Texas: Trusts & Estates Outline

TRUSTS & ESTATES OUTLINE
ATTRIBUTES OF PROPERTY OWNERSHIP

(1) Assignability
 “If I own it, I can assign it”
 Property owner has the ability to give, sell, transfer or encumber his property
 Exceptions: Restriction from alienability of land; conditions subsequent, zoning
(2) Attachability
 “If I own it, my creditors can attach to it.”
 Creditors can attach that owner’s property to outstanding debts
 Exception: Homestead exemption, and certain exempt property
(3) Inheritability
 “If I own it, it can be inherited by my heirs & devisees”
 Owner’s property is inheritable when he dies
 Exceptions: Life Estate holder cannot pass on property interest at his death
“Fee” Ownership
 General Rule: A property owner has almost unlimited control over his or her
property BUT at the moment of death, ownership by the decedent ceases to exist.
Dispositions of Property:
 (1) Inter Vivos
o The transfer of property takes place during the transferor’s lifetime.
o The effective date is the time of delivery
 Examples  Deeds, gifts of present interests, and the transferor
retaining a life estate in property and giving the transferee the
remainder interest
o For a valid inter vivos conveyance:
 Must have a signed and executed deed
 O must deliver to A
 A must accept the deed
 (2) Non-Probate
o The transfer of property takes effect at the death of the owner pursuant to a
contractual arrangement entered into during owner’s lifetime
 Non probate assets are governed by contractual relationship and the
terms of that contract govern the asset’s disposition at O’s death
o The successors in interest are those people designated in the contractual
agreement
o The contract becomes effective at the death of the decedent, and prior to the
death, those successors named in the contract only have an expectancy, not
an interest
 At O’s death, that expectancy becomes a possessory interest
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o The fact that property passes non probate does NOT mean it is avoided by
creditors
 §111.053
o It is increasingly common now to use will substitutes so assets pass non
probate
 Example 401K, life insurance, multi party bank accounts, Joint
tenancy with right of survivorship, Payable on Death accounts, etc.
 (3) Probate
o This is the default rule if a disposition is not the two above
o The transfer of property takes effect at the death of the owner pursuant to
testate or intestate succession
o The successors in interest are either the owner’s heirs designated by the
state statute if there is no valid probated will OR the owner’s designated
devisee’s if there is a valid probated will.
o If there is a valid probated will  the successors are the devisees provided in
the will
 Once the will is admitted to probate, the heirs are divested and the
devisees are vested
o If there is no valid probated will  The successors are the owner’s heirs at
law as designated by the statute
 Heirs are vested with ownership at the moment of O’s death whether
there is a valid will or not
 (4) Void Transfers
o An intended transferee who died before the effective date of a purported
transfer cannot accept the transfer
o The transfer to that person is void.
Concurrent Ownership
 Tenants in Common (Default Rule) *passes to successors in interest
o Tenants have undivided share of co-owned property that will pass through
will or by intestacy
o Each tenant in common can transfer, assign or sell their own interest
o Texas  PRESUMED to be tenants in common
o Example  A & B are tenants in common. B incurs a lot of debt.
 Creditors can only attach to B’s ½ interest
 Joint Tenants with Right of Survivorship *nonprobate succession
o Texas has abolished common law joint tenancy (§101.002).
o A valid joint tenancy will remove the land from probate because when A dies,
the estate will pass non probate to B
o OA&B
 When A dies, A’s interest passes to A’s heirs and devisees
 To have a joint tenancy in Texas, we must have a valid agreement
between co-owners (§111.001)
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 When O gives deed to A&B as joint tenants, that is not enough.

A & B must both accept the deed to have an agreement
between A & B
 Agreement of survivorship is NOT inferred from the mere fact
that property is held in joint ownership
 Without an agreement in Texas, we assume A & B are tenants in
common, each having 50% ownership
Successive Ownership
 When O dies, look for the three types of dispositions so you know what law to use.
o Was the property disposed of in non-probate disposition?
 If yes, then the contract controls the disposition.
o Did death end the interest?
 Example  O to A for Life and remainder to B
 A has a life estate and B has a vested remainder.
 A can only assign a Life Estate and A’s creditors can only attach
to the life estate
 At A’s death, the estate goes to B (A’s LE simply terminates)
o B acquired his interest from O. If B dies before A, his
future interest goes to B’s heirs and devisees.
 Example  O to A for life then to B if B survives A
 B has a contingent remainder. If B dies first, B’s interest is not
inheritable because O has a reversion
 If O dies before B and B dies before A, the interest passes to O’s
heirs and devisees at A’s death
o Otherwise, the default is that it will pass probate through intestacy or
through the validly probated will.
 Immediately upon death of decedent, the decedent’s probate property
vests in decedent’s heirs at law. However, the vesting of the heirs at
law is subject to:
 (1) Rights of the decedent’s creditors
 (2) Total and complete divestment by the devisees under a will
 (3) The right of possession by estate’s personal representative
o Wills
 A will is a document by which a property owner can control the
disposition of probate property at death
 It is a revocable disposition of probate property to take effect at death
 The will has no legal consequences until the testator dies
  Compare to a deed, which is an inter vivos disposition of
property that takes effect upon delivery of the deed.
 To be valid:
 (1) The will must be executed according to formalities in TX
statutes
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 (2) The Testator must die

 (3) A court of proper jurisdiction and venue must admit will to
probate
 Following the decedent’s death, a court may appoint a personal representative of
the decedent’s estate to conduct a formal administration of the decedent’s estate.
o If the representative named someone in the will  Then the personal
representative is called an “executor”
o If the representative is someone the court appoints  Then the personal
representative is called an “administrator”
o Whether the decedent died intestate or testate, the personal representative
has the duties to:
 (1) Marshall the probate property
 (2) Satisfy the decedent’s debts and obligations
 (3) Deliver the remaining property of the estate to the decedent’s
heirs and devisees
o In TEXAS  there is the unique possibility of independent administration.
Survivorship
 Historically, an heir had to survive the decedent by a mere “instant of time”
 In almost every jurisdiction today, that rule has been changed by statute
 In Texas
o The heir at law or devisee must survive the decedent by 120 hours
o To assume status as heir, that person must prove they fall into definition of
heir and prove that they survived the decedent by 120 hours
Testamentary Freedom
 General Rule  Upon death, the owner of property can make a probate or non
probate disposition of property as he or she sees fit
 We have abolished forced heir ship, which mandated that you had to leave
something to your kids
o With exception of Louisiana, a decedent can completely disinherit any of his
heirs, including children.
Conflicts of Law
 If real property  the law of the situs of the property controls
 If personal property  the law of the state where the owner is domiciled controls
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INTESTATE SUCCESSION
General:
 In the United states, each state has its own set of intestacy statutes that govern what
happens to a decedent’s probate estate if he dies without a valid will or does not
dispose of everything in that will
“Heirs at Law”
 Heirs own what passes intestate
 Heirs have standing to contest a will and if will is invalidated, the heirs will get the
estate as if it passed intestate
 At common Law  could only be an heir by blood and there was no such thing as
adoption
o EX: surviving spouse and adopted child would not be heirs at common law
 Today we recognize heir status by marriage too
o Spouse will be an heir
o BUT step children and in laws are not heirs
 Rebutted with adotion – statutory OR equitable
 Foster children are not considered heirs
o Unless rebutted with equitable adoption
 §22.015 of Tex. Estates Code
o “Heir” means the person who is entitled under the statutes of descent and
distribution to a part of the estate of a decedent who dies intestate.
o The term includes the decedent’s living spouse.
 Three types of heirs, and generally they are favored in the following order:
o (1) Descendants
o (2) Ancestors
o (3) Collaterals
 Aliens
o §5.005 Tex. Prop. Code
 Aliens have same real and personal property rights as US citizen.
o §201.060 Tex. Estates Code
 A person is not disqualified to take as an heir because the person is an
alien or because the person through whom the heir claims is an alien
(1) Descendants  (Children, Children’s descendants, Grandchildren)

 “Descendants” is a term of art that includes any individuals related to O through the
lineal line of descent.
o Marital and Non Marital Children
 RULE: This is an issue of fact - is the child a child of the decedent?
 C/L RULE: a bastard is an heir of none
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 Early American law differentiated between maternal and paternal

inheritance (bastard was child of mother, but not father)
 TODAY we distinguish as marital (born into a marriage) or nonmarital
(born outside of a marriage)
 §201.051 - A non-marital child inherits from biological or
adoptive mother
 §201.052 - A non-marital child will inherit from father if there
is an adjudication establishing paternity, the child is adopted,
or dad somehow acknowledges paternity.
 Post-death proceedings:
 If biological link is established through probate code procedure
o AFTER father’s death  clear and convincing evidence
o BEFORE father’s death  preponderance of evidence
o Formally Adopted Children
 Prior to 1850, adoption was not recognized in Texas
 In 1850-1907, adoption was a unilateral act of one person declaring
they were adopting another as an heir at law
 After 1907, adoption became a way of surrogacy to take in a child and
raise the child as one’s own
 §201.054
 A statutorily adopted child takes on the same status as would a
biological child for all purposes so long as parents went
through the statutory procedure and got an order of adoption
 §201.054(b)
 Once there is an adoption, the natural parents and relatives
may not inherit through the child BUT the child can continue to
inherit through its natural parents
o Natural parnets’ inheriteance rights cut off
o Child could technically inherit twice unless the court
cuts off those rights in process of adoption
  Trap for the unwary:
 Tex. Fam. Code § 161.206: if the adoption process includes the
termination of the natural parents rights prior to adoption, the
court may terminate the child’s right to inherent from the
natural parents.
 There is a presumption that child can still inherit from natural
parents.
 §201.054(c)
 The adopted and natural parents can still cut the child out of
inheritance by disposing of property through a will
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o Adopted Adults
 §162.501 of Texas Family Code permits adoption of an adult
 Requires the consent of the adult being adopted
 §162.507 of family code  Effects of adult adoption
 The adopted adult is son or daughter of adoptive parent for all
purposes
 Adopted adult is entitled to inherit from and through the
adopted adult’s adoptive parents as though the adult was a
biological child
 The adopted adult may NOT inherit though or from the
biological parents
 The biological parents of an adopted adult may not inherit
from or through the adopted adult
 Why would you do this?
 Example  An elderly with no descendants besides a distant
cousin may adopt a close friend so that the distant cousin
cannot contest validity of will
 Example  Mary Jane’s uncle who adopted girlfriend
 Example  Gay couples may adopt one another so family who
disapproves of lifestyle cannot disinherit the significant other
o Equitable Adoption
 Issue trigger  No formal adoption procedure or the procedure was
begun but never completed
 The law favors statutory adoption, but in a limited amount of
circumstances, the court will use its power to promote justice
 2017 Change: Tex. Legislature treats statutory and equitable adoption
the same.
 Consequences of Equitable adoption:
 (1) Only adoptive parents and their privies are estopped from
denying the adoption
 (2) An equitably adopted child cannot inherit from collateral
kindred
 (3) Adoptive parents CANNOT inherit though equitably
adopted child (it’s a one way street)
 (4) Biological parents CAN inherit from equitably adopted
child
 (5) Equitably adopted child CAN inherit from equitably
adoptive parents
 In Texas, courts have used this theory when there is proof that adults
took the child in and made representation that the child was to be
their own as an adopted child.
 “Detrimental reliance”
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 Usually the biological mother who gave up the kid on reliance

that adults would take in child and raise it as their own
o Posthumous Birth
 A child or lineal descendant of intestate decedent born after decedent’s
death can inherit if the child was in utero at time of death
 Courts treat that child is alive for purposes of status as an heir
IF the child is born alive
 Example  Wife is pregnant and husband dies. The unborn child can
still inherit from dead father.
o Step Children
 Not legal heirs unless they have been legally or equitably adopted
o Posthumous Conception
 Conception after one parent dies
 §201.056 of TEC
 No right of inheritance unless Person is in being and capable in
law to take as heir at time of decedent’s intestate death
o Post Mortem Conception
 Example  Two spouses die in a car accident that had frozen embryos.
The couple’s parents want to create a child so they have an heir.
 Statute in Texas does not speak directly to this issue. The law follows
social issues and in 2015, the legislature is going to propose an
amendment to address these issues
o Artificial Reproduction
 The Texas Family Code’s adoption of the Uniform Parentage Act
governs these cases.
(2) Ascendants  (Parents, Grandparents)

 If no descendants, the law favored ascendants, or “ancestors”
(3) Collateral  (Siblings, nieces, nephews, aunts uncles)

 If no descendants or ancestors, intestate favors collateral
 Collateral includes children of collaterals.
 Related to the decedent but not in ascending or descending line
Minors
 §22.022 Tex. Estates Code
o “Minor” means a person younger than 18 years of age who:
 (1) Has never been married; and
 (2) Has not had the disabilities of minority removed for general
purposes
Incapacitated Persons
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o A person is “incapacitated” if the person:
 (1) Is a minor; or
 (2) Is an adult who, because of a physical or mental condition is
substantially unable to:
 Provide food, clothing, or shelter for himself or herself; or
 Care for the person’s own physical health; or
 Manage the person’s own financial affairs; or
 (3) Must have a guardian appointed for the person to receive funds due
to the person from a governmental source.
 Incapacitated persons can still inherit, but a court may appoint someone to manage
their inheritance
How do we divvy up the estate after we identify heirs?
(1) If Decedent dies without a spouse  §201.001

(1) Children and their descendants through per capita with representation
(2) Father (1/2) and Mother (1/2)
 If only one parent is living, that parent gets ½ and other ½ goes to all brothers
and sisters & their descendants
 If no brothers or sisters  1 parent takes the whole
(3) Brothers and sisters & their descendants
 §201.057  applies only to collateral kindred
o Someone of ½ blood will only inherit half of what someone of full blood
will inherit
o But if all half blood  treated normally
o Process  Make tally marks for each remaining siblings indicating
“shares”. Whole bloods get 2 tallies and half-bloods get one tally.
o Example  O dies leaving 2 whole sisters and one half sister. That
is 5 shares total. Whole sisters get 2/5 each, and half sister gets
1/5.
(4) Paternal kindred (1/2) and Maternal kindred (1/2) 1
 This means ½ goes to grandpa and his lineal descendants/ancestors & ½ to
grandma
 What if no one on one side of a moiety?
o One side of a moiety (ex. paternal) might shift to material side
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This is the Roman moiety system – common law uses next of kind using table on consanguinity
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o Statute says keep going until you find some lineal descendent (in a non-
moiety system, estate would just go to next of kin using table of
consanguinity)
 If no “laughing heir” is found  property escheats to the state
(very rare)
(2) If person dies WITH a spouse: (§201.002 & 201.003)

 If the person has one or more children or a descendant of a child:
o The surviving spouse takes one-third of the personal estate;
o Two-thirds of the personal estate descends to the person's child or children,
and the descendants of a child or children; and
o The surviving spouse is entitled to a life estate in one-third of the person's
land, with the remainder descending to the person's child or children and the
descendants of a child or children.
 Except as provided by Subsection (d), if the person has no child and no descendant
of a child:
o The surviving spouse is entitled to all of the personal estate;
o The surviving spouse is entitled to one-half of the person's land without a
remainder to any person; and
o One-half of the person's land passes and is inherited according to the rules of
descent and distribution.
 If the person described by Subsection (c) does not leave a surviving parent or one or
more surviving siblings, or their descendants, the surviving spouse is entitled to the
entire estate.
 Sec. 201.003. COMMUNITY ESTATE OF AN INTESTATE
 The community estate of the deceased spouse passes to the surviving spouse if:
o No child or other descendant of the deceased spouse survives the deceased
spouse; or
o All of the surviving children and descendants of the deceased spouse are also
children or descendants of the surviving spouse.
 If the deceased spouse is survived by a child or other descendant who is not also a
child or descendant of the surviving spouse, one-half of the community estate is
retained by the surviving spouse and the other one-half passes to the deceased
spouse's children or descendants. The descendants inherit only the portion of that
estate to which they would be entitled under §201.101. In every case, the
community estate passes charged with the debts against the community estate.
Representation  “Per Stirpes” v “Per Capita” (See pg 144 of text)

 Representation is the idea that when you are determining heirs, a living descendent
cuts off the inheritance rights of his/her descendants.
o Any share that goes to the decedent’s descendants is divided among them by
representation. (Remember, representation will only come in to play if at
least one child predeceases the intestate.
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 There are two primary types of representation:

o (1) Strict Per Stirpes:
 AKA  “True representation”
 Steps:
 Divide the estate into primary shares at the generation nearest to
the decedent. Initial division begins at the first generation.
o The number of shares is determined by (1) the number of
living children of the decedent, if any, PLUS (2) the number of
deceased children with descendant’s living at the time of O’s
death
o Dead children of the decedent who left no descendants
themselves are ignored for purposes of determining the
primary number of shares.
o Each bloodline will get an equal amount, no matter how many
grand children, or great grandchildren of the decedent there
are in a given blood line.
o Division occurs at the first generation EVEN IF everyone in that
generation is dead!
 The primary shares are allocated to each living member of the
children generation and to the descendants of each deceased child
that has living descendants.
 For the children who were not alive, but whose bloodlines are
entitled to a share because they were represented by descendants,
determine the portion allocated to that bloodline in the same
manner as step one and distribute as in step two.
o (2) Modified Per Stirpes/Per Capita with Representation
 With the exception of step 1, this system is the exact same as the strict
per stirpes system.
 Step1  Find the generation where there are living descendants.
Determine the number of shares by dividing estate into as many
shares as there are (1) living children of the decedent, if any, AND (2)
deceased children in the same generation who are represented by
their living descendants.
 Thus, if all of the decedent’s children are dead, the primary
shares are determined by the grandchildren level rather than
the children level.
 Perform step one at the highest generation where there is
someone alive.
 §201.101  Texas has adopted a modified per stirpes/per
capita with representation system
 Step 2  Distribute one share to each living member of the highest
generation
 Prior to 1991, TX was a strict per stirpes state.
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 §201.101  ONLY applies to intestacy. If a will or trust is present, then the

instrument controls as to the method of distribution.
Remote Heirs  “Next of Kin” v. “Parentelic”

 Next of Kin Doctrine
o Assuming we are at §201.001(f) because there is none of the above (no
parents, siblings, children, grandchildren), most American systems have
adopted the “Next of Kin” doctrine
o In this doctrine, those of the closest living relatives share the estates.
o Looking to the Table of Consanguinity, it doesn’t matter if relative is on the
maternal or paternal side because the closest one wins and takes the whole
estate (Here, Y is in 3rd degree and that beats X in the 5th degree)
Basic Family Unit
 Parentelic  Moiety System

o In Texas, we use the “moiety system” which is the minority rule.
o Assuming we are down to §201.001(f), we divide the estate into two equal
shares.
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o ½ goes to the Paternal side, and ½ goes to the maternal side

 Then, we determine the heirs independently on each side in the course
prescribed. So there are two sets of heirs
o Case law says that if we exhaust one side of the family looking for heirs and
there aren’t any, then the paternal side shifts to the maternal side and vise
versa.
o If there are neither maternal nor paternal heirs, then and only then does the
estate escheat to the estate.
Escheat to the State  §71.001 Tex. Prop. Code

 If an individual dies intestate and without heirs, the real and personal property of
that individual is subject to escheat
o “Escheat” means the vesting of title to property in the estate in an escheat
proceeding
 Spouse, descendents, parents, siblings, grandparents, descendents of grandparents,
descendents of great-grandparents…
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SPECIAL SITUATIONS
Property v. Expectancy
 During O’s life, from heirs perspective, heirs do not own anything
 During O’s life, heirs simply have an expectancy, NOT a property interest
 If an item is property, it is (1) assignable, (2) attachable, (3) inheritable
o But these three attributes do NOT attach to an expectancy
o Cannot assign, attach to, or inherit an expectancy
 As soon as O dies, O’s ownership is gone and O’s probate assets vest immediately in
heirs at law.
o At this point, the expectancy has matured into a property interest and is
assignable, attachable and inheritable.
 §101.001(b) Tex. Estates Code  At death, O’s property vests immediately in O’s
heirs. But subject to:
o (1) Personal representative’s right of possession
o (2) O’s debts
o (3) Total divestiture if valid will is admitted to probate
 If heir has an expectancy to inherit blackacre and then executes a deed conveying
blackacre to another:
o Heir has not conveyed anything.
o BUT if H survives O, then the doctrine of after acquired title kicks in (estoppel
by deed)
o If O dies with a will or if heir predeceases O, this conveyance means nothing.
 If heir or devisee “assigns” an expectancy to another under a contract for good and
valuable consideration:
o The expectancy is not property so he cannot assign it BUT if there is a
contract than assignee can enforce the contract or seek action against the
heir/devisee under contract law.
 Compare:
o Inter vivos conveyance
 Prior to conveyance, grantee does not own anything, grantee simply
has an expectancy
 Prior to conveyance, grantee does not even own a future interest
 Once there is a valid conveyance with execution, delivery, and
acceptance, then the grantee can attach, assign and inherit
o Probate Disposition
 When O dies, heirs own the property. There is not delivery and
acceptance because it happens as a matter of law.
 Before O dies, O’s heirs and beneficiaries do not own anything, not even
a future interest
 Before O dies, O’s heirs and beneficiaries only have an expectancy
o Non Probate Disposition
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 Example  O has multiparty bank account, that is payable on death to

B
 When O dies, the account will go to B. B has an expectancy until O dies
 When O dies, B is the owner under a contract that O had with B. B is the
third party beneficiary of that contract.
o Future Interest
 O  C for life, remainder to G
 At the moment of conveyance to C, whether by will or deed, G has a
future interest
 A future interest is property
 G’s future interest is assignable, attachable, and inheritable
 When C dies, C’s interest terminates and G’s interest becomes
possessory
Disclaimer
 If heir does not want the inheritance, he can disclaim it!
 A Disclaimer is not a refusal to accept, it is a statutory concept
 Under Common law, an heir could not get out of an inheritance
o Today, every state has a statute to renounce or disclaim
 §122.002 Tex. Estates Code Who may disclaim
o Heirs at law
o Devisees under wills
o Third party beneficiaries under non probate dispositions
Effect of Disclaimer  §122.101 Tex. Estates Code
 Unless the decedent’s will provides otherwise, disclaimed property is treated as if
the disclaiming party had predeceased the decedent. (Post-Death Assignment)
o Example  if heir has a child and disclaims, the child is the heir at law.
To be a Valid Disclaimer:
 Must disclaim within 9 months of O’s date of death;
 And must disclaim prior to the heir exercising any ownership over what was
inherited
 Upon valid disclaimer, the property relates back to date of O’s death and passes to
whoever it would have as if disclaiming party was dead when O died.
Effect of Invalid Disclaimer  §122.102

 A disclaimer that is ineffective is treated as an assignment of the disclaimed
property to those who would have received the property had the person attempting
the disclaimer died before the decedent
o Assignment  §122.201
 Any person who receives property under a will or inheritance and does
not disclaim the property, may assign the property or interest in
property to any person.
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 Disclaimant has no control over what happens to disclaimed property or who it goes
to after the disclaimer
 Disclaimer is not effective if Creditor is IRS because federal law trumps state law
(exception to Rule from Dyer case)
Why Disclaim?
 Heir may disclaim if heir is already wealthy and wants it to go to children rather
than assign it to them later because it avoids a gift tax
 Commonly used as an estate planning tool
o The disclaimer is not a gift and so it is not subject to gift tax
 Is also used to avoid creditors
 See Dyer case
o Heir disclaimed his inheritance because he knew a tort claim was coming.
o This was an effective to avoid the judgment from attaching because a
disclaimer relates back and the property is treated as if the heir never owned
it. Therefore there was never anything to attach to.
 See Homer Simpson case
o Disclaimed inheritance and then filed for bankruptcy the day after
o NOT a fraudulent transfer
o Timing is important, if there was a bankruptcy proceeding pending when he
disclaimed the property, then federal law applies.
Transactions Before O Dies  Gift v. Loan v. Advancement

 If there is a significant transfer of wealth during O’s lifetime to another, there are
three possibilities:
o (1) Could be an inter vivos GIFT with no strings attached
o (2) Could be a LOAN
o (3) Could be a an ADVANCEMENT
GIFT
 A gift has no effect on how the remainder of O’s estate is divided after O’s debts are
paid.
 A valid gift has no effect on O’s estate
ADVANCEMENT
 An advancement is like a gift, but it is one that is taken into consideration at O’s
death in an equitable division of what is left of O’s estate.
 There was a common law presumption that a gift was an advancement. But today,
Texas has a statute that we presume it was a gift.
 §201.161 Tex. Estates Code:
o Treated as prepayment of some or all of recipient’s inheritance only if:
 Decedent declared in contemporaneous writing or heir acknowledged
in writing that it was an advancement;
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OR
 Decedent’s writing or heir’s written acknowledgement indicates that
the transfer should be taken into account in distributing the estate
Hypo: Assume O died with 3 heirs, A, B and C. During O’s lifetime, he gave an advancement to
A of $100k. When O dies, his probate estate is valued at $200k.
 Add the Probate estate ($200k) with the advancement ($100k) = HOTCH POT estate
($300k)
 Then, divide the hotch pot estate into three shares  each gets $100k.
 For A, offset amount entitled with advancement  $100k MINUS $100k
o A gets $0, B gets $100k, C gets $100k
LOAN
 Whether or not a loan needs to be paid back depends on key facts and
circumstances:
o (1) At time of O’s death, is O’s estate solvent, meaning there is enough to
satisfy O’s debts;
OR
o (2) Is O’s estate insolvent, meaning there is NOT enough money to satisfy O’s
debts
 If insolvent and debt is NOT barred by statute of limitations
o Executor/administrator has fiduciary duty to O’s estate to pursue the
collection of A’s debt
 If insolvent and debt IS barred by statute of limitations:
o Then the heir who received the loan is off the hook and does not owe
anything to the other heirs
 If solvent and NOT barred by statute of limitations
o We must change how we divide the estate and the heir who got the loan will
owe some to the other heirs.
o The unpaid loan is offset against the debtor’s share using the Hotch Pot
method (treated like an advancement)
 If solvent and IS barred by statute of limitations:
o We will then treat the outstanding loan as an advancement
Release
 Texas courts recognize that if an heir, in writing and for consideration, releases his
interest in the estate, then that release is valid and enforceable against that heir.
 BUT if the heir that signed the release predeceases O, the heirs by representation
are NOT bound by the release because they were not parties to the contract UNLESS
the contract expressly excludes the heirs by representation also
 Texas courts consider this a “third party beneficiary contract”
o It is a contract between O and an heir for the benefit of the other heirs.
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 Mow v. Baker:
o Because A died before
H, she never became
an heir of O
o A released something
that never happened,
and that never became
vested in her
o The contract of A’s
release did not cut off
A’s children from
inheriting from H
o A cannot release of
sell something that the
law had already
vested in her children.
o H’s heirs at law: A’s 4
kids, B, C, D, E, & X, Y,
Z
o Result: B, C, D, & E’s interest goes to X, Y, & Z
 Per Capita representation
 At the first level of descendants there are 8 shares. The 7 children are
entitled to 1/8th share. But, B, C, D, and E’s interests go to X, Y, and Z
because of the release
 So, X, Y, and Z share 7/8ths of the estate
 By representation, A’s 4 kids share 1/8th of the estate. Each grand kid
gets 1/32 share (1/4th of 1/8th)
Voidable Marriages
 §123.101 Post death voiding of marriage
o The court can declare a decedent’s marriage void if the court finds that on the
date the marriage occurred, the decedent did not have mental capacity to:
 (1) Consent to the marriage; AND
 (2) Understand the nature of the marriage ceremony if a ceremony
occurred
 UNLESS, if after the marriage occurred, the decedent regained mental
capacity to recognize the marriage relationship and did recognize the
marriage relationship
 If the marriage is declared VOID  the other party to the marriage is not considered
the decedent’s surviving spouse for purposes of any law of Texas
 Example:
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o Prevents a caretaker from manipulating an elderly individual into marrying

them when the caretaker knows the elderly will die soon so the caretaker can
inherit.
Killer Heirs
 Some states have a statute called a “slayer’s rule” where if an heir causes the death
of O, then the rule voids the killers interest in O’s estate
 Texas does NOT have the typical slayer’s rule  §201.058 Tex. Estates Code
o No conviction shall work corruption of blood or forfeiture of estate, EXCEPT
o If beneficiary of a life insurance policy is convicted of killing the insured, the
proceeds of the insurance policy or contract shall be paid in manner
provided by the Insurance Code
 BUT there is no statute that prevents a killer from being an heir and inheriting
assets other than life insurance policy!
o EQUITY  There is still the equitable remedy of a constructive trust
Other Facts Effecting Estate

 Alienage
o §201.060
o Aliens are not disqualified as heirs
 Termination of Parental Rights
o §201.062
o A probate court can enter an order declaring that the parent of a child under
18 years old cannot inherit through or from that child if the court finds by
clear and convincing evidence that the parent has:
 Voluntarily abandoned and refused to support the child for at least
three years before the child’s death
 Dad knowingly and voluntarily abandoned the mom because she was
pregnant
 Convicted or placed on supervision for death or serious injury to a child
 Casualty
o §201.059
o Death by casualty does not forfeit estate
 Suicide
o §201.061
o Death by suicide does not affect the way decedent’s estate vests or descends
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EXECUTION OF WILLS
Testate  dying with a valid will Intestate  Dying without a valid will
§251.002 - introduction to wills.

 Across the board, there is no longer any forced heirship.
 A valid will is admitted to probate and a testator can eliminate all these rules
intestacy.
Surrogate
 If we have an incapacitated person, we need a court appointed guardian.
 This is a guardian of the estate (not of the person). Sometimes called “conservator”
Custodian
 Under the Uniform Transfers to Minors Act, a custodian is a hybrid between
guardian and trust. Custodian manages property outside of court control, which
makes it less expensive to administer.
 Easy to set up when available.
Testamentary Character
 A Will is a revocable disposition of property that takes effect LATER at death
o §256.001  A will is not effective until it is admitted to probate
 Cannot be admitted to probate until testator dies.
 This is a testamentary disposition, NOT an inter vivos disposition.
 “Lawful Will”
o (1) Must have been validly executed during decedent’s lifetime
o (2) Must be nonrevocation of will between point of execution and O’s death
o (3) Will must be admitted to probate by court order in a court of competent
jurisdiction and venue
o A “will” includes”
 A codicil; and
 A codicil is a document that amends or revokes an earlier
document
 A testamentary instrument that merely:
 Appoints an executor or guardian;
 Directs how property may not be disposed of;
OR
 Revokes another will
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 The intestate process becomes irrelevant pursuant to §100.001 if we have a valid,

lawful will without revocation that is admitted to probate
o Establish fact of death
o Application
o Issuance of Notice
o Scheduling of hearing
o Evidence
o Order
 If court is satisfied that the will is lawful, the court will issue an order, divesting
heirs and vesting the beneficiaries of the will (devisees)
Testamentary Power/Limitations
 NO FORCED HEIRSHIP
 Testator can leave his property as he/she sees fit
o Some public policy exceptions such as:
 (1) Homestead Rule
 (2) Exempt Property Rule
 (3) Family allowances
 (4) Community Property System
 General Common Law limitation prohibits testator from making frivolous
dispositions of estate
o Example  Will cannot say to sell everything in the estate, burn the money
and sprinkle the money’s ash on lake Waco
 “Mortmaine” Never existed in Texas
o Some jurisdictions place limits on how much can be left to a church with
Morte Mane statutes
o Texas has never had Morte Mane statutes.
§254.003: Devises and Bequests to Attorneys and Other Persons 

basically, lawyer who is a beneficiary of a will cannot draft the will
A devise in a will is VOID if made to:

(1) An attorney who prepares or supervises the preparation of the will
(2) A parent, descendant of a parent, or employee of the attorney;
OR
(3) Spouse of someone above listed in (1) or (2)
BUT devise is not void if made to:

(1) Testator’s spouse
(2) Ascendant or descendant of testator
(3) Someone related within the third degree of consanguinity or affinity to testator
(4) A bona fide purchaser for value from a devisee in a will
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Statutory Requirements  “Due Execution”

 After the testator dies, proponent of the will must prove validity of the will,
including “Due Execution”
 Three Basic Components:
o (1) The will must manifest “Testamentary intent”
o (2) Testator must have requisite “testamentary capacity”
o (3) Must comply with requisite “Testamentary formalities”
 Conflict of Law
o Personal Property  law of wherever testator is domiciled/resided
o Real Property  law of state where land is located
(1) Testamentary Intent

 The testator must have intended to:
o Create a revocable disposition of his property to take effect at his death; and
o Express his testamentary wishes in the instrument
 The testator wrote and signed the instrument with the intent to make it a will
 Evidence of intent must appear within the 4 corners of the document, it cannot be
established with extrinsic evidence
 Price v. Huntsman:
o Testator had a will. After she died, a letter was found in her house that was
addressed to her attorney. The letter specified changes to be made to her will
and included money for attorney’s fees.
 Court said the letters did NOT constitute a holographic will even though
it was wholly in her handwriting and signed  no INTENT!
 Although it was clear that testator intended those changes to be made,
the letter was merely a letter of instruction and not a testamentary
instrument
 Under the four corners rule, there is no extrinsic evidence
allowed to determine her intent!
(2) Testamentary Capacity

 Requires showing of requisite Age Requirement
o §251.001  Must be either:
 18 years of age; or
 Is or has been married; or
 Is a member of armed forces of the US
 Requires showing that testator was of sound mind
o Testator had sufficient mental capacity to identify the natural objects of his
bounty (his heirs)
o Testator must have sufficient mental capacity to understand the nature and
extent of his bounty (what makes up his probate estate)
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o Testator must have sufficient mental capacity to put those elements together
in order to make a reasonable disposition of his property
 Does not actually have to make a reasonable disposition, the question is
whether he had the mental capacity to make a reasonable disposition
 Burden is on the proponent of the will to prove by a preponderance of the evidence
that testator had testamentary capacity  TX law does not presume capacity.
 Most agree that “testamentary capacity” is a lower degree required than capacity to
contract.
(3) Must Comply With Statutory Formalities

 Texas is a strict compliance jurisdiction
o The court requires strict compliance with the statutory requirements in
order to uphold the validity of the will
o Even the tiniest defect in formal compliance will void the will, no matter how
much evidence there is that the defect was harmless or unintended.
 Three “Formalities”
o (1) Writing
o (2) Signed by Testator
o (3) UNLESS WHOLLY IN THE TESTATOR’S HANDWRITING, The will must be
attested to by at least two witnesses over the age of 14 and in the testator’s
presence
(1) In Writing
 No such thing as an “oral will”
 Texas legislature has not approved an “electronic will” but we don’t care what it is
written on or with so long as it can be read
o Exception  Braille wills
(2) Signed by the Testator

