Real Estate Probate Texas
The Pursley Law firm Texas real estate attorney provides information and services related to Joint Tenancy, Probate of a will, and Right of survivorship issues in Houston, Dallas, Fort Worth and Austin.
Joint Tenancy – Right of Survivorship
At common law, a right of survivorship was presumed in all jointly owned property. However, many states enacted statutes that either abolished the right of survivorship, or reversed the presumption. In Texas, the law has long stated that joint ownership does not carry with it a right of survivorship unless the owners have agreed in writing that “the interest of any joint owner who dies shall survive to the surviving joint owner or owners”.
Thus, the Texas statute not only reverses the presumption, but requires a written agreement to overcome the presumption against survivorship. Ironically, until 1987 the statute was titled “Joint Tenancies Abolished,” even though it contained a sentence allowing the owners to create a joint tenancy. This suggests that what was really abolished was the common law notion that a joint tenancy could be created by a third party (such as a donor) without the consent of the owners. However, a joint tenancy created by an affirmative act of the owners was seen completely different than the common law joint tenancy.
Texas Changes to the Uniform Probate Code for Multiple-Party Bank Accounts
Although the creators of the Uniform Probate Code have tried to bring back the common law presumption, Texas has rejected this change in two different provisions.
The Uniform Probate Code, dealing with accounts at financial institutions, read as follows in 1979 when the Texas legislature adopted it:
Sums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties against the estate of the decedent unless there is clear and convincing evidence of a different intention at the time the account is created. However, the Texas legislature changed the italicized parts to read as follows:
Sums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties against the estate of the decedent if, by written agreement signed by the party who dies, the interest of such deceased party is made to survive to the surviving party or parties.
This legislative change not only reversed the presumption that would have been implemented by the UPC provision, but made the reversed presumption conclusive if no written agreement exists. Similarly, the Texas legislature altered the Uniform Probate Code provision dealing with informal trust accounts (where the signature card serves as the only trust agreement). The UPC states that “on the death of one of 2 or more trustees, the rights to any sums remaining on deposit are governed by subsection (a).” The Texas legislature omitted this language, so that at a trustee’s death his interest in such an account passes under the terms of his will instead of to the other trustee.
Types of Jointly Owned Assets in Texas
Texas recognizes seven different types of jointly owned or jointly controlled assets:
• Joint tenancy with right of survivorship, commonly referred to as JTWROS
• Joint tenancy that does not carry rights of survivorship because of a failure to overcome the presumption against them
• The tenancy in common, which has the same result as a joint tenancy
• Informal trust accounts at financial institutions
• P.O.D. (Payable On Death) accounts at financial institutions
• Convenience accounts at financial institutions
• Community property with right of survivorship, or CPWROS
Tenancy in common and joint tenancy both exist without right of survivorship, and when owned by a married couple, can consist of community or separate property. By contrast, a joint tenancy with right of survivorship cannot consist of community property.
Multiple-party accounts at financial institutions that do not contain community property are governed by Prob C §§436-462. Other non-community assets, such as real estate, automobiles, and securities held in certificate form are governed by Prob C §46 and the cases decided under it; Prob C §§436-462 do not apply to these assets.
Securities held in street name may also be excluded from the provisions of Prob C §§436-449, because of the vagueness of the statute’s definition of account.
Joint Tenancy Survivorship Agreements
Joint Ownership Is Not Enough
Merely putting another person’s name on a signature card or deed is not sufficient to create a right of survivorship, because the statute specifically states that “no [survivorship] agreement shall be inferred from the mere fact that the property is held in joint ownership.”
Writing Requirement Does Not Require Signature
The wording of the Joint Tenancy statute is: “The joint owners may agree in writing, however, that the interest of any joint owner who dies shall survive to the surviving joint owner or owners.”
This phrasing raises the issue of whether the written agreement must be signed by both owners. However, in an early case (predating this wording of the statute), joint property owners were considered to have “agreed” to a survivorship agreement merely by accepting a deed that recited the right of survivorship. The subsequent statutory amendment quoted above is seen as codifying this result.
Furthermore, a Texas Supreme Court case decided after the enactment of Prob C §46 has confirmed the Chandler conclusion in dicta.
