Inventory, Safekeeping, and Creditors
The inventory is a listing of all known or potential assets of the ward, whether real property in Texas or personal property in any location, on the date the guardian qualifies. Tex. Est. Code § 1154.051(a).
The guardian is required to file an inventory with the court within thirty days of the date of the guardian’s qualification. Tex. Est. Code § 1154.051(a), (c). The date of qualification under the Texas Estates Code is the later of the date that the court approves the bond or the date that the guardian takes the proper oath. Tex. Est. Code § 1105.002. Form 7-1 in this chapter is used for a basic inventory, and form 7-2 is used for a complex inventory; see also section 7.1:4 below.
Assets shown in the inventory should be reflected at their full fair market value and not reduced because of outstanding debts or claims against the property. Tex. Est. Code § 1154.051(b). Account values should be as of the date of the guardian’s qualification and as accurate as possible, because the inventory will contain the beginning values for the annual account.
The ward’s community interest in property should be identified, and the full fair market value of the property should be stated. In addition, if the ward holds property jointly with others, the value of the ward’s interest in the property should be shown. Tex. Est. Code § 1154.051(a)(2), (b).
The Texas Estates Code requires that a list of claims be filed with the inventory; this should not be confused with a list of creditors. These claims are amounts due or owing to the ward. Tex. Est. Code § 1154.052. Forms 7-1 and 7-2 in this chapter include a list of claims.
The court may for good cause extend the date within which the inventory is to be filed beyond the thirty-day period. Tex. Est. Code § 1154.051(a). But see section 7.1:6 below. See forms 7-3 and 7-4 in this chapter.
Most courts ordinarily will not extend the date to file the inventory. If a need exists to justify some delay in the discovery or valuation of assets, the attorney should consider using a preliminary inventory showing assets that have been taken into the guardian’s possession. Until an inventory has been filed and approved, other court orders or approvals for operation of the estate are usually not granted. If additional assets come to the attention of the guardian, an amended or supplemental inventory should be filed. Tex. Est. Code §§ 1154.101, 1154.102.
An order of approval should be submitted to the court with the inventory. The order should indicate that the court has examined the inventory and approves it. If the court does not approve the inventory, it may order a new one to be filed within twenty days. Tex. Est. Code § 1154.054. Many inventory orders are submitted with unnecessary statements, such as: “The inventory is true, correct, and complete,” “The assets shown in the inventory are all the estate assets,” or “The inventory contains a full and complete listing of the assets of the ward.” The court is examining the inventory only to determine that it conforms with the reporting requirements of the Texas Estates Code, not to approve the identity or value of the assets listed. See form 7-5 in this chapter.
After the inventory is submitted, the court must determine if the guardian’s bond was adequately set at the initial hearing and must increase it if it was not adequate. Tex. Est. Code § 1105.252. The inventory assets and their values are used to redetermine the guardian’s bond. Tex. Est. Code § 1105.154. See section 4.31 in this manual.
The bond of a guardian may be reduced in proportion to the cash or other assets of the ward that are placed in safekeeping. Tex. Est. Code § 1105.156(c). The guardian may also deposit his own cash or securities in lieu of a bond or to reduce the amount of the bond. Tex. Est. Code § 1105.157(a). Though other assets belonging to the ward or his estate may be deposited, cash or securities are the usual deposits, and cash is the most common. These deposits may be made in domestic or national banks, savings and loan associations, trust companies, or other approved corporate depositories. See Tex. Est. Code § 1105.155. They must be made in strict accordance with the Texas Estates Code and may be increased, decreased, withdrawn, or released only on court order. Tex. Est. Code §§ 1105.156, 1105.157(e), (f). Courts generally will not allow assets in excess of the FDIC insured amount, currently $250,000, to be held in the estate’s name in any one institution.
Before an order appointing a guardian is entered, or in such an order, a court may require that cash, securities, or other assets of a proposed ward or ward be deposited for safekeeping in a financial institution described by Tex. Est. Code § 1105.155(b). The amount of the bond required to be given by the guardian shall be reduced in proportion to the amount of the cash or the value of the securities or other assets deposited. Tex. Est. Code § 1101.156. This can be beneficial in circumstances in which a client cannot be bonded for the full value of the estate.