 Whether it is an attested will or a holographic will, we must have a signature
 “Signature” can be anything the testator intended to be a signature
o Valid signature  A scribble, a “mark”, an X, a thumbprint, so long as these
things were INTENDED to be the signature
o Not valid  If testator begins signing and then for some reason gets
distracted and does not finish, even if it is half the name, it is not a signature
because the testator intended to sign whole name as signature.
 No required location for the signature so long as it was intended
 “Proxy signatures”
o Another can sign for the testator if it is in the testator’s presence and at the
direction of the testator
 Must prove this after death
 Way to prove proxy signature: IN the presence of witnesses, the proxy
asks the testator “would you like me to sign this will on your behalf?”
And the testator must give an affirmative response
23
 Can sign testator’s signature and then “by: Jessica Schwartz at

testator’s direction and in his presence”
Example 1  John Doe’s name in the title of the document does NOT constitute a signature
Example 2  John Doe’s name in the opening paragraph DOES constitute a signature
Example 3  It does not matter if there is no date, unless there are multiple wills, in which
case the latest written will controls.
(3) Attestation (unless wholly in the testator’s handwriting)

 If will is NOT wholly in the testator’s handwriting (§251.052), the will MUST be
attested
o Attestation is a process that is completed after the witnesses affix their
signatures to the will.
o Notarization can NOT serve as attestation in Texas
 Some UPC jurisdictions allow it.
 § 251.051
 Step One
o In Texas, attestation begins with testator’s acknowledgement that the
document is the testator’s
 In Texas there is NO publication requirement, but some jurisdictions
require it
 Publication: Testator declares to witnesses “This is my will”
and must understand what document they are signing.
 Step Two
o Express or implied request for witnesses to be witnesses
 Step Three
o Witness must affix signature to the document, in the presence of the testator
 Witness requirements:
o (1) Witnesses must be credible and over 14 years of age
24
 Does not mean they need to establish trustworthiness in a hearing

 Just means that the individual must be competent enough to testify
under the rules of evidence.
o (2) Witnesses must sign in the testator’s presence
 Two tests:
 (1) Visual presence test
o Testator must have been able to see pen to paper at
time witness signed
 (2) Conscious presence test
o Could testator, using all testator’s sense, reach the
conclusion that signatures took place within his
presence
 In Texas, courts have used both tests and the Supreme Court has not
addressed it yet, so if the issue arises, then it is an issue of advocacy.
o **There is no Texas requirement that witnesses see the testator sign the will.
So there is a proof problem potential, but in practice it doesn’t happen.
o COVID-19 CHANGE - virtual presence probably not gonna work because it
fails either test. If we’re going to have virtual presence, the legislature needs
to cover it.
 What if witness is a beneficiary?

o C/L: this disqualified the witness and the will was void
o TEX under §254.002(a), if the beneficiary signs as witness, the part of the will
bequesting to the beneficiary/witness is void so that the witness can be
treated as a credible witness
 BUT if witness was entitled to have something had testator died
intestate (heir at law), then the witness is entitled to as much as he
would’ve gotten intestate but NOT in excess of what was left in the
will.
o But under §254.002(c), if at least one disinterested and credible person
corroborates witness’ testimony, then the bequest to the witness is not void.
 Can executor named in will act as witness?
o If executor is entitled to statutory compensation, then there is no issue
o But if executor is entitled to more under terms of the will, we treat executor
as a devisee and trigger §254.002 as above.
o You can still attack an executor on the witness stand as not unbiased.
 Good Practice: Get everybody together in one conference room; have the testator
announce “this is my will” and sign it; have testator formally request attestation;
have witnesses affix signatures. Include an attestation clause.
 “Attestation Clause”
o Not required, BUT it is a good idea and commonplace in practice
25
o Purposes:
 Will refresh the memories of witnesses when trying to get the will into
probate
o Appears after the testaotr’s signatures.
 IF the witnesses are not available  the clause serves as a (strong)
rebuttable presumption (not evidence) that proper attestation of the
will took place.
Self Proving Wills

 The issue with wills is always PROOF  How do you prove that all the above steps
happened?
 “Self Proving Affidavit”
o Can serve as PRIMA FACIE evidence of Due Execution:
 Prima facie evidence that testator had capacity
 Prima facie evidence that testator had intent
 Prima facie evidence that testator complied with formalities
o Heirs can still challenge the will, but absent a challenge, the affidavit is
evidence of will’s validity.
o The self proving affidavit is a separate document from the will, although it is
often continuous and on the same piece of paper
 §251.1045  A signature on a self-proving affidavit is considered a
signature to the will if it is necessary in order to prove that the will
was signed by witness and testator
 Can combine execution of will and affidavit for simultaneous execution,
attestation and self-proving.
 Corrected harsh result in Wich v. Fleming
 Self-proving affidavit was on bottom half of last page of will.
Witnesses signed after the affidavit.
o Even though the signatures were on the will, the court
said the will was invalid because the signatures were
only on the affidavit and not the will.
 Today  §251.1045 would say this is Okay
Holographic Wills
 §251.052  A will that is written wholly in the testator’s handwriting does NOT
require attestation by witnesses
o Only a minority of states recognize holographic wills
 Ensuring the handwriting is the testator’s is a fact question
o Can bring in handwriting expert, family, etc., to establish the will is wholly in
the testator’s handwriting
 WHOLLY IN TESTATOR’S HANDWRITING
26
o Some states only require the “material portions” of the will to be in the
testator’s handwriting
o Texas has Strict Compliance and requires the will to be WHOLLY in testator’s
handwriting
o What if there is pre-typed text on an otherwise handwritten will?
 Two tests, but the TX supreme court has not addressed or recognized
either test.
 Intent Test:
o If the testator intended for any part of the
nonhandwriting to be a part of the will, then it is void
 Surplus Test:
o Whatever is not statutorily required for a valid will does
not have to be in testator’s handwriting  No TX
supreme Court case recognizing this test
 Example: If will is written on paper that has the
date printed on it, that would be okay because
the date is not required.
What Actually Constitutes a Will?

 Only the pages admitted to probate constitute the will
 Four Corners Rule: The will is only what is contained within the four corners of the
document
(1) Integration
 Probate court must ensure that documents being presented were the documents
that were on hand when created and have not been changed since
27
 Presumption of integration:
o If there is an internal consistency such as the pages are all numbers, or they
are stapled and the staple has not been removed, or there are sentences
continuing from one page to the nest, or if the witness or testator initialed
each page.
(2) Incorporation By Reference

 The Four Corners rule applies to determine who gets what, when where and how,
BUT today the concept of incorporation by reference is recognized.
 Allows us to refer to extrinsic documents and say that those documents were
intended to be a part of the will
o If testamentary intent is clear, then the extrinsic document attaches to the
will as if it was executed together at the same time
 Requirements:
o (1) Intent to incorporate the writing;
o (2) the writing must have been in existence when the testator executed the
will;
o (3) testator must identify the writing with sufficient speificiity so that no
other document could reasonably be referred to by its description.
 Question of Fact:
o Did the extrinsic document exist at the time the will was executed?
o Is there an explicit reference to the extrinsic document in the will such that
the extrinsic document can be recognized?
o Is there a manifestation of intent to incorporate that extrinsic document?
 Can incorporate a document that is not in the testator’s possession
o Example  can refer to a statute and incorporate it into the will.
 What if the statute changes? Look to state law!
 In Texas, look to testator’s intent to determine whether the
testator intended to incorporate statute as it was at time of
execution or if testator intended to incorporate the statute as it
is when testator dies.
 Examples:
o “I leave Bob all the African coins listed on the appraisal by Coin Collectors,
dated 7/23/09, that is located in my deposit box located at Wells Fargo on 166
Broadway Street.”
 Would meet TX requirements and the list will be incorporated as part
of the will.
o “I leave Ray all the European coins on the appraisal by Coins R Us that is
located in my safe deposit box at Wells Fargo on 166 Broadway Street”
 Questionable because it is missing a date to determine if the list
existed at time the will was executed. What if a new appraisal exists?
28
o “I leave Dylan the South African coins listed in a notebook labeled ‘coins for
Dylan’ which I now keep in a safe deposit box located at Wells Fargo on 166
Broadway Street.
 What did he really intend? The notebook can be changed.
o “I leave Liam all Confederate coins listed in a notebook to be labeled ‘coins for
Liam’”
 Clearly fails because “to be labeled” does not refer to a document that
was in existence at time will was executed
(3) Events of Independent Significance

 Court can look to events or acts outside the four corners of the will to determine
which property goes to which beneficiaries
o Events include births of children, grandchildren, etc.
 Otherwise class gifts would be pointless
 Class designations, future children not yet conceived/born
 We can adequately describe them then use objective facts and
circumstances to identify them.
(4) Memorandum at Death

 States that have adopted the UPC allow testator to draft a memorandum to make
minor changes regarding tangible personal property
o Memorandum is a personal document that you can change easier than a will.
o Only applies to personal property.
 TEX NOT PERMITTED because any testamentary document must comply with
statutory formalities
(5) Pour-Over Will  §254.001

 Testator devises any probate assets to a trust by devising the trustee of an inter
vivos trust.
 Testator may validly devise property to the trustee of an established trust or a trust
to be established
o Wasn’t allowed at Common Law because it looked outside the four corners of
the document because you couldn’t tell who the beneficiaries were in the
document
 But okay today in Texas because there is a valid statute on point
(6) Republication by Codicil

 Common Law Doctrine
 A codicil incorporates all provisions of a former will and republishes it as if the
entire will was executed at the date the codicil was incorporated.
 Will is considered to run form the date of the codicil.
 Remember STRICT COMPLIANCE
29
o Ex: If a man types a will and then years later handwrites a codicil, the effect is
as if the original will is pasted into the codicil
 Therefore, this will would be VOID because it is no longer in the
testator’s handwriting
 The original will is still valid, but the codicil is not incorporated.
REVOCATION
Assuming we have a valid testamentary disposition, between the date of the will’s execution
and the date of the testator’s death, the proponent of the will has the burden of proving non-
revocation.
 This burden is in the negative  Person challenging the will does not have to prove
the will was revoked, the proponent must prove it was NOT revoked.
§253.002 – Revocation of a Will

 A written will, or a clause or devise in a written will, may not be revoked, except by:
o A subsequent will, codicil, or declaration in writing that is executed with like
formalities, or
o By the testator destroying or canceling the same, or
o Causing it to be destroyed or canceled in the testator’s presence
 “Proxy revocation”
 “Like Formalities”
o The subsequent document revoking the will must be executed with like
testamentary formalities
 This does not mean the revoking document must match the
formalities of the will it is revoking
 TX: has held both an attested will can be revoked by a holographic will
and a holographic will can be revoked by an attested document.
 Revocation does NOT need to provide alternate means for disposition, it can simply
revoke and nothing else
30
o Example: In 2000, A makes a will, leaving all to X. In 2010, A makes a document

expressly revoking all prior wills. If revocation is valid, and A dies in 2011, A
has died intestate.
 If testator had multiple original wills:
o The revocation of one is the presumed revocation of all.
o ***NOT GOOD PRACTICE TO HAVE MULTIPLE ORIGINALS
Revocation is a testamentary act, which requires:

 (1) Requisite testamentary capacity
 (2) Evidence of intent to revoke
 (3) Compliance with requisite statutory formalities
(1) Revocation by Subsequent Document

 Texas statute authorizes revocation by a subsequent document
 This is the preferred methodology because we have clear statements of intent in a
written document
o Ex: “I revoke all prior wills”
(2) Revocation by Physical Act

 A sufficient physical act that would indicate intent to revoke
o Example: burning it, shredding it, drawing big black X through it
 Must destroy the original will, it cannot be a photocopy or subsequent copy of the
will. If there were two originals and one is lost, the presumption of revocation
attaches to the not-lost one.
 Must be INTENTIONAL
o Example: If testator’s house burns down and the original will is in the house,
this is not a valid revocation
 Requirements:
o (1) capacity to revoke;
o (2) intent to revoke;
o (3) satisfactory act;
o n(4) at the same time.
(3) Implied Revocation - Revocation by Inconsistency

 Example: O makes a will in 2000, leaving all to X. In 2010, O makes another will that
leaves all property to Y.
o Even though the wills do not have to be dated, the more recent will controls
31
o We would treat this situation as the Y will replacing and revoking the X will.
 Revocation is only as to the inconsistency (see partial revocation)
(4) Partial Revocation - (or an amendment)

 Example: In 2000 testator executed a will that said “All to X” and in 2010, he executed
another will that said “Blackacre to Y”
o We will admit both wills to probate. Both become the will of O, it does not
matter if one is holographic and one is attested because there was no intent
to incorporate the wills
 Blackacre will go to Y and everything else will go to X because the
subsequent will merely amended the other.
 In TEXAS  we do not recognize partial revocation or amendment pursuant to a
physical act
o Example: After due execution, testator gets angry with two beneficiaries, A & C.
He strikes out A&C and inserts two new names.
 We must have a valid subsequent document to do a partial revocation
or amendment.
 Writing in a change does not suffice for “like formalities”
 UNLESS the original will was holographic in form
 If O crosses a line out of a valid holographic will, then TX courts
will still admit the will to probate because these amendments
were executed with like formalities and the will is still wholly
in the testator’s handwriting.
(5) Proxy Revocation

 “Or causing it to be destroyed in the testator’s presence”
 An agent can validly destroy a will for testator so long as the testator intended it to
be destroyed by another and it is in the testator’s presence
o But what does Texas mean by presence? See discussion of presence for
witnesses signing wills.
(6) Mutilation
 Example: After O dies, his family finds an envelope with a torn up will but no other
evidence of what took place.
o Legal presumption  If the will was last known to be in the testator’s
possession and is found mutilated after O’s death, we presume that O
destroyed the will with intent to revoke
 Affects proponent’s burden of proof for proving nonrevocation
(7) Lost Will

 If the will was last known to be in testator’s possession and it cannot be found when
he dies, then there is a presumption that the testator destroyed the will with intent
to revoke.
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(8) Revocation by Changed Circumstances/ by operation of law

 TX Does NOT apply
 Examples: Revocation by marriage (pg 609); revocation by divorce (pg 609)
o Some states say that such a dramatic change of events will revoke the
original will but NOT in Texas
(9) Dependent Relative Revocation

 If it can be proven that the testator was mistaken regarding his/her revocation, then
an older will can still apply
o IF can prove by CLEAR & CONVINCING evidence that testator was acting
under mistake of fact or law
 This is an equitable concept that applies legal fiction
 PURELY CASE LAW concept
 Example:
o O devises all property to his son. O gets word that son was killed while at war
and O revokes will and devises property to veteran’s association. Later O’s
son is found and is ok, but O doesn’t think to revoke bequest to veteran’s
association. If we can prove that O was mistaken about facts when he
revoked first will, the doctrine may apply.
Impact of Revocation
 A will that is validly revoked, cannot be probated
 If the testator does not have an earlier will, testator is treated to have died intestate
 If it is revoked and there is an earlier will, the older will may be probated (but this is
an unlikely result in Texas)
 If specific/general bequests are revoked, they fall into the “residuary estate” and are
distributed to the residuary beneficiaries.
o If there are no residuary beneficiaries, the revoked bequest passes through
intestate.
Revival/Revalidation of a Will
 Reinstatement of an old will that was previously revoked.
 Example: In 2000 O executes will devising everything to A. In 2010 O executes a new
will devising everything to B. In 2014 O destroys the 2010 will with intent to revoke.
Does 2000 will get revived, or does property pass by intestate succession?
o Different approaches:
 (1) Common Law:
 This is the purist approach.
 The 2010 will did not revoke the 2000 will because the 2010
will was revoked in 2014, so there was never a revocation of
the 2000 will
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 Recognizes the ambulatory nature of wills. They don’t become

effective until testator’s death.
 (2) Ecclesiastical View TX/MAJ
 Focus on testator’s intent!
 In 2010, testator intended to give nothing to A, and everything
B. So we aren’t going to give anything to A unless A is an heir
and it will pass to him intestate.
 Once revoked, always revoked!
 (3) Hybrid
 Did the 2010 will expressly or impliedly revoke the 2000 will?
o If there is EXPRESS revocation in the 2010 will, then
follow Ecclesiastical view and assume O intended to not
give anything to A
o If there is IMPLIED revocation because of an
inconsistent disposition, then we follow Common Law
and the estate would go to A.
 In TEXAS  Ecclesiastical, UNLESS legislature passes a statute on
point
 Once revoked, ALWAYS revoked regardless of if earlier
document was revoked impliedly or expressly.
 If O wanted the estate to go to A again after revoking the 2010
will, O would need to start over and draft a new document
leaving everything to A without incorporating the earlier
document
 IF O spent a lot of time and money preparing the 2000 will, he
can republish it in 2014 or create a codicil incorporating the
2000 document
o NOTE: IF 2000 will is holographic, the codicil must be
holographic and if will is attested, the codicil must be
attested.
 If O is on his deathbed and wants to reinstate a long complicated will he had
executed earlier but later revoked, the best option would be to re-execute the will by
having O re-sign the original documents, get witnesses for attestation, etc.
o In this scenario though, the likely contested issue will be capacity.
 Good Practice
o Just write a new will, even if complex and expensive.
o (short cut) Republication by incorporating the old will
§253.001  Court may not prohibit changing a will

 Historically, while a divorce was pending, the family court would issue an order
prohibiting parties from changing their will.
o But this goes against freedom of disposition!
 So, legislature enacted §253.001:
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o A court may NOT prohibit a person from executing a will or codicil to an

existing will
o Any portion of a court order that purports to do so is void!
§254.004 – Contracts concerning wills or devises

 A contract entered into on or after 9/1/79, agreeing to make a will or devise, or
agreeing not to revoke a will or devise, may be established only by:
o A written agreement that is binding and enforceable
o OR
o A will stating that:
 The contract exists;
 AND
 The material provisions of the contract
 A testator always has freedom and ability to revoke/execute/alter a will. BUT, if
there is an agreement under §254.004, the violating party may suffer
contract/monetary damages.
Review of Topics 4 and 5
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(1) A holographic will. (Jx dependent) Proponent must prove it was in the handwriting of the testator,
his signature, and due execution (capacity, intent, formalities) and non-revocation.
(2) VOID. Will not be admitted to probate because it is not attested to and not wholly in the
handwriting of the testator.
(3) Proponent must show due execution (capacity, intent, formalities), proof of proper attestation (T’s
acknowledgement of his will, request, & witnesses signed in T’s presence), and non-revocation.
(4) The attestation clause creates a rebuttable presumption that proper attestation of the will happened
IF the witnesses aren’t available to testify. If the witnesses are available, the clause works to
trigger their memories. Proponent must show due execution (capacity, intent, formalities), proof of
proper attestation, and non-revocation.
(5) Signatures under the self-proving affidavit are not a part of the will. However §251.1045 allows
those signatures to become part of the will, but no longer part of the self-proving affidavit. The
self-proving affidavit is no longer valid, but the will is attested to. Proponent must still show due
execution (capacity, intent, formalities), proof of proper attestation, and non-revocation.
(6) This is what one hopes to see. The attestation clause creates a rebuttable presumption that proper
attestation of the will happened IF the witnesses aren’t available OR serves to trigger their
memory. Because the will is validly executed and the self-proving affidavit is also validly
executed, the self-proving affidavit is prima facie evidence of due execution (capacity, intent,
formalities). The only left for the proponent to prove is non-revocation, that O did die, and that the
court has jurisdiction by showing O was resident of TX or had real property in TX.
PROBATE, CONTEST & ADMINISTRATION
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§256.001  a will is not effective until probated

 §256.002  cannot probate will until testator dies.
o On O’s death, a will is worthless until a court of competent jurisdiction and
venue admits the will to probate.
 (Compare to intestacy period, where vesting in heirs takes place at O’s
death as a matter of law)
Application Hearing
Proponent files an application to Proponent schedules a
probate the will within 4 years of Hearing. (Earliest is the Independent
O’s death first Monday after
passage of 10 days from
posting notice)
PR
Dependent
---120 hours---
O’s Death Notice Order

Sheriff posts notice on If proponent meets the burden,
the courthouse door for court enters order, divesting
(1) the heirs – IN REM heirs & vesting beneficiaries Date of Death
 No will is effectual
until (1) the testator
dies; AND (2) a court of proper jurisdiction and venue
Muniment
enters the will into probate.
of Title
(2) Application - §256.003
 (a) Proponent must file an application to probate the will within 4 years of the
decedent’s death
 (c) A purchaser who for value, and in good faith, without knowledge of the existence
of a will, purchasers from a decedent’s heirs after the fourth anniversary of the
decedent’s death shall be held to have good title to the interest that the heirs would
have had in the absence of a will.
 Proponent files the application with the county clerk in whatever county O died.
o County clerk will assign the proper probate court and will notify the sheriff
(3) Notice
 Notice in Texas is simply posting notice of the application to admit O’s will to
probate on the courthouse door
 This satisfies due process because it is an in rem proceeding
o Real property may be heard in state it is located
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o Personal property may be heard where O is domiciled

 The heirs do not need ACTUAL notice because it is not in personam, but some states
do require actual notice.
(4) Hearing
 Proponent can schedule a hearing on probate of a will
 The earliest that the hearing can be scheduled is the first Monday after 10 days have
passed since the notice was posted on courthouse door
 At the hearing, the proponent has the burden of proof to “prove up” the will and
show:
o (1) O is dead
o (2) This court has jurisdiction and venue
o (3) Due Execution
 Capacity
 Intent
 Formalities
o (4) Non Revocation
o (5) That 4 years have not elapsed since O’s death
o (6) Sheriff issues notice and requisite time has passed
 Prior to the hearing, the heirs can file a will contest, but they usually do not show up
because they have no ACTUAL notice that they are being divested of what they are
inheriting.
(5) Order
 If proponent succeeds in meeting burden, then the court will issue order admitting
the will to probate.
 The court will then do one of two things:
o (1) The court will appoint a Personal Representative
 Could be executor named under the will or could be an administrator
appointed by the court
OR
o (2) If there is no need for formal administration, the court will admit the will
to probate as a muniment of title.
 §257.102  if will is admitted as muniment of title, it serves as telling
the world that the chain of title is good and the beneficiaries hold true
title.
 §257.103  Within 180 days of admitting will to probate as
muniment of title, the PR must file a sworn affidavit stating which
terms of the will have been fulfilled and which have not.
 Essentially tells the world “From now on, anything regarding this
property must be dealt with through the devisee.”
 If the court follows option (1) and decides there is a need for formal administration
and appoints a PR:
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o Executor  PR names in the will who has not been disqualified for any
reason
 Has powers given by probate code AND any additional powers given
by testator in the will
o Administrator  If there is no executor in the will, the court will appoint an
administrator
 Only has powers given by probate code
o PR’s Responsibilities in the Code:
 (1) Marshalls the assets
 Identifies the assets
 Satisfies the debts & other obligations of the decedent
 Delivers what is left over to devisees
 (2) Fiduciary
 Holds the assets in a trust for the beneficiaries and is held
accountable
 May take months or years to formally administer the estate
 The court can then decide whether:
o (1) Dependent administration
 Court supervised administration and PR has to do everything in
probate court with hearings, evidence, etc.
 Much more time consuming and costly.
o (2) Independent, non-intervention, or informal administration
 First state was TEX, but now several follow this.
 PR administers the estate independent of the probate court
 PR must prepare an inventory and list of claims for estate
 No longer any need for court involvement
 Heirs/devisees can ask for this if it is not specified in the will
 Saves a lot of time and money. This is usually what the family
wants!
SEE WILL & NOTES ON PAGE 123 OF SUPPLEMENT!!!!!!!
WILL CONTESTS
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Pre-probate Post-probate
Defined Before an order admitting a will A will may be contested within 2 years
to probate is issued, heirs at law after it has been admitted to probate
or beneficiaries of an earlier will
have standing to contest the will
(called contestants)
General  Suit to set aside an already probated
 An in rem proceeding will
 No necessary parties  Beneficiaries named in the will are
necessary parties
Burden of Proponent of the will has the
Proof essential burden of proof (~) Contestant has burden of proof on all
*Contestant can raise affirmative issues
defenses to disprove validity
Based on preponderance of the evidence, is there a valid, duly executed, unrevoked will?
Is this setting aside an already probated will?
Same issues either way: testator dead, jx/venue, due execution, non-revocation.
Real diference: who has the burden of proof?
Post-Prob (256.204), Ct already admitted/divested/vested, BO(neg)P on contestant
Theories for Contesting a will:

 Contesting Validity:
o (1) Lack of proper Execution
o (2) Lack of Testamentary Intent
 There must be evidence that the testator intended this document to
be a revocable disposition of his property effective at death
o (3) Lack of Testamentary Capacity
 Testator must be of sound mind on the day the will was executed ((a)
understands who the natural objects of his bounty are; (b) that he is
making a will; (c) the extent of his property)
 NOT under the influence of an insane delusion
 If contestant argues delusion, he must prove there is a connection
between the delusion and the testator’s bequest.
 Affirmative Defenses: (proof of these theories NEGATES testamentary INTENT)
o (4) Undue Influence
 Contestant must prove: (1) existence and exertion of an influence; (2)
that the influence subverted or overpowered the testator’s mind at
the time of execution; (3) the testator would not have made the same
execution but for the influence
 A rebuttable presumption of undue influence arises when a
beneficiary under a will (1) occupies a confidential relationship with
the testator, (2) is not the natural object of testator’s bounty, and (3)
40
takes an active part in the planning, preparation, or execution of the

will
 Confidential relationship must be strong enough to allow
beneficiary to overpower the will of the testator
o (5) Fraud
 A transfer is procured by fraud when the wrongdoer knowingly or
recklessly makes a false representation about a material fact with the
intent of leading testator to make the transfer the testator otherwise
would not have made
o (6) Duress
 A transfer is procured by duress if someone threatens to or actually
does something to coerce testator into making the bequest (defeats
intent)
In Texas, there are two kinds of “will contests”:

 (1) True will contest  “Pre-probate contest”
o The heirs/disappointed party initiates in rem litigation before court admits
the will to probate
o Proponent still has burden of proof to show:
 O is Dead
 Court has proper jurisdiction and venue
 Due Execution
 Non Revocation
o Contestant has burden of proof on “affirmative defenses:”
 For affirmative defenses, even it the proponent proves everything, the
will is still invalid if the contestant pleads AND proves any of the
following:
 (1) Undue Influence
 (2) Fraud or Duress
 (2) Post-probate Challenge (due process for heirs)
o This is a suit to set aside an already probated will pursuant to §256.204
 After the will is admitted to probate, there is a 2 year statute of
limitations to contest the validity.
 BUT, if fraud/forgery is discovered, then the statute of limitations to
contest the validity is 2 years from the date the fraud/forgery was
discovered.
 If a person is incapacitated, can contest the will validity within 2 years
after the disability is lifted
o Contestant has burden of proof on all issues
 Constructive Trust
o An equitable remedy that the court can create when there is a wrong
41
o In this case, the intended beneficiary/devisee who did the wrong will not get
the estate. Instead, he will be a constructive trustee and will be forced to
assign/convey property back to the constructive beneficiary
42
Four Basic Scenarios:
B= Bad Actor T = Testator H= T’s Heir
Scenario #1:
Before T died, B, through fraud, duress or undue influence, forced T to execute a will
leaving everything to B. The will was holographic and T had testamentary capacity
at the time of its execution.
 NOT A VALID WILL.
 Proof of fraud, duress or undue influence destroys the requirement of
testamentary intent.
 In this case, we will go outside the 4 corners of the document and use
extrinsic evidence to prove that there was no intent.
Scenario #2:
(H is now the bad actor and heir) T has duly executed a valid will leaving everything
to his. H holds a gun to T’s head and forces him to tear up the will and flush it down
the toilet.
 We still have a VALID will because proof of duress also destroys the
requisite intent element to have a valid revocation.
Scenario #3:
T draws up a will leaving everything to his neighbor. H prevents T from signing the
will.
 NOT a valid will because there is not signature.
 Here, T had capacity and intent but he did not comply with the formalities
and thus, T died intestate.
 HOWEVER we can look to the court of equity to create a constructive trust
and prevent H from unjust enrichment.
o H cannot get estate. H will be a constructive trustee and will be
forced to assign and convey the property back to the neighbor, the
constructive beneficiary.
Scenario #4:
T has duly executed a will leaving all to B. B learns T plans on revoking the will and
choose to die intestate, leaving all to H. B prevents T from destroying the will.
 This is a VALID will
 H can ask the court to impose a constructive trust, then it will be B’s duty, as
the constructive trustee to assign/convey the property back to H, the
constructive beneficiary.
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Forfeiture Clauses/Interorum Clauses:

 Language in the will that says if any beneficiary of the will challenges the will, then
provisions of the will in favor of that beneficiary are null and void. Strike terror.
o It is common for beneficiaries to challenge wills when they are heirs and got
less under the will than they would have been entitled to had the decedent
died intestate.
 §254.005 – Forfeiture Clause
o A provision in a will that would cause a forfeiture of or void a devise or
provision in favor of a person for bringing court action, including contesting
a will, is enforceable unless the person who brought the action establishes by
a preponderance of the evidence that:
 (1) Just cause existed for bringing the action
AND
 (2) The action was brought and maintained in good faith.
Voiding Marriage - §123.001

 If, after the testator makes a will, the testator’s marriage is dissolved by divorce,
annulment, or a declaration that the marriage is void, all provisions in the will,
including all fiduciary appointments, shall be read as if the former spouse and each
relative of the former spouse who is not also a relative of the testator, failed to
survive the testator
o Unless the will expressly provides otherwise
Temporary Administration - §452.001

 A judge who determines that decedent’s estate immediately requires a PR, may
issue a court order appointing a temporary administrator
 This is common in the event of a pre-probate contest
o Common for judge to appoint a third party (often a bank) to begin satisfying
the estate’s debts, pending the outcome of the will contest
o Typically no temporary administrators in post probate contests, because
whoever was appointed PR at probate will just continue as the PR during the
contest
Tortious Interference with Inheritance Rights

 TEXAS does NOT recognize this tort.
 A person who—by undue influence, duress, fraud, or other tortious conduct—
causes a decedent to divert property from one who would otherwise have received
it through gift, devise, or intestate succession may be liable for damages in tort for
wrongful interference with inheritance gift.
o Ex: Anna Nicole filed tortious interference when all else failed. She claimed
that her husband had orally promised to leave her half of his estate and
44
proceeded against her stepson for tortious interference with her expectancy
of an inter vivos gift.
 Sometimes a disappointed heir will file suit against a favored beneficiary and allege
that the beneficiary committed a tort interfering with heir’s inheritance rights
o This is a new tort that has recently developed through case law and has not
yet been codified by statute.
Family Agreements
 If there is a true pre/post probate contest, with or without tortious interference,
most of the time parties reach an agreement before going through litigation
 Many of the times, the settlement includes an agreement to not probate the will,
deciding how to divide up the property without following instructions in the will.
o So, if O goes through time and money to make the will, families often still end
up deciding how the property is divided up anyways.
 The testator may try to avoid this reality by naming a charity or
someone outside the family as a devisee, so that they will fight to get
the will probated.
 Charities are less likely to go against their donor’s wishes
“Death Tax”
 There is no such thing as a governmental entity imposing tax on the event of death
 In the United States, we have an estate tax or an inheritance Tax; a state may have
one or the other, neither or both.
o Federal level: Only have a US estate Tax
 Only really wealthy need to worry about this because the Internal
Revenue Code gives everyone an estate tax exemption up to
$5,340,000
 If you do die in Texas with $5,340,000, the PR is responsible
for paying the federal estate tax
 Prior to 1987 it was treated as a debt but now we have state
tax apportionment
o Texas: neither state nor inheritance tax
 (1) Estate Tax
o Excised tax on the decedent’s privilege of transferring property at death
 (2) Inheritance Tax
o Excised tax imposed on the recipient’s privilege of receiving the inheritance
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Interpreting the Will/Rules of Construction

*A well drafted will avoids any kind of interpretation construction because testator’s
intent is clearly stated in the will.
General Rule  Statutory rule (or case law rules) that are applied unless the testator
provides evidence of contrary intent within the 4 corners of the will admitted to probate
 Cannot go outside 4 corners of will to ascertain intent, UNLESS:
o (1) Incorporation by reference
o (2) Facts of independent significance
o (3) If the terms of the document are ambiguous, the courts will admit
extrinsic evidence to determine ambiguity
Interpretation Construction
Question of Fact Question of law

Process of determining testator’s actual intent Rules of construction are rules of law
 4 corners rule: intent must be evident from used by the court when testator’s
four corners of the will actual intent cannot be ascertained
 Extrinsic evidence generally not admissible using rules of evidence
UNLESS:  These are default rules so court
(1)Incorporation by reference can pronounce testator’s
(2)Events of independent significance deemed intent
(3)Ambiguity in the will  These are rules of law that
“deem” testator’s intent. Actual
intent always overrides deemed
intent.
Interpretation (Testator’s Intent v. Rules of Construction)

 Interpretation involves making a determination of the testator’s actual intent. The
testator’s intent is a question of fact that must be ascertained within the four
corners of the document.
o Of course, exceptions exist where extrinsic evidence may be used (See supra
Incorporation by Reference; Facts of Independent Significance)
 When actual intent cannot be ascertained, the rules of construction may be used to
determine the presumed intent of the testator. These are legal principles used as
default rules
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Pretermission
 A pretermitted child is one who is born or adopted during the testator’s lifetime or
after his death, AND after the execution of the testator’s will. (TEC § 255.051)
 §255.052 (TEC) Applicability & Construction
o (a) §255.053 & .054 apply only to a pretermitted child who is not:
 (1) Mentioned in the testator’s will
 (2) Provided for in the testator’s will; OR
 (2) Otherwise provided for by the testator
o (b) A child is provided for or a provision is made for a child if a disposition of
property to or for the benefit of the pretermitted child, whether vested or
contingent is made:
 (1) In the testator’s will, including a devise to a trustee under
§254.001; OR
 (2) Outside the testator’s will and is intended to take effect at the
testator’s death
 Consequences of Pretermitted Children (Depends on Facts and statute state by
state):
o If other children at time of will execution and they are not provided for in the
will, then the pretermitted child gets everything he would be entitled to
through intestacy. (TEC § 201.053)
o If other children at time of will execution and they are provided for in the
will, then the pretermitted gets a devise of the same character as the other
children. (TEC § 201.053)
o If no other children at time of will execution and they are not provided for in
the will, then the pretermitted child gets everything he would be entitled to
through intestacy. (TEC § 201.054)
 Can eliminate pretermission with a clause in will:
o EX: “The term ‘my children’ as used herein shall also include any children who
may hereafter be born or adopted by my wife and me and no others.”
Classification of Devises
 Specific – Disposition of a specifically described asset.
o Contents (TEC § 255.001) – Tangible personal property, other than titled
personal property, found inside of or on a specifically devised item.
o Use the “strict identity” test: What was the identity of the devise within the
four corners of the document?
 E.g. “my home at the time of death to Lulu” would not devise any
contents inside the home to Lulu because no specific mention of
contents within the devise.
 General – disposition of a specified amount of money or quantity of property;
payable from the general assets of the estate.
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 Demonstrative – disposition of a specified amount of money or quantity of

property, that is primarily payable from a designated source, but is secondarily
payable from the general assets of the estate to the extent that the primary source is
insufficient.
 Residuary – a disposition of property of the testator’s net probate estate not
disposed by a specific, general, or demonstrative devise.
Classification of Devises
Specific Devise General Devise Residuary Devise
A specified amount of Everything (net probate