“Payable to Survivor” Language May Be Sufficient for General Joint Tenancies
Traditionally, lawyers created survivorship rights with verbose yet unambiguous phrases, such as: “as joint tenants with right of survivorship and not as tenants in common.” Joint Tenancy With Right of Survivorship (“JTWROS”) Accounts in Texas: Caveat Depositor! However, a number of alternate phrases have been used over the years, particularly by financial institutions whose interest lies more in protecting themselves from liability than in effecting the estate planning goals of their customers. Generally, the word “survivor” has to be used to create a right of survivorship. Thus, the following phrases have been held to create a refutable presumption that survivorship was intended:
“. . . or payable to the survivor of either.” [Krueger v. Williams, 163 Tex 545, 359 SW2d 48, 51-52 (Tex 1962); see also Dulak v. Dulak, 513 SW2d 205 (Tex 1974) (holding that clear language of survivorship could be defeated by extrinsic evidence that no JTWROS was intended).]
“. . . to us, or to either of us, or to the survivor of us, or to the executors, administrators, or assigns of such survivor.”[William Marsh Rice University v. Birdwell, 624 SW2d 661, 663 (Tex App — Houston [14th Dist] 1981, no writ) (court also considered the extrinsic evidence of the decedent’s will, which indicated that jointly-owned bank accounts were to pass outside of the will).]
“In the event of the death of either of us the funds shall be payable to the survivor.” [William Marsh Rice University v. Birdwell, 624 SW2d 661, 663 (Tex App — Houston [14th Dist] 1981, no writ) (court also considered the extrinsic evidence of the decedent’s will, which indicated that jointly-owned bank accounts were to pass outside of the will; the decedent in Birdwell died in 1975, before Prob C §439 was enacted).)]
For property covered by Prob C §46, “payable to survivor” and other similar wording may still be enough to create a right of survivorship. [But see Carnes v. Meador, 533 SW2d 365, 369-70 (Tex Civ App — Dallas 1975, writ ref’d n.r.e.) (“Either one or both or to the survivor to sign checks (sic)” was held not to create a right of survivorship; however, this case concerned a bank account and so may have been abrogated by the enactment of Prob C §439(a) in 1979).] Furthermore, the survivor may be able to use extrinsic evidence to show the parties’ intent to create the right. Unfortunately, most post-1979 caselaw applies only to multiple-party accounts which are no longer covered by Prob C §46, so someone who needs to create a JTWROS in other types of property must operate with very little guidance.
In contrast, for multiple-party bank accounts, “payable to survivor” phrasing does not create a right of survivorship
“Payable to Survivor” Language Not Sufficient for Multiple-Party Bank Accounts (Prob C §439)
The phrase “payable to ... survivor” is not enough to create a survivorship account in a multiple-party bank account. In Stauffer, the bank account signature card was titled “Joint Account — Payable to Either or Survivor,” and the card further stated that “... It is especially agreed that withdrawal of funds by the survivor shall be binding upon us and upon our heirs, next of kin, legatees, assigns, and personal representatives.” Furthermore, both owners signed the signature card. However, the Stauffer court emphasized the fact that Prob C §439(a) provided safe harbor language, which the bank had not used verbatim.
The court concluded that in enacting Prob C §439 the legislature intended to override some of case law that had developed under Prob C §46, such as the variance in permissible language and the admissibility of extrinsic evidence. Since Stauffer was specifically construing Prob C §439 rather than Prob C §46, it may not apply to property that is not covered by the multiple-party account rules.
Unilateral Severance of Non-Bank Account Joint Tenancy
It is not clear whether a party may unilaterally sever a joint tenancy that is not community property and not covered by the multiple party account rules of Prob C §436-449.
