BILL ANALYSIS H.B. 2866 By: Hilbert 4-17-95 Committee Report (Unamended) BACKGROUND Current provisions of the Texas Probate Code, regarding creditor's claims against a decedent's estate are confusing, particularly with regard to independent administrations. The language of the Probate Code does not take into account that creditors are not required to present claims formally in an independent administration. Further, the system for classifying claims is somewhat confusing and the courts have drawn a distinction between deficiencies resulting after foreclosure depending upon whether the administration is independent or dependent. The Real Estate, Probate and Trust Law Section of the State Bar of Texas perceived a need to clarify these procedures for the benefit of both personal representatives and creditors. PURPOSE H.B. 2866 clarifies the procedures for dealing with claims of creditors in both independent and dependent administrations, provides a way in which the personal representative may facilitate the closing of the estate, and eliminates the differences regarding secured claims in dependent and independent administration. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 146, Texas Probate Code, by amending Subsection (a) and adding Subsections (b) and (c) as follows: Subsection (a) Amended to clarify that the formal presentation of claims is not required in an independent administration and requires the independent executor to give certain statutory notices. Further requires the independent executor or independent administrator to approve, classify, pay or reject claims against the estate and requires the independent executor to pay family allowances and allowances in lieu of exempt property. Subsection (b) Outlines the procedure by which a secured creditor must make the election to have his debt treated as a preferred debt and lien or a matured secured claim. The independent executor may pay the claim prior to maturity if such payment is in the best interest of the estate. Subsection (c) Allows the independent executor to pay a claim at any time during the administration if the person or representative reasonably believes that there are sufficient assets to pay all such claims. SECTION 2. Amends Section 294, Texas Probate Code, by amending Subsection (a) and adding Subsection (d) as follows: Subsection (a) Amends the requirement for statutory notice under this section to include the date of issuance of letters held by the representative. Subsection (d) Allows a personal representative to give notice to creditors who have not filed claims that if their claims are not filed within four months, the claims will be barred. Requirements for the notice are set forth in this section. SECTION 3. Amends Section 295, Texas Probate Code, by reducing the time for a personal representative to give notice to secured creditor and clarifies the contents of such notices. The requirement for notice to unsecured creditors, other than by publication, is removed. SECTION 4. Amends Section 297, Texas Probate Code, by making the language gender neutral. SECTION 5. Amends Section 298, Texas Probate Code, by amending Subsections (a) and (b) as follows: Subsection (a) removes the untimely presentation requirement of the existing code and allows the creditor to file a claim at any time prior to the closing of the estate. Claims of unsecured creditors must be presented within four months of the date of receipt of the notice to unsecured creditors. Subsection (b) prohibits the personal representative from paying claims barred by the provisions of the Texas Probate Code or statutes of limitation. SECTION 6. Amends Section 301, Texas Probate Code, to clarify that only claims for money must be authenticated. SECTION 7. Amends Section 303, Texas Probate Code, to clarify who may make an affidavit concerning evidence of a claim that is lost or destroyed. The section is made gender neutral. SECTION 8. Amends Section 304, Texas Probate Code, to clarify who may make claims on behalf of a corporation. SECTION 9. Amends Section 306, Texas Probate Code, by amending Subsections (a), (b), and (d) and adding Subsections (c), (f), (g), (h), (i), (j) and (k) as follows: Subsection (a) is amended to clarify that the section applies to methods of handling secured claims for money. Subsection (b) is amended to provide that a creditor will not lose its secured status by failing to file a claim within a specified time, but rather will have the claim classified solely as preferred debt and lien. Subsection (c) clarifies that a preferred debt and lien claimant has no claim against other assets of the estate. Subsection (d) is renumbered accordingly. Subsection (e) requires that payments begin on a preferred debt and lien secured claim within six months after the date letters of administration are granted. Provides for default on such payments