A specifically identified money or quantity of estate) not specifically
asset property that is payable disposed of by a devise
from the general assets of
Ecample: A house, my 1995 the estate Everything else!
ford, a box of baseball cards
Example: “ I leave B
$100,000”
GR: As of T’s death, the A general beneficiary has Typically, this is the largest
designated beneficiary a claim the estate that can testamentary gift
owns that asset be satisfied from the
general assets of the
estate
Devisee receives all post- (If $ devise) Gives devisee All other income
death income generated a claim to the amount of generated by the estate
by the specific devise the gift – interest begins goes to the residuary
accruing at first
anniversary of testator’s
death (at this point,
interest is due to devisee)
Ademption by extinction Ademption by satisfaction Ademption by satisfaction
Survival
 At probate of sill, heirs are divested and beneficiaries are vested
 Relation back theory acts to vest beneficiaries as if they had ownership/title at time
of O’s Death
 Default rule: Beneficiary must survive the testator by 120 hours
o If beneficiary does not survive testator by 120 hours, he will be deemed to
have died before the testator.
48
o Often testator’s will specify in their will that they require survivorship for
longer than 120 hours
o If the will just says “to A if A survives me”  then that trumps the 120 hour
rule and A must only survive testator by a moment in time
Lapse
 DEAD GUYS CANNOT INHERIT [THIS WILL BE ON THE EXAM]
 If you die before the testator, or if you are deemed to have died before the testator,
then you cannot take under the will.
o If devisee predeceases the testator, the gift to that devisee has lapsed, and it
simply fails, it is void. It becomes a nullity.
o A testamentary gift to a benefiary who predeceases the testator lapses.
 O’s will: I devise BA to my children, A, B, and C. I devise my residuary estate to
Baylor. B predecesases O, survived by B’s two children (b1/b2) with a will leaving
everything to his wife.
o Gift to B lapsed.
o No representation in the law of wills like intestate succession. b1/b2 don’t
step into B’s shoes.
o A get his 1/3, C get his 1/3, the last 1/3 (would have been B’s) goes to Baylor.
o (If O said, “I devise BA to my children if they survive me” then B’s 1/3 goes to
Baylor and will not be saved by anti-lapse. O expressed an intent.)
Anti Lapse - §255.151-.154

 Under certain limited circumstances, the statute provides for a “substituted taker:
o Still, testamentary gift as to the dead guy has LAPSED; there just may be a
substitute taker.
 A devise stating “to all my children” or “to such of my children as shall survive me”
PREVENTS application of §255.153 & 255.154
 §255.152:
o (a) If a devise, other than a residuary devise, fails for any reason, the devise
becomes a part of the residuary estate
o (b) If the residuary is devised to two or more people, and the share of one
devisee fails for any reason, that residuary’s share goes to the other
residuary devisee
o (c) Except as provided in 255.153 & 255.154, the residuary passes as if the
testate had died intestate if all the residuary devisees:
 (1) Are deceased at time of testator’s death
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 (2) Fail to survive the testator;

OR
 (3) Are treated as if they predeceased the testator.
 §255.153:
o If a devisee who is a descendant of the testator or a descendant of testator’s
parent predeceases testator, the descendants of that devisee who survive the
testator by 120 hours take the devised property in place of the original
devisee
 This is a rule of construction (applies unless will provides otherwise)
 This rule does not apply to construction of a life insurance policy or
retirement plan – ONLY wills
 §255.154:
o A person who would have been a devisee under a class gift if the person
survived the testator is treated as a devisee unless the person died before the
date the will was executed.
 Class gift devisee is treated as having survived the testator so long as
they were alive when the will was executed.
 MAJORITY/TEXAS - anti lapse statute applies to class gifts

 MINORITY - anti lapse statute does not apply to class gifts (B 1/3 goes to Baylor)
o Because theoretically the gift never applied to a predeceased beneficiary
HYPO: (T is A’s dad, and G is A’s son/T’s grandchild) T recently died in an auto accident. A & G
were with him and died. G survived by 24 hours and A survived by 4 days. T left a gift “to A, B
& C”
 ** NOTE: Devisee must survive the testator by 120 hours under §121.101 unless will
provides for the contrary
 Both A & G are deemed to predecease the testator
o A is NOT a devisee because he died 96 hours after T. A has died with a mere
expectancy and gift as to A has lapsed
What is T left “$100k to my grandchildren who survive me”

 G can inherit even though he is dead because “survives me” is interpreted by an
instant of time. The gift to G did not lapse in this scenario
o G’s share of the $100k will go to his heirs/devisees
Fractional Gifts
 General Rule: When a gift to two or more persons lapses as to one beneficiary, the
dead beneficiary’s share passes to the residuary
o Ex: “I devise blackacre to A, B and C, and residuary to Baylor”
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 Specific devise to 3 or more children is treated as a fractional gift. We

presume each gets 1/3 of blackacre.
 Assume A predeceases Testator
o Gift to A has lapsed. DEAD GUYS CANNOT INHERIT.
o No part of blackacre ever became A’s property
o Statute says we will substitute little a (A’s heir) as
devisee of A’s share at date of O’s death
 Assume A & B predecease Testator
o A & B’s gift’s both lapse. Little a will get A’s 1/3, C will
get 1/3, and since B has no descendants, B’s 1/3 will go
to Baylor.
o Ex: “I devise blackacre to my children, rest to Baylor”
 Here we will use facts of independent significance to use extrinsic
evidence and identify O’s children at date of O’s death.
 This is a “class gift”  trigger §255.154
 As long as there is a surviving member of the class, or a substitute,
there is no lapse to the residuary
Accessions/Accretions
 Increases and additions to a testamentary gift between Date of Execution and Date
of Death
 Between the Date of execution and date of death  beneficiary is not entitled to
anything
o Ex: Will gives blackacre to A. Before O’s death, A does not get any rental
income.
 BUT if specific devise  devisee is entitled to the specific property
and any post-death income generated by the specific devise
 If general devise  devisee is entitled to the general devise and
interest to gift at legal rate beginning on anniversary of testator’s
death
 Any and all income generated by the estate (besides exceptions for specific and
general devises) goes to the residuary estate
Ademption by Extinction – T no longer owns the specific devise specified in the will
 Only applies to specific devises
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 TX follows the “strict identity test”  A specific devise can only be satisfied by the
item devised.
o A gift is “adeemed by extinction” (fails) if it no longer exists; A new gift
should not be substituted for the failed gift
 But a mere change of name is only a technical change, not a
substantive change
 Ex: “I leave all my Exon stock to A, rest to B”
o In 2014, Exon merged with Mobile & is now Exon-
Mobile…Exon stock no longer exists
 §255.252 Exception: Special treatment of stocks
o “A devise of securities that are owned by the T at Date of Execution of the will
includes the following additional securities subsequently acquired by the T
as a result of the T’s ownership of the devised securities:
 (1) Securities of the same organization - Stock splits, stock
dividends, and new issues of stock acquired in reorganization,
redemption, or exchange
 NOT – securities acquired through exercise of purchase
options or “reinvestment”
 (2) Securities of another organization acquired through MERGER,
consolidation, reorganization, or other distribution by the org or any
successor
 Ex: Exon merged and became Exon-Mobile
o §255.252 – Cash Distribution NOT included in Devise

 UNLESS will clearly provides otherwise, a devise of securities does
NOT include a “cash distribution relating to the securities and
accruing BEFORE death”
o Dividends before O’s death do not go to beneficiary, but
dividends after O’s death do.
Ademption by satisfaction
 Applies to general and residuary gifts
 Property given to a person during the lifetime is a satisfaction of a devise if:
o Will specifically provides so; OR
o Testator declares in a contemporaneous writing that the gift is to be
deducted or is in satisfaction; OR
o The devisee acknowledges in writing that he lifetime is in satisfaction of the
devise
 Same thing as advancement
Exoneration
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 Hypo: At O’s death, blackacre has a FMV of $1 million. After the execution of the will, O
borrowed $500,000 to build a home on blackacre. At time of O’s death, blackacre is
still security for that loan.
o Does blackacre pass subject to the debt or free of the debt?
 At common law, specific devisee has a right to exoneration
o If a specific devise does not instruct personal rep to pay off
debts/mortgages, silence implies that PR should do so before giving property
to the devisee
o Presume that the specific devise takes property free & clear of debt
 §255.301 No right to exoneration
o “A specific devise passes to the devisee subject to each debt secured by the
property that exists on the date of testator’s death, and the devisee has no
right to exoneration from the testator’s estate for payment of the debt.”
 Reversed common law presumption of exoneration
 Testator can always specify that the specific devise passes free & clear
of debt, but if it is silent, the statute says it passes subject to the debt.
 **Wills executed BEFORE 9/1/05 still follow common law rule of exonerations,
which pays the debt out of the residuary before passing specific devise to the
devisee.
 If Testator’s will says “I devise BA to my nephew subject to any and all debts
secured by BA,” tesator’s stated intent prevails regardless of C/L or statutory rule.
Statutory Abatement
 Specifies which bequests will be reduced or eliminated to pay off debts and what
order this will happen.
 The debts that executor is obligated to pay at O’s death is governed by §355.109
(default rule of construction):
o Debts are paid in the following order:
 (1) Property not disposed of in the will, but passing by intestacy
 (2) Personal property of the residuary Estate
 (3) Real property of the residuary estate
 (4) General bequests of personal property
 (5) General devises of real property
 (6) Specific bequests of personal property
 (7) Specific devises of real property
****Apportionment…
TEX. statutory rule of construction
Recipients of taxable estate bears his or her pro rata share of the estate tax liability.
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Powers of Appointment [NOT ON EXAM]

 “I give a Life Estate to A, remainder to whoever A appoints in his will, and if no
appointment, then to Baylor.
o In this instance, O is delegating the power of appointment to A. A has power
to designate who gets the future interest.
o A must make a specific reference to the power or some other indication that
A intended to include the remainder
 If A dies and says “I leave everything to my children.”
 This is NOT enough to exercise the power of appointment and
the remainder from O will go to Baylor
 Must say something like, “Pursuant to my Power O provided in
his will, I leave the remainder of my life estate from O to my
children.”
Disclaimer
 Heirs can renounce, devisees can disclaim a bequest
 Disclaimer is effective as of testator’s date of death and is not subject to claims of
any creditor
 A disclaimer must be done within 9 months of decedent’s DOD
 Devisee must disclaim before accepting any benefit
 Children of disclaimant can still take property
 Effect of valid disclaimer:
o Disclaimant is treated as predeceasing O, as in §122.101
BUT, IF MARRIED….
Pursuant to the Texas Consitution, a marriage in Texas is between one man & one woman. No
other similar relationships are recognized, the couple is married or they aren’t.
Community Property v. Separate Property

 In this area of law, rules vary dramatically from state to state, but can be divided
into two categories:
 (1) Common Law states
o Origins in common law of England
o Marriage relationship is a family law issue
 (2) Community property States
o Marriage is inherently a part of property law AND famliy law.
o Origins in Civil Law of Europe
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o LA, TX, NM, AZ, NV, CA, WA, ID, WI (wisconsin adopted 30 years ago, not true
community property state.)
 Origins tie to France (LA) or Mexico & Spain
 Exception is WA & ID but they are community property states
because of the timber industry. The industry thought adopting
community property would give women a reason to move
northwest and marry the lumberjacks.
Presumptions
 Presumption of community property:
o Property possessed by either spouse during marriage and upon dissolution is
presumed to be community property
 Presumption can be overcome by clear and convincing evidence
that property is actually separate property
 Presumption of sole management:
o If an asset is held in one spouse’s name
§3.001 Tex. Family Code (TFC)– Separate Property

 A spouses separate property consists of:
o (1) The property owned or claimed by the spouse before marriage
o (2) The property acquired by the spouse during marriage by gift, devise,
or descent
o (3) Recovery for personal injuries sustained by the spouse during marriage,
except any recovery for loss of earning capacity during marriage
 If property is estbalished to be separate proeprty, then that spouse is the ture owner
holding both legal and equitable title.
§3.002 TFC – Community Property

 Any property that is not established to be separate proeprty by clear and convincing
evidence, that is acquired by either spouse during marriage. Uncluding:
o Income from separate property
o Wages
o Interests, dividends, rental income.
 Texas is uniwue because we have THREE categories of community property:
o (1) Community Property subject to sole management, control and disposition
of husband
 Husband’s Special community property
o (2) Community Property subject to sole management, control and disposition
of Wife
 Wife’s special community property
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o (3) Joint Community Property

 Any decisions affecting joint community proeprty requires joinder of
the other spouse
 Exception: Joint Bank Accounts
o These are joint community property, but both spouses
have agreed and given permission that either spouse
can make decisions without the other
o For example, either spouse can sign a check drawing
from the joint account without the other spouses
permission or signature.
§3.003 TFC– Presumption of Community Property

 All property of a marriage, whether in husband’s name, wife’s name or both, is
presumptively community property
o True during the existence of marriage and at death, whether settled in
divorce court or probate court.
 (b) To establish property is separate property, the burden of proof is clear and
convincing evidence.
 Each spouse has a undivided ½ interest in every item of community proeprty
o Spouses are co-owners of community property, not tenants in common.
 If legal title is only in one spouse, the other spouse still has equitable title.
Management, Control and Disposition of Marital Property

 Prior to the matrimonial act of 1967, a woman technically suffered “disabilities of
coverture” which meant that married women had a disability and cound not manage
property or enter contracts
o In 1967, Texas finally put husband and wife on equal managing roles.
 §1.104 TFC – Any married persion (male or female) has capacity and power of an
adult, including power to contract
§3.101 TFC – Managing Separate Property

 Each spouse has sole management, control, and disposition of that spouse’s separate
property
 Homestead exception:
 Neither spouse may sell, convey, or encumber the homestead without the
joinder of the other spouse. (Regardless if dealing with BFP)
 In the case of an incapacitated spouse…
o If homestead is SP, owner may sell homestead without joinder
o If homestead is CP, other spouse may sell homestead without joinder
§3.102 TFC – Managing Community Property
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 During marriage, each spouse has the sole management, control, and disposition of
the community property that the spouse would have owned if single, including:
o (1) Personal earnings (paychecks, wages, salary, etc)
o (2) Revenue from separate property (ex. stock dividends spouse brought into
the marriage)
o (3) Recoveries for personal injuries
o (4) The increase and mutations of, and the revenue from, all property subject
to the spouse’s sole management, control and disposition
 Mixed or combined community property is subject to joint management
o Ex: Depositing separate paychecks into a joint bank account
 Community property is subject to the joint management of the spouses unless the
spouses provide otherwise by power of attorney in writing or other
agreement
o Note: All transactions require joinder of both spouses - a unilateral transaction
by only one spouse is void (no virtual representation)
 Rule: In managing Special Community Property, spouse has a fiduciary duty to
the other spouse not to commit actual or constructive fraud
o Husband and wife assume fiduciary roles for one another.
 Like the fiduciary relationship between PR & beneficiaries or
Guardian & ward
 A spouse can give away/spend special community property so long as it was not
“FRAUD ON THE COMMUNITY”
o Actual fraud: requires proof that the gift was made with primary purpose of
intentionally depriving spouse from having the use and enjoyment of assets
of the property
 Spouse claiming fraud has burden to prove fraud
o Constructive fraud: a gift that is unfair to the other spouse will be set aside.
Factors to consider in identifying constructive Fraud:
 (1) Size of the gift in relation to the total size of community estate
 (2) Adequacy of the estate remaining to support the spouse in spite of
the gift
 (3) Consider relationship of the donor to donee
 Ex: father giving gifts to kids is probably fair, but a husband
giving gifts to his girlfriend is probably not.
 Timing also matters (ex. right before divorce)
o It is the burden of the spouse making the gift to show that the gift is fair
 We start with the presumption that gifts are legit, but the other
spouse may allege fraud on the community. Then the accused spouse
has the burden to prove that the gift/transaction was fair.
 Fraud issues are raised on dissolution of the marriage, whether by death or divorce,
to figure out if gifts/transactions one spouse with sole management made dduring
the marriage are fair.
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§3.104 TFC – Third Parties

 A third person dealing with a spouse is entitled to rely, as against the other spouse
or anyone claiming from that spouse, on that spouse’s authority to deal with the
property if:
o (1) the property is presumed to be subject to sole management AND
o (2) the person dealing with the spouse
 (a) is not a party to a fraud on the other spouse AND
 (b) does not have actual or constructive notice of the spouse’s lack of
authority
o This protects GF purchasers/creditors by allowing third parties to rely on the
presumption of sole management
 Spouse who has record legal title can binf the other spouse in a transaction with a
third party if the third party is acting in good faith and for fair and valuable
consideration.
o Third parties can rely on apparent authority  who has record legal title?
DWAP – Death Works A Partition

 Community property only exists between husband and wife during a valid marriage.
 At death, it is no longer community property and an equitable partition occurs 
surviving spouse and decedent’s heirs and devisees become tenants in common
o Cotenants always have right to partition except for homestead
o This partition ONLY APPLIES to community probate property, it does NOT
apply to nonprobate community assets
o Generally, spouse’s death has no effect on surviving spouse’s separate
property and the separate property passes to decedent’s heirs/devisees
unless it is subject to a nonprobate disposition.
 Since death is not reflected on record legal title, a good faith purchaser can rely on
legal record title
 At the moment of death, property cannot be community property
o The surviving spouse RETAINS (not inherits) undivided ½ interest in each
community property asset, regardless of whether record legal title was in the
surviving spouse, deceased spouse, or both.
 Death’s Effect on Separate Property (INTESTATE)
o §201.002 When one dies intestate:
 Leaving a surviving spouse and children:
 The Surviving spouse shall take 1/3 of the personal estate and
a Life Estate in 1/3 of the land of the intestate
 The 2/3 balance shall go to the child(ren) of the deceased and
their descendants who also have a future interest remainder in
the 1/3 land.
 Leaving a surviving spouse and NO children
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 Surviving Spouse gets ALL the personal estate, and ½ of the

lands of the intestate in FSA
 The other ½ passing through descent/distribution.
 Leaving a Surviving Spouse and NO children NOR father nor mother
nor brothers/sisters or their descendants
 Surviving Spouse takes the whole estate.
 Death’s Effect on the Community Estate (Intestate)
o §201.003. When one dies intestate:
 Surviving spouse takes ALL community property IF:
 No child survives the deceased spouse OR
 All surviving children also the children of the Surviving Spouse.
 Surviving Spouse takes half Community Property and descendants
take half IF:
 Descendants are not descendants of Surviving spouse
(child by prior marriage or non-marital children, etc.)
Hypo: Husband (H) and Wife (W) are married. During the marriage, a third party conveys
blackacre to H with record legal title in H alone.
 First presumption: Blackacre is community property
 Second presumption: Blackacre is in H’s name, so presumed to be H’s special
community property
Assume W dies. W has a will that is admitted to probate, devising all her property to kids
from a prior marriage.
 At moment W dies, DWAP. Blackacre ceases to be community property.
 H owns ½ of blackacre and W’s kids own a ½ interest. H and kids are tenants in
common.
 Record legal title to 100% of blackacre is still in H, kids have equitable title in half.
 As part of probate process, kids can seek a partition in fact to assert their rights in
their ½ interest in any community property probate assets.
Assume a third party wants to buy blackacre. The third party pays H, and H conveys blackacre
to the third party. H now has $100k from selling.
 The third party owns 100% of blackacre, assuming the third party purchased in
good faith & paid value.
 As survivor of community, H has a fiduciary duty to W’s successors interest.
Therefore, H should give $50k to W’s kids, but they need to know to ask for it.
Hypo: Husband (H) and Wife (W) are married. During the marriage, a third party conveys
blackacre to H and W with record legal title in both. W dies.
 Immediately upon W’s death, DWAP.
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 When the will is admitted to probate, W’s devisees had equitable title AND record
legal title and therefore will be shielded from BFP’s.
Liabilities incurred during marriage
Step 1: Whose debt is it?

 General Rule: Each spouse is personally liable for only his/her own debts
o TFC § 3.202(a): a spouse’s Separate Property is not subject to liabilities of the
other spouse
 There is no such thing as a community debt. It is either the wife’s debt, husband’s
debt, or husband & wife’s debt
Step 2: When was debt incurred? (before or during marriage?)

 Before  only SP, SCP, and JCP can be liable (other spouse’s SCP and SP are safe)
o TFC § 3.202(b) community property subject to a spouse’s sole management
is not subject to:
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(1) Liabilities that the other spouse incurred before marriage, OR

(2) Nontortious liabilities that the other spouse incurs during
marriage
o BUT...community property subject to the indebted spouse's sole management
is subject to liabilities incurred before or during marriage
Step 3: What type of debt is it? (tort or contract related?)

 All community property is subject to tortious liability of either spouse incurred
during marriage
 If contractual debt during marriage, only separate property, special community
property, and Joint community property may be liable (other spouse’s Separate
property and Special community property are safe)
Step 4: Any facts or circumstances that make other spouse liable?

 TFC § 3.201: A person is personally liable for acts of his spouse if:
(1) The spouse acts as an agent for the person2; OR
(2) The spouse incurs a debt for necessaries (includes support, medical bills,
support of kids)
 Upon marriage, each spouse has a duty to support the other spouse
and children and has personal liability to provide food, clothing,
shelter, medical care, etc.
 Spouses have Joint and several liability to third parties that provide
necessaries
 Legal fees in a divorce proceeding are NOT necessaries (Tedder v.
Gardner Aldrich)
TFC § 3.203: Judge will determine order in which property is subject to execution and sale
to satisfy a judgment:
 In determining the order in which a particular property is subject to execution and
sale, the judge shall consider the facts surrounding the transaction or occurrence on
which the suit is based
o EX: if liability is H’s tort, the judge will probably order satisfaction first by H’s
separate property, then H’s special property, then the joint community
property then W’s special community property.
Which property is subject to liabilities incurred by one spouse?

H’s pre-marital H’s contract debt H’s tort liability H & W have agreed to
debt incurred during incurred during have joint & several
marriage marriage liability (necessities or
both signing a contract)
HSP 100% 100% 100% 100%
HSCP 100% 100% 100% 100%
2
§3.201(c) A spouse is NOT an agent by virtue of the marriage relationship
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JCP 100% 100% 100% 100%

WSC Exempt Exempt 100% 100%
P
WSP Exempt Exempt Exempt 100%
Exempt property under TX Property Code:

 The property code sets out some property that is exempt from §3.203 of the Family
code
 §41.001 – Interests in Land exempt from seizure
o A Homestead is exempt from creditors except for:
 Purchase Money debt
 Taxes
 Owelty of partition imposed against entirety of property
 Refinance of lien against homestead
 Extension of credit that meets certain requirements
 A reverse mortgage
 §42.001 – Personal property exempt from seizure
o Following property:
 Home furnishings; Provisions for consumption; faming
vehicles/equipment; tools used in trade or business; clothes; jewelry;
two guns; athletic equipment; motor vehicle; animals and forage on
hand (2 horses, saddle, blanket and bridle for each; 12 cattle; 60 of
other livestock; 120 fowl; personal pets)
o Exempt if:
 The property is provided for a family and has aggregate FMV of no
more than $60,000
 The property is owned by a single adult and has a FMV of no more
than $30,000
 §42.0021 – Certain Savings plans exempt from seizure
 §42.0022 – Certain College savings plans exempt from seizure
Effect of Divorce
 §7.001 (TX Fam. Code)
o In a decree of divorce or annulment, the court shall order a division of the
estate of the parties in a manner that the court deems JUST AND RIGHT,
having due regard for the rights of each party and any children of the
marriage.
 Court can take into consideration each spouse’s debts, liabilities,
wrongdoings, etc.
 Equitable division does not mean equal division
 Can divide Joint community property and each spouses special
community property however the court deems “just and right”
 DOES NOT APPLY IN DEATH SITUATIONS
 Quasi Community Property  §7.002
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o Any kind of separate property acquired by either spouse during the marriage
in a common law jurisdiction can be divided by the divorce court in Texas IF
the property would have been community property if acquired in Texas.
 Moving to Texas does not convert common law separate property to
community property, but on divorce, the court is authorized to divide
that property in a just and right manner
 ONLY IN DIVORCE (not death)
 Alimony
o Alimony has always been contrary to Texas public policy. We have never
recognized court-ordered alimony
 Court must make just and right division of community property, so
awarding alimony would be letting the court go after spouse’s
separate property
o Texas will recognize “alimony” in four situations:
 (1) Texas will recognize alimony ordered in another state
 (2) TX also recognizes “temporary support” where the court can
order spousal support pending a divorce until the divorce is complete
 (3) Texas will also recognize contractual alimony
 One spouse may agree to pay the other spouse
 (4) “Spousal Maintenance” - §8.051
 Essentially Alimony
 In very limited situations and circumstances, a court can order
spousal maintenance
 Can only be for a duration limited by §8.054
Hypo: A couple moves from Illinois to Texas. H works and W stays home. Everything acquired
in Illinois is in H’s name. Under Illinois law, everything is H’s, but they decide to retire in
Texas. H dies and in his will, he leaves all his property to his girlfriend, Tootsie.
 Court can only divide separate property as quasi community property on DIVORCE,
not in death situations. (Most community property recognize quasi community
property in probate situations too, but not Texas.)
 Wife gets nothing!!!
Elective Shares
 In most common law jurisdictions, when H dies with a will, W would have option to
take under the will or choose to take her “statutory share,” which was an amount
specified by statute
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o Texas does NOT recognize this concept. On death, DWAP, and H can only
bequeath his separate property and his undivided ½ interest in the
community.
Spousal Tort Claims

 There is no spousal immunity for tort claims.
o Common for spouse to allege torts during a divorce  Assault, battery, IIED,
 Tort claims can be satisfied out of separate property
o This is not a part of division of the marital estate but it is a way to get
spouse’s separate property
Missing, Abandoned, Separated Spouse

 §3.301 (TX Fam. Code)
o Generally, this statute allows a spouse to file a petition to get control over the
whole community estate if:
 (1) The other spouse has disappeared and that spouse’s location
remains unknown to the petitioning spouse
 Unless the spouse is reported to be a POW or missing on public
service
 (2) The other spouse has permanently abandoned the petitioning
spouse
 (3) The spouses are permanently separated.
o Petitioning spouse must wait 60 days after occurrence of above event to file
the petition.
Effect of Incapacity
 §1353.003-.004
o Upon death or incapacity of a spouse, we shift from the Family code to the
Estates code
o Estate code creates a concept through which the other spouse becomes the
community administrator
o Upon a judicial finding of incapacity, the other spouse assumes the
management role of all the community property
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 If the incapacitated spouse also needs management of his/her

separate property, someone can apply to be the guardian of the
separate estate, but it can’t be the spouse.
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Texas Marital Property Law

Historical Background
 1836: TX became independent from Mexico and decided to retain community
property system
o Only three types: his separate, her separate, joint community (“held in
common”)
 1845: Kept community property concept
 1861: Constitution of Confederate state of TX decides to retain same language
 1865: After civil war, TX again chooses to retain community property language
 1967: Matrimonial property Act changed the 3 categories of property that had
existed since 1836 into 5 categories that we have today
o Her separate
o His separate
o Joint Community property
o Her special community property
o His special community property
 Kellet v. Trice
o Places a limit on other people’s power to change characterization
o H & W entered into an agreement purporting to convert her separate
property into community property  Court says nope, can’t do that.
 This was known as mere agreement rule
o BUT in 1/1/2000  legislature amended to say that parties CAN agree in
writing that separate property shall become community property
 Arnold v. Leonard
o Places a limit on legislature’s power to change characterization
o Legislature had passed statute that said income from separate property is
separate property, but that was unconstitutional.
 Constitution defines separate property as only property acquired
before marriage or during marriage by gift, descent, or devise
 Rule of implied Exclusion: income is not included in definition of
separate property, so it’s excluded
o Income Rule: Income generated during marriage from separate property is
community property, but is his/her special community property
 Graham v. Franco
o Creates an exception to the rule of implied exclusion
o §3.001(3)  Separate property includes recovery for personal injuries
sustained by spouse during marriage, except any recovery for loss of earning
capacity.
 Recovery for actual lost earnings: these would be community if
actually earned, so recovery for them should likewise be community
66
 Recovery for medical damages: would be paid for with community

funds, so recovery for is community property
 Pain/suffering: separate property
 Loss of consortium: separate property
o If W is injured and settles with defendant, what is the classification of the
settlement check?
 At death, DWAP and we presume that settlement check is community
property. If the H&W did not create a contemporaneous document
showing, which amounts were for which recoveries, then H may get
half of everything. The difficult issue here will be the burden of proof,
must show by clear and convincing evidence which portions are for
W’s recovery of injuries, pain, etc. and which portions were for lost
wages, medical bills, etc.
Texas Constitution
 “All property, both real and personal, of a spouse owned or claimed before marriage,
and that acquired afterward by gift, devise or descent, shall be the separate property
of that spouse; and laws shall be passed more clearly defining the rights of the
spouse, in relation to separate and community property…spouses may agree in
writing that all or part of the separate property owned by either of them shall be the
spouses’ community property”
o 2000 Amendment  “And spouses may agree in writing that all or part of the
separate property owned by either of them shall be the spouse’s community
property”
Texas Family Code Provisions:

 §3.001  Separate Property
o A spouse’s separate property consists of:
 The property owned or claimed by the spouse before marriage
 The property owned acquired during marriage by gift, devise or
descent; AND
 The recovery for personal injuries sustained by the spouse during
marriage, except any loss for earning capacity during marriage
 §3.002  Community Property
o Community property consists of the property, other than separate property,
acquired by either spouse during marriage
 §3.003  Community Presumption
o Property possessed by either spouse during or on dissolution of marriage is
presumed to be community property
o The degree of proof necessary to establish that property is separate property
is clear and convincing evidence.
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Mere Agreement Rule

 (Old Rule) The character of property is defined in the TX Constitution and cannot
lose its character by simple stipulation or agreement of the parties
 For example, an owner could give property to the spouse making it the spouse’s
separate property, but they could not change the character of property by a “mere
agreement.” The relevant facts determine the property’s character. Today, the better
explanation is that the spouses cannot change the marital character of property in a
manner inconsistent with Art. 16, § 15.
o Constitution has never prohibited transactions among spouses; they just
cannot engage in one that violates the Constitution.
o EX: One spouse can give his or her community interest to the other spouse so
that it becomes the other spouse’s separate property.
o EX: They can exchange their community property asset for one spouse’s
separate asset.
o EX: Separate property can become community property through voluntary or
involuntary commingling.
 2000 version of Art. 16, § 15.  “spouses may agree in writing that all or part of the
separate property owned by either of them shall be the spouses’ community
property”
o Transmutation Agreement
The Income Rule

 A spouse’s income during marriage (including income that is generated from
separate property) is community property because income does not fall within the
definition of separate property (i.e., it was not acquired by gift, devise, or descent).
o Rule of Implied Exclusion puts this in community property
o This places Texas in a minority position on this issue.
The Rule of Implied Exclusion3

 If an asset does not fall within the constitutional definition of separate property, it
must be community property
o Legislature cannot go beyond the constitution to redefine separate property
3
Arnold v. Leonard
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Property Characterization
Community Presumption
 START WITH COMMUNITY PROPERTY PRESUMPTION
 Property possessed by either spouse during marriage and upon dissolution is
presumed to be CP (regardless of whose name title is in)
o Party claiming that an asset is separate property has the burden of proof to
show by clear and convincing evidence that establish it is separate property.
o Record title does not determine who owns the property or its
characterization, but title may indicate a management presumption on which
third parties can rely when conducting a transaction with that spouse.
Question 1: WHEN was the property acquired? (before or after marriage?)
Inception of Title Rule:

 The characterization of an asset as separate or community property depends on
whether the parties are married at the time of inception
o Critical Factor  Whether a spouse acquired a “right” to the property
before or during the marriage
o A right to property can arise before legal title, evidence of legal title,
or even before possession is obtained.
o The inception of title occurs when a party first acquires a right (or color of
right) or claim to the property by virtue of which title is finally vested
o Entering into a contract for deed or earnest money contract gives a
property right to the buyer = inception of title
 Dawson v. Dawson (K for deed)
 Wierzchula v. Wierzchula (Earnest money K)
o Adverse Possession: if X enters the property without a claim or right
(even if under color of title), land is “acquired” when SOL runs (this is
when property will be characterized)
o Means of paying off obligations on the property are irrelevant for
characterization
o Subsequent marriage doesn’t change character or property
 Form of Title
o The form of the property’s record legal title does not determine the character
of the property
 Ex: Even though record legal title to land acquired during marriage is
in both spouse’s names, the property may still be one spouse’s
separate property based on the inception of title rule, if that spouse
can prove facts that would rebut community presumption
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On the other hand, the proof may establish that the spouses
own the property as tenants in common (with their respective
separate properties).
 Absent proof of separate character, the property is legally community
property
o The same type of analysis is applicable if the property is acquired in only one
spouse’s name.
 It may be community property, separate property of one or both
spouses.
HYPO: In old days, moving to TX and living on land for 3 years got you title to the land. H &W1
move onto land and began to homestead it. 1 year later, W1 died and H marries W2 and
completes the remaining period of occupancy to acquire title.
 The land is H & W1 community property
 When H &W1 entered onto the land, they had color of right pursuant to the
arrangement with the state of TX
 W2 does not have any interest in the property and it is not H’s separate property
even though he is the only one who lived on it for all 3 years.
 When W1 died, DWAP and her undivided ½ interest when to her heirs/devisees
Question 2: HOW was the property acquired? (Look at all relevant facts and circumstances)
Can presumption be overcome?