Use of Freeze Order: Some probate courts permit a “freeze order.” A general bank resolution is required, which gives authority to bank officers to execute an agreement not to release funds the guardian places with the bank under a freeze order.
A majority of courts prefer the use of the safekeeping or freeze agreement, which itself results in a direct contempt action against the financial institution if the institution allows improper access to the estate’s assets without a court order.
An application should be prepared that identifies the institution and the assets requested to be placed in a safekeeping account. See form 7-6 in this chapter. The court order approves both the deposit of assets and the institution in which the deposit is made. It also directs the institution not to release the assets or any income without a specific court order. The court may at this time reduce the guardian’s bond commensurate with the amount of assets placed with the institution. Tex. Est. Code §§ 1105.155, 1105.156. See form 7-7.
The financial institution must execute a safekeeping or freeze agreement acknowledging its receipt of the court’s order and its willingness to honor and abide by the order. The institution should also independently identify the assets received or placed under its control so that their values can be compared to the original application and order. Tex. Est. Code § 1105.157(c).
Caveat: Freeze agreements can be entered into only with a “financial institution” (as defined by Texas Finance Code section 201.101(1)). The statutory definition restricts this to mean (1) a bank (state or national or foreign), (2) a savings and loan association (state or federal), (3) a credit union (state or federal), (4) a federal savings bank, or (5) a trust company. It further requires the institution to have its main office or a branch office in Texas and be qualified to act as a Texas or federal depository. See Tex. Fin. Code § 201.101.
Accordingly, stocks or other securities cannot be placed under a freeze agreement with a brokerage house unless it has been chartered as a “financial institution.”
See form 7-8 in this chapter.
The first step to be taken after the guardian of an estate has qualified and collected the ward’s assets is to determine the existence of any creditors of the ward and furnish them with timely and proper notice of the guardianship’s creation.
First Month: Within one month of qualifying, the guardian must furnish the state comptroller of public accounts with certified-mail notice of the appointment if the ward paid or should have paid taxes administered by the comptroller and must also provide notice by publication to all the ward’s creditors. Tex. Est. Code § 1153.001. See forms 7-9 and 7-10 in this chapter.
Fourth Month: Within four months after qualifying, the guardian also must furnish certified-mail notice of the guardianship’s creation to all secured creditors who have liens against real property of the ward and all creditors with claims for money against the estate of the ward of which the guardian has actual knowledge. Tex. Est. Code § 1153.003(a). See forms 7-11 and 7-12. In addition, the notice should provide a permissive barring of claims by expressly stating that an unsecured creditor must present a claim not later than the 120th day after the date on which the unsecured creditor receives the notice, or it is barred. The notice must include the address for presentment and an instruction that the claim be filed with the clerk of the court issuing the letters of guardianship. Tex. Est. Code § 1153.004. See form 7-13.
A copy of both the published notice to creditors and the specific notices to holders of recorded claims must be filed with the court in the guardianship proceeding. Tex. Est Code §§ 1153.002, 1153.003(c).
Even though a notice may not be timely made, it should be provided to avoid assessment of any penalty against the guardian. A successor guardian should determine if the previous guardian provided all appropriate notices. If not, the successor should give them. If the previous guardian has given timely and proper notice, the successor is not required to give further notice. Tex. Est. Code § 1153.005(a).
§ 7.4:1Purpose and Function of Claims Procedure
The claims process places any creditors of the ward on notice that a fiduciary has been appointed and that there are certain statutory standards and procedures to be undertaken before the guardian will make payment. See Tex. Est. Code ch. 1157. The guardian must pay approved claims against the estate in the specific order set out in the statute. Tex. Est. Code § 1157.103. Neither the guardian nor the attorney for the guardian should help any creditor prepare or file a claim. The claims process is complex, and caution should be used before filing a guardianship claim.
§ 7.4:2Presentment of Claim to Guardian
For a claim to be considered, the creditor must present it to the guardian or deposit it with the clerk of the court. Tex. Est. Code §§ 1157.001, 1157.002. In addition, the claim must be presented before the guardianship has been closed and before the general statutes of limitation have run on the specific claim. Tex. Est. Code § 1157.001. Unsecured claims must be presented within the time prescribed by the notice of presentment issued by the guardian. Tex. Est. Code § 1157.060; see also Tex. Est. Code § 1153.004. Note that if the claim has been presented and approved by the guardian, the probate court still retains the power to deny the claim. Tex. Est. Code § 1157.056. When presented to the guardian, the claim must contain sufficient information and documentation and an affidavit as to its correctness and completeness. Tex. Est. Code § 1157.004.