In 1962, in the context of a bank account (before the multiple party account rules were enacted), the Texas Supreme Court stated in dicta that a husband who created a right of survivorship for the benefit of his wife could change the terms of the account unilaterally during his lifetime. The court reasoned that the “agreement” creating the JTWROS was not between the husband and the wife, but rather was between the husband and the financial institution; with the wife as a third party beneficiary. However, this analysis of a JTWROS as a contract between one owner and the bank leaves some problems:
• The analysis contradicts Prob C §46, which requires all owners to be parties to the agreement
• Davis suggests that the right of survivorship can be unilaterally revoked only by the owner who originally owned the property. That is, Mrs. Davis would not have had the same right that her husband had to unilaterally revoke. This means that the ability to revoke depends upon the ability to trace the origin of the property. The rule is not easily applied to property acquired jointly, using the funds of both owners
• Davis provides little guidance with respect to property that does not involve a financial institution. (In 1962, the year of the Davis case, Prob C §46 was the only way of creating a right of survivorship in Texas, since Prob C §§436-450 were not enacted until 1979, and the constitutional amendment allowing CPWROS was not passed until 1987)
In another old case, an appeals court refused to allow a guardian of the estate to revoke a JTWROS agreement that had been validly entered into by the ward
Right of Survivorship in Community Property Matters
History of Attempts at Right of Survivorship
The Prob C §46 right of survivorship has been complicated by a constitutional prohibition on survivorship rights in community property. See Hilley v. Hilley, holding that Article 4610 as worded at that time prohibited spouses from making any marital agreement that would alter the legal order of descent, and that the state constitution limited the manner in which a wife could acquire separate property during marriage). Hilley, the couple purchased corporate stock with community funds and both consented to take title as “joint tenants with right of survivorship and not as tenants in common.” After the husband died, his son from a previous marriage filed suit. Through a complicated line of reasoning, the court concluded that the Hilleys’ right of survivorship was prohibited by the constitution.
The Hilley court first concluded that a survivorship right is not community property. The essence of a survivorship right is that it causes the underlying property to become one spouse’s separate property upon the other spouse’s death, instead of being administered and distributed as community property. Thus, to acquire a survivorship right is to acquire the rights of separate property. Yet Mrs. Hilley’s survivorship right was purchased during her marriage using community property. Thus, she gave up her right to devise her one-half interest in the stock (an incident of community property) in exchange for the separate property right of survivorship. The resulting transaction had one of the following two problems:
• It was prohibited by the constitutional provision that a wife’s separate property can be acquired during marriage only by “gift, devise or descent” or the mutation of existing separate property
• It represented an attempt to convert community property into separate property without observing the required formalities
The Texas Two-Step
In order to deal with the constitutional problems in converting community property, attorneys developed what came to be called the Texas Two-Step.
In the Texas Two-Step, spouses who wished to create a right of survivorship in community property would:
• First, partition the community property into separate property held jointly
• Then, execute an agreement to create the survivorship right
Unfortunately, the Two-Step procedure had problems. For one thing, it enticed couples to convert potentially large sums of community property into separate property without considering the effect this would have on their rights if they divorced. Partition agreements caused the spouses to lose the tax benefits associated with community property, such as the double step-up in basis.
The second problem with the Two-Step was that it was difficult to implement. There was a question of whether the partition agreement and the survivorship agreement had to exist as separate instruments. Furthermore, until a 1980 amendment, the constitution allowed partition of existing property only. This meant that a signature card partition and survivorship agreement would not apply to future earnings deposited to the account.
By the mid-1980s, a married couple became able to prospectively partition all future deposits to a bank account, and create a right of survivorship in the same instrument.
Financial institutions accommodated by providing spouses with partition agreements built into signature cards. Significant numbers of couples converted community property into separate property this way, without considering the effects if they should divorce.
• The instrument had to make specific reference to a partition of community property
• The part of the instrument affecting the partition had to be signed before the part that created the right of survivorship could be signed.
• A partition agreement is a standard contract and as such must be signed by both spouses. Thus, the signing requirement for a JTWROS created from community property differs from that for a JTWROS created from existing separate property or a JTWROS between non-spouses
Constitutional Amendment Allows Survivorship in Community Property
In 1987, Texas voters amended the constitution to allow spouses to create a right of survivorship in community property. As a result, spouses who wish to create a right of survivorship in community property are no longer forced to partition their property. [For community property survivorship agreements]
Community Property Survivorship Agreements
Survivorship Agreement Must Be in Writing and Signed
Although spouses who wish to create a right of survivorship in community property no longer need to partition their property [§2:32], they do have to have a survivorship agreement, and this survivorship agreement must be in writing and signed by both spouses. [Prob C §452.]