Presumption can be overcome by clear and convincing evidence that property is actually
separate property
 The court will admit extrinsic evidence going to the proper characterization of
the property
TFC § 3.001: Separate Property =

(1) The property owned or claimed by the spouse before marriage
(2) The property acquired by the spouse during marriage by gift, devise, or descent
(3) Recovery for personal injuries sustained by the spouse during marriage, except any
recovery for loss of earning capacity during marriage (this is an exception for rule of
implied exclusion)
EXCEPTION  Traceable Mutation rule:

 May be used to rebut the community presumption and is an exception to the rule of
implied exclusion
o As long as separate property can be traced form to form, the property will
retain its separate character.
o The property must be indisputably traced and identified to retain its
character
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 If there is clear and convincing evidence that the consideration

rendered to acquire a new asset during the marriage was separate
property, then the new asset will also be separate property.
 To maintain the character of separate property, it is not necessary that the property
of H or W be preserved in kind. The property may undergo mutations and changes;
so long as it can be indisputably traced and identified, the separate property
character remains. (Rose v. Houston pg 50)
o Separate property can undergo mutations and changes and still remain
separate property as long as it can clearly and indisputably be traced and
identified
o If spouse can show, by clear and convincing evidence, that property was
purchased with separate property, then it will remain separate property
 Property received in exchanged for separate property remains
separate property
 Property purchased with proceeds from sale of separate property
remains separate property
Proportional Ownership of Property by Marital Estate §3.006 (TX Fam. Code)

 If the community estate of the spouses and the separate estate of a spouse have an
ownership interest in property, the respective ownership interests of the martial
estates are determined by the rule of inception of title
o If an asset is acquired with consideration that is both part community and
part separate, the property acquired is both separate and community in
proportion to the consideration exchanged.
 If the property is later sold, the sales proceeds are proportionately
separate and community to the extent that the separate proceeds are
traceable.
 Hypo: During marriage, H trades in an old car from before marriage and gets $10k
toward a new car, and pays $30k cash for balance.
o $30k is presumed community property, so the new car would be ¼ H
separate property and ¾ community property. (Even though the title is
100% in H’s name.)
 If H&W buy a house with $100k of H’s separate property and $100k of W’s separate
property, and take a $800k loan secured by community funds…
o 10% W separate property
o 10% H separate property
o 80% community property
 W’s father sells blackacre to his daughter (W) for $20k, even though it has a FMV of
$100k
o Presume community property.
o Inception of title rule  ALL facts and circumstances are relevant to
determine character of property at time title acquired
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If the $20k was community funds, 20% of it would be community

property because here, W could establish that this was part-gift and
part-sale. 80% of the price was a gift so 80% will be W’s separate
property
o What if Husband Dies?
 DWAP
 W retains her 80% in separate property
 No part of blackacre is H’s SP to pass to heirs/devisees
 W keeps her ½ of the 20% CP (10% total)
 H’s ½ of the 20% CP passes to heirs and devisees (10% total)
Presumption of a Gift
 If one spouse acquires an asset that would be characterized as separate property
(due to inception of title or acquired by gift devise or descent) and title is placed in
the other spouse’s name or both spouses’ names, there is a rebuttable
presumption that the spouse acquiring the asset as separate property intended to
give one-half of the property to the other spouse, with each spouse having (as
separate property) an undivided one-half interest in the property.
o If one spouse buys as separate property and places title in both names
 Presumption that the buying spouse intended to give ½ of the
property to the other spouse with each having ½ interest in the
property as separate property. (spouses are tenants in common)
o If one spouse buys as separate property and places title in other spouse’s
name
 There is a presumption that buying spouse intended to give all to
other spouse as gift to be other spouse’s separate property
o If there is a conveyance of community or separate property from one spouse
to the other:
 It is presumed to be a gift to the other spouse
 Presumption can be overcome by preponderance of evidence showing a lack of
donative intent
 Extrinsic evidence admissible
 If property is placed in another’s name but there is satisfactory
evidence of no donative intent, a resulting trust in favor of the grantor
spouse may be the appropriate remedy.
o Example: Husband uses his SP during marriage to purchase land and has title
placed in his wife’s name = presumption of gift (overcome by preponderance
of evidence)
o Example: Husband uses CP to purchase land and places title in wife’s name =
presumption of community property  (wife can overcome presumption by
showing donative intent by clear and convincing evidence)
 Under rule of implied exclusion, it is impossible for a third party to make a “gift to
the community” during marriage.
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o If a third party makes a gift to both spouses, the property is presumed to be

½ separate property of each spouse.
 Dawson – The Court held that if inception of title relates back to before marriage,
then the property is characterized as separate.
o Court also states that even if the deed was in both names, it would not affect
the separate character of the property.
o However, both names on the deed could be evidence of a gift, which would
create tenants in common in separate property.
 Carter v. Carter – H enters into an earnest money contract for a lot before marriage.
Closing during marriage. At closing, the deed of trust, deed, and promissory note
were signed by both H and W.
o Court held inception of title ruled because H signed the contract prior to
marriage. Next, there was a presumption of a gift because the deed had both
names; however, this was rebutted because there was no evidence of
donative intent.
 Bradley v. Love – Dad gives land to his daughter and H, and deed recites that
daughter and H paid consideration. However, it was proven that there was no
consideration actually paid.
o Thus, the gift presumption presumes gift to both of them and they each have
an undivided 1/2 interest as tenants in common.
o Gift presumption is rebuttable though: If daughter can prove that there was
no donative intent to H by a preponderance of evidence, then the property
would be all daughter’s separate property.
Significant Recital  language in the deed to the effect that “consideration was paid from
X’s separate property”
 Creates a rebuttable presumption of separate property
o Overcome by preponderance of evidence that consideration was paid from a
community source
 But if H is a party to a contract including a significant recital, H is estopped from
denying the significant recital - basically means that presumption is irrebuttable
o If upon acquiring property during marriage the deed contains a recital that it
is one spouse’s separate property (or that one spouse paid for it with
separate property) and the other spouse participated in the transaction, it is
presumptively separate property and the other spouse may be estopped
from offering evidence to the contrary.
 Absent such a recital or other evidence of separate character, the
community presumption controls.
Characterization v. Reimbursement
 During the marriage, if funds from one marital estate are used to benefit another
marital estate, reimbursement may be appropriate (equitable remedy).
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 Basically, this creates a debtor/creditor relationship between the marital estates;

however, the debt does not mature until the marriage is terminated.
o Ex: Suppose a spouse brought into the marriage separate property subject to
an indebtedness and community property was used to pay off the loan. At the
termination of the marriage through death or divorce, there exists a
community claim for reimbursement.
 Although the property has retained its character as separate property
and the other spouse has no ownership interest in it, that spouse has a
claim for reimbursement because community assets were used to
benefit the other spouse’s separate property.
Credit Acquisition Rule:

 Property acquired wholly by credit during marriage by either spouse is presumed to
be community property because of rule of implied exclusion (Heidenheimer)
o Not acquired by gift, devise, or descent
o If not wholly a credit transaction, the traceable mutation rule requires an
examination of the sources of the total consideration exchanged for the
property
 Ex: the amount of the “cash down payment” plus the “promise to pay.”
If a portion of the “cash down payment” is proven separate, the
property is part separate and part community in proportion to the
consideration exchanged.
 EXCEPTION: If creditor has specific agreement with borrower that creditor will only
look at borrower’s separate property for repayment, then property acquired on
credit during marriage will be separate property (relieves other spouse of liability)
(Broussard)
o Banks are unlikely to ever enter into an agreement like this because the
banks (and most creditors) want as many assets as possible on the line for
repayment in the event of default.
o More common in family transactions
 Ex: H&W want to buy a house and cannot afford it. W’s dad agrees to
load the money but will expressly say that only W’s separate property
is on the line, because he will want the house to be W’s separate
property If H ever walks out the door.
 Property acquired during marriage party with separate funds and partly on credit of
community creates a tenancy in common between separate and community estates
(interests are proportional to contributions)
o Example: Husband makes a down payment of $10k from separate funds and
$90k on credit.  Property is 90% community property, 10% his SP
Texas Supreme Court Cases

 Smith v. Strahan
74
o H uses separate property to purchase BA and puts title in W’s name. If asset
purchased and title placed in W’s name, then gift presumption. H must
overcome by a preponderance of the evidence.
 Using separate property to put in Wife’s name creates a rebuttable
presumption that it was intended as gift to wife.
 Higgins v. Johnson
o H uses community property to purchase BA and puts title in W’s name.
Community presumption. W may overcome the community presumption by
proving that there was donative intent.
 To overcome the community presumption and show donative intent,
Wife must prove by clear and convincing evidence!
 Compare to preponderance standard required in Smith v. Strahan.
 Story v. Marshall
o H conveys community property to W in a deed reciting consideration.
Evidence shows that no consideration was paid. Gift presumption to W. H can
overcome this by proving no donative intent by clear and convincing
evidence.
 Smith v. Buss
o BA conveyed to W by 3d party in a deed reciting that consideration was paid
out of her separate property. This was a “significant recital” creating a
rebuttable presumption as a matter of law that this is W’s separate property.
H must prove by a preponderance that the consideration was paid with
community property.
 Including a significant recital like this does rebut the community
presumption and creates a new presumption that it is wife’s separate
property
 Husband can still rebut this presumption but the significant
recital shifts the burden of proof onto him.
 Magee v. Young
o BA conveyed to W by 3d party in a deed reciting that consideration was paid
by W. Not a “significant recital.” Community presumption is used. Wife must
prove by clear and convincing evidence that she paid consideration with
separate property.
 Was not a significant recital so it does NOT overcome the community
presumption
 Lindsay v. Clayman
o H and W enter into K to have BA conveyed to wife as wife’s separate
property. Deed contains similar recital. When H signs a K that contains a
significant recital, there is an irrebuttable presumption that H gifted the
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property to W. Because H was a party to the K, he is “estopped” from denying

the significant recital.
 When H is a party to the transaction, he is estopped from denying that
the recital intended to make it W’s separate property
 In Smith v. Buss, the Husband was not a party to the transaction, but
here he is.
 Hodge v. Ellis
o BA conveyed to W by 3d party in deed containing significant recital that W
paid consideration from separate property. H was not on the deed, but signed
the promissory note. Extrinsic evidence establishes that consideration was
community property. Because H was a party to the transaction and there
was a significant recital, there is an irrebuttable presumption that BA is W’s
separate property.
 Even though H’s name was not mentioned in the deed, he was a party
to the transaction and so he is estopped from presenting evidence to
the contrary
Strong v. Garret
1902 1905 1906 1911 1912 1916 1917 1936 1937

1900:
James FSA  There was a mistake in the deed from James to Strong  deed described lot 1
Deed to Strong in Strong S & F divorce. Strong Strong I conveys land to G; I dies G marries E
Strong possession marries F S gets land (SP) marries I dies I marries G
(SP)
but
Strong really bought and possessed lot 2, but takes
possession of lot 3
o Thus Strong doesn’t have record legal title of lot 2 (of which he’s in
possession). He has “color of right.” This means that inception of title was
when he began possession.
 Inception is when you first acquire a right! Inception here was when
he acquired the deed, even though he didn’t acquire record legal title
o Thus, BA is Strong’s separate property
 Strong died intestate
o Wife gets life estate in 1/3 real property and kids own the rest
 If it had been community property, than DWAP, but here it was
husband’s separate property
o In addition, she also got homestead rights (right of occupancy—she can
occupy the lot in its entirety for the remainder of her life)
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 Surviving spouse has the right to occupy home until she dies or
abandons it, whether the homestead was community or separate
property.
o This is a tenancy in common with Strong’s heirs, they cannot demand
partition until she dies
o Kids owned an undivided 2/3rds interest and a remainder of 1/3
 Ida conveyed her interest in the lot to G, then marries him.
o Ida could only convey a 1/3 life estate interest in the lot because that was her
only property interest.
 The right of occupancy ≠ property interest
o Now, that 1/3 life estate is G’s SP because he acquired it by gift (and prior to
marriage)
 On Ida’s Date of Death—
o Ida’s life estate ends and the remainder goes to Strong’s kids in 100% FSA
o The kids’ remainder interest (1/3 life estate) became possessory (kids have
fee simple title)
o Kids own all of BA now
 Assume G eventually acquires by Adverse Possession while married to E:
o G took under “color of title,” not “color of right”
o He had no right or claim to the title until after AP is completed
o Therefore, it is the community property of G and E
G will have a hard time overcoming the community presumption because G did not have a
right to take it until Ida died.
Analysis Summary:
 Always begin the analysis with the presumption that the asset is community
property.
o The community presumption may then be rebutted by clear and convincing
evidence of facts that establish that all or a portion of an asset is separate
property using
 The Inception of Title Rule (e.g., acquired prior to marriage);
 The Gift Presumption (e.g., gift from one spouse to the other); OR
 (Rebuttable by showing the grantor didn’t intent to make a gift)
 The Traceable Mutation Rule (e.g., separate consideration);
 The Effect of Recitals (e.g., both spouses party to the transaction,
recitation in deed it’s one spouses separate property OR separate
property used to purchase). Consider all the facts and circumstances
surrounding the acquisition of any asset during the marriage.
o Remember to look at the total consideration rendered (traceable
mutations rule) – that which is bought with separate property is separate,
with community property is community property.
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o If acquired on credit, the community presumption may be rebutted by

showing
o The lender looked only to the assets of one party; OR
o Both spouses were parties to the transaction, and the deed contained
a recital that it’s the one spouses property, or was bought with the
spouses separate property
 Finally, one must consider whether reimbursement is an issue, whether the asset
was acquired before or during the marriage.
Separate Property Issues

Mule/Crop Dichotomy
 DeBlane v. Lynch  Cotton
o W’s cotton field is WSP and the slaves used to cultivate the crop were WSP.
At issue in this case was the income generated from the sale of the cotton.
o Rule: Income generated from separate property is community property.
 Implied Exclusion: Income was acquired during marriage and not by
gift, descent or devise
 TX is minority jurisdiction hat says income from separate property is
community property
 This is a big difference between Texas and the other
community property states!
 Stringfellow v. Sorrells  Fatty Mules
o Mules were brought into the marriage as WSP. At time of marriage they were
worth $35, but now they are worth $75. Creditor argues that change in value
is community property because it was due to the time, talent, and labor of the
husband.
o Rule: Change in value of separate property does not change its
characterization.
 Inception of title rule: characterization attaches when property title is
incepted
 Increase in value does not change character even when the increase in
value is due to the other spouses time, talent and labor
o Mules are sterile, but what about other animals that can procreate?
 When separate property livestock procreates during marriage, the
babies born during marriage are community property
 At the dissolution of marriage, Spouse with the separate property
livestock has the burden to trace and show which heads of livestock
are his separate property
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 Eventually over time, the original separate livestock will dies off and
the whole herd becomes community.
Hypo: H brings land into the marriage as separate property. During the marriage, the land
fluctuates in value (General economic forces that change value does not affect
characterization because of inception of title rule) During the marriage, the husband farms
the land.
 The crop will be community property while in the ground or harvested, but the crop
is Husband’s special community property
Assume H’s separate property land has always had pecan trees on it.
 The trees are his separate property, but the pecans are community property.
 New things that come into the marriage are community property (ex: berries, nuts,
crop) because of rule of implied exclusion.
Assume there is a gravel pit on H’s separate property. The city wants to buy the gravel.
 The gravel is separate property because it did not grow into the marriage, It was
always there.
 If the city pays money for the gravel, the money is still husband’s separate property
because of the traceable mutation rule
Assume oil is discovered on the land.

 Oil is like gravel, it was a mineral in the ground before H got married. When the oil
company removes the oil, it is still H’s separate property.
 When The company pays oil royalties, the money is still H’s separate property (even
though reported on H’s tax returns as income)
Assume H & the oil company enter into an oil & gas lease. Upon entering the lease, H gets a
bonus.
 Bonus is H’s separate property because the bonus is treated as a down payment for
getting the minerals.
 The bonus and royalties are separate property under the traceable mutation rule.
In between the contract and getting the oil, the company pays “delay rentals” which are
essentially rental payments for the company to go onto land and prepare for production.
 Delay rentals are Community property
Hypo: H owns stock in oil companies. During the marriage, the value of the stock increased
44,000%.
 Oklahoma law says that increase in value due to time talent and labor is community
property, BUT
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 In Texas, that money is treated just as increase in value of mules. An asset is an asset
whether it is a mule or share of stock, the stock is still H’s separate property
regardless of whether the increase was due to H’s time, talent, labor or not.
Hypo: In 2000, W inherits blackacre as separate property. At that time, blackacre has a FMV
of $10k. In 20120, blackacre is worth $100k with no part of the increase due to either spouses
time, talent or labor, but just normal economic change. W sells the property and gets $100k
cash (separate property), and purchases a one-year CD investment. One year later, she cashes
in and gets $110k:
 $100k is still separate property, but the $10 is community property because that
interest was income generated by her separate property, which is community
property.
 The $10k is Wife’s special community property
Next, W deposits the $110k check from the bank into a checking account in her name (which
she can do because it is her special community property).
 At least part of this is presumptively community property. The checking account is
an asset and community has proportional ownership per §3.006
In 2012, W writes a check to her stockbroker and buys 100 shares of stock for $10k and puts
the other $100k in another CD account. In 2014, H & W get divorces and at that time, the
stock is now worth $1 million and the $100k in the CD account has become $110k.
 Shares of stock and the CD are presumptively community property
 W has the burden of showing which parts are her separate property. She must
establish that she purchased the stock with her separate property when she has
community and separate property in that checking account.
o If she had made a notation in business records when she cut the check to
purchase the stock that she was investing only her separate funds, then she
has met her burden of proof.
o Absent a contemporaneous business record, it will be hard to prove what she
had in mind when she made that investment
 Interest in the CD account is income from separate property so it is community
property but stocks change in value so stock investments remain separate property
if you can trace their purchase to separate property.
o CDs don’t change in value, it only increases with interest.
Tracing and Commingling

 When a spouse cannot meet their burden of proof in showing that the asset is
traceable to separate property, there has been a commingling.
o If separate property is so mixed with community property that it cannot be
re-segregated by clear and convincing evidence, it is comingles and thus is
community property.
 Horlock v. Horlock
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o Prior to marriage, H had $1 million that he placed in an account. During the

marriage, the funds became completely comingled. The account existed
before marriage, but H hasn’t tracked which deposits/withdrawals were
separate funds and which were community funds.
 Complete comingling  what was separate has become community
o BUT H may be entitled to reimbursement as an equitable solution
o H’s claim will be for separate reimbursement
 This is different than which a spouse uses community funds to
pay for separate asset. In that case, the community is entitled
to a community reimbursement
 There are a few approaches to dealing with comingling (Unit 5 notes):
o (1) “Community Out First”  If an account has both separate and community
property in it, it is presumed that community property is withdrawn first
o (2) “Pro Rata”  If there is a bank account with separate and community
property, it is presumed the property is withdrawn proportionally.
o But the best way to prove intent and source of the funds is to maintain
contemporaneous business records with significant recitals for deposits and
withdrawals.
Reimbursement (p. 100, Subchapter E)

 Dakan v. Dakan  LANDMARK REIMBURSEMENT CASE
o When one spouse cannot establish which is separate property, there is an
alternate claim for reimbursement.
 Reimbursement is NOT an interest in the property, it creates a
creditor-debtor relationship between spouses
o In community instance:
 When a spouse uses community funds to make valuable contributions
to separate property, then the community estate has a claim of
reimbursement from the separate estate
o Rules from Dakan:
 (1) Charge for improvements on land is not an interest/title in the
land
 (2) Creates a money claim (creditor debtor relationship) that is to be
satisfied upon dissolution of marriage
 (3) Creates a claim but foes not change the character of land
 (4) If any portion of the purchase money is shown to have been paid
with separate funds and with community funds, then the spouse will
be entitled to reimbursement for amount of separate funds and her
share of community funds paid.
 Colden v. Alexander
o Using community funds to pay interest and taxes on pre-marriage debts for
separate property does not give rise to claim for reimbursement unless it is
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shown that the expenditures by the community are greater than the benefits
received.
 Lindsay v. Clayman  NEW TEST
o Amount of reimbursement is not determined by the cost of the
improvements made, but by the enhancement in value of estate improved by
virtue of the improvements made by the other estate.
 Ex: Community spends $100k on improvements and enhances the
value of the property to $1 million. 10 years later, H & W divorce and
the property is worth $2 million
 Must get appraisal of property with the improvements and get
an appraisal of what FMV would be without the improvements.
The reimbursement amount will be the difference between
those two amounts.
 Barton v. Bell
o Reimbursement claim does not give ownership interest in the land. But the
claim can be secured by an equitable lien on the property.
 Cook v. Cook
o Classic reimbursement real estate case: One spouse brings in separate
property. During the marriage, they use community funds to pay off the debt
and improve the separate property
 Interest, taxes and premiums  Apply balancing test of cost v. benefit
derived
 Purchase money debt  reimbursement for the amount
 Improvements  enhancement in value test from Lindsay v. Clayman
Texas Legislature eventually codified these common law concepts in the above case law. But
between 1999-2009, it was a statutory mess and there is still controversy over which law to
apply for events/debts incurred during that time period
§3.402 (TX Fam. Code): Claim for Reimbursement

 (a) A claim for reimbursement includes:
o (1) Payment by one marital estate of the unsecured liabilities of another
marital estate
o (2) Inadequate compensation for the time, toil, talent & effort of a spouse by
a business entity under the control and direction of that spouse (codifies
Jensen v. Jensen)
o (3) The reduction of the principal amount of a debt secured by a lien on
property owned before the marriage, to the extent the debt existed at the
time of marriage.
o (4) The reduction of the principal amount of a debt secured by a lien on
property received by a spouse by gift, devise or descent during marriage, to
the extent the debt existed at the time the property was received
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 (b) Court shall resolve a claim for reimbursement by using equitable principles,
including the principle that claims for reimbursement may be offset against each
other if the court deems this appropriate
 (c) Benefits for the use and enjoyment of property may be offset against a claim for
reimbursement for expenditures to benefit a marital estate, except that the separate
estate of a spouse may not claim an offset for use and enjoyment of a primary or
secondary residence owned wholly or partly by the separate estate against
contributions made by the community estate to the separate estate
 (d) Reimbursement for funds expended by a marital estate for improvements to
another marital estate shall be measures by the enhancement in value to the
benefited marital estate
 (e) Party seeking an offset to a claim for reimbursement has the burden of proof
with respect to the offset.
§3.404  First codification of Inception of Title Rule

 (a) This subchapter does not affect the rule of inception of title under which the
character of the property is determined at the time the right to own or claim the
property arises
 (b) A claim for reimbursement under this subchapter does NOT create an ownership
interest in the property, but does create a claim against the property of the
benefited estate by the contributing estate
o The claim matures on dissolution of the marriage or the death of either
spouse
§3.405 – Management Rights

 Claims for reimbursement do not affect the right to manage, control or dispose of
marital property as provided by this chapter
§3.406 – Equitable Lien

 (a) On dissolution of marriage, the court may impose an equitable lien on the
property of a benefited martial estate to secure a claim for reimbursement against
that property by a contributing marital estate
 (b) On the death of a spouse, a court may, on application for a claim for
reimbursement brought by the surviving spouse, PR of deceased spouse’s estate, or
any other person interest in the estate, impose an equitable lien on the property of a
benefited marital estate to secure a claim for reimbursement against that property
by a contributing marital estate
§3.409 – Nonreimbursable Claims

 The court may NOT recognize a marital estate’s claim for reimbursement for:
o (1) The payment of child support, alimony, or spousal maintenance
o (2) The living expenses of a spouse or child or a spouse
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o (3) Contributions of property of a nominal value

o (4) The payment of liability of a nominal value
o (5) A student loan owed by a spouse
Business Operations
 Profit on a Venture (Dixon v. Sanderson)
o In Dixon v. Sanderson, the W won lottery from a ticket purchased with $1 of
separate property. BUT the winnings themselves are community property
because the prize money did not come by gift, devise or descent.
o The winnings came by a contract based on consideration and is the profit of a
venture, which is different than an increase in an asset’s value
o Rule: “Profit on a venture” is community property.
 **Note that this is different from stocks, which is increase in value.
 Sole Proprietorship (Schmidt v. Huppman)
o With a sole proprietorship, there is no entity, and each asset of the operation
is characterized as separate or community property starting with the
community presumption. The spouse claiming the asset is separate property
has the burden of showing that it is.
 If item tracing fails, owner spouse may still have a claim for
reimbursement for the value of the assets of separate property
brought into the business before the marriage
 Business Entities
o The entity owns the operation, as well as the assets used in the operation; and
the issue is who owns the ownership interest in the entity.
o Rule: Assets of the entity are assets of the entity, and thus they have no
marital property character.
o Scofield v. Weiss
 The issue here was the characterization of dividends from H’s
separate property stock
 In all but Texas and 2 other states, this would be separate
property
 Rule: In TEXAS  cash dividends (the distribution of corporate
profit to a shareholder) from H’s separate property paid during the
marriage become community property BUT the issuance of stock
dividends remain separate property
 The change in value of stock does not affect the character. If a
stock split occurs, the shares obtained in the split are also
separate property based on the concept of traceable
mutation.
 Any cash dividends during the marriage are that spouse’s
special community property due to the rule of implied
exclusion.
o Allen v. Allen
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 W operated beauty shop as a sole proprietorship before marriage.

During marriage W incorporates the beauty shop.
 Rule: Inception of title for an incorporation is the date of
incorporation.
 Upon incorporation, W contributed $1k in exchange for shares.
 No Horlock claim because there is no evidence that the $1k was
anything besides community property.
 The shares of stock and any increase in their value is
community property
 Partnership Interest
o Marshall v. Marshall
 Court holds that the partnerships assets are the entity’s assets, and
thus they have no marital property character; however, the
partnership interest is property and thus subject to characterization.
Distribution of profits or income derived from the partnership during
marriage is community property (regardless of the character of the
partnership interest – income from separate property is community!)
Hypo: Brother and sister each inherit $10k from deceased parents. Brother takes his $10k of
separate property, and starts a café during marriage as a sole proprietorship. Sister does
the same thing, but instead starts a café corporation and contributes the $10k as capital in
exchange for all the shares. Years later, both cafes are worth $1 million. Each finds a buyer
and sells for $ 1 million. What is the martial characterization of the each $1 million.
 BROTHER
o Start with the community presumption.
 If H wants to establish that any of this $1 million is separate property,
he must, by traceable mutation, show that any particular assets are
his separate property
o What if Brother’s W dies and leaves all her property to boyfriend.
 DWAP. Boyfriend will get W’s ½ of the $1 million of community
property.
 Cannot argue time, talent & labor because he doesn’t have a claim for
reimbursement against himself
o Brother can probable at least prove that $10k is separate property…but the
boyfriend may be getting $490k
 SISTER
o If sister made a contemporaneous record and can prove that $10k was
wholly separate property, all the shares are her separate property and the $1
million is her separate property too
o If sister’s husband dies and leaves everything to his girlfriend:
 Girlfriend may have a claim for reimbursement for sister’s time, talent
and labor that was inadequately compensated.
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 Jensen v. Jensen  Girlfriend only has a reimbursement claim for

inadequate compensation
Expenditure of Time, Talent & Labor

 Rule: Time, talent, and labor of either spouse are considered a community asset.
Thus, a person is entitled to spend a reasonable amount of time, talent and labor
managing their separate property without giving the community a claim for
reimbursement.
o However, if an unreasonable amount of time, talent and labor is expended to
manage the separate property – the community is entitled to a claim for
reimbursement (Jensen).
o In a “closely held corporation” situation where the shares of stock are the
separate property of one spouse and that spouse spends an unreasonable
amount of uncompensated time, talent and labor, the other spouse may have
a claim for reimbursement.
 Although the character of the stock does not change, the expenditure
of uncompensated time, talent and labor that enhanced the value of
the spouse’s separate property may give the other spouse a claim for
reimbursement against the owner.
 Same concept may be applicable in other “entity” situations.
 Jensen v. Jensen
o H invested separate property prior to marriage. The difference between this
case and Scofield is that H is an active participant. H is president and the
corporation is successful because of H’s work.
o H uses his time, talent, and labor to increase the value of the stocks
 Under TX law, all the stocks remain separate property but the
community will have a claim for reimbursement
o Codified in §3.402(a)(2)
 Amount of reimbursement
o The reimbursement claim is NOT based on the increase in value, it is based
on the value of spouse’s services rendered
o Measure  the value of time, talent $ labor rendered MINUS the
compensation actually received for those services
 “Compensation actually receives” includes salary, bonuses, 401k plan,
etc. but does NOT include dividends because those are based on
capital, not time, talent & labor
o The claim for reimbursement is not against the company that inadequately
compensated, it is against the spouse
 EXCEPTION: “Transmutation” (Conversion of Separate into Community):
o When a separate asset is changed into a new and more valuable asset
(change of state) because of the expenditure of a great deal of time, talent
and labor – it loses its separate property characterization (Transmutes into
community property).
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o If this happens, the separate estate may have a reimbursement claim if

separate property was used as the initial investment.
o Norris v. Vaughn
 Oil wells were HSP. The cash from the sales of oil were also HSP. Wife
argues that since H actually ran the well and expended time talent and
labor to change the state of the property. Oil in ground is less valuable
than oil above ground.
 Transmutation Theory (accepted but rare)
 If one spouse expends community time, talent &funds on separate
property’s sale and production, the sale impresses community
character on the property
 Hypo: H owns BA which has trees for lumber before marriage.
 Selling the trees to be lumbered
o Cash is separate property
 Cutting down the trees himself and selling the cut trees
o Cash is separate property
o W may have a Jensen claim for reimbursement because
unreasonable amount of time, talent, and labor
managing separate property and community not
adequately compensated.
 Cutting down the trees, milling them, and selling the completed
product (the lumber)
o Transmuted into community property similar to Norris.
H may have a reimbursement claim against the
community because his trees were used as initial
investment.
Alter Ego
 Rule: Divorce court can make a just & right division of community property and
generally cannot divide separate property.
 Under reverse veil piercing concept in marital context, we can ignore the corporate
entity and treat assets of that entity as marital property assets (treat as community
assets) except to the extent the spouse can rebut community presumption and show
the assets are separate property
 Dillingham v. Dillingham
o H owned all of the stock of the corporation. W was suing for corporate assets
because H was operating the corporation as an alter ego.
o Rule: Through the concept of reverse veil piercing, an entity can be ignored
and the court may decide if each asset of the entity is community or separate.
 Must prove there was an alter ego theory (Featherston’s explanation):
o (1) Not a legitimate business enterprise
o (2) Used as a sham to perpetrate fraud
o (3) Actual fraud
 Intent to deceive 3d parties or the other spouse
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Property Damage
 Insurance proceeds may be payable when property is damaged.
 According to §3.008 (TX Fam. Code), insurance proceeds arising from a casualty loss
to property during the marriage are characterized in the same manner as the
property to which the claim is attributable.
o Method of characterization is akin to traceable mutation rule.
Time And Talent
Fruits of Labor
 General Rule: Any and all compensation “earned or paid” during the marriage at
the expense of a spouse’s time talent and labor is community property based on the
rule of implied exclusion.
o In Texas, the husband’s salary is his special community property and the
wife’s salary is her special community property.
o If the spouses deposit their paychecks into a joint checking account, the
mixed salaries become joint community property.
Employment Contracts
 Bishop v. Williams
o Before married, H verbally agreed with his mom that H would move home
and manage mom’s farm to pay off mom’s debt. In return, mom would convey
80 acres to H. H commenced work for mom, then got married. H finished his
performance on the agreement during marriage, and mom deeds H the 80
acres. The Court held that the inception of title rule applies to payment on
employment contracts (This was just a K for services in exchange for land as
compensation). The Court found that inception of title occurred before
marriage, and thus the 80 acres was separate property.
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 When payment begins before marriage and continues during

marriage, Bishop says the inception of title rule.
 Commentators say that if this got to the supreme Court, it would be
based on an accrual system and what was earned during marriage
would be different than what was earned during or after
 HYPO: Football player enters into a contract with the Cowboys for $30 million and
then gets married. Will the $30 million be separate or community property?
o H would argue that inception of title was prior to marriage and under Bishop
v. Williams, it is entirely separate property since it was signed before
marriage
 Most commentators say that the Supreme Court would overrule
Bishop if they every got such a case.
 Usually cases like this don’t make it to court because they settle or
have a pre-nup.
 Featherston thinks that the court will take a hybrid approach
 Ex: Signing bonus before marriage would be separate property,
but part that is tied to performance during marriage would be
community property.
Professional Goodwill
 Rule: Professional good will is not earned or vested property; it is merely personal
ability to earn a living and is an intangible concept inherent to the person.
o Consistent with the anti-alimony policy, such goodwill has been held by
Texas courts to not be a property right that can be characterized as separate
or community property.
 Nail v. Vail
o H is a doctor in a sole proprietorship. W contends that professional good will
is an asset and should be divided on divorce. Court says good will is not
property, it is a piece of H.
 Dividing the good will would be awarding W future earnings, which is
essentially alimony and contrary to TX policy.
Enhanced Earning Capacity

 Rule: Enhanced earning capacity (ex: education), even if paid for by the community,
is not vested property and thus cannot be given a characterization.
o Similar to the concept of goodwill in that it relates to a person improving
one’s ability to make a living. The ability to earn a living belongs uniquely to
an individual.
 Frausto v. Frausto
o H goes to medical school while married. W supports the family during H’s
education. Community funds pay for H’s education. H is spending
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community time, talent, and labor to get an education. Divorce soon after
med school.
o W argues that the degree and medical license are community property so
she should be awarded part of his future earnings
 Court says it CANNOT award future earnings.
 This is too much like alimony.
 The degree and ability to practice in a particular field are not
property; they are part of the person.
 NY has held that degree was marital property and could award future
expected earnings but NOT IN TX
o W then argues for reimbursement
 Court says no reimbursement because reimbursement is when
community time & property is spent to enhance the value of separate
property, but here, there is no property!
 A degree is not property, so it hasn’t been “enhanced”
o Legislature responded by drafting §8.051  “spousal maintenance”
o One spouse may be required to pay another spouse for a period of
time to last no longer than three years.
o Spousal maintenance is a limited form of alimony.
Diminished Earning Capacity

