorate in value, or that will be an expense or disadvantage to the estate if kept. Texas Estates Code (a). Certain property may not be included in a sale under this statute, including exempt property, a specific legacy, or personal property needed to carry on a farm, ranch, factory or other business. Texas Estates Code (b). In addition, the probate court can permit the guardian to retain assets that would otherwise have to be sold under the statute. In determining whether to allow the guardian to retain such assets, the court must consider the guardian s statutory duty with respect to the management of the estate, and whether the asset is a permissible investment for a trustee under Chapter 117 of the Texas Property Code or Subchapter F, Chapter 113, of the Texas Property Code. Texas Estates Code (c). XII. OTHER SALES OF PROPERTY A. Real Estate Sales of real property owned by the ward must generally be approved by the probate court. Texas Estates Code (a). For most sales, the proper procedure involves eight (8) steps that are briefly summarized as follows: First Step Application: An application must be filed to request court approval for the sale of real property. Texas Estates Code Under this statute, the probate court can order a sale of real property if it is necessary or advisable: 1. To pay administration expenses, allowances or claims; 2. To pay funeral expenses and expenses of the ward s last illness is the estate is kept open after the ward s death; 3. To generate sufficient funds to provide for the ward s education and maintenance, or to pay debts against the estate 4. To dispose of an undivided interest in real property if it is in the best interest of the ward s estate to do so; 5. To dispose of nonproductive real property or real property that does not generate a fair return on its value; and 6. To conserve the ward s estate by selling mineral interests or royalties on minerals in place owned by the ward. 15

20 The requirements for an application to sell real property are set forth in Texas Estates Code Section The application must include a verified exhibit showing the financial condition of the estate. Texas Estates Code (3). A form that can be used for an application to sell real property by private sale is attached to this outline as Exhibit 9. Second Step Notice: On the filing of an application for the sale of real property, citation must be served on all interested persons by posting. Texas Estates Code Third Step Hearing: The probate court is required to hold a hearing on the application if an opposition to the application is filed during the period of time prescribed in the posted citation. Texas Estates Code (a). If no opposition is filed, the court can hold a hearing on the application but is not required to do so. Texas Estates Code (b). Fourth Step Order: If the probate court is satisfied that the proposed sale of real property is necessary or advisable, the court will enter an order that authorizes the sale, describes the property to be sold and the terms of the sale, and states whether the property is to be disposed of by private sale or public sale. Texas Estates Code (a), (b). The order must also indicate whether the guardian s bond is sufficient or insufficient to protect the estate. Texas Estates Code (b)(4). A form that can be used for an order authorizing the sale of real property is attached to this outline as Exhibit 10. Fifth Step Sale: Upon entry of an order for the sale of real property, the guardian is authorized to proceed with the sale of the property on the terms approved by the probate court. In a private sale, compliance with this step usually involves the execution of a contract of sale by the guardian. Although the probate court can authorize a sale of real property on credit, this can only be done if at least twenty percent (20%) of the purchase price for the property is payable in cash and the balance of the purchase price is evidenced by a promissory note bearing interest at a rate of at least four percent (4%) per annum and payable in annual or more frequent installments. Texas Estates Code (a). The note must be secured by a vendor s lien and deed of trust lien against the real property being sold. Texas Estates Code (b). Sixth Step Report of Sale: Within thirty (30) days after the sale of real property, the guardian must report the sale of the property to the court in writing. Texas Estates Code A form that can be used for the report of sale is attached to this outline as Exhibit 11. Seventh Step Court Action on Report of Sale: After the expiration of five (5) days from the filing of the report of sale, the probate court must review the sale and the sufficiency of the guardian s bond. Texas Estates Code If the court decides to approve the sale, then, after any required increase in the amount of the guardian s bond has been given, the court will enter an order confirming the sale and authorizing the guardian to convey the property when the purchaser has complied with the terms of the sale. Texas Estates Code (a). However, if the court is not satisfied that the sale was for a fair price, was properly made and complied with the law, the court will set aside the sale and order a new sale to be made, if necessary. Texas Estates Code (b). A form that can be used for an order confirming the sale of real property is attached to this outline as Exhibit 12. Eight Step Final Closing: After the sale has been confirmed by the probate court, and after the purchaser has executed and delivered all documents required for any sale on credit, the guardian will execute and deliver the required deed to the purchaser and, if applicable, will 16