The Texas Estates Code also permits the creditor to use alternative procedures to submit the claim for approval if the evidence to support the claim has been lost. Tex. Est. Code §§ 1157.006, 1157.062. Although usually the person holding the claim must authenticate it, the Code permits other persons to submit an authentication affidavit when appropriate. See Tex. Est. Code § 1157.005. The guardian should verify that the claim meets the statutory requirements of Estates Code sections 1157.004 and 1157.005. If not, the claim should be rejected or objected to. If the guardian does not object to the form of the claim within thirty days, any defect is waived. Tex. Est. Code § 1157.007. If the 120-day permissive barring letter described in section 7.3:1 above was sent, the creditor must submit a claim that meets the requirements of sections 1157.004 and 1157.005 within the 120-day period, or the claim is barred. Tex. Est. Code § 1153.004.
There are special procedures for the presentation and allowance of secured claims. See Tex. Est. Code § 1157.151. Although procedures for presentation of a secured claim do not differ materially from procedures for a general claim, the process by which the Code treats the claim after the creditor files it is considerably different. See Tex. Est. Code § 1157.151. A creditor whose claim is based on a written agreement that provides for attorney’s fees may include contracted attorney’s fees for the preparation, presentation, and collection of the claim as part of the claim. Tex. Est. Code § 1157.003. See form 7-14 in this chapter for a claim.
§ 7.4:3Allowance and Rejection of Claim
Once a claim has been properly presented and reviewed by the guardian, he may accept, partially accept, or reject the claim by a memorandum endorsed on or attached to the claim. Tex. Est. Code § 1157.051. The guardian has thirty days from the date of presentation to review and approve or reject the claim of the creditor. Tex. Est. Code § 1157.051. Failure to act within thirty days constitutes a rejection of the claim as a matter of law. Tex. Est. Code §§ 1157.002(b), 1157.052. If the guardian improperly rejects a claim, the costs shall be taxed against the guardian individually, or the guardian may be removed if the claim is established through suit. Tex. Est. Code §§ 1157.052, 1157.107, 1157.108. See form 7-14 in this chapter for a memorandum endorsed on a claim.
§ 7.4:4Presentation and Approval of Claim
When the guardian allows all or part of a claim, it must then be filed with the court and placed on the claims docket. Tex. Est. Code § 1157.053. Once the claim has been entered on the claims docket for ten days, the court will review it. The court will approve or reject the claim, in whole or in part, and then classify it. Tex. Est. Code §§ 1157.055–.056. Any person interested in the ward may appear and object to the claim at any time before the court acts on the claim. Tex. Est. Code § 1157.054. If the court questions the claim, it will conduct a hearing to examine the guardian and the creditor under oath, hear evidence, and take appropriate action. Tex. Est. Code § 1157.056. See form 7-15 in this chapter for an order approving a claim.
If the ward’s estate is solvent, the guardian of the estate shall pay a claim against the ward’s estate that has been allowed and approved or established by suit as soon as practicable, in the following order: (1) expenses for the care, maintenance, and education of the ward or the ward’s dependents; (2) funeral expenses of the ward and expenses of the ward’s last illness, if the guardianship is kept open after the ward’s death, except that any claim against the ward’s estate that has been allowed and approved or established by suit before the ward’s death shall be paid before the funeral expenses and expenses of the last illness; (3) expenses of administration; and (4) other claims against the ward or the ward’s estate. If the ward’s estate is insolvent, the guardian shall give first priority to the payment of the administration expenses of the guardianship, including attorney’s fees. The guardian shall pay other claims against the ward’s estate in the order for solvent estates as provided above. Tex. Est. Code § 1157.103.
If the guardian rejects the creditor’s claim, either by memorandum or by failure to timely act, or if the court rejects the claim, the creditor must sue within ninety days of rejection or the claim is barred. Tex. Est. Code § 1157.063.