 Issue Trigger  one spouse suffering a personal injury during marriage, which
results in a decrease in his or her future earning capacity.
 Rule: Tex. Fam. Code 3.001(c) states, “A spouse’s separate property consists of the
recovery for personal injuries sustained by the spouse during marriage, except any
recovery for loss of earning capacity during the marriage.”
o Does not distinguish between actual loss and future loss earning capacity.
 Graham v. Franco
o Contrary to rule of implied exclusion, recovery for personal injuries is injured
spouse’s separate property.
o BUT other forms of recovery such as medical expenses and loss of earning
capacity are community property
 No case on point yet to address if the medical expenses are paid with
out of separate property
 To award lost wages:
o Must first determine how much is ACTUALLY lost from the date of the
accident to the date of the jury award
o Also, the jury must determine how the injury will affect the spouse’s career,
But for the accident, how much more money would injured spouse have
made?
 If the jury awards $20 million for loss of W’s future earning capacity,
and H dies the next day leaving all to girlfriend:
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 Consistent with Nail & Frausto, W will argue that the loss
earnings are part of and unique to her. Statute says “during
marriage” so after the marriage, loss of future earnings will be
separate property.
 Loss of Consortium
o Rule: A spouse’s loss of consortium damages are that spouse’s separate
property.
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Retirement Plans (general)

 Most retirement plans are a form of “deferred compensation” offered by employers
to employees.
 The purpose of such benefits is to provide the employees compensation in a way
that defers taxation to the employer.
 Examples of retirement plans:
o Defined benefit plans
o Pension Plans
o Defined contribution plans
o Profit-sharing plans
o 401K plans (most common type):
 An employer, in effect, makes a contribution to an investment account
of the employee.
 This contribution has no immediate income tax repercussions on the
employee, but the employer is allowed to take a tax deduction based
on the amount contributed
 When the employer retires, he or she generally has the option to
receive the funds in a lump sum or an annuity, and then pays the
resulting income tax as received, or can roll it over into an IRA to
defer income tax consequences
 If the plan is a state of TX plan (like teachers), you have to look at TX legislature that
created the plan to determine if it can be divisible.
 Texas has a Public Retirement System
o Includes public school teachers
o Tex. Gov. Code §804.101  upon death of the spouse of a participant in the
public retirement system, the spouse’s community interest in the plan ceases
to exist.
o That is, a participant’s spouse has a “terminable interest”
 Participant’s interest in the plan belongs entirely to the participant
 §3.007 (Tex. Fam. Code)
o The separate property interest of a spouse in a defined contribution
retirement plan may be traced using the tracing and characterization
principles that apply to a nonretirement asset:
 “Defined Contribution Plan”  401K or another plan where employer
makes contribution to employee’s plan and decides how it is invested.
o Therefore, retirement benefits are characterized by “apportionment”
approach
 If earned before marriage, then separate property
 Employee has burden to trace his pre-marital contributions
and overcome community presumption
 If earned during marriage, then community property
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 So, on day H gets married, any 401K benefits earned from that
day forward are community property.
Federally Created Plans
 The federal government has created different types of retirement plans. Such plans
are not regulated plans but are governed by the federal legislation that created or
modified the plans. Federal law dictates the extent to which they are divisible by
state divorce courts or probate courts (and thus, marital property character does
not apply).
 Federal courts do not allow some plans/benefits to be divided in state divorce court:
o Railroad Retirement plans
o Social Security plans
o Veteran’s Administration Benefits
o Fleet Reserve Pay
o Military Readjustment benefits
 Some plans can be divided in state divorce court:
o Military retirement benefits
o Military disability
o Federal Worker’s compensation
o Civil service retirement pay
o Civil Service retirement disability payments
 Eichelberger v. Eichelberger
o Divorce case, SCOTx applying federal law (because of SCOTUS holding in
Hisquierdo). The RR retirement benefits in this case were community
property, but divorce court can’t divide it because the federal legislation
doesn’t allow courts to do so.
 NOTE: Federal legislature has since responded and allows state
divorce courts to divide military retirement benefits
ERISA – Federally Regulated Private Plans

 If Employee Retirement Income Security Act (ERISA) applies, it requires for many
retirement plans that the benefits be paid out in a Qualified Joint and Survivor
Annuity (QJSA) between the employee and the employee’s spouse.
o The employee would receive payments until death, and then the employee’s
spouse would receive the payments until death.
o The employee and his/her spouse may AGREE to opt out of the QJSA so the
employee can take:
 (1) A lump sum (subject to income tax)
 (2) A lump sum and roll it over into an IRA (there will be no income
tax on the amount until withdrawals are made, which must begin at
least by the time the employee is 70.5)
 (3) Some other type of annuity and receive annuity payments
 ERISA only applies while the employer is still working for the employer
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 Analysis:
o First: What law governs the plan? (state/ERISA)
o Second: What is the employee’s status?
 “Vested”  If employee dies/quits/gets fired, he still retains an
interest in the plan
 “Matured”  The employee has retired.
 Three possibilities:
 Neither vested, not matured
 Vested but not matured
 Vested and matured
o Third: Is this in the divorce or death context?
 If Texas plan, remember the general rules
 Divorce requires “just & right division”
 On death, DWAP of community property
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STAGE 1:
Interest in plan Not Vested, Not Matured (Interest is purely contingent on continued
employment. If employee is fired, quits, or dies  NO benefits)
Even though contingent, it is still property…
TX law calls for just and right division
+
ERISA says courts can divide but it requires QDRO (Qualified Domestic
Divorce Relations Order). Administrator only bound to follow terms of QDRO,
not just underlying divorce court order.
Note: Benefits accrued post-divorce are not part of the marital estate
and cannot be divided by the divorce court
 Means that non-participating spouse’s share must be limited to
what it was worth at the time of divorce
Plan is a nullity. Nothing happens because the employee’s interest was
Employee Dies contingent; there are no benefits to distribute! The interest reverts to
the employer.
Under TX law, DWAP occurs and deceased spouse would be entitled to
her ½ interest in employee’s retirement plan (TX doesn’t follow
terminable interest rule)…BUT FEDERAL LAW PREEMPTS
Non-Employee
Spouse Dies4 BOGGS case  federal law impliedly preempts TX law and prevents
DWAP – employee owns 100% of the plan because qualified benefits
exist only for employee and employee’s spouse (not supposed to be a
means of inheritance for heirs)
 Accordingly, federal law prohibits the spouse from assigning
her interest (because at her death, employee retains 100%)
4
ERISA doesn’t expressly address what happens when non employee spouse dies because in most states, the survivor keeps all
the benefits. Other jurisdictions have the “terminable interest rule”  upon death of non employee spouse, interest terminates
and plan belongs exclusively to employee
95
Stage 2:
Interest is Vested, Not Matured (Pre-retirement – employee is entitled to benefits but he
hasn’t died or retired yet)
Assuming benefits accrued during marriage…
TX law calls for just and right division
+
Divorce Federal law requires QDRO (Qualified Domestic Relations Order).
Administrator only bound to follow QDRO
Note: Benefits accrued post-divorce are not part of the marital estate
and cannot be divided by the divorce court
 Means that non-participating spouse’s share must be limited to
what it was worth at the time of divorce
Under TX law  DWAP…but ERISA preempts – always start analysis with
TX law
Qualified Pre-Retirement Spousal Annuity (QPSA, or QSA): surviving

Employee Dies spouse is entitled to QSA under federal law, which mandates that some
benefit will be paid to the surviving spouse, unless BOTH have agreed to
opt-out of the QPSA prior to employee spouse’s death.
**Spouses can opt out of the QSA provision but this requirements joinder
and consent of BOTH spouses**
Under TX law, DWAP occurs and deceased spouse would be entitled to
her ½ interest in employee’s retirement plan (TX doesn’t follow
terminable interest rule)…BUT FEDERAL LAW PREEMPTS
Non Employee BOGGS case  federal law impliedly preempts TX law and prevents
Spouse Dies DWAP – employee owns 100% of the plan because qualified benefits
exist only for employee and employee’s spouse (not supposed to be a
means of inheritance for heirs)
Accordingly, federal law prohibits the spouse from assigning her interest
(because at her death, employee retains 100%)
96
STAGE 3
Interest is Vested & Matured - Employee can retire and get benefits!!
FIRST, determine if employee is single or married.

If single… If married…
At retirement, the employee has three options: When employee retires, ERISA requires that
(1) Take out the benefit in a lump sum benefits must be paid out to employee and
(amounting to the total money in the the spouse (called Qualified Joint Survivors
plan) Annuity)
(2) Take out the benefit in the form of a
monthly annuity (insurance company **Employee and spouse can opt out of QJSA
gets the money and promises to pay a provision and request…
monthly sum for the rest of the (a) Another kind of annuity
employees life) (b) Lump sum
(3) Roll over the $$ into an IRA (individual (c) Roll over IRA account
retirement account)
a. Money goes from administrator
to custodian, who manages the
money for the employee
b. This defers income taxation until
employee actually withdraws the
money
Note: Must start withdrawing
at 70 ½ years old
**Once employee retires and takes out the benefits, ERISA no longer applies it becomes
purely a matter of state law **
QJSA Lump Sum Roll Over Other Annuity
Just and right Just and right Just and right Just and right
Divorce division under TX division under division under division under
law TX law TX law TX law
No DWAP, goes to DWAP, the lump DWAP unless Depends on the
Employee Dies surviving spouse, when sum is community there is a K in contract, what did
spouse dies, it goes property. which there is an the parties agree to
away. agreed POD do?
beneficiary
No DWAP because of DWAP unless DWAP unless DWAP unless there
spouse’s right of there is a there is a is a nonprobate K
Spouse Dies survivorship nonprobate K nonprobate K agreement that
agreement that agreement that controls the
97
controls the controls the disposition

disposition disposition
Gifts and Nonprobate Dispositions
Fraud on the Community
 Spouses have the right to gift/dispose of his or her special community property, but
each spouse has a duty not to commit fraud on the community in doing so.
o Issue Trigger  Spouse transfers Special Community property to a third party
without good & valuable consideration
 Fraud on the community is NOT an independent tort cause of action
o So, cannot get punitive damages. Can only get actual damages in the amount
that the fraud cost the community
 Remember, there are 3 kinds of community property:
o (1) Joint Community Property
 Requires joinder of both spouses
o (2) Wife’s Special Community Property
 Is under the sole management and control of W; however, W has a
duty not to commit a fraud on the community through a disposition of
that property because of the fiduciary relationship (Horlock).
 Exception: Homestead, which always requires joinder of both
spouses. Tex. Fam. Code 5.001
o (3) Husband’s Special Community Property
 Is under the sole management and control of W; however, W has a
duty not to commit a fraud on the community through a disposition of
that property because of the fiduciary relationship (Horlock).
 Exception: Homestead, which always requires joinder of both
spouses. Tex. Fam. Code 5.001
 Spouse claiming fraud on the community has the burden of proving actual fraud or
constructive fraud in establishing that the transfer was unfair.
o Actual Fraud  Must show an INTENT to deprive spouse of property
o Constructive Fraud  Equitable remedy for the breach of a duty
 A presumption of constructive fraud arises where one spouse
disposes of the other spouse’s ½ interest in CP without the other’s
knowledge or consent.
 Generally, spouse claiming constructive fraud must show that the
transfer was “unfair”. Factors to consider:
 (1) Size of gift to the total size of community estate
 (2) Adequacy of remaining estate
 (3) Relationship to done (girlfriend v. kids)
 (4) Timing of the gift (if right before filing for divorce, probably
unfair)
 Only a SPOUSE has standing to make this claim. Not kids.
98
 The duty not to commit fraud on the community is not a duty to make good
investments
o EX: If H invests $100k of special community property and the investment
tanks and he loses the money, that doesn’t necessarily give rise to a claim.
Remedies for Fraud on the Community

 §7.009 (Tex. Fam. Code)  ONLY IN DIVORCE COURT
o (a) In this section, “reconstituted estate” means the total value of the
community estate that would exist if an actual or constructive fraud on the
community had not occurred.
o (b) If the trier of fact determines that a spouse has committed actual or
constructive fraud on the community, the court shall:
 (1) Calculate the value by which the community estate was depleted
as a result of the fraud on the community and calculate the amount of
the reconstituted estate;
AND
 (2) Divide the value of the reconstituted estate between the parties in
a manner the court deems just and right.
o (c) In making a just and right division of the reconstituted estate under
Section 7.001, the court may grant any legal or equitable relief necessary to
accomplish a just and right division, including:
 (1) Awarding to the wronged spouse an appropriate share of the
community estate remaining after the actual or constructive fraud
on the community;
 (2) Awarding a money judgment in favor of the wronged spouse
against the spouse who committed the actual or constructive fraud on
the community;
OR
 (3) Awarding to the wronged spouse both a money judgment and
an appropriate share of the community estate.
 Remedies in DIVORCE context:
o Fraud is considered in the just & right division of the community estate.
 If there is not enough left in community estate, the court can award a
money judgment to the innocent party (which can be collected out of
wrongdoer spouse’s separate estate)
 If there is not enough in bad spouse’s separate estate, the
money judgment can be collected from a 3d party to whom the
fraudulent transfer was made by using a constructive trust
o Constructive trust creates an affirmative duty for the 3d
party to return the property to the constructive
beneficiary (the innocent spouse)
99
 In PROBATE context, the wronged spouse is awarded a money judgment that can be
collected from the bad spouse’s separate estate and their ½ of the remaining
community
o If that’s not enough, innocent spouse can impose constructive trust on the 3d
party who was unjustly enriched
Fraud on the community (death of H if H is bad)

 DWAP – W retains her ½ interest in remaining CP, H’s ½ passes to his heirs at law
subject to divestment by probated will
 Procedurally, W files suit against H’s estate seeking to recover for community funds
expended unfairly
o Will first seek to collect from H’s ½ interest in CP, then from H’s SP (if claim
cannot be satisfied from H’s ½ interest in CP)
 Maximum recovery: ½ of the community claim
Fraud on the community (death of W, but H was bad)

 DWAP – H retains his ½ interest in remaining CP, W’s ½ passes to her heirs at law
subject to divestment by probated will
 W’s successors-in-interest succeed to W’s fraud on the community claim and can
seek to recover ½ of community funds expended unfairly by H
 Maximum recovery: ½ of the community claim
Multi-Party Accounts
 §113.004 (Tex. Est. Code) – Types of accounts:
o Convenience account
 An account that is established by one or more parties in the names of
the parties and one or more convenience signers AND has terms that
provide the sums on deposit are paid or delivered to the parties or to
the convenience signers “for the convenience” of the parties
o Joint Account with Rights of Survivorship
 Multiple names on the account with rights of survivorship
 Note: different than a joint tenancy because joint tenancy creates joint
ownership during the life of both owners. Joint account simply creates
contractual right to make withdrawals and claim ownership upon the
death of the owner.
o Trust Account
 O goes to the bank and makes a deposit in O’s name as trustee/in trust
for B
 This is essentially a POD account
 Depositor owns the account as long as the depositor is still alive.
100
 Still community property that can be divided in just and right

division on divorce  Trustee doesn’t own anything, just has
an expectancy
o POD Account
 O’s account during O’s lifetime, but on O’s death is payable to B
§113.102 (TX Est. Code) Ownership of Joint Accounts During Parties’ Lifetime
 During the lifetime of all parties to a joint account, whether with survivorship or not,
the account belongs to the parties in proportion to the net contributions by each
party to the sums on deposit unless there is clear and convincing evidence of a
different intent
o Belongs to party that deposited into account.
Fraud on the Community Analysis w/ Multi Party Accounts

 Joint/Convenience account (With or w/o ROS)  EX: H opens an account “in the
name of H and his daughter” with community finds. Only H makes deposits and
withdrawals.
o (1) If H & W divorce…
 In a divorce setting, H owns the account because he is the only
depositor. Thus, a divorce court may make a just and right division of
the account because it is community property.
 If 3d party made deposits, then 3d party would have standing to get
the money out of the account.
 If 3d party made withdrawals, then there is potentially a fraud claim
because there has been a transfer of community property.
o (2) If W dies…
 DWAP occurs because H owns the account and it is presumptively
community property
 If 3d party made deposits, then 3d party would have standing to get
the money out of the account.
 If 3d party made withdrawals, then there is potentially a fraud claim
because there has been a transfer of community property.
o (3) If H dies…
 If the account has survivorship rights to Daughter….
 The account passes nonprobate to daughter
 At this point, there has been a transfer of community property
and W could bring a claim for fraud on the community against
H’s estate
 If NO survivorship rights…
101
 DWAP
 If 3d party made deposits, then 3d party would have standing
to get the money out of the account.
 If 3d party made withdrawals, then there is potentially a fraud
claim because there has been a transfer of community
property.
o (4) If Daughter dies…
 Daughter’s expectancy goes away and daughter doesn’t own anything
 POD Account  EX: H opens account with community funds “POD to 3d party.” Only
H makes deposits and withdrawals
o (1) If H & W divorce…
 In a divorce setting, H owns the account because he is the only
depositor. Thus, a divorce court may make a just and right division of
the account because it is community property.
o (2) If W dies…
 H owns the account because he is the only depositor. Thus, DWAP
occurs because the account was community property.
o (3) If H dies…
 Then account is payable to the 3d party.
 At this point, there has been a transfer of community property,
and W could bring a claim for fraud on the community against
H’s estate.
 Trust Account
o NOT a private express trust, simply treat as if it is a POD account
102
Life Insurance Policies

 The basics:
o Beneficiaries only have contractual rights, not property rights
o The insured agrees to pay premiums, and on insured’s death, the insurance
company pays the beneficiary
o A person must have an “insurable interest” in the insured’s life to purchase a
policy on another’s life and insured must have consented to taking out a
policy on his/her life
 Ex: A spouse has an insurable interest in other spouse’s life.
o Whoever purchases the policy, owns it. Ownership includes:
 (1) The right to designate and change the beneficiary
 (2) The right to select how funds are distributed
 (3) The right to cancel the policy at any time
 (4) The ability to borrow against the policy
 (5) Ownership can be assigned during the insured’s lifetime to
someone with an insurable interest in the life of the insured.
o The beneficiary is designated by the owner and can be changed by the owner
prior to owner’s death
 Beneficiary has an expectancy during insured’s life
 Change of beneficiary does not affect the ownership of the policy
 If beneficiary survives the insured, the proceeds pass nonprobate to
the beneficiary pursuant to terms of K
 If beneficiary dies before the insured & no other contingent
beneficiary survives the insured, the proceeds are distributed to the
owner
 If the insured was the owner, the proceeds become part of the
insured’s probate estate.
 Two types:
o Pure Term Policies
 O pays the premium and company pays liability at end of term.
 You pay for one term (ex: 1 year) and if you die during the term,
company pays the beneficiary
o Cash Value/Investment
 Build up cash value over time
 More expensive than pure term
 Pay premiums to build up value of what will be paid when insured
dies.
103
Three relevant time periods:
A B
I (Insured) O (Owner) B (Beneficiary)
Before point A:
 Only I has the right to purchase or
Date policy is consent to Date policy matures another’s
purchased (Insured’s death)
purchase of insurance on
I’s life by a third party
 If third party is purchasing insurance on I’s life, they need:
o I’s consent
AND
o An Insurable interest
After point A, before point B:

 Focus here is on OWNERSHIP
o Who owns the policy? Insured is usually the owner, but he can assign it to
someone else.
 If I is the owner of the policy, then proceeds of the policy will be subject to an estates
tax
 I often gives the policy to B, so that B will take the proceeds tax free.
 If I sells the policy, the proceeds will be subject to a tax
At point B:
 Focus is on the BENEFICIARY
 It no longer matters who O is, only who B is
 B must survive I to get the proceeds, if B does not survive I, then proceeds go to O
o If O & I are the same, then proceeds will go to I’s estate.
Characterization of Life Insurance Policies

 Rule: Life Insurance policies are property (Wallace v. Wallace)
 Rule: Policies are characterized as separate or community property using the
inception of title rule (McCurdy v. McCurdy)
o Thus, if ownership acquired before marriage, then separate property.
o If ownership acquired during marriage, then community presumption
applies but its character is ultimately determined by which funds were used
to pay the “initial premium”
 The owner may rebut the community presumption by proving with
C&C evidence that separate funds were used to pay the “initial
premium.”
104
If the policy is proven to be separate property, but community funds

were used to pay for subsequent premiums, then a right of
reimbursement exists.
o EXCEPTION  If a policy is a “pure term” policy, the policies character may
depend on the source of the most recent premium payment.
 No TX cases on point for this though
Transfer of Ownership Before Death of Insured:

 Rule: During the insured’s lifetime, if the insured owner of the policy transfers
ownership of the policy to a 3d party, the transfer may be a fraud on the community
if the policy was the insured’s SCP.
o Additionally, if it was separate property, the other spouse may have a claim
for reimbursement if any community funds had been used to pay any
premiums while the insured owned the policy.
 The payment of any premiums with community funds after the
transfer may be a fraud on the community
On Divorce:
 Rule: If the policy is community property, typically, in a just & right division the
policy is awarded to the insured spouse, but it may be awarded to the other spouse
if necessary to make a just and right division.
 Rule: If the policy is separate property, the court does not have authority to divide
it; however, if premiums were paid out of community property, then the community
would have a claim for reimbursement.
 §9.301 (TX Fam. Code)
o Whether the policy was separate or community, if the insured spouse retains
ownership by reason of divorce, the family code revokes any pre-divorce
designation of the other spouse as beneficiary, UNLESS:
 (1) The decree designates the former spouse as the beneficiary;
 (2) The insured re-designates the former spouse as the beneficiary;
OR
 (3) The former spouse is the trustee of the proceeds for the children
of either spouse.
o EXCEPTION  Egelhoff v. Egelhoff
 A state statute cannot void the policy’s designation of a beneficiary in
a group life insurance policy that is regulated by federal ERISA law
Death of Uninsured Spouse:

 Rule: If the policy is the insured’s separate property, it remains the insured’s
property, and the other spouse’s estate may have a claim for reimbursement if
premiums were paid out of community funds.
 Rule: If the policy is community property, DWAP. Surviving spouse retains ½
interest and decedent’s ½ interest passes to heirs/devisees.
105
o Deceased spouse’s heirs/devisees get undivided ½ interest and become

tenants in common with the insured spouse
 Heirs/devisees will need to demand partition to get their interest out
of the policy because if they don’t, the insurance company wont give it
to them because they interact and answer to only the insured.
Death of Insured Spouse:

 Rule: If there is a valid 3d party beneficiary designated, then the proceeds pass
nonprobate to the 3d party beneficiary.
o If the designated beneficiary is the insured’s spouse, then the proceeds
belong to the spouse whether the policy was community property or
separate property of the insured or the insured’s spouse.
 If the policy was the insured’s spouse’s separate property and
community funds used to pay premiums, then the insured’s estate
would have a claim for reimbursement.
o If someone else is the designated beneficiary, then the proceeds pass
nonprobate to the 3d party beneficiary.
 If the policy was the insured’s SCP, then the other spouse has a fraud
on the community claim.
 If policy was insured’s separate property, the other spouse may have a
claim for reimbursement if community funds were used to pay any of
the premiums.
 Rule: If the beneficiary predeceases the insured, and no other contingent
beneficiary survives, the insured, the proceeds are distributed to the owner.
o If the owner is the insured, then the proceeds become part of the insured’s
probate estate.
o If the policy was the insured’s separate property, then the proceeds pass to
the insured’s heirs and devisees leaving the spouse with a claim for
reimbursement if community funds were used on the premiums.
o If the policy was community property, then the proceeds DWAP and the
insured’s 1/2 interest in the proceeds are passed to his heirs and devisees.
 If the policy was community property, UNSETTLED TX issue:
Facts: Community property on H’s life, but insurance K says that on H’s death,
proceeds will be payable to H’s estate or how H designates on his will.
o Martin v. Moran
 Held that H cannot dispose of W’s ½ interest in the community
property proceeds. H only has testamentary power, as a matter of law,
over his 1/2. W gets ½ without having to please or prove FOTC
o Street v. Skipper
 This court says that it is an issue of fraud on the community and W
must please and prove fraud on the community.
ERISA Governed Life Insurance Policies:
106
 Scenario: The policy is a fringe benefit of the insured’s employment, thus the ER
owns the policy and the EE is the insured. This is a form of EE’s compensation, so if
EE is married, the policy is community property. (Note: Group Term Life Policies are
governed by ERISA)
o If ERISA applies, it pre-empts Texas law in this scenario. Thus, ERISA pre-
empts the EE’s spouse’s claim for fraud on the community if the EE
designates someone other than the spouse as a 3d party beneficiary because
ERISA requires proof of actual fraud rather than fraud on the community.
 Egelhoff – H had an ERISA-governed policy. The policy was community property and
H was the insured. Divorce court awards to H all policies on H’s life, and awards to
W all policies on W’s life. H, before divorce, designated W as beneficiary on the
ERISA policy, but never got around to changing the beneficiary after divorce. H died.
Although Tex. Fam. Code § 9.301 voids designations in favor of the now ex-spouse;
the Court held that ERISA preempts 9.301 and the ex-wife still gets the policy.
107
Death of Spouse
DWAP Death Works a Partition DWAP
Death v. Divorce
 Issues in Divorce Context
o (1) Characterization
 Rules are the same in probate & divorce court, still must characterize
as JCP, HSCP, WSCP, WSP, HSP
 Also can have quasi-community property
 Inventories are prepared by spouses or PRs
 Presumption of community property and Clear & convincing evidence
needed to overcome that rule
o (2) Spousal Maintenance
 Divorce court may award one spouse temporary support pending the
divorce or maintenance after the divorce
 Limited forms of alimony
o (3) Reimbursement
 Claim matures when marriage terminates
 Was property of one estate used to benefit another estate?
o (4) Fraud on the community
o (5) Wrongful Transfer Issues
 Did one spouse make an improper gift of community property to a 3d
party?
 If one party can prove actual fraud or constructive fraud, the
proper remedy will depend on the situation
o (6) Claims of Creditors
 Divorce has no effect on the claims of creditors
 Whatever asset a creditor could go after before divorce will remain
available after divorce
 Divorce court will allocate responsibility for the debts as part
of the divorce decree
o (7) Child Support
 Divorce court may order one spouse to pay other spouse child
support payments
o (8) Division of property
 Divorce court has authority to divide Community property in a just &
right division
 Issues in Death Context  Probate court has no authority to do just and right
division, must DWAP
o (1) Characterization
 Rules are the same in probate & divorce court, still must characterize
as JCP, HSCP, WSCP, WSP, HSP
 Inventories are prepared by spouses or PRs
108
 Presumption of community property and Clear & convincing evidence

needed to overcome that rule
 BUT there is NO quasi CP in probate courts
o (2) Spousal Maintenance
 No claims for spousal maintenance in probate court BUT a surviving
spouse may be entitled to family allowance
o (3) Reimbursement
 Claim matures on death
 Was property of one estate used to benefit another estate?
o (4) Fraud on the community
o (5) Wrongful transfer issues
 Did one spouse make an improper gift of community property to a 3d
party?
 If one party can prove actual fraud or constructive fraud, the
proper remedy will depend on the situation
o (6) Claims of creditors
 A personal representative of the decedent may conduct an
administration of the estate and is then charged with satisfying the
debts of the deceased spouse
o (7) Child Support
 No child support issues because a parent’s legal obligation to support
a child generally dies with the parent unless there is a pre-death
family court order, which becomes a claim against the decedent’s
estate
o (8) Division of property
 DWAP
 Community probate assets are partitioned
 Nonprobate assets pass under the contractual agreement, and probate
court generally does not have authority over those assets
Dissolution at Death
 Dead guys can’t own property!
 At spouse’s death, his property interest:
o (1) Ceases to exist
o (2) Passes probate (through a will or intestacy); or
o (3) Passes nonprobate
 Step one:
o Identify the character of the property (HSCP, WSCP, JCP, HSP, WSP)
o PR has the responsibility of identifying the property and then representing to
the probate court what is separate property and what is community
property. If the surviving spouse disagrees, she can litigate it.
 Step two:
o Identify what is probate and what is nonprobate property
109
 Rule: Community property CANNOT exist after the death of a spouse, so when one
spouse dies, the community property is DWAP’d
Probate v. NonProbate
Assume Husband has died…
Probate Assets Non Probate Assets
Like HSCP, H can designate a 3d party beneficiary. Will pass

Immediately vests in H’s heirs at law, subject according to the contract.
to total divestment by a will according to
HSP TEC §101.001 W will not have fraud on the community claim b/c this is not
community property. (BUT potential reimbursement claim if
community funds were used to benefit this property.)
** If ERISA regulated asset, W has a mandatory benefit**
DWAP – partition in fact of surviving Like HSCP, H can designate a 3d party beneficiary. Will pass
HSCP spouse’s interest and H’s successor’s interest according to the terms of the contract.
Community property CANNOT exist after If Surviving spouse is not the beneficiary, then SS may have a
the death of a spouse claim for fraud on the community.
DWAP – partition in fact of surviving Usually passes to the surviving spouse (W) because commonly,
spouse’s interest and H’s successor’s interest JCP nonprobate property is a joint account with ROS.
JCP
Community property CANNOT exist after But, if surviving spouse was not a party to the contract, then we
the death of a spouse have issues because in order to dispose of JCP, joinder of both
spouses is required.
DWAP – partition in fact of surviving H typically does not make nonprobate dispositions of WSCP, will
spouse’s interest and H’s successor’s interest usually pass to Wife (surviving spouse)
WSCP
Community property CANNOT exist after If ERISA governed retirement plan, ERISA pre-empts state law and
the death of a spouse the plan does not DWAP
WSP Will not be involved in H’s death unless H’s Will not be involved in H’s death unless H’s separate estate has a
separate estate has a claim for reimbursement claim for reimbursement for community funds used to enhance
for community funds used to enhance value value of WSP
of WSP
110
Testamentary Powers
 The decedent may devise the probate property to whomever the decedent wishes
o No forced heirship in TX
 If married, the decedent may only devise the decedent’s undivided ½ interest in the
community property, as well as his/her separate property
o Community property is DWAP’d
o Before death, spouse had right to dispose of 100% of SCP
 Hypo: Assume there are 3 community property assets. Black Acre (HSCP), White Acre
(JCP) and Pink Acre (WSCP). H attempts to deed/assign each to a different 3d party
(inter vivos)
o Black Acre  This is a valid disposition. However, H may eventually have to
answer to W for a fraud on the community claim
o White Acre  VOID disposition (even with respect to H’s ½). Made without
authority because it required joinder of W.
o Pink Acre  VOID disposition (even with respect to H’s ½). Made without
authority because it required joinder of W.
 Assume H dies and the disposition is through his will by saying, “I devise black acre to
my kids, and everything else to Baylor”
o Family code rules no longer applicable, switch to Estates code
o As soon as H died (DWAP), he only had testamentary power over his SP and
½ of the CP
o Kids only have a ½ interest in Black acre
o W retains her ½ interest in ALL three of the properties
Authority During Administration

 §453.002 (TEC)
o If a spouse dies intestate and the community property passes to the surviving
spouse, no administration of the community property is necessary
 §453.003 (TEC)  Powers of Surviving Spouse if no PR
o (a) If there is no qualified executor or administrator, the surviving spouse
may:
 (1) Sue & be sued to recover community property
 (2) Sell, mortgage, lease and otherwise dispose of community
property to pay community debts
 (3) Collect claims due to the community estate
 (4) Exercise other powers needed to:
 (a) Preserve the community property
 (b) Discharge community obligations
 (3) Wind up community affairs
 §453.009 (TEC)  control & possession during period of administration
o Surviving Spouse:
 Retains ownership & possession of his/her separate property
111
 Retains possession of his/her special community property BUT

ownership has already DWAP as matter of law
 Surviving spouse has a fiduciary duty to decedent spouse’s
heir/devisees in regards to their undivided ½ interest in the
community property
o PR
 Has control over decedent spouse’s separate property, special
community property AND the joint community property
 Has fiduciary duty to the beneficiaries of the estate and the
surviving spouse
o The surviving spouse can file a written instrument waiving right to exercise
any of the above powers as the community survivor. If surviving spouse does
file waiver, then the PR may administer entire community estate.
 PR’s Responsibilities in regards to decedent’s SP, SCP & the JCP:
o First, the PR must marshal the decedent’s assets and create an inventory and
appraisement according to TEC 309.051. Additionally the PR must file a
complete list of claims due or owing to the estate in accordance with TEC
309.052
o Next, the PR must satisfy the debts of the decedent pursuant to TEC 101.051.
o Finally, the PR must close the estate by distributing the remaining assets.
Closing involves partition in fact and a division of the estate. The PR must
deliver the surviving spouse’s 1/2 interest and get back any exempt
property.
Liabilities
 §101.051  On death, property vests according to §101.001 BUT is subject to the
payment of:
o (1) The debts of the decedent
o (2) Any court-ordered child support
 §101.052  Liability of community property for deceased spouse’s debts
(Family code governs when H&W are alive, but when one dies, the estate code governs)
o (a) Decedent’s SCP is subject to decedent’s debts
o (b) Decedent’s ½ interest in surviving spouse’s SCP is subject to decedent’s
debts
 If H incurs tort debt while alive, then 100% of WSCP is on the hook.
BUT when H dies, only ½ of WSCP is on the hook for H’s tort debts.
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Homestead, Exempt Property & Allowances