or performances. Subsection (f) authorizes foreclosure of preferred liens and outlines requirements for application for foreclosure. Subsection (g) provides for the issuance of a citation of notification upon filing of an application for foreclosure. Subsection (h) provides for the setting of a hearing upon application for foreclosure. Subsection (i) specifies procedures for hearing on application for foreclosure. Subsection (j) allows for appeal by persons interested in the estate. Subsection (k) provides appropriate procedure in the event of an unsuccessful foreclosure. SECTION 10. Amends Section 308, Texas Probate Code, by making it gender neutral and by requiring that the representative act on claims within 30 days after they are deposited with the clerk. SECTION 11. Amends Section 309, Texas Probate Code, by making it gender neutral and by outlining the requirement for the rejection of claims. SECTION 12. Amends Section 310, Texas Probate Code, by making the section gender neutral and by clarifying the time in which a personal representative must act on a claim. SECTION 13. Amends Section 311, Texas Probate Code, by deleting references to untimely filed claims and by requiring that rejected claims be filed with the county clerk. SECTION 14. Amends Section 312 (c), (d) and (e), Texas Probate Code, by making them gender neutral. SECTION 15. Amends Section 313, Texas Probate Code, by clarifying that the memorandum of rejection is prima facie truth of rejection by the personal representative. SECTION 16. Amends Section 314, Texas Probate Code, by making it gender neutral. SECTION 17. Amends Section 315, Texas Probate Code, by making it gender neutral and by clarifying to whom costs of suit can be taxed. SECTION 18. Amends Section 316, Texas Probate Code, by making it gender neutral. SECTION 19. Amends Section 317 (a) and (b), Texas Probate Code, by making it gender neutral. SECTION 20. Amends Section 318, Texas Probate Code, by clarifying that no claims will be allowed after final order of partition and distribution. Allows one class of creditors to seek recovery from other classes of creditors in certain situations. SECTION 21. Amends Section 320, Texas Probate Code, by making it gender neutral and by amending Subsections (a) and (c) and adding Subsections (b) and (d) as follows: Subsection (a) removes the requirement that claims for funeral expenses and expenses of last illness be presented within 60 days. Subsection (b) permits the application of proceeds from the sale of mortgaged property to payment of lien or mortgage if there are no claims of higher priority. Permits the claimant to seek an order of the court directing the payment to be made if the representative fails to pay proceeds. Subsection (c) allows a claimant whose claim has not been paid to petition the court for determination of the claim. Subsection (d) permits the court to order payment of claims after six months if there are no claims other than those presented within the six months. SECTION 22. Amends Section 320A, Texas Probate Code, by striking the words "executors, independent executors and administrators" and substituting the words "personal representatives". SECTION 23. Amends Section 321, Texas Probate Code, by clarifying the process for payment for claims of the same class, other than secured claims for money, when there is a deficiency of assets. SECTION 24. Amends Section 322, Texas Probate Code, to require that liens shall be paid in the order of priority. References to certain state agencies are corrected. SECTION 25. Amends Section 323, Texas Probate Code, by making it gender neutral. SECTION 26. Amends Section 324, Texas Probate Code, by making it gender neutral. SECTION 27. Amends Section 328 (b), Texas Probate Code, by making it gender neutral. SECTION 28. Amends Section 329 (a) and (c), Texas Probate Code, to permit an increase in the bond of the personal representative if new liens are created on the property of the estate. SECTION 29. Repeals Sections 300, 325 and 327, Texas Probate Code. SECTION 30. The Act applies only to the estate of a decedent who dies on or after the effective date of the Act. SECTION 31. Effective date - January 1, 1996 SECTION 32. Emergency clause. SUMMARY OF COMMITTEE ACTION H.B. 2866 was considered by the Committee on Civil Practices in a public hearing on March 29, 1995. The following persons testified in support of the bill: Alvin J. Golden, representing the Texas Academy of Probate and Trust Lawyers; and Mike Slack, attorney, representing himself and the Texas Trial Lawyers Association. The bill was left pending. H.B. 2866 was considered by the Committee on Civil Practices in a public hearing on April 12, 1995. The bill was reported favorably without amendment with the recommendation that it do pass and be printed, by a record vote of six ayes, zero nays, zero pnv and three absent.