This signature requirement is more stringent than that for a joint bank account that does not involve community property [Prob C §439(a)], for which only the signature of the person who dies first is required
Safe Harbor Language for Survivorship Agreement
A survivorship agreement will create a valid right of survivorship in community property (CPWROS) if it contains one of the following phrases:
• “with right of survivorship”
• “will become the property of the survivor”
• “will vest in and belong to the surviving spouse”
• “shall pass to the surviving spouse”
This safe harbor language may be the best the legislature has created yet. Each phrase is short enough that it is unlikely to invite paraphrasing, and the eminently logical “with right of survivorship” is included
Not Revoked by Divorce
There are no statutory provisions by which a CPWROS agreement is revoked by divorce. The agreement may specifically provide for revocation upon divorce. However, if the property is a bank account the financial institution will draft the agreement and the spouses will likely accept it without benefit of legal advice, so it is unlikely to provide for the divorce contingency. If the agreement is silent about the effect of divorce, then if the parties divorce one must deliver a written revocation to the other. With a bank account it may be easier just to withdraw the money and set up a new account in one name only
Unilateral Severance of CPWROS
A right of survivorship in community property under Prob C §§451-462 can be unilaterally revoked, but only if the survivorship agreement does not prohibit unilateral revocation, and only if the other spouse is notified of the revocation.
Procedure Not Widely Used
Many people anticipated that CPWROS agreements would be the perfect will substitute for married couples. The agreement can be global, can cover every asset ever acquired, and does not require probate. However, although some clients have CPWROS agreements dating from the early 1990s, this strategy has not become generally popular. One reason CPWROS agreements are not widely used is that the Probate Code is useful. The sections governing wills fill in gaps and provide for unexpected contingencies, such as the prior death of the beneficiary, divorce of the testator, standing to contest forgery, etc. Also, the probate procedures offer the ability to manage creditors in ways recognized by third parties not familiar with Texas law. In contrast, the short and sweet community property right of survivorship statutes provide little guidance on anything. Another reason CPWROS agreements are not widely used is that the legislature’s attempt to remedy the lack of procedure has minimized the beneficial aspects of CPWROS. To deal with the concern that third parties might not be willing to rely on a CPWROS agreement, the legislature provided a statutory procedure for having the agreement validated by a court. To prove the agreement:
• The surviving spouse must file an application for adjudication listing the name and domicile of the spouses, the fact, time, and place of death, and facts establishing venue
• A hearing is held, at which the surviving spouse must establish that the spouse is dead, the court has jurisdiction and venue, the agreement was executed with the formalities required by law, the agreement was not revoked, and citation was properly handled
This procedure is very similar to the procedure required to probate a will. Thus, even though a CPWROS agreement is nontestamentary, it is possible to “probate” it. Officially, this is not required [see Prob C §456(a) (the agreement is effective without adjudication)], but the presence of the procedure in the statute may inspire third parties to demand it.
Right of Survivorship in Real Property
Real Property JTWROS Rare in Texas
Although rights of survivorship in real property are commonly used in other states, they are rare in Texas. The widely believed myth that homesteads automatically pass to a co-tenant upon death leads many property owners to think they do not need wills. On the other hand, the general absence of survivorship rights often facilitates estate planning because it eliminates the need to figure out how to revoke the right of survivorship in order to leave the house to a different beneficiary. Texas title companies are largely responsible for the absence of JTWROS’s in real property. Title companies do not create JTWROS’s and do not like to insure them. Since title companies prepare most of the deeds for residential real estate, their preferences have become the rule notwithstanding the expectations and desires of many consumers.
General Recognition of Right of Survivorship Has Been Slow
The reluctance of title companies to use JTWROS for real property is based on the history of the right of survivorship in Texas. It wasn’t until 1955 that any statute explicitly authorized rights of survivorship. However, by 1955 title company procedures were well established, and change was not easy. Even after 1955, rights of survivorship were still prohibited for community property until 1987 [see 2:33], so the creation of rights of survivorship in residential land was awkward because most homes are purchased by married couples whose funds are presumed to be community property.
Recognition of Bank Account Right of Survivorship Has Been Difficult
The reluctance of title companies to use JTWROS for real property may also be based on observance of the banking industry’s experience with survivorship accounts. Once banks began accommodating customer demand for survivorship accounts, it took years of litigation to figure out what language would create a reliably valid right of survivorship. It wasn’t until 1987 that the legislature gave us the safe harbor language of Prob C §439(a) for joint bank accounts and that safe harbor language does not apply to real property. Unlike banks, which draft the signature cards but aren’t liable for the legal results, title companies guarantee title. If a title company had to investigate the subjective intent of the parties to every deed in the chain of title, even when the language in the deed is unambiguous, the real estate industry would grind to a halt.
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