 Although the testator generally has complete testamentary power over a testator’s
separate property and 1/2 interest in his or her community property, the following
exceptions apply:
o Homestead Exception
 §102.002 (TEC)  Homestead rights not affected by character
 The homestead rights of the surviving spouse and children are
the same whether the homestead was decedent’s separate
property or was community property
 §102.003 (TEC)  Passage of homestead
 The homestead of a decedent who dies leaving a surviving
spouse descends and vests on the decedent’s death in the same
manner as other real property of the decedent and is governed
by the same laws of descent & distribution
o EX: If CP, then DWAP and is SP, passes to heirs/devisees
 §102.004 (TEC)  Liability of homestead for debts
 The homestead is NOT liable for the payment of any debts on
the estate, OTHER THAN:
o (1) Purchase money for the homestead
o (2) Taxes due on the homestead
o (3) Work & material lien
o (4) Owelty of partition…
o (5) The refinance of a lien against a homestead…
o (6) An extension of credit on the homestead…
o (7) A reverse mortgage
 §102.005 (TEC)  Prohibitions on partition of homestead
 The homestead may NOT be partitioned (in fact) among the
decedent’s heirs:
o (1) During the lifetime of the surviving spouse for as
long as the surviving spouse elects to use or occupy the
property as a homestead;
OR
o (2) During the period the guardian of the decedent’s
minor children is permitted to use and occupy the
homestead under a court order.”
 §102.006 (TEC)  When partition of homestead is authorized
 The homestead may be partitioned (in fact) among the
respective owners of the property in the same manner as other
property held in common if:
o (1) The surviving spouse dies, sells his or her interest in
the homestead, or elects to no longer use or occupy the
property as a homestead;
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OR
o (2) The court no longer permits the guardian of the
minor children to use and occupy the property as a
homestead.”
 NOTE on .005 & .006: We say (in fact) because if the homestead was
community property, then on that spouse’s death, we would have had a
partition by law because DWAP and decedent’s ½ interest passes to
heirs/devisees…subject to surviving spouses right of occupancy.
o Exempt Property
 §353.051  Property to be set aside
 During formal administration of the decedent’s estate, the
court may set aside for the use and benefit of the surviving
spouse up to $60,000 of tangible personal property of the
decedent’s
o Just “setting aside” this does not have anything to do
with actual ownership
 §353.152  Distribution of Exempt Property of SOLVENT estate
 If upon the closing of the estate the estate is solvent, the assets
that had been exempted are subject to partition and
distribution among decedent’s heirs
 §353.153  Title to property of INSOLVENT estate
 If upon the closing of the estate the estate is insolvent, the
surviving spouse is allowed to keep the exempted property.
o If insolvent, the property set aside in §353.051 is not
divested by the heirs/devisees; the family gets absolute
title!
o Family Allowance
 §353.101 (TEC)
 The probate court may award a family allowance to the
surviving spouse in an amount that is sufficient for their
support and maintenance for up to a one-year period.
o Support for surviving spouse, minor children &
incapacitated adult children
 Granting such an allowance is in the court’s discretion but NOT
allowed if the surviving spouse has adequate separate
property for support during formal administration
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Equitable Election
 Rule: If a beneficiary under the will accepts a benefit under the will, he or she must
accept the entire contents of the will including any detriment. (Dakan v. Dakan)
o There must be both a benefit and a detriment to the person put to an
election.
 Thus, the testator must have made a specific devise of the other
spouse’s 1/2 interest in the community property or the other spouse’s
separate property. (Because in a residuary devise, the testator is only
devising his or her own property).
 So, Spouse has two choices:
o (1) Refuse to take what is given under the will
OR
o (2) Take the specific gift in the will and agree to adopt testator’s intent with
regards to all other dispositions in the will
 Hypo: H & W are married with one son. The two significant assets of the marriage are
Black Acre and a $100k investment account (both are HSCP).
o (1) Will says: “I devise Blackacre to my son, and RRR to my wife.”
 Here, widow is put to an election.
 Under the will, she would be given husband‘s 1/2 of the investment
account, but forced to give up her 1/2 interest in BA (H has the power
but not the right to devise his SCP).
 If the wife wishes to keep her 1/2 interest in BA, she must disclaim
her RRR and claim and challenge.
o (2) Will Says: “I devise BA to my wife, and RRR to my son.”
 Here, the spouse gets H’s 1/2 interest in BA (and thus FS ownership),
and she also gets her 1/2 of the investment account.
 The son gets 1/2 of the investment account.
 Thus, the spouse is not put to an election in this example because the
RRR clause does not manifest specific intent to deprive the spouse of
her rightful property.
 Residuary clauses only dispose of decedent’s separate property
and ½ interest in the community property
 NOT A COMMON LAW “WIDOW’S ELECTION”
o In C/L widow’s election, the surviving spouse had a decision post-death to
either accept their statutory share (specific amount set by statute) or what
was left to him/her under the will
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Other Public Policy Restrictions

 Although the general rule in Texas is that the testator has an absolute grant of
testamentary power such that the testator can leave his or her property to anyone,
there are a few common law public policy restrictions on this grant.
o First, the common law protects the testator’s family from the extreme
capriciousness of the testator.
o Next, morte maine is a common law concept that limited the amount of
property that could be devised to charity in a deathbed will.
 Most states, including Texas, have eliminated this rule, but a few
states continue to recognize it.
 In addition, minor children, incapacitated adult children and surviving spouses may
be entitled to Family Allowance
Marital Deduction
 Federal Tax law concept
 Anything that passes to surviving spouse may qualify for a marital deduction which
may exempt the asset from tax liability
 Catch: when the surviving spouse dies and has not remarried, it does not qualify for
the marital deduction
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Transactions Between Spouses
TX Constitution Art. 16, sec. 15 (2000 – current version)

All property, both real and personal, of a spouse owned or claimed before marriage, and
that acquired afterward by gift, devise or descent, shall be the separate property of that
Defines SP spouse; and laws shall be passed more clearly defining the rights of the spouses, in
relation to separate and community property; provided that persons about to marry and Authorizes
spouses, without the intention to defraud pre-existing creditors, may by written pre-marital
instrument from time to time partition between themselves all or part of their property, partition &
then existing or to be acquired, or exchange between themselves the community exchange
interest of one spouse or future spouse in any property for the community interest of
Authorizes the other spouse or future spouse in other community property then existing or to be
spousal acquired, whereupon the portion or interest set aside to each spouse shall be and
partition & constitute a part of the separate property and estate of such spouse or future spouse;
exchange spouses also may from time to time, by written instrument, agree between themselves Spousal Income
agreement that the income or property from all or part of the separate property then owned or Agreement Rule
which thereafter might be acquired by only one of them, shall be the separate property
of that spouse; if one spouse makes a gift of property to the other that gift is presumed
Spousal to include all the income or property which might arise from that gift of property;
Donation Rule spouses may agree in writing that all or part of their community property becomes the Joint tenancy
with ROS
property of the surviving spouse on the death of a spouse; and spouses may agree in
writing that all or part of the separate property owned by either or both of them shall
Transmutation
be the spouses' community property.
Mere Agreement Rule

 The mere agreement rule is a fundamental principle that has evolved over the years
into the rule that spouses cannot enter into a transaction among themselves that is
inconsistent with Texas Constitution, Art. 16, Sec. 15.
 The Constitution has never prohibited transactions among spouses; they just cannot
engage in one that violates the community property system created in the
Constitution. For example:
o One spouse has always been able to give his or her interest in community
property to the other spouse so that it becomes the donee’s separate
property.
o They can exchange their community property asset for one spouse’s separate
asset.
o Separate property can become community property through voluntary or
involuntary commingling.
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Constitutional Changes
 Partition and Exchange Agreement (1948)
o Allows spouses to convert existing community property into separate
property
 Expanded Partition & Exchange Agreement (1980)
o Above rule was further expanded in 1980—spouses can also agree to
partition and exchange community property that will be acquired in the
future.
 So, it would come into the marriage as separate property
o Also from 1980, spouses can make premarital partition and exchange
agreements about property in the future that would otherwise be community
property
 Spousal Donation Rule (1980)
o If a spouse makes a gift to the other spouse, the gift itself is the donee
spouse‘s separate property.
o Under this rule, there is a rebuttable presumption that from the date of the
gift forward, any income the gift generates is also the donee‘s separate
property.
 If the donor spouse wishes to retain a community interest in the
income from the gift, the donor must evidence that intent at the time
of the gift.
 Spousal Income Agreement Rule (1980)
o Spouses may agree that income from a spouse‘s separate property will that
spouse‘s separate property
o Opened the door for effective Prenups
o This authorizes only SPOUSES, not people intending to marry
 Survivorship Agreements (1987)
o Spouses can agree that all or part of their community property would
become the property of the surviving spouse upon the death of the first
spouse.
o Free v. Bland:
 Cannot attach survivorship rights if property is governed under
federal law
 Transmutation agreements (2000)
o Spouses can agree that all or part of the separate property owned by either of
them would be the spouses‘ community property
 NOTE: Each of these amendments represents something new that spouses may do. ,
it is now possible in Texas either in a properly drafted premarital or marital
agreement to create an entirely “community-free marriage.” In other words, couples
now have the opportunity to effectively opt out of the community property system.
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Premarital Agreements
 “Uniform Premarital Agreement Act”
o Chapter 4 of the Texas Family Code
 §4.001 (TFC)  Definitions
o (1) “Premarital agreement” means an agreement between prospective
spouses made in contemplation of marriage and to be effective on marriage.
o (2) “Property” means an interest, present or future, legal or equitable,
vested or contingent in real or personal property, including income and
earnings.
 §4.002  Formalities
o A premarital agreement must be in writing and signed by both parties. The
agreement is enforceable without consideration.
 §4.003  Content
o Must read within the parameters of Art. 16 & Arnold v. Leonard  Statute
unconstitutional if it does something the constitution does not authorize.
 Premarital agreements cannot violate TX constitution
o The parties to a premarital agreement may contract with respect to:
 (1) The rights and obligations of each of the parties in any of the
property of either or both of them whenever and wherever acquired
or located;
 (2) The right to buy, sell, use, transfer, exchange, abandon, lease,
consume, expend, assign, create a security interest in, mortgage,
encumber, dispose of, or otherwise manage and control property;
 (3) The disposition of property on separation, marital dissolution,
death, or the occurrence or nonoccurrence of any other event;
 (4) The modification or elimination of spousal support;
 (5) The making of a will, trust, or other arrangement to carry out the
provisions of the agreement;
 (6) The ownership rights in and disposition of the death benefit from
a life insurance policy;
 (7) The choice of law governing the construction of the agreement;
AND
 (8) Any other matter, including their personal rights and obligations,
not in violation of public policy or a statute imposing a criminal
penalty.
 §4.004  Effect of Marriage
o A premarital agreement becomes effective on marriage
o Not enforceable until parties are married
 §4.005  Amendment or revocation
o After marriage, a premarital agreement may be amended or revoked only by
a written agreement signed by the parties.
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o The amended agreement or the revocation is enforceable without

consideration.
 §4.006  Enforcement
o (a) A premarital agreement is not enforceable if the party against whom
enforcement is requested proves that:
 (1) The party did not sign the agreement voluntarily; or
 (2) The agreement was unconscionable when it was signed and,
before signing the agreement, that party:
 (A) Was not provided a fair and reasonable disclosure of the
property or financial obligations of the other party;
 (B) Did not voluntarily and expressly waive, in writing, any
right to disclosure of the property or financial obligations of
the other party beyond the disclosure provided; and
 (C) Did not have, or reasonably could not have had, adequate
knowledge of the property or financial obligations of the other
party.
 (b) An issue of unconscionability of a premarital agreement shall be
decided by the court as a matter of law
 (c) The remedies and defenses in this section are the exclusive
remedies or defenses, including common law remedies or defenses.
o ** This statute puts the burden of proof on the party asserting that the
agreement is not enforceable
 The agreement does not need to be fair so long as both parties enter
into the contract voluntarily and was done with full disclosure.
 Designed to be a matter of law, the juries do not decide.
 No common law defenses under contract law
 §4.007  Void Marriage
o “If a marriage is determined to be void, an agreement that would otherwise
have been a premarital agreement is enforceable only to the extent necessary
to avoid an inequitable result”
 §4.008  Limitation of actions
o A statute of limitations applicable to an action asserting a claim for relief
under a premarital agreement is tolled during the marriage of the parties to
the agreement
 However, equitable defenses limiting the time for enforcement,
including laches and estoppel, are available to either party.
Transfers Between Spouses

 §4.102 (TFC)  partition or Exchange of Community Property
o Codification of partition and exchange agreement discussed above
120
o “At any time, spouses may partition or exchange between themselves, all or
part of their community property, then existing or to be acquired.
 Property transferred becomes that spouse’s separate property.
 May also provide that future earnings and income arising from
transferred property shall be separate property of the owning spouse
o Featherston says this provision should not be interpreted to allow a partition
where one spouse gets everything.
 §4.103 (TFC)  Agreement between spouses concerning income or property
from separate property
o Codification of spousal income agreement rule discussed above.
o This section really just authorizes a gift from one spouse to the other, nothing
is really being exchanged
 §4.104 (TFC)  Formalities
o A 4.103 or 4.104 agreement must in writing and signed by the parties to the
agreement.
o Additionally, either agreement is enforceable without consideration!
 Featherston questions the constitutionality of this because Texas
provides for partition and EXCHANGE. Thus, each spouse must get
something.
 §4.105 (TFC)  Enforcement
o (a) A partition or exchange agreement is not enforceable if the party against
whom enforcement is requested proves that:
 (1) The party did not sign the agreement voluntarily; OR
 (2) The agreement was unconscionable when it was signed and,
before execution of the agreement, that party:
 (A) Was not provided a fair and reasonable disclosure of the
property or financial obligations of the other party;
 (B) Did not voluntarily and expressly waive, in writing, any
right to disclosure of the property or financial obligations of
the other party beyond the disclosure provided; and
 (C) Did not have, or reasonably could not have had, adequate
knowledge of the property or financial obligations of the other
party.
o (b) An issue of unconscionability of a partition or exchange agreement shall
be decided by the court as a matter of law.
o (c) The remedies and defenses in this section are the exclusive remedies or
defenses, including common law remedies or defenses.
 §4.106  Rights of Creditors
o A provision of partition or exchange is void with respect to the rights of a
preexisting creditor whose rights are intended to be defrauded by it
 §4.202 (TFC)  Agreement to Convert to Community Property
o At any time, spouses may agree that all or part of the separate property
owned by either or both spouses is converted to community property.
121
o Codification of transmutation concept

 Can transmute separate property to community property
 §4.203 (TFC)  Formalities Agreement
o (a) An agreement to convert separate property to community property:
 (1) Must be in writing and:
 (A) Be signed by the spouses;
 (B) Identify the property being converted; and
 (C) Specify that the property is being converted to the spouses'
community property; and
 (2) Is enforceable without consideration.
o (b) The mere transfer of a spouse's separate property to the name of the
other spouse or to the name of both spouses is not sufficient to convert the
property to community property under this subchapter.
o ** The formalities are more onerous in this context because the legislature
was concerned about persons being duped into converting separate into
community property
 §4.204 (TFC)  Management of Converted Property
o This section simply confirms that if separate property is converted to
community property, the converting party can designate it as special
community property.
 §4.205 (TFC)  Enforcement
o (a) An agreement to convert property to community property under this
subchapter is not enforceable if the spouse against whom enforcement is
sought proves that the spouse did not:
 (1) Execute the agreement voluntarily; or
 (2) Receive a fair and reasonable disclosure of the legal effect of
converting property to community property. . .
Rights of Third Parties

 A transmutation of separate property into community property cannot affect the
rights of preexisting creditors.
o Likewise, an agreement during marriage to partition and exchange
community property is void with respect to the rights of preexisting
creditors. See Texas Family Code §§ 4.206, 4.106.
o A partition and exchange in response to a general risk of liability is not
fraudulent; but in response to a specific existing liability, it is fraudulent.
 In addition, creating survivorship rights between each other as to their community
property does not discharge a spouse’s debts at his or her death. See Texas Estates
Code § 112.252.
o Spouses can avoid DWAP and property will pass non-probate to surviving
spouse
122
o Even if they do attach survivorship rights, the asset is still community

property and it does not affect the management and control of the property
during the marriage
o Also cannot prejudice existing creditors
Hilley & Anti-Hilley Amendment (1987)

 Hilley said that it was unconstitutional to attach survivorship rights to community
property without partitioning the property and then agreeing to survivorship rights;
however, the 1987 amendment to the Tex. Const. allowed this. Further it has been
codified:
o TEC 112.051 – Agreement for Right of Survivorship in Community
 At any time, spouses may agree between themselves that all or part of
their community property, then existing or to be acquired, becomes
the property of the surviving spouse on the death of a spouse.
o TEC 112.052 – Form of the Agreement
 (a) A community property survivorship agreement must be in writing
and signed by both spouses.
 (b) A written agreement signed by both spouses is sufficient to create
a right of survivorship . . . if the agreement includes any of the
following phrases:
 (1) “With right of survivorship”
 (2) “Will become the property of the survivor”
 (3) “Will vest in and belong to the surviving spouse”; or
 (4) “Shall pass to the surviving spouse” . . . .
o TEC 112.151 – Ownership and Management During Marriage
 Attaching right of survivorship to community property does not affect
its marital character or management (E.g. JCP; HSCP; WSCP)
o TEC 112.152 – Nontestamentary Nature of Transfers
 This just confirms that right of survivorship agreements make
property pass non-probate, and thus not subject to DWAP.
Retroactive Application
 Beck v. Beck
o Issue: Do we apply law at the time of agreement or when the agreement is at
issue?
o Prior to 1980 amendment, couple entered into an agreement that income
would remain separate property
 Prior to 1980 divorce  would be invalid/void
 Post 1980 divorce  agreement is valid
123
 Hypo: W died in 2014 and devises all property to her boyfriend. Deed by grantor to
H&W was w/ ROS but was issued prior to 1980. (only grantor signed)
o 1987 Amendment does NOT apply retroactively because the spouses did not
both sign the agreement
o House will DWAP upon W’s death
Type of Agreement/Rule
Pre-marital Prior to marriage, couples can agree that any property acquired during marriage shall be separate property
partition &  Can identify possible sources of property (salary, income, etc).
exchange
agreement Uniform Premarital Agreement Act5
 ***This must be in the form of a “partition & exchange agreement”***
 Defines property as “an interest, present or future, legal or equitable, vested or contingent, in real or personal
property, including income and earnings
 Formalities: (1) agreement must be in writing & (2) singed by both parties. It is enforceable without
consideration
 The parties can agree to almost anything except: (1) things contrary to TX Constitution art. 16, sec. 15; (2) right
of a child to support may not be adversely affected; (3) agreement can’t be contrary to public policy
 The premarital agreement becomes effective upon marriage
Note: this partition does not have to be equal

Spousal Spouses can agree to change community property, existing or to be acquired, into separate property as they desire
partition &  May also provide that future earnings and income arising from the transferred property shall be the SP of the
exchange owning spouse
agreement  Formalities: (1) agreement must be in writing & (2) singed by both parties. It is enforceable without
consideration
A provision of a partition & exchange agreement is void with respect to the rights of a preexisting creditor whose
rights are intended to be defrauded by it
Spousal Spouses can agree that income from separate property will remain separate property
Income  Formalities: (1) agreement must be in writing & (2) singed by both parties. It is enforceable without
Agreement consideration
Rule
Traditionally, income from SP = CP
Spousal If one spouse makes a gift of property to the other spouse, the gift is presumed to include all the income and
Donation Rule property that may arise from that property
 But donor can expressly retain community interest in income
Transmutation Spouses agree in writing that all or part of the separate property owned by either of them shall be the spouses’
agreement community property
 Formalities: (1) agreement must be in writing; (2) signed by both parties; (3) identify the property being
converted; & (4) specify that the property is being converted to the spouses’ community property. It is
enforceable without consideration.
124
o The mere transfer of a spouse’s SP to the name of the other spouse or to the name of both spouses is
NOT sufficient to convert property to CP
 Default rules for management of converted property - can alter this in the agreement
o Sole management of spouse in whose name property is held
o Sole management of spouse who transferred property if there is no evidence of ownership
o Joint management if property is held in the name of both spouses
o Joint management if no evidence of ownership and property was owned by both spouses before
conversion
CP has tax benefits

Joint tenancy At any time, spouses may agree between themselves that all or part of their community property, then existing or
with ROS to be acquired, becomes the property of the surviving spouse on the death of a spouse 6
agreement  This property continues to be CP and & right of management remains the same
 Formalities: (1) agreement must be in writing; (2) signed by both parties; and (3) must include one of the
following phrases in order to create ROS:
o “with right of survivorship”
o “will become the property of the survivor”
o “will vest in and belong to the surviving spouse”
o “shall pass to the surviving spouse”
 A survivorship agreement will not be inferred from mere fact that the account is a joint account of that the
account is designated as JT TEN, Joint Tenancy, or joint, or with other similar language
o Under common law  “joint tenancy” creates ROS
Consequences: Avoids DWAP
6
This process used to require two steps:
(1) Partition and exchange agreement converting CP into SP
(2) Second agreement converting SP into joint tenancy with ROS (in writing!)
125
126
TRUSTS
The Private Express Trust
 Definition 
o §111.004 (Tex. Trusts Code)
 “Express Trust” means a fiduciary relationship with respect to
property which arises as a manifestation by the settlor of an intention
to create the relationship and which subjects the person holding title
to the property to equitable duties to deal with the property for the
benefit of another person.
 Express trusts are created by agreements
 Creates a relationship between co-owners of property
 Relationship exists by a manifestation of intent by settlor to
create fiduciary relationships and subjects the person holding
title to the property to equitable duties to deal with the
property for the benefit of another person
 “Property” means any type of property, whether real, tangible or
intangible, legal, or equitable, including property held in any digital or
electronic medium. The term also includes choses in action, claims,
and contract rights, including a contractual right to receive death
benefits as designated beneficiary under a policy of insurance,
contract, employees’ trust, retirement account, or other arrangement.
 Very broad definition of property
o §111.003 (TTC)
 “ . . . A trust is an express trust only and does not include:
 (1) A resulting trust; (imposed by courts)
 (2) A constructive trust; (imposed by courts)
 (3) A business trust; or
 (4) A security instrument such as a deed of trust, mortgage, or
security interest as defined by the Business & Commerce
Code.”
 An Entity or Not
o A trust is not an entity; rather, a trust is a fiduciary relationship and form of
co-ownership of property.
o Further, a trust cannot be a party to litigation.
 Parties
o “Trustee”  takes legal title to the property (and holds property in trust)
o “Beneficiary”  takes ownership of equitable title
o “Settlor”  means a person who creates a trust or contributes property to a
trustee of a trust.
 If more than one person contributes property to a trustee of a trust,
each person is a settler of the portion of the property in the trust
attributable to that person’s contribution to the trust.
 The terms “grantor” and “trustor” mean the same as “settlor.”
 Can create a trust (1) in settlor’s will (testamentary trust) (2) or in his
lifetime by deed or assignment or declaration (inter vivos trust)
Settlor passes
property in fee
simple Trust
property
(Corpus or
Res)
Trustee – Legal Title; Beneficiaries – Equitable Title

Impressed with fiduciary (present & future interest)
duties to act in the sole
interests of the beneficiaries
 Inter Vivos Trusts

o Trust created by the settlor while the settlor is alive (legal and equitable title
must be transferred during the settlor’s lifetime).
 Revocable – Settlor may amend the terms of the trust or revoke the
trust.
 Irrevocable – Settlor may not amend the terms of the trust or revoke
the trust.
 Testamentary Trusts
o Trust created by the settlor in the settlor’s will; settlor is the testator.
 Constructive and Resulting Trusts
o Constructive Trust
 A constructive trust is an equitable remedy, created by the court for
the limited purpose of getting property to the right owner.
o Resulting Trust
 The term used when an express trust fails because the trust no longer
has a valid purpose or because the trust no longer has a valid
beneficiary.
 It is a reversionary interest in the settlor/grantor.
Comparisons
Third Party Beneficiary Contract  Ex: Life Insurance Policy
 The transaction is between the insured, the insurance company, and beneficiaries -
All relationships are purely contractual, not fiduciary.
 Further, there is no separation of legal and equitable title.
o During the insured’s lifetime the owner insured owns the policy.
o The beneficiary has a mere expectancy interest during the insured’s lifetime
that does not mature into a property interest until insured’s death.
Bank Accounts
 Bank owns money on deposit payable to you on demand.
o Simply a debtor/creditor relationship formed.
o No fiduciary duty.
 Further, there is no separation of legal and equitable title.
 If a POD account, 3d party beneficiary still only has a contractual expectancy interest
in the money, not a property interest.
o POD does not separate legal & equitable title
 O owns the account, B has mere expectancy, but doesn’t own anything
 What if account is “O in trust for B”?
o Multiparty Bank Account Rules
 Belongs to trustee during trustee’s lifetime
 Money in the account belongs to bank
 B only has an expectancy (must survive T to take)
o This would NOT be an express trust
“Totten” Trusts/Trust Accounts

 These are governed by TEC 113.104, and treated as a POD account.
 Old NY case that held under NY law trust law that trust law would attach when O
deposited into the bank with trustee
o TX did NOT follow this rule and now the case has become moot since
legislature has since passed multiparty account legislature
Deeds of Trust
 Deeds of trust designate a trustee who may sell the property in the event of non-
payment on a loan. There is no ongoing fiduciary relationship present.
o Buyer is the grantor and a financial institution/lender is the trustee
o Is a security interest & on default, the trustee can sell the property
o NOT an express trust
 Note: Sometimes a settlor will call the document stating the terms of trust a “deed of
trust.” Must actually look at the terms rather than just the title.
o Does it actually give legal and equitable title?  Trust
Equitable Charge
 Ex. O’s will: “I devise BA to A, provided that he pays B $1000/month for 5 years.”
o The intent manifested in the document must be to grant legal title of the
property to the trustee to hold in trust for the beneficiary.
 That intent is not present in this example.
 It creates a debtor/creditor relationship between A & B rather than a
fiduciary relationship.
 No separation of equitable & legal title (A has fee simple)
o B has an equitable charge in the event that A does not pay.
 By accepting the property, A assumes contractual obligation with
equitable charge on the property to ensure that B gets paid
 In an express trust situation, the trustee is holding and managing the property for
the benefit of the beneficiary
o Both legal & equitable title have been divided
Principal/Agent
 In this situation, there is a fiduciary relationship between the principal and the
agent; however, the difference between this relationship and a trust relationship
boils down to the principal’s/settlor’s intent. This is a fact question.
 Hypo: Office employees’s give money to A to buy wedding gift for B. A buys a gift,
ships the package to B and fails to insure it. The package is lost. Does the bride have
standing to sue A for breach of fiduciary duty (Trust)? Do the employee’s have
standing to sue A for breach of fiduciary duty (agency relationship)? There are three
possibilities here for the employee’s intent, and the fact finder would have to decide:
o Employees to A for the benefit of B? (Trust) – in this case, B would have
standing.
o Employees to A to purchase a gift? (Agency) – in this case, EEs would have
standing
 This is the most likely scenario but boils down to a finding of fact
o Employees to A as an outright gift – no one would have standing. (But this
isn’t likely)
 At the time of the transaction, did the transferor intend to place ownership in the
trustee for the benefit of the third party?
o YES  Trust
o NO, intent was to place ownership in T for benefit of themselves 
Agent/principal
Bailor/Bailee
 Ex: coat check at a restaurant
 In these types of relationships, there is no transfer of ownership
o No division of legal & equitable title
o This is just a contract relationship
T.U.T.M.A  TX Uniform Transfers to Minors Act
 If owner of property transfers property from one adult to another adult and the
transferor manifests intent to transfer property to the other “as a custodian” for the
benefit of a minor. This has the following result:
o Creates a custodianship
o Ownership is vested in the minor (no separation of legal and equitable title)
 Custodian merely has possession of the property with a fiduciary duty
to hold and manage until 18
 A cross between a guardianship of estate and a trust
o In a guardianship of an estate, the child or incapacitated adult has ownership.
o Guardian is entitled to possession and has duty (fiduciary) to manage for
child
 Unique statutory concept because custodian is a fiduciary
o Technically the minor still owns the property, but the custodian has
possession
Life Estates/Remainders
 Rule (Using Example): Life tenants owe common law duty not to commit waste; life
tenants do not have fiduciary duties to the remaindermen. “A to B for life,
remainder to C.”
o A has a life estate; B has an indefeasibly vested remainder.
o A does not have any fiduciary duties to B. A simply has the duty of all life
tenants not to commit waste.
o A does not have the power to sell the property; A may only sell his life estate.
This may be changed by the express terms of the document granting A’s life
estate.
 Exception (Tex. Prop. Code 5.009):
o (a) Subject to Subsection (b), if the life tenant of a legal life estate is given the
power to sell and reinvest any life tenancy property, the life tenant is subject,
with respect to the sale and investment of the property, to all of the fiduciary
duties of a trustee imposed by the Texas Trust Code or the common law of
this state.
o (b) A life tenant may retain, as life tenancy property, any real property
originally conveyed to the life tenant without being subject to the fiduciary
duties of a trustee; however, the life tenant is subject to the common law
duties of a life tenant.
 Perfect Union Lodge No. 10 v. Interfirst Bank of San Antonio :
o Lumpkin left the following devise in his will: “My said Executors shall
handle my estate during the life of my wife, Cornelia Lumpkin and as long
thereafter as may be reasonably necessary to carry out the terms of this my
Will. . . I hereby confer upon them all such powers as are given to Trustees
under and by virtue of the provisions of the Texas Trust Act.”
o The Court held that this created a testamentary trust because the language
conferred more than normal duties on the Executors (Normally, executors
simply have the duty to administer the will during the probate period – Here,
they have more).
 Focus is on manifestation of intent that creates a fiduciary
relationship whereby one party is to control and manage the property
of another party
 Here there was a manifestation that the executors not merely
marshal the assets and pay debts, but to manage the assets
throughout W’s life
 INTENT of testator controls
 Can only look to 4 corners of the will and therefore no extrinsic
testimony allowed to determine intent
 Fiduciary relationship creates division of legal & equitable title
 Trustee  executors
 Settlor  Husband Lumpkin
 Beneficiary  Wide
o Featherston likes the Court’s explanation of the law:
 “The cardinal rule for construing a will requires that the testator’s
intent be ascertained by looking to the provisions of the instrument as
a whole, as set forth within the four corners of the instrument. The
court shall effectuate that intent as far as legally possible. . . A
testamentary trust is created through a transfer by will by the owner
of property to another person or persons as trustee for a third person
or persons. Implicit in this statutory definition is the requirement of a
trustee with administrative powers and fiduciary duties. Even more
fundamental than this, it is well established that the legal and
equitable estates must be separated; the former being vested in the
trustee and the latter in the beneficiary. Technical words of
expression are not essential for the creation of a trust. To create a
trust by a written instrument, the beneficiary, the res, and the trust
purpose must be identified. It is not absolutely necessary that legal
title be granted to the trustee in specific terms. Therefore, a trust by
implication may arise, notwithstanding the testator‘s failure to convey
legal title to the trustee, when the intent to create a trust appears
reasonably clear from the terms of the will, construed in light of the
surrounding circumstances.”
 Lewis:
o Mr. Lewis’ will grants to Mrs. Lesikar and Mrs. Rappeport each an undivided
one-half interest in the residuary estate “for her use and benefit during her
natural life . . . .” The will further provides that each shall “preserve the
corpus of the Estate so bequeathed to them for their lives . . . and shall not
invade such corpus . . . .” Must understand the key differences between this
case and Lodge:
 The will specifically designates the interests as ―life estates, and in

numerous places uses words, which are peculiarly descriptive of such
estates.
 The fact that the life estates are undivided interests in the same
property presents no problem. A life estate may be devised to two or
more persons as co-tenants. Further, a power of sale may validly be
vested in a life tenant, and is not repugnant to the life estate.
 The powers given by the will to manage and control the property
during the devisees‘ lifetimes is nothing more than the usual power of
life tenants to operate, manage and use the property.
 The fact that Lewis created in the same will a testamentary trust for
his grandchildren indicates that he knew how to create such a trust if
he desired, and reinforces the conclusion that he did not intend to
create one for his daughters.
Essential Elements
(1) Purpose
 Rule: The settlor must manifest a valid purpose for the separation of legal and
equitable title.
o Without a purpose, trust is passive (See infra Intent/Active/Passive).
o A court may not interject a purpose when one is absent.
o “To A as trustee for B” is a passive trust, we have separation of legal &
equitable title but no evidence of purpose
 Legal and equitable title automatically merge on language of a passive
trust and B gets legal and equitable title now.
 TTC 112.031 – Trust Purposes
o “A trust may be created for any purpose that is not illegal. The terms of the
trust may not require the trustee to commit a criminal or tortious act or an
act that is contrary to public policy.”
(2) Capacity  Settlor Must be Competent

 Intervivos Trust
o Settlor must have the capacity to make an outright inter vivos gift of the
property.
 The same thing as the capacity to contract.
 Testamentary Trust
o Settlor must have the requisite testamentary capacity (The testator must
understand the nature of her transaction (Testamentary document);
understand the nature and extent of the property; and understand the nature
and extent of the objects of her bounty (Devisees)).
(3) Trust must have Trustee

 A trustee is required because the trustee holds legal title.
 Trust will not fail for lack of a trustee. Courts try to do what is fair depending on the
situation:
o Testamentary Trusts:
 Example 1: O devises in will “BA to A in trust for B, for A to hold and
manage until B reaches 21 years of age.” O dies. Will is admitted to
probate and Executor finds out that A predeceased O. A can’t be
trustee (because he would hold legal title and dead guys can’t own
property!). Court of equity will try to carry out O’s intent and won’t let
the trust fail for lack of trustee; court will appoint a trustee (likely to
be the Executor if no alternative trustee listed in the will).
 Example 2: Same facts, but A survives O. At the time of T’s death, B is
10 years old. When B is 15 years old, A dies. At A’s death, A’s legal FSA
title passes to A’s heirs and devisees. Because it was not the testator’s
intent for A’s heirs to be the trustees, a court of equity will appoint a
new trustee.
o Inter Vivos Trust

 Example : O creates a deed that says “BA to A in trust for the benefit of
B, until B reaches 21 years of age” and O dates the deed. This is the
same language as in previous examples but now it is an intervivos
transfer. *Remember, intervivos conveyances require: 1) intent; 2)
delivery; and 3) acceptance.* Now, suppose O tries to deliver to A and
A says “No! I refuse to accept the deed!” In this case, there has been
no delivery. If O goes home and dies and the next morning O is found
gripping the deed and his will which devises all property to Baylor,
there is no valid trust (because no delivery), and thus Baylor would
receive all of O’s property.
 Choosing the Trustee
o The trustee must have the legal capacity to take, hold, and transfer the trust
property. If the trustee is a corporation, it must have the power to act as
trustee in this state.
 *Note: Must look to the certificate of formation to see if the corp. is
authorized to serve as a trustee!
o (b) Except as provided by 112.034, the fact that the person named as trustee
is also a beneficiary does not disqualify the person from acting as a trustee if
he is otherwise qualified
 *Note: If only one beneficiary (the trustee), then there would be
merger, and thus not a valid express trust. This provision allows the
trustee to have capacity if he is a beneficiary under the trust and there
are also other beneficiaries.
o (c) The settlor of the trust may be the trustee of the trust.
 *Ultimate Capacity Inquiry: Does T have capacity to hold and
competence to manage? Capable of taking legal title? Capable of
managing property?
o Example: What if A, after designated as a trustee when he had the requisite
capacity, has a sudden stroke and no longer has capacity? The Court will
appoint a new trustee. Again, the court will not let the trust fail for lack of a
trustee.
 Acceptance
o TTC § 112.009—Acceptance by Trustee:
 (a) The signature of the person named as the trustee on the writing
evidencing the trust or on a separate written acceptance is conclusive
evidence that the person accepted the trust. A person named as
trustee who exercises power or performs duties under the trust is
presumed to have accepted the trust, except that a person named as
trustee may engage in the following conduct without accepting the
trust:
 (1) Acting to preserve the trust property if, within a reasonable
time after acting, the person gives notice of the rejection of the
trust to:
o (A) The settlor; OR

o (B) If the settlor is deceased or incapacitated, all
beneficiaries then entitled to receive trust distributions
from the trust; AND
 (2) Inspecting or investigating trust property for any purpose,
including determining potential liability of the trust under
environmental or other law.
 (b) A person named as trustee who does not accept the trust incurs no
liability with respect to the trust.
 (c) If the person named as the original trustee does not accept the
trust or if the person is dead or does not have capacity to act as
trustee, the person named as the alternate trustee under the terms of
the trust or the person selected as alternate trustee according to a
method prescribed in the terms of the trust may accept the trust. If
the trustee is not named or if there is no alternative trustee
designated or selected in the manner prescribed in the terms of the
trust, the court shall appoint a trustee on a petition of any interested
person.
o Example: O in his will names A as trustee for benefit of B. Executor goes to
deliver and A refuses to accept. A still has legal title (Relation back) unless
disclaimed under TEC 122.002. But A only becomes a fiduciary by accepting
the role; O cannot force A to accept! Remember, the court won’t let the trust
fail for lack of a trustee, so the court will appoint a successor to take A’s place.
o Hypo: O executes a deed, purporting to convey black acre in trust to A for B to
hold & manage until B turns 21. A refuses to accept the deed and then O dies
overnight.
 There has been no delivery and acceptance! Which is required for an
inter vivos trust, so black acre will pass according to O’s will.
o Hypo: Same facts except O appointed A to be trustee in his will.
 A can disclaim being trustee & legal title will pass to O’s devisees, and
equitable title will still go to B
 Court will appoint trustee because there have been
circumstances beyond O’s control that prevented his intent
from being carried out otherwise.
 Devisees will transfer legal title to the court appointed trustee
 Resignation
o TTC § 113.081
o (a) a trustee may resign in accordance with the terms of the trust instrument,
or a trustee may petition a court for permission to resign as trustee.
o (b) The court may accept a trustee’s resignation and discharge the trustee
from the trust on the terms and conditions necessary to protect the rights of
other interested persons.
 *Note: Typically, the court will require an accounting by trustee for

review by the court and beneficiaries. Also, if terms of the trust do not
appoint a successor, the court will appoint a successor trustee.
o Common law only permitted a trustee to resign if the court decided the trust
had been properly administered.
 Today, trustee may resign pursuant to terms of the trust document or
can petition for a court to grant permission to resign.
 Multiple Trustees and their relations to each other
o General Rule: The terms of trust may designate one or more trustees.
 Common law said that multiple trustees had JTROS in the legal title.
o This is governed statutorily in Texas:
 TTC § 113.085—Exercise of Powers by Multiple Trustees:
 (a) Joint trustees may act by majority decision.
 *Example 1: A and B named as trustees need both to have
majority.
 *Example 2: A, B, and C named as trustees need 2 to have
majority.
 (b) If vacancy occurs in the co-trusteeship, the remaining co-trustees
may act for the trust
 (c) A co-trustee shall participate in the performance of a trustee’s
function unless the co-trustee:
 (1) Is unavailable to perform the function because of absence,
illness, suspension under this code or other law,
disqualification, if any, under this code, disqualification under
other law, or other temporary incapacity; OR
 (2) Has delegated the performance of the function to another
trustee in accordance with the terms of the trust or applicable
law, has communicated the delegation to all other co trustees
and has filed the delegation in the records of the trust.
 (d) If a co trustee is unavailable to participate in the performance of a
trustee’s function for a reason described by Subsection (c)(1) and
prompt action is necessary to achieve the efficient administration or
purposes of the trust or to avoid injury to the trust property or a
beneficiary, the remaining cotrustee or a majority of the remaining
cotrustees may act for the trust.
 If one can’t act, the other(s) step into his/her shoes
 (e) A trustee may delegate to a cotrustee the performance of the
trustee’s function unless the settlor specifically directs function be
performed jointly. Unless cotrustees delegation under this subsection
is irrevocable, the cotrustee making the delegation may revoke the
delegation.
o At Common law, the trustees had to act jointly. Now, permitted to act by
majority
 Successor Trustees
o §113.083
 If O doesn’t name successor trustees, then a court can appoint a
successor trustee
o §113.084
 The successor trustee just steps into the shoes of the previous trustee
and assumes all the powers/responsibilities
(4) Settlor must have Intended to create a trust

 §112.002  Express trust is only created if settlor manifests an intent to create a
trust
 Rule: The settlor must manifest the requisite intent for the trustee to HOLD AND
MANAGE the trust property for the benefit of the beneficiary for an intended
purpose.
 TTC 112.007 – Intention to create a trust:
o “A trust is created only if the settlor manifests an intention to create a trust.”
 The Restatement phrases in terms of Mandatory intent vs. Precatory Intent:
o Precatory intent: Words of request or entreaty. If these are used, there‘s no
express trust.
 Example 1: I am giving J $10K; it is my wish that he use it for K’s
education.
 “hope” “wish” “desire” is PRECATORY language
 Thus, J has FSA in the $10K!
 Example 2: J, I am delighted to hear about S’s success in HS. I know
that college is expensive, and I hope that you will use the enclosed
check to help with S’s college tuition.”
 Once again, “hope” “wish” “desire” is PRECATORY
 Thus, J has FSA in the $10K!
 Example 3: J, Please use the enclosed money for A’s college education.
 The intent is still not clear, although it is closer.
 Removing the niceties would make it mandatory.
o Mandatory intent: Words imposing an enforceable duty. If these are used,
there is an express trust.
 Example: G, here is $10K for you to use for A’s education.
 Mandatory language shows requisite intent to create an
express trust.
o The Test: Considering the language of the entire instrument and the
situation of the alleged settlor, his family, and the supposed beneficiaries at
the time the will was executed, was it natural and probable that the donor
intended the donee to be legally bound by an enforceable obligation or was
the donor merely expressing his preference.
o Exception: If precatory language is aimed at someone who is already in a
fiduciary relationship with the settlor, then the language will always be
interpreted as mandatory.
 Example: I leave BA to my lawyer in trust and wish that he use it to

benefit my children when they turn 21.
 Active/Passive Trusts
o A trust with a purpose is an active trust; a trust with no purpose is a passive
trust. Passive trusts vest in the grantee. Note: It is very rare that a court will
find a trust to be passive
 TTC § 112.032 Active and Passive Trusts; Statute of Uses
o (a) Except as provided by subsection (b), title to real property held in trust
vests directly in the beneficiary if the trustee has neither a power nor a duty
related to the administration of the trust
o (b) The title of a trustee in real property is not divested if the trustee‘s title is
not merely nominal but is subject to a power or duty in relation to the
property.
(5) Trust must be funded (must have corpus)

 Rule: A mere expectancy interest is not a property right, and thus may not be the
subject of a valid express trust.
o In will, just expectancy until testator dies
 Example: O is an heir apparent to Z. O tries to place his future
inheritance in trust for benefit of B. O can’t do this until Z dies. Until
then, O has a mere expectancy.
 BUT, the term “property” also includes choses in action, claims, and contract rights,
including a contractual right to receive death benefits as designated beneficiary under
a policy of insurance, contract, employee’s trust, retirement account or other
arrangement.
o Future earnings from an existing contract are assignable and thus can be
trust property.
o BUT look to the contract because some contracts will provide that it is
nonassignable.
 EX: Tony Romo can’t assign interest in his contract rights to be
Quarterback to anyone else
 Mason v. Commissioner
o O wanted to shift property to kids in lower income tax bracket. O declared
himself to be trustee of the profits he intended to generate by playing the
stock market next year. Children reported the income and when IRS audited,
it said no, that’s O’s income.
 IRS won under basic trust concept because at the time the trust was
created, there was no property!
 Eventually there was property but not in time to shift the tax burden
to kids
o The correct way Mason should have done:
 O should have declared that he was trustee of the existing stock &
resources and said that any income it generated would be held in trust
for kids
 Now the IRS has regulations prohibiting this practice under
Tax law, but under trust law, that would be a valid trust.
 Speilman v. Pascal
o P acquired rights to produce theater & film version of My Fair Lady from O. P
dies and P’s executors produce the play & movie. After the profits roll in, a
woman shows up with a letter from P that says she gets 10% of all future
profits from My Fair Lady.
 P’s lawyers tried to argue that this was an attempted gift but failed
because it was an expectancy and not property
 BUT Court says this WAS a gift of property because at time of
purported gift, guy had contract rights to produce the movie and so he
can share future profits of contract rights by gift
 Under expanded definition of “property” in §111.004(12) of
TTC, Texas courts would probably reach the same conclusion
(6) Settlor must Identify Ascertainable Beneficiary

 Rule: Every trust needs at least one beneficiary.
o Note: Unlike the trustee requirement, the court cannot provide a beneficiary
for a trust agreement
o Only the beneficiary has standing to enforce terms of the trust
 Who qualifies as a beneficiary?
o TTC § 111.004(2), (10) – Definitions
o (2) Beneficiary means a person for whose benefit property is held in trust,
regardless of the nature of the interest.
o (10) Person means an individual, a corporation, a partnership, an
association, a joint-stock company, a business trust, an unincorporated
organization, or two or more persons having a joint or common interest,
including an individual or a corporation acting as a personal representative
or in any other fiduciary capacity.
 *Note: The only capacity required for a beneficiary is the legal ability
to own property (but NOT to manage). This allows incapacitated
adults and minor children to be beneficiaries.
 Identifying the beneficiary
o Usually there will be a clear identification in the trust
 EX: “O to A as trustee to hold & manage for B”
o But we don’t have to have an ascertainable beneficiary at the time of creation
of the trust, as long as a beneficiary can become identifiable and
ascertainable by objective standards within the period of the rule against
perpetuities
 EX: “my first born grandchild” is okay even if O doesn’t even have kids
yet
 Class of Beneficiaries
o EX: “my children” or “my descendants”
 Can be identified even though they aren’t born yet
 Often a trust will be created for benefit of existing children, with
equitable remainder for yet to be born children
 Valid beneficiary as long as their ID will be ascertainable within rule
against perpetuities
o Clark v. Campbell
 Warns that in order to create a class, must be some kind of specificity
 Must be ascertainable by an objective standard
 EX: “my friends” is NOT objectively ascertainable
 Acceptance by a beneficiary of the trust is presumed.
o TTC § 112.010 Acceptance or Disclaimer by or on Behalf of Beneficiary
 (a) Acceptance by a beneficiary of an interest in a trust is presumed
 (b) If a trust is created by a will, a beneficiary may disclaim an interest
in the manner and with the effect for which provision is made in the
applicable probate law.
 (c) Except as provided by c-1, the following persons may disclaim an
interest in a trust created in any manner other than by will:
 (1) a beneficiary, including a beneficiary of a spendthrift trust;
 (2) the PR of an incompetent, deceased, unborn, or
unascertained, or minor beneficiary, with court approval by
the court having jurisdiction over the personal representative;
and
 (3) the independent executor or independent administrator of
a deceased beneficiary, without court approval
 (c-1) A person qualified to disclaim cannot do so if they have already
exercised dominion and control over the interest or accepted any
benefits from the trust.
Merger  §112.034 (TTC)

 The concept of merger is based on the principle that we do not have a trust unless
there has been a separation of legal and equitable title.
o When a trustee and the trust’s only beneficiary are the same person, the legal
and equitable interests merge and the trust terminates
o Issue trigger  legal and equitable title in one person.
 (a) If a settlor transfers both legal title and equitable interests in property to the
same person or retains both the legal title and all equitable interests in property in
himself as both the sole trustee and the sole beneficiary, a trust is not created and
the transferee holds the property as his own.
 (b) A trust terminates if the legal title to the trust property and all equitable
interests in the trust become united in one person.
o Example: O to A in trust for B. A dies with a will that leaves everything to B.
Legal and equitable title merge in B and the trust is over and B holds FSA.
Compare Resulting Trusts
 Resulting Trust – The term used when an express trust fails because the trust no
longer has a valid purpose or because the trust has no valid beneficiary. It is a
reversionary interest in the settlor/grantor.
Compare Honorary & Charitable Trust

 Honorary Trust:
o The honorary trust is recognition that certain non-charitable trusts are
permissible so long as:
 Comply with rule against perpetuities
 The person named trustee is willing to serve
 The amount set aside is reasonable
o Common uses:
 Care for animal
 Care for gravesite
o Texas has an honorary trust statute for pets (See TTC §112.037)
 Not an private express trust – a creature of statute
 Charitable Trusts:
o A charitable trust is allowed to have a vague/unidentifiable beneficiary. (E.g.,
to fight cancer). For public policy reasons – say this is a valid express trust.
o A charitable trust does not have to comply with the rule against perpetuities.
 Can be perpetual and last forever
o The attorney general enforces the terms of the trust when there is no
ascertainable beneficiary
o We can create a charitable trust with an identifiable beneficiary. State law
gives the attorney general standing here as well
o Cy Pres - EX: Benjamin Franklin created a trust to fight the bubonic plague.
Once the plague was wiped out, his heirs claimed they had a reversion since
there was no longer a legitimate purpose for the trust
 Because of the doctrine of CY PRES, if the purpose of a charitable trust
is no longer legitimate, the trustee has a duty to go to court and
petition to rewrite the terms of the trust in a way that carries out the
general charitable purpose of the trust
 Heirs do NOT have a reversion
 EX: in Benjamin Franklin example, trustee could petition to
change the purpose to fighting a virus/health issue, etc.
Contests
 §112.038 (TTC) – Forfeiture clause
o A provision in a trust that would cause a forfeiture of or void an interest for

bringing any court action, including contesting a trust, is enforceable unless
the person who brought the action establishes that:
 (1) Just cause existed for bringing the action; and
 (2) The action was brought and maintained in good faith.
Formalities
Methodology
 There are three main methods for creating a trust
 §112.001 (TTC): A trust may be created by:
o Inter Vivos Declaration of Trust
 (1) A property owners declaration that the owner holds the property
as trustee for another person
o Inter Vivos Transfer of Trust
 (2) A property owner’s inter vivos transfer of the property to another
person as trustee for the transferor or a third person
o Testamentary Trust
 (3) A property owner’s testamentary transfer to another person as
trustee for a third person
 If Testamentary:
o In order to divest the heirs at law, we need a validly probated will.
 Validity & enforceability go together!
o Under the law of wills, we need all elements of the trust within the four
corners of the document (regardless of whether it is real or personal
property)
 If ALL the elements (purpose, capacity, trustee, intent, property &
beneficiary) do not come together in a VALID will, then there is no
testamentary trust
 With Inter Vivos:
o First, look to the transaction  is it VALID? (Are all the elements there?)
 Then, if VALID, is it ENFORCEABLE
 Validity and Enforceability are separate questions with inter vivos
transfers
o Have to differentiate between legal & equitable title
o Matters if it is real or personal property
o Matters if it was a transfer or a declaration
o What was the date?
 Before 1943  purely common law concept
 1943-1983  TX Trust Act Era
 Post-1983  Statute of Frauds
Real v. Personal Property

 The rules applicable to real v. personal property matter in the context of inter vivos
transfers under the Statute of Frauds (but do NOT matter under the statute of
wills)
o Testamentary (STATUTE OF WILLS)
o Inter Vivos (STATUTE OF FRAUDS):
 If Real, then only first sentence of statute of frauds applies. (must
have writing)
Statute of Wills
 Rule: If there is a valid will, then there must be language within the four corners of
the document sufficient to create an express trust (See supra Elements) for the trust
to be valid.
 Speaks to VALIDITY
 Analysis:
o Make sure that there is a valid will:
 Capacity
 Intent
 Formalities
 Non-Revocation
o Apply the Above Rule! (Is there language within the four corners of the
document sufficient to create an express trust?).
Examples of TESTAMENTARY Transfers

Assume (parol evidence), when applicable, is testimony from a priest and a rabbi that O and T
had an oral agreement that T would hold in trust for B until B turned 25.
 (1) O devises BA to T in trust for B to hold & manage until B turns 25
o This is what you want to see! We have everything you need within the 4
corners of the will
 BA  identification of property
 To T in trust  legal title to T
 For B  equitable title to B
 “to hold & manage…”  terms of trust & purpose
o Valid Enforceable private express trust
 (2) O devises BA to T, rest, residue & remainder to C
o T gets FSA, there is nothing to suggest otherwise within the 4 corners of the
document
 (3) O devises BA to T, rest, residue & remainder to C (parol evidence)
o There is no express trust here because there is no separation of legal &
equitable title within the 4 corners of the document
o SECRET TRUST
 A secret trust is a gift to someone under a will with no indication that
the property is intended to be held in trust for someone else.
 A secret trust will be enforced and the person named to take the
property will acquire only legal title and will hold it for the
beneficiaries of the trust
o Can impose a constructive trust in favor of the intended beneficiary; B gets
legal and equitable title now!
 (4) O devises BA to T in trust, rest, residue & remainder to C
o Here, “to T in trust” is evidence of O’s intention to only give T legal title
o The residue clause contains the equitable title
o There is no evidence that O intended T to be trustee for C
o PASSIVE TRUST
 Because there is no purpose, the trust fails and both legal & equitable
titles pass to C through the residue clause. C has FSA
o If there was no residue clause, then we would have a resulting trust in favor
of O’s heirs at law
 (5) O devises BA to T in trust (parol evidence).
o We still have a PASSIVE TRUST, and we cannot use testimony of the priest
and rabbi to establish an express trust because validity and enforceability
must go together!
 “Because a testamentary trust was attempted, but failed, the trust
terms could not be proved by parol evidence.” (Pickelner v. Adler). Thus,
because the trust fails, FS title to BA passes through the residuary to
Baylor.
 (6) O devises BA to T in trust for B, rest, residue & remainder to C
o Again, we have a PASSIVE TRUST because there are no terms/purpose of the
trust. We cannot have an express trust without a purpose.
o Legal and Equitable title merge and pass to C
o ** This is really the classis passive trust situation
 (7) O devises BA to T in trust for B, residue to C (parol evidence)
o This is a passive trust
o B has FSA, there is no need to impose an equitable remedy
o In #3, we needed the parol evidence to show why T would be unjustly
enriched by allowing him to retain title but here, B gets it anyway so there is
no unjust enrichment
 (8) O devises ATT stock to T (parol evidence)
o Under the statute of wills, we don’t care if it is real or personal property so
this would be the same analysis as #3 and if no parol evidence then same as
#2
o Can impose constructive trust under secret trust approach in #3
 (9) O devises ATT stock to T in trust (parol evidence)
o Statute of wills does not distinguish between real & personal property, this is
the same as 5. If no parol evidence it is same explanation as 4
 Equitable title goes to residuary or resulting trust back to O
o T is only getting legal title here
o SEMI SECRET TRUST
 A gift to someone under a will with an indication that the person is
supposed to hold the property as a trustee but with no information
about the terms of the trust
 A semi secret trust will not be enforced
 (10) O devises ATT stock to T in trust for B (parol evidence)
o Statute of Wills does not distinguish between real and personal property.
Same explanation as 7. If no parol evidence, then same explanation as 6.
Statute of Frauds
 Generally:
o Governs the ENFORCEABILITY of inter vivos transfers/declarations
o Under SOF, the concern is enforceability of the trust, and not the validity—
the failure to follow formality in creating the trust does not make it invalid,
but it does make it unenforceable on the trustee.
o It is an affirmative defense and must be raised/plead
o However, if the trustee voluntarily chooses to manage the trust, then it is
valid for all purposes.
o There is some distinction in the wording of the SOF based on: Type of
Property (real/personal); Time Period in which the transaction occurred
 Personal Property
o Pre 1943 – Common Law
 Oral trusts of personal property are valid for all purposes
o 1943-83 – Texas Trust Act
 Oral trusts of personal property are valid for all purposes
o 1984—present
 TTC § 112.004
 Trusts created by an inter vivos transfer can be created orally
so long as the settlor manifests the requisite intent
 However, in order for a self-declared trust of personal
property to be enforceable, it has to be in writing. (See infra)
 Real Property
o Pre 1943 – Common law
 Texas courts held that it was possible to create a trust of real property
by parol evidence
 But this only applied to inter vivos transfers and was not allowed in
self-declared trust situations
o 1943-1983 – Texas Trust Act
 Changed the law such that both oral transfers and declarations of real
property to create a trust were unenforceable
 For creation of an equitable interest to be valid, there had to be
writing. Without a writing, could never have a separate of
equitable title  no enforceable trust
 But remember, the conveyances were valid, but not enforceable. So a
trustee could choose to comply with the terms of the trust.
 Voluntary Trust
o The trustee can carry out the terms of the trust
voluntarily. If the trustee does so, the settlor cannot use
the lack of writing as a way to terminate the trust.
o However, if the trustee refuses to carry out the trust, he
cannot be held in breach because the lack of writing
provides a defense and the trust is unenforceable

against the trustee.
o 1984—Present
 Trust in real property is enforceable only if there is written evidence
of trust terms bearing the signature of the authorized agent. (See
infra)
 §112.004 (TTC)
o A trust in either real or personal property is enforceable only if there is
written evidence of the trust’s terms bearing the signature of the settlor or
the settlor’s authorized agent.
o A trust consisting of personal property, however, is enforceable if created
by:
 (1) A transfer of the trust property to a trustee who is neither settlor
nor beneficiary if the transferor expresses simultaneously with or
prior to the transfer the intention to create a trust
OR
 (2) A declaration in writing by the owner of property that the owner
holds the property as trustee for another person or for the owner and
another person as beneficiary
 Lack of writing goes to enforceability. It can still be a VALID
trust. O will have legal title, but the problem is, without a
writing, B can’t enforce terms of trust when it comes time to
give him legal & equitable title.
 Exceptions to SOF:
o Partial Performance  if the trustee partially performs the trust and then
stops, or if the beneficiary has acted in reliance on the trust and the trustee
permitted the reliance, then trust can be enforced
o Constructive Trust  Transferee will hold property on a constructive trust
for the beneficiary if: (1) the transferee used fraud, undue influence or duress
to cause the property owner to transfer the property, or (2) at the time of the
transfer, the transferee was in a confidential relation with the property
owner
Examples of Inter Vivos Transfers/Declarations

Remember: Lack of writing goes to ENFORCEABILITY, not VALIDITY
** Still assume (parol evidence), when applicable, is testimony from a priest and a rabbi that
O and T had an oral agreement that T would hold in trust for B until B turned 25.
 (1) O conveys BA to T in trust for B to hold & manage until B turns 25
o This is what we want to see! This is a valid & enforceable private express
trust
 (2) O conveys BA to T
o FSA conveyed to T and there is no evidence of agreement to the contrary
o No private express trust created. This was a specific devise to T
 (3) O conveys BA to T (parol evidence)

o Under common law, this would have been enforceable
o BUT now, statute of frauds tells us this is NOT enforceable
o This is a VALID trust, and T should voluntarily carry out the terms of the oral
agreement
 However, if T does not carry out the terms, and B sues T to enforce the
terms of trust, then T may plea SOF.
 But, Garcia says: if at the time O and T entered into the oral agreement
they were in a pre-existing confidential relationship or a fiduciary
relationship AND O had relied upon T in the past, then B may plea
beach of a confidential relationship and ask the court in equity to
impose a constructive trust on T.
 If the confidential relationship is simply a family relationship,
then there is no justification for a constructive trust to be
imposed (this is the Court in Garcia making the point that
constructive trusts should not be easy to impose). The only
remedy left for B is proof of actual fraud (intent to deceive)
which is a high standard.
o Proof of oral agreement is not enough to get around the statute of frauds
o In order to impose a constructive trust, B would have to prove either fraud,
undue influence, duress or that T & O were in a confidential relationship
 (4) O conveys BA to T in trust

o Here there is no evidence of a purpose or a beneficiary, so NO valid express
trust.
o T only has legal title though since it says “to t in trust”
o RESULTING TRUST
 O attempted to create an express trust but he failed. FSA will pass to
O’s heirs/devisees
 (5) O conveys BA to T in trust (parol evidence)

o VALID but not ENFORCEABLE because there is not written expression of the
trusts terms according to 112.004
o T may carry out the orally agreed terms of the trust voluntarily.
 If T does not carry out the terms, and B sues T to enforce the terms of
trust, then T may plea SOF.
 If T pleas SOF, then equitable title reverts back to O through a
resulting trust.
 Even if O is deceased, Courts have rejected the use of a Garcia
constructive trust in this situation.
o If T pleads SOF then it goes to O, if T voluntarily carries it out then it goes to
B, so either way T is not going to end up with anything.
o If T pleads SOF, B can only impose a constructive trust if he can prove there
was (1) fraud, undue influence or duress; OR (2) O & T were in confidential
relationship at time of transaction
 (6) O conveys BA to T in trust for B

o There is no purpose/terms of the trust so this is NOT a valid express trust.
 We don’t even get to the issue of enforceability because we do not
have all the elements of a trust within the 4 corners of the will
o PASSIVE TRUST
 B will get FSA because equitable & legal title merge, B gets it now.
 (7) O conveys BA to T in trust for B (parol evidence)

o VALID but not ENFORCEABLE because there is not written expression of the
trusts terms according to 112.004
o T may carry out the orally agreed terms of the trust voluntarily.
 If T does not carry out the terms, and B sues T to enforce the terms of
trust, then T may plea SOF.
 If T pleas SOF, then this is a passive trust and FS title passes to B.
o Note, here it may seem like B should plead SOF because then legal & equitable
title would merge and B would get it now. BUT only the person in possession
(T) can plead SOF
 (8) O assigns ATT stock to T (parol evidence)

o This is a VALID trust, because all the elements are there
o This is ENFORCEABLE because the statute of frauds does not require writing
here for it to be enforceable.
o If T does not carry out the terms, then T has breached his fiduciary duty. B
would have a suit to enforce a private express trust.
o Without parol evidence  T gets the stock in FSA
 (9) O assigns ATT stock to T in trust (parol evidence)

o This is just like #8 but with even more evidence. Still a valid & enforceable
private express trust.
o Without the parol evidence  Resulting trust back to O
 (10) O assigns ATT stock to T in trust for B (parol evidence)

o Still a valid & enforceable trust.
o Proof of oral agreement  valid & enforceable.
 (10) O assigns ATT stock to T in trust for B

o With personal property without parol evidence, T is still in possession.
 T should assign it to B and transfer legal title to B, because merger
doesn’t happen automatically with personal property.
 If T does not assign it to B, B can impose constructive trust to prevent
T from being unjustly enriched.
o If real property, without parol evidence this would be a passive trust and
legal & equitable title would merge into FSA in B.
Constructive Trusts
 Beneficiary can get around the SOF and have a constructive trust imposed if B can
show:
o (1) T used Fraud, duress, undue influence to cause O to transfer the
property
OR
o (2) At the time of the transfer, O & T had a confidential relationship
 Confidential relationship – Breach of either
 A preexisting relationship and O’s justified reliance on A’s
promise;
OR
 An existing fiduciary relationship.
 Family relationship – in and of itself this is not enough; need to show
some other evidence that had confidential relationship or more of a
connection.
 Under Statute of Wills in this situation, remember we imposed constructive for a
simple breach of the oral promise. (Don’t need fraud, duress, undue influence or a
breach of a confidential relationship)
o We have those extra elements here because otherwise, the SOF wouldn’t
mean anything.
Secret Testamentary Trusts

 Secret Trusts
o A gift to someone under a will with no indication that the property is
intended to be held in trust for someone else
 EX: “O devises BA to T” (oral evidence of trust agreement)
o A secret trust will be enforced as constructive trust
 The person named to take the property will only acquire legal title
and will hold it for the beneficiaries of the trust
 Semi-Secret Trusts
o EX: O to T in trust
o A gift to someone under a will with an indication that the person is supposed
to hold the property as a trustee but with no information about the terms of
the trust
 Will not be enforced
 The trustee will hold the property as a resulting trust and the
property will be distributed to the estate od the person who
attempted to create the trust (to the residuary takers, if RRR clause
present, or if no RRR, to the decedent’s heirs)
Common Law Limitations

Property, Not Expectancy
 Rule: A future interest is a property interest, it is more than a mere expectancy
 §5.041 (TPC) -A person may make an inter vivos conveyance of an estate of freehold
or inheritance that commences in the future, in the same manner as by a will.
Property Characteristics
 Since a future interest is a property interest, it has the same general attributes:
o (1) May assign it (sell, give away, encumber)
o (2) Creditors can attach to it
o (3) Heirs may inherit it
Present v. Future Interests

 Present interests are vested
o FSA
o Fee Simple Determinable
o Fee Simple Subject to Condition Subsequent
o Fee Simple Subject to Executory Limitation
o Life Estate
o Leasehold
 Future interests may be vested
o Retained
 Reversion
 Possibility of Reverter
 Right of Entry
 All “reversionary type” interests. They are ALWAYS deemed vested for
Rule Against Perpetuities purposes even though they may never become
possessory
o Created  NOT an expectancy. Is an interest, just no right of possession yet.
 Remainder
 Indefeasibly Vested
 Vested Subject to Partial Divestment
 Vested Subject to Total Divestment
o Subject to Condition Subsequent
 Contingent
o Subject to condition Precedent; OR
o To someone not yet ascertainable
 Executory
 Springing
 Shifting
 Executory interests are always deemed contingent UNLESS the

condition precedent is simply the passage of time, then the
executor interest is deemed vested
Date of Disposition
 If WILL  date of testator’s death
 If DEED  date of delivery & acceptance
 If INTER VIVOS TRUST  depends on if irrevocable or revocable
o If revocable – when does it become irrevocable
o If irrevocable – date of funding of the trust (when all the elements come
together)
§5.042 (TPC) Abolition of Common Law Rules

 Rule In Shelley’s Case
o Rule: A remainder interest in real property (or trust) that is in favor of the
life tenant’s heirs is invalid and the life tenant is presumed to have FSA
o EX: O to A for life, remainder to A’s heirs
 If pre-1/1/64: Remainder to A’s heirs is eliminated and A has FSA
 If post 1/1/64: Passes to A’s heirs, because the rule has been
abolished
o Rule still applies if the disposition was effective on or before 1/1/1964
o If the disposition was AFTER 1/1/1964, then we will still recognize the
remainder in life tenant’s heirs as a class gift to life tenant’s heirs
 Doctrine of Worthier Title
o Rule: A remainder interest that is in favor of the grantor’s heirs is invalid and
the grantor is presumed to have a reversion
o Ex: O to A for life, remainder to O’s heirs
 Under Doctrine of Worthier title, remainder to O’s heirs is eliminated
and we treat as O having a reversionary interest
o Rule still applies if the disposition was on or before 1/1/1964
o If the disposition was AFTER 1/1/1964, then we will recognize the
remainder as a class gift in favor of O’s heirs
RULE AGAINST PERPETUITIES

 TX HAS NOT ABOLISHED RAP - Tex. Const. Art. I, § 26. “shall never be allowed”
 Rule: No interest is good unless it must vest, if at all, not later than 21 years after
some life in being at the creation of interest
o Only applies to contingent interest
o “Good” = valid (as opposed to void)
 Future interests are not expectancy interests, they are interests in property. When a
future interest owner dies, the interest is inhereitable (unless its defined as a LE).
TX Trust Code RAP §112.036

 The rule against perpetuities applies to trusts other than charitable trusts.
Accordingly, an interest is not good unless it must vest, if at all, not later than 21
years after some life in being at the time of the creation of the interest, plus a period
of gestation…
o Charitable trusts are exempt from RAP
 BUT must be 100% charitable, no private beneficiaries
 Example: “T devises Greenacre to Baylor, but if Baylor ever loses to
TCU by more than 100 points in football, to TCU”  this is valid
because of the charitable exception
o RAP applies only to interests that are contingent in nature
 Contingent remainders & Executory interests
 RAP does NOT apply to present possessory interests, reversionary
interests, or vested remainders
o RAP applies to Trusts
Understanding the Rule

 RULE: A contingent interest in property (legal or equitable) is VOID if there exists
ANY POSSIBILITIEY (even if extremely remote) that the interest MIGHT remain
contingent for longer than the period of time allowed by the rule
 RULE: A contingent interest in property (legal or equitable) is VALID if absolute
certainty (not mere probability) exists that it will vest or fail on its own terms
within the period of time allowed by the rule
o Don’t have to guarantee that it will vest, but IF it vests, are we certain that it
MUST happen within the period of the rule
 The analysis must take place as of the effective date, regardless of when the actual
issue arises
o Usually people don’t realize that there is a RAP issue until way later, so we
must use the rules of evidence to ascertain the relevant facts as of effective
date.
The Period under the Rule

 The period of time allowed by the Rule is the remaining lifetime of ANY person who
was alive at the time the contingent interest was created, PLUS 21 years (plus any
actual period of gestation)
 If there is ANY possibility the contingent remainder may vest after #3, the interest is
VOID ab initio
 If we can prove that IF it vests, it will vest BEFORE #3 with absolute certainty, then
it is valid!
#1 #2 #3
…..PLUS 21 years……..
Effective Date Death of

“measuring life”
Measuring Life
 Any natural person who was “in being” (includes child in embryo) when the interest
was created may be the individual whose remaining lifetime is used to determine
the initial period of the rule.
 The person whose actual remaining lifetime is used for this purpose if the
“measuring lie”
 FOCUS ON THE FAMILY
ANALYSIS
 Step One: Identify the type of disposition (deed, will, testamentary trust,
irrevocable trust, revocable trust)
 Step Two: Determine the effective date of Disposition
o Will  testator’s date of death
o Deed  date of delivery
o Irrevocable trust  date trust funded
o Revocable trust  date trust becomes irrevocable
o Testamentary trust  testator’s date of death
 Step Three: As of effective date, using only facts existing on effective date (ignoring
facts occurring after effective date) classify & label ALL future interests as
contingent or vested
o Need to identify ALL present and future interests as vested or contingent
o When classifying the interest, use the effective date, not what happened later
o Are there any FUTURE CONTINGENT interest? If so, the RAP is implicated.
 Step Four: Identify the period of the Rule
o Take a snapshot of the transferor’s family that is alive (or in embryo) as of
the effective date – these are the potential measuring lives and one of them
WILL be the measuring life
o The period of the rule is the lifetime of the measured life in that group, PLUS
21 years
 Step Five: Will the interest violate the period of RAP
o As of effective date, using only facts existing on effective date (ignoring facts
occurring after effective date), did there exist any possibility that a
contingent interest might stay contingent beyond the period of the Rule?
 If ANY such possibility  interest is VOID AB INITIO
o Alternatively, was there absolute certainty, as of the effective date, that the
interest would vest, if it ever would, within the period of the rule?
 If there is ABSOLUTE CERTAINTY  the interest is VALID
o This is NOT a question of probability; it is a question of possibility!
Examples from class

 Condition precedent v. Condition subsequent
o (1) O to A for life, then to B

 A has a present interest  life estate
 B has an indefeasibly vested remainder that will become possessory
on A’s death
 We do NOT imply conditions of survivorship in TX
 If B dies before A, his interest goes to his heir/devisees! He does not

need to survive A in order to vest.
o (2) O to A for life, then to B, if B survives A

 Here we have an express condition precedent of survivorship
 B’s interest is a contingent remainder
 RAP is implicated because it is a contingent remainder, but no issues
because B’s interest will vest at A’s death so it is within the period
o (3) O to A for life, then to B, if B survives A, if not, then to C.

 B has a contingent remainder (subject to condition precedent)
 C has an alternative contingent remainder (no condition precedent)
 If C dies fires, his interest will go to his heirs/devisees
 If B dies first, his interest is gone because it was limited to his life
 RAP implicated but no issues because C’s interest will vest, if at all,
upon the death of A
o (4) O to A for life, then to B, but if B dies without issue, then to C

 “But if”  indicates a condition subsequent
 B is ascertainable and there is no condition precedent, so B has a
vested remainder BUT if the condition subsequent occurs, he will be
divested
 C has a shifting executory remainder (which is always deemed a
contingent remainder for RAP purposes unless contingency is mere
passage of time in which case it will be considered vested)
 RAP is implicated because C’s interest is contingent, but no issues
because C’s interest will vest, if at all, upon B’s death
o (5) O to A for life, then to B for life, then to C.

 A has a life estate
 B has a life estate
 C has a vested remainder interest (C doesn’t have to survive A & B
because no implied survivorship condition)
 No RAP issues here
 Unborn Children
o (1) O to A for life, then to A’s first born child (A has no children)
 We recognize future interest in yet to be born and even yet to be
conceived children
 A’s first born has a contingent remainder, (RAP implicate) that will
vest, if at all, upon the death of A (no RAP issues)
o (2) O to A for life, then to A’s children (A has no children)

 A’s children have a contingent remainder subject to open
 A’s children’s interest will vest, if at all, upon A’s death (no RAP
issues)
o In both examples, O has a reversionary interest. BUT as soon as A has a child,
the reversion is gone and the child has a vested future interest that will
become possessory on A’s death
 Death of Future Interest Owner
o (1) O to A for life, then to B for life, then to C. (B dies)

 A = life estate
 B = life estate
 C = vested remainder interest
 If B dies before A, his interest is gone. BUT if C dies before A, B or both,
his interest sill goes to his heir/devisees
 C’s interest is vested, so no RAP issues
o (2) O to A for life, then to B, if B survives A, if not, then to C. (B dies)

 B’s interest is an alternative contingent remainder, but it will vest, if at
all, upon A’s death, so no RAP issues.
 But here, if B predeceases A, B’s interest will not vest and C has a
shifting executory interest. C’s interest will vest upon A’s death, so no
RAP issues there either
o (3) O to A for life, then to B. (B dies)

 B has an indefeasibly vested remainder. If B dies, his interest passes to
B’s heirs. There is no RAP problem.
 No implied condition of survivorship
o (4) O to A for life, then to B, but if B dies without issue, then to C. (C dies)
 B vested, if he dies without issue then B is divested and C’s interest
goes into possession
 If C dies first, his executory interest goes to heirs & devisees even
though it is contingent because O did not give express condition of
survivorship
o Dead guys don’t inherit rule: Ex. 9-26 (Beyer 198-199).

 Legal v. Equitable Interests

o O conveys BA to trustee to pay income to A for life, then income to B for life,
then principal to C.
 First look to legal title.
 T has legal title as trustee (no bells & whistles). T has FSA in
legal title.
 Then focus on equitable title.
 A has equitable life estate, but not entitled to possession
because legal title is in T.
 B has future life estate in equity
 C has equitable remainder interest, but it is vested and no
implied condition of survivorship. C has indefeasibly vested
remainder in equity.
Executory Interest Examples
 BS conveys blackacre to LB, if LB summits Mt. Everest.

o No RAP issue
o LB acquired an executory interest, which is a contingent remainder
o If this interest vests, it will happen within the period because LB can be the
measuring life. If LB summits Everest, it will be during his life
 BS conveys BA to LB, if a child of LB ever summits Mt. Everest

o VOID
o LB has a contingent executory interest but it is void because there is not
absolute certainty that child (if LB has any) will climb Everest within life of
BS or LB + 21 years
 G conveys BA to A to become possessory 100 years from the conveyance

o A is getting an executory interest (contingent unless possessory) but here the
contingency is simply the passage of time, so we treat as vested on effective
date
o No RAP issue
o Could have said 1000 years and still would be okay
 T devises BA to T’s children who are alive when T’s estate is administered
(assume on effective date, T has 2 kids, A&B)
o Either A or B can be measuring life, the contingency is who is alive on
administration
o If this contingency ever vests, the children will be alive, because that’s part of
the contingency! They have to be alive to vest, and they are the measuring
lives! No RAP issue
 T devises BA to T’s grandchildren who are alive when T’s estate is finally
administered
o VOID
o There is no certainty that grandchildren will be alive at administration and
even if they are, they would have been born after the effective date, so they
cant be their own measuring life
o There is an extremely remote possibility they wont be alive within the period
 T devises BA to F, but if the property is not used for church purposes, to T’s
heirs
o T’s heirs have an executory interest, but their executory interest is VOID
o The contingency could last for hundreds of years
o No certainty that if F stops using for church purposes, it will do so within the
period
 T devises BA to Baylor, but if Baylor loses to TCU by more than 100 points in
football, to TCU
o Charitable exception! No subject to the rule! No RAP issue!
Fertile Octogenarian Rule

 Regardless of age (or health) someone is, they are always deemed capable of
bearing a child
Precocious Toddler Rule

 Regardless of how young (or healthy/unhealthy) someone is, always deemed
capable of having children
“Second Set” of examples

 T devises BA to T’s son A for life, then to A’s widow for life, then to the oldest
child of A who survives A’s widow. (Assume at effective date, A has no children)
o Upon T’s death  focus on the family!
o A has life estate
o A’s widow  A is the measuring life, widow will be identifiable upon A’s
death, no RAP issue there
o Oldest child who survives A  VOID contingent remainder
 Widow who A is married to at A’s death. It is possible that A will get
remarried after testator’s death to someone who was not even born
on effective date and could not be own measuring life
 The contingency requires child of A to survive widow
o “Unborn Widow Rule”
 T devises BA to T’s daughter for life, then to daughter of oldest living child for
life, then to such child’s then oldest living child (assume at testator’s death,
daughter is 85, oldest child is 65 and her oldest daughter is 45)
o Daughter’s oldest child  okay because ascertainable at daughter’s death.
Daughter is the measuring life, no RAP issue
o Child’s oldest child  VOID
 S conveys BA to trustee to pay income to S for life, then to S’s oldest then living
child for life, then principal to such child’s then oldest living child
o S retains an equitable life estate
o Gift to S’s oldest child is valid because ascertainable at S’s death
o Such child’s oldest child: VOID because after effective date, S may have more
children. May be after born children that takes remainder interest. After born
child may live for 100 years
o But if this was a revocable trust, this would be okay because the effective
date for RAP purpose would be the day it becomes irrevocable, which will be
when S dies and on that moment, all the kids are born and will be their own
measuring lives!
 T devises BA to trustee to pay income to S for life, then income to S’s oldest
then living child for life, principal to D (assume on effective date S & D are
alive)
o Devise in will through testamentary trust
o Income to S’s oldest child is okay because it will vest, if at all within the
period of RAP
o D has vested interest. No RAP issue, so regardless of when S’s child dies/is
born, D had vested remainder to begin with
Class Gift Examples (Residuary gift to Baylor under the will)
 (1) T devises BA to T’s grandchildren (At T’s death, T survived by son, but no
grandchildren) RRR to baylor
o Executory Interest
o Baylor takes possession at T’s death
o People not yet born/ascertainable can have future interests and they will be
vested within period of the rule because son is measuring life
o Class opens at effective date. If no beneficiaries on effective date, the class
will stay open until it closes (on son’s death) When son’s first born child is
born, we divest Baylor and grandchild now has FSA subject to partial
divestment by any future born siblings
 (2) T devises BA to T’s grandchildren (At T’s death, T survived by son and
son’s two children)
o As of effective date, we have 2 grandchildren. Because they exist at effective
date, that closes the class and they take FSA as tenants in common.
o Rule of convenience
 If, as of effective date, there is a member of the class that can demand
possession, that closes the class and no child conceived after can be a
taker.
 In (1), any and all grandchildren can be takers because we don’t have
a member of the class on effective date that can demand possession
 (3)(a) T devises $50,000 to each of T’s grandchildren (At T’s death, T survived
by son but no grandchildren)
o “To Each” not “to them.”
o This is a per capita gift, so we open and close the class as of effective date
o Since there are no grandchildren at effective date, the gift fails! Neither
present nor future interest, so the gift is a nullity
 (3)(b) What if survived by one grandchild
o If one grandchild, that grandchild would take only $50,000
 (4) T devises $1 million to trustee to pay income annually to T’s children for
their lifetimes, then principal to Baylor (At T’s death, T survived by son and
son’s only child)
o Gift of income rule
o Class opens and closes as of time each income distribution

o If two children, upon the initial distribution, they share the income. When
one dies, the other gets the next distribution and when they both die, the gift
terminates. No RAP issue
 (5) T devises BA to T’s son for life, then to the son’s children (At T’s death, T is
survived by his 2 year old son)
o Son has a vested life estate
o Technically, the class opened as of effective date and will remain open until
one demands possession and enjoyment
o Any and all son’s children, when born will become remaindermen and will be
identifiable within 9 months of his death
o No RAP issue
 (6) T devises BA to T’s son for life, then to children of T’s daughter (At T’s
death, T is survived by son and daughter)
o Son has a life estate
o Valid gift to daughter’s children. Contingent but no RAP issue because all will
be identifiable at daughter’s death
o If daughter has child during son’s life, that child has vested remainder subject
to partial divestment by other siblings. We can keep adding to the class until
one demands possession
o When son dies, daughter’s kids can demand possession even if daughter
could have more kids. In that case, the class will close.
 (6)(b) What if daughter’s first born dies before son?
o Future interest is property and there is no implied condition of survivorship
o Child’s vested remainder subject to partial divestment goes to child’s heir
and devisees
o When son dies, child’s heirs are vested and can demand the class closes
All or Nothing Rule

 Rule: If the interest of any potential class member might vest beyond the period of
the rule, the gift to the entire class is void
 T devised BA to A for life, then to A’s children

o All of A’s children will be vested and identifiable at A’s death, so no RAP issue
 T devised BA to A for life, then to A’s children who live to age 21

o Contingent remainder until individual reaches 21
o RAP is implicated because contingent but no issue because any of A’s kids
will reach 21 within 21 years of A’s death (tack on period of gestation)
 T devises BA to A for life, then to A’s children who live to be 25 (assume at T’s
death, A doesn’t have children)
o Effective date is testator’s death
o There is a possibility that a child of A may not reach 25 until beyond period
of rule
o What if at As death he has a 21 year old child?
 This doesn’t make a difference. There is a possibility that a child A has
after T’s death will not reach 25 until beyond the 21st anniversary of
A’s death
 A’s 21 year old will reach 25 within the period but gift is void to him
as well because of all or nothing rule
 T devises BA to A’s children who live to 21 (assume at T’s death, A doesn’t have
kids)
o We can give to people who aren’t born yet!
o RAP is implicated by no issue because all of A’s kids will be ascertainable
within 21 years of A’s death (tack on periods of gestation)
 T devises BA to A’s children who live to 25 (assume at T’s death, A doesn’t have
kids)
o There is a possibility that a child of A will not reach 25 within 21 years after
A’s death so gift to A’s children is VOID
o What if on T’s death, A has a kid that is 24 and 364 days?
 Still VOID! Possibility that a child A has after T’s death wont vest
within period of rule so gift is VOID as to 24 year old kid too because
of the all or nothing rule
 T devises BA to trustee to pay income to A for life, then to A’s children for their
lifetimes, and upon the death of the last surviving child, principal to A’s
grandchildren (assume at T’s death, A has one child (c) and a grandchild (g)
o Gift of income  income rule
o Gift to A is a vested interest. As long as A is alive he is entitled to income
o On A’s death, it will go to A’s children (whichever are alive)  gift to A’s
children is valid because all of A’s children will be ascertainable at A’s death
(tack on periods of gestation)
o BUT remainder to A’s grandchildren is VOID because a grandchild can be
born into class outside period of the rule
Family Planning Examples

 Testamentary Trust: Trustee is to pay the income to testator’s children and upon
death of the last surviving child, principal to testator’s grandchildren
o Does not violate RAP
 Inter Vivos Trust: Trustee is to pay the income to the settlor’s children, and upon
death of the last surviving child, principal to the settlor’s grandchildren
o If irrevocable, VOID gift to grandchildren.
 Are there any contingent interests we need to address? Yes. Principal
to settlor’s grandchildren & Future interest in any afterborn children
of the settlor. Income gift opens/closes on each distribution.
 All of Settlor’s kids will be born within 21 years of his lifetime.
 Gift to grandchildren: What if settlor has an afterborn child that lives
beyond the 21st anniversary of those alive on the effective date and
that afterborn child has children. Under the rule of all-or-nothing it
invalidates the gift to all of the grandchildren. The whole
grandchildren gift is void.
 We pay out the income to the children (we don’t invalidate the
entirety of the trust)
o If trust is revocable, okay and no RAP issue
 Effective date will be S’s death. At that time all S’s children are known
and will be the measuring lives. All of S’s grandchildren will be known
by the death of S’s children and vesting will occur within 21 years.
Consequences of Common Law Violation

 If an interest is invalid because it violates RAP, the invalid interest is void ab initio
(e.g., it never existed); the void interest is, in effect, stricken from the disposition
 Unless the doctrine of infectious validity applies (it rarely does), the valid interests
created will take effect as if the invalid interest had never been created
 If a “gap” in ownership results, it is typically filled by a reversion – a vested interest
in the transferor or transferor’s successors
o Exception: if the preceding interest is a FSSCS and the condition subsequent
is what invalidates the interest, we strike the condition subsequent and make
it FSA
Reformation of Interests Violating the RAP §5.043(TPC)

 (a) Within the limits of the RAP, a court shall reform or construe an interest in real
or personal property that violates the rule to effect the ascertainable general intent
of the creator of the interest. A court shall liberally construe and apply this
provision to validate an interest to the fullest extent consistent with the creator’s
intent
o Authorizes reformation of document to carry out testator’s intent in a way
that will not violate RAP
 (b) The court may reform or construe an interest under (a) according to the
doctrine of cy pres by giving effect to the general intent and specific directives of
the creator within the limits of RAP
 (c) If an instrument that violates RAP may be reformed or construed under this
section, a court shall enforce the provisions of the instrument that do not violate the
rule and shall reform or construe provisions that violate the rule
 (d) This section applies to legal and equitable interests, including noncharitable and
trusts, conveyed by inter vivos instrument or will that takes effect on or after
9/1/1969
o If before 9/1/69, the common law applies and the disposition is VOID. No
reformation allowed before 9/1/69
Posthumous Class Gift Membership of “scientifically generated descendants”

TEC § 255.401
Artificial reproductive technology taking place after death
Perpetuities Savings Clause - p. 220, 9(C)

 If any disposition may create a future interest, should ALWAYS include a
perpetuities savings clause
 These clauses say that any contingent interest WILL vest, if ever, on the 21 st
anniversary of any lineal descendants that were alive on effective date
Art. I §26 Texas Constitution

 “Perpetuities and monopolies are contrary to the genius of free government and
shall never be allowed, nor shall the law of primogeniture or entailments ever be
enforced in this state”
o We have had this language since beginning of the Republic of Texas
o In order to change RAP in a significant way, it will require an amendment to
the constitution
Nature of Equitable Interests

There is really no limit to what you can do with trusts, but always break it down:
 Is it future or present?
 Is it income or principal?
 Is it mandatory, discretionary, or pursuant to ascertainable standard?
Compare “Trust Accounts”

 “O to A in trust for B”
o Trust account under estates code, not an express trust
o B is a beneficiary of K between O and the bank. B cannot assign, attach or
inherit his interest because he doesn’t own property
 “O to A for life, remainder to B”
o A has a life estate and B owns a vested future interest.
o Both of these are property interest that can be assigned and attached
o A’s LE is not inheritable though b/c it terminates at A’s death and goes to B.
o B can assign, attach and inherit his interest
 If B predeceases A, his heirs and devisees still have an interest
because no implied condition of survivorship
Mandatory, Discretionary or Support (HEMS)

 Terms of the trust will tell us if the interest the beneficiary has is mandatory, up to
the trustees discretion, or based on an ascertainable standard
 1. Mandatory
o “When A reaches 18, trustee shall pay 1/3 of the principal”
o  “Shall pay income”
o If the language is mandatory and the trustee doesn’t do it, the beneficiary can
have the court make trustee do it  b/c trustee has a fiduciary duty
o If mandatory, beneficiary can assign/attach/inherit the mandatory
income/principal interest to another and the assignee can enforce it
 2. “Support” – Ascertainable standard

o Most common ascertainable standard is “Health, education, maintenance and
support” (HEMS)
o This is different from authorizing the trustee to make distributions as
trustees discretion
o If pursuant to an ascertainable standard, beneficiaries have standing to sue
for breach of fiduciary duty , but it becomes a question of fact  is the
trustee complying with the standards?
o In theory, beneficiary can attach/assign, etc.
 Ex: If HEMS standard and beneficiary assigns interest to hospital for

care, hospital could enforce because that is what the trust is there and
trustee should have paid beneficiary for this in the first place
o The extent that a creditor can attach depends on the exact interest a
beneficiary has.
 3. Discretionary
o If the trustee has discretion, the beneficiary has no right to demand
o It is the trustee’s duty to exercise his discretion, in good faith
o Any beneficiary has standing to question how the trustee is exercising that
discretion.
 “Abuse of Discretion” litigation  burden of proof is on the
complaining beneficiary
o When granting “discretion” to a fiduciary, there is really no such thing as
absolute discretion
 §113.029 (TTC) Fiduciary must still act in good faith and in
accordance with terms and purpose of the trust and in the interest of
ALL the beneficiaries
 Other beneficiaries have standing to complain if trustee is
giving too much money to B1
o If pursuant to trustee’s discretion, beneficiary cannot assign/attach/inherit
more than he has
 Technically, the beneficiary can assign the interest, but a
creditor/assignee will have no standing to force the trustee to make
distribution
o Discretionary trust is a good asset protection tool because it can prevent
asset from going to creditor/assignees
 If trustee’s discretion, trustee is only authorized to make distributions
to the trustee, not to assignees or creditors
Disabling and Forfeiture Restraints

 A settlor can attach a forfeiture provision  this adds a condition subsequent to a
beneficial interest
o Essentially a condition subsequent, creating a shifting executory interest
 Ex: “If any beneficiary under this trust attempts an assignment, or if a creditor
attempts to attach, that triggers condition subsequent and beneficiary forfeits,
interest terminates, and accelerates remainder interest in successor beneficiary”
o HARSH
o This results in the next person getting a shifting executory interest
 Eventually, most jurisdictions began to recognize disabling restraints as valid to
avoid the harshness of forfeiture provisions:
o “No beneficiary herein has authority to assign his equitable interest either
voluntarily or involuntarily”
  this takes away the property right; now it’s just an equitable
interest
o This seems to go against the fundamental principles of free alienability but
some jurisdictions recognize it as valid anyways
 In TX, we recognize disabling restraints as “spendthrift trusts”
o Pg. 202 (8)(E)
Feather said this is

“Spendthrift” trusts very important
 §112.035 (TTC)
o (a) A settlor may provide in the terms of the trust that the interest of a
beneficiary in the income or in the principal or both may not be voluntarily
or involuntarily transferred before payment or delivery of the interest to the
beneficiary by the trustee
 Beneficiary cannot assign it and creditors cannot attach
 “Before payment or delivery…”  means that once distributed,
beneficiary can assign/attach, etc.
o (b) A declaration in a trust instrument that the interest of a beneficiary shall
be held subject to a “spendthrift” trust is sufficient to restrain voluntary or
involuntary alienation of the interest to the maximum extent permitted by
this subtitle
 All you have to do is call it spendthrift
 TX has always been a debtor friendly state!
Exception: if S  TX encourages the use of spend thrift trusts and it is easy to create
retains any them!
o (d) Settlor cannot create a spend thrift trust for himself, that would be
contrary to public policy
 To maximum extent trustee could make distribution to settlor,
creditors can go after income interest.
 Ex: “Remainder of my life estate, trustee shall pay me income,
remainder and principal to kids”
 Creditor can only go after income because the principal is the
kids’
 Ex: “Trustee to pay me income/principal as needed for my HEMS,
remainder to kids”
 Creditor could go after everything because trustee would be
authorized to distribute everything for settlor’s HEMS
 Ex: “Rest of life, income to A, at A’s death, remainder to kids”
 If at the time settlor created the trust, the transfer of property
would make him insolvent, it would amount to transfer in
fraud of creditors, then they can go after everything!
 Once you are in financial difficulties it is to late!
 Rule: Cannot have a revocable spend thrift trust on a retained interest

o Even though O didn’t retain an interest, if the trust is a “revocable trust” and
settlor retains power of revocation, even though not a transfer in fraud of
creditors, creditors can go after the whole thing
o This is because all he has to say to get it back is “I want it back.” This give O
constructive ownership, so creditors can still go after the assets he has
constructive ownership of
 Spendthrift trusts even protect against beneficiary’s malpractice creditors
o Protects contract and tort creditors
o Good estate planning for high risk careers
 Can one person be the beneficiary and trustee of a spend thrift trust?
o §112.035(f): A beneficiary of the trust may not be considered to be a settlor,
to have made a voluntary or involuntary transfer of the beneficiary’s interest
in the trust, or to have the power to make a voluntary or involuntary transfer
of the beneficiary’s interest in the trust, merely because the beneficiary, in
any capacity, holds or exercises:
 (1)(A) power to consume, invade, distribute property for the benefit
of beneficiary if the power is:
 (i) Limited by an ascertainable standard, including HEMS
o As long as we have magic HEMS standard, the
beneficiary can be his own trustee in a spend thrift trust
 Exceptions to Spendthrift Trust  “Super Creditors”

o 1. Fraud – creditors can go after everything
o 2. Person owing child support
 §154.005 (TFC) - Court can order trustee of spend thrift trust to make
distributions for the support of a child to the extent trustees are
required to make payments to a beneficiary who is required to make
child support payments
o 3. In the state of TX provides “necessaries” for a beneficiary, then TX can be
reimbursed from trust
 Ex: prisoners, Medicaid, etc.
112.035 (d)
 if settlor retains ANY kind of equitable interest
o  creditors can go after that to the MAX extent that T could make a
distribution to S
  S transfers BA  bank, S retains equitable LE w/ remainder to kids
o “trustee during S’s lifetime can use his discretion, or HEMS”
  creditor can go after everything
 If S only to get income, ie: Trustee can’t transfer principal
o  creditors can’t go after principal, only income
  parent child grandchild – Property $50milliom

o Parent  Trustee in will, Spendthrift trust
o “P  C as trustee remainder to grandchild
 C= equitable LE G= equitable remainder
o Trustee is to pay during C’s life, income and/or principal, HEMS
o C = trustee, he’ll be making decision
o does the fact that C makes the decision matter?
 In TX, C can be his own trustee and we still have spendthrift
protection
 112.035(f)
o When C dies, his interest terminates, he doesn’t transfer anything  look where
o remainder interest becomes possessory else in notes
Foreign and Domestic Asset Protection Trusts

 Some states allow a self settled spend thrift trust.
 This allows a settlor to create a spend thrift trust to protect settlor’s assets from
creditors
o NOT allowed in TX
Marital Property Rights

 “Income distributions are community property only if the recipient has a present
possessory right to part of the corpus, even if the recipient has chosen not to
exercise that right, because the recipient’s possessory right to access the corpus
means that the recipient is effectively an owner of the trust corpus”
 Sharma v. Routh
o “Family trust”  HEMS
 his interest in the trust giving him distributions is not in his estate! it
would go to kids tax free  it’s divorce proof!
o “Marital trust”  mandatory income
 All income coming out
 H is only fiduciary exercising his..
 W2 arguing income from SP should be CP  income rule, rule of

implied exclusion  CP
 it would be CP if H had a right to the principal  but he only gets
principal if he needs it for HEMS
  $39 million DIVORCE PROOF
 @ death marital trust will be in his taxable estate because it’s a marital
trust
 Settlor creates trust, gives A for life, remainder to B, during A’s life give all income to
A
o B doesn’t have standing to complain of paying A income
o A’s equitable interest = mandatory income interest = property interest
  can assign, sell, give, encumber
  not inheritable because it’s a LE
 B’s interest – future, remainder, vested because no implied conditions of

survivorship
o B can assign during A’s life
o can assignee credtor adversely affect A’s interest?
o if B predeceases A  B’s heirs
 it’s inheritable because its property
 Trust says – “during A’s lifetime, Tee only make distributions with his discretion
o A still has equitable interest, he owns a discretionary interest
o A can assign in theory, but not value to assignee
o not valuable b/c it’s not a mandatory interest
o If Trustee makes a distribution to A’s assignee B will sue for breach of
fiduciary duty because hes supposed to get what trustee didn’t give to A, not
creditors/assignee
o smart trustee should make distributions to creditors/assignees
 Trust says – “A entitled to income for HEMS”

o A can assign in theory – practically should be assigned to assignee who
provides HEMS
o B can complain if Trustee pays out something for more then HEMS
o Trustee is answerable to A and B, all B’s b/c B has a future interest
Termination/Modification of Trusts
Settlor
 If settlor is dead, it is irrevocable (all testamentary trusts are irrevocable)
 At common law, all inter vivos trusts are deemed irrevocable unless settlor retains
power of express revocation
 In 1943, TX passed the trust act, reversing this presumption.
o Intervivos trusts are now presumptively revocable unless settlor expressly
made irrevocable
 §112.051(TTC)
o (a) A settlor may revoke the trust unless it is irrevocable by its terms
o (b) The settlor may modify or amend a revocable trust, but settlor may not
enlarge trustee’s duties without the trustee’s express consent
o (c) IF the trust was created by a written instrument, a revocation,
modification or amendment of the trust must be in writing
 In Taxable Estate? 
 revocable – settlors creditors can get to it if S = B
 irrevocable trust – settlor becomes a stranger to the trust, hasn’t retained equitable
or legal title
o S assigned/conveyed his fee simple interest
 If it’s testamentary  cant amend?
Trustee
 Trustees with legal title only have the powers and authority that the settlor granted
in the trust or that the legislature grants by statute (plus additional implied powers)
 Unless the settlor grants the power of termination, the trustee does not have power
of termination
 §112.059 - A trustee can terminate an uneconomic trust (if the amount in the trust is
not enough to continue the cost of administration)
 §112.072-.073
o (a) An authorized trustee who has the full discretion to distribute the
principal of a trust may distribute all or part of the principal of the trust in
favor of a trustee of a second trust for the benefit of one or more current
beneficiaries of the first trust who are eligible to receive income or principal
from the trust and for the benefit of one or more successor or presumptive
remainder beneficiaries of the first trust who are eligible to receive income
or principal from the trust
 Brand new concept of “decanting”
 trustee can distribute trust assets out of original trust and pour into
brand new trust, because of a change in circumstances
 the original terms of trust determine to what extent trustee can

create new trust
 Featherston says we don’t need to know details, just be aware!
o 112.073 – limited discretion  when HEMS
 Sample Irrevocable Trust – 3(A) gives trustee the power to “bust the trust”
Judicial Modification – administrative and distributed

 §112.054
o Trustee or beneficiary may seek judicial modification/termination if:
 (1) The purposes have been fulfilled or have become illegal or
impossible to fulfill
 (2) Because of circumstances not known to or anticipated by settlor,
the order will further the purposes of the trust
 (3) Modification of administrative, nondispositive terms of the trust is
necessary or appropriate to prevent waste or avoid impairment of the
trust’s administration
 (4) The order is necessary or appropriate to achieve the settlor’s tax
objectives and is not contrary to settlor’s intentions
 Some commentators say there really is no such thing as an irrevocable trust because
of this authority now granted to courts of competent jurisdiction to modify or
terminate
 Before §112.054 existed, the common law courts relied on concepts of deviation
o Trustee could petition for authority to deviate from the terms of the trust.
o Historically, common law courts were liberal in granting management
deviation from provisions that mandated day to day management but
conservative in granting deviation from terms of distribution
 Not every state has a statute like this, some still fall back on common law concepts
of granting deviation and distinguishing between management and distributive
Beneficiaries
 Will depend on exact terms of trust and details
 Did the settlor grant beneficiary power of appointment?
o Did settlor delegate to beneficiary the ability to appoint who gets the
property at a later time?
Material Purpose Test/”The Clafin Doctrine”

 What if A has a life estate and B has equitable remainder. Collectively, they have all
the equitable interest. Can they act collectively to force trustee to deliver legal title?
o In most jurisdictions, the answer is NO!
o In some jurisdictions (English view), YES.
 TX has adopted the American view – material purpose test/”Clafin Doctrine”

o As long as there is a yet to be fulfilled a material purpose of settlor, the
beneficiaries cannot collectively force legal title to be turned over, even if
they all agree
 Note: a spend thrift provision is considered a material purpose
o If settlor is alive, we could have him waive the material purpose doctrine
 If 100% settlor consent and 100% beneficiary consent, they can force
the trustee to deliver legal title now
 If trustee and beneficiary agree to deliver legal title now, the settlor can’t complain
because he is a stranger to the trust, he has neither legal nor equitable title.
Cy Pres – “as nearly as possible”

 In charitable trust, if the purposes have been fulfilled, or can no longer be carried
out, the trust does not revert to settlor or settlor’s heirs.
o In this case, the trustee would have a duty to seek cy pres and have the court
modify the terms to carry out the settlor’s charitable intent
 Can also modify to carry out settlor’s overall intent without violating RAP
Duties and Powers of Trustees

Common law concepts attach to all fiduciaries
 PR
 Guardian of incapacitated persons
 Trustees
Third Party’s Duties

 If a third party is involved  at COMMON LAW the third party had a duty of
inquiry
o Common law imposes this duty on any third party with actual or constructive
knowledge that they are engaged in a transaction with a fiduciary
o 1) Third party has responsibility to confirm that the fiduciary they are
dealing with is the acting (appropriate) fiduciary
o 2) Third party also has responsibility to confirm that fiduciary has
authority/power to engage in the transaction at hand
 At COMMON LAW, if a fiduciary engages in a transaction with a third party without
requisite authority and the third party is aware he is dealing with a fiduciary, the
beneficiary has choice of remedies:
o Can proceed against the trustee for damages for breach of fiduciary duty; OR
o Can go after the property in the hands of the third party, seeking to impose a
constructive trust on third party based on unjust enrichment
 If beneficiary chooses this, third party can seek restitution from the
trustee, but if the trustee has skipped town, the third party is out of
luck
 Texas has modified the duty of inquiry for TRUSTEES (but not PRs and Guardians)
o §114.082
 If property is conveyed or transferred to a trustee in trust but the
conveyance or transfer does not identify the trust or disclose the
names of beneficiaries, the trustee may convey, transfer, or encumber
the title of the property without subsequent question by a person who
claims to be a beneficiary under the trust or who claims by, through,
or under an undisclosed beneficiary.
 Doesn’t change fiduciary duty, but under circumstances
described, gives third party an affirmative defense
o §114.081  Protection for person dealing with trustee
 (a) A person who deals with trustee in good faith and for fair value
actually received by the trust is not liable to trustee or beneficiaries if
the trustee has exceeded the trustee’s authority in dealing with that
person
 (b) A person other than a beneficiary is not required to inquire to the
extent of the trustee’s powers of the propriety of the exercise of those
powers if the person:
 (1) Deals with trustee in good faith; OR

 (2) Obtains a certification of trust or a copy of trust instrument
o Featherstone points out that it is open as to what this
really means. If third party received a copy trust and it
explicitly says “trustee cannot sell” but trustee doesn’t
read it, have they met this requirement? It just says
“obtains”
Common Law Fiduciary Duties

1. Duty to administer
2. Duty to account
 (1) When become a fiduciary, owe the B a duty to carry out the purposes of role
o If trustee- must carry out purposes of trust
o If PR – marshal estate, pay debts, deliver assets
o If guardian – care for property of ward
o **Ear mark (don’t comingle with personal assets)
 (2) Duty of Loyalty toward beneficiary

o (a) Avoid Self Dealing
 Cannot sell to self or engage in any transaction in which the trustee
can personally benefit
 Exception  Fiduciary is entitled to reasonable compensation
for services rendered
o BUT if the terms of the trust say no compensation and
the trustee accepts the terms of the trust, then he is
bound and will have all the same fiduciary duties as if
he were getting paid.
o (b) Avoid conflicts of interest
 In making any decision affecting the fiduciary property, fiduciary must
think solely in the best interest of B (fiduciary’s focus cant be divided)
 Ex: Trustee’s brother wants to buy property of the trust estate and
offers fair market value. If trustee sells, it will be a breach of duty
because this is a conflict of interest
 Personal relationship with brother conflicts with duty to act
solely for beneficiary
 (3) Duty of Impartiality

o Usually there is more than one beneficiary, and depending on the terms of
the trust and nature of each interest, not all are created equal!
o This duty is not to treat all beneficiaries equal, it is a duty to be impartial
 (4) Duty of Competence

o Duty to exercise reasonable care and skill in management of property

o This is a not a question of whether fiduciary is doing best possible job, it is a
question of whether fiduciary is doing what a reasonably prudent fiduciary
would do under similar circumstances
 (5) Duty of Nondelegation

o When fiduciary accepts the role, it is their personal responsibility
o Even if fiduciary exercises reasonable care in selection of agent, if the agent
screws up, the fiduciary will still be personally liable
TX Trust Code
 §113.051 – Trustee shall administer trust in good faith and according to terms of
trust and the trust code …and shall perform all duties imposed by common law
 §113.058  Bond
o Bonds are basically insurance policies to satisfy damages if fiduciary screws
up
o (a) If trustee is a corporation, not required to have bonds
o (b) If not a corporation, settlor can waive the bond requirement in the trust
instrument
 Most do waive because it is expensive. The bond price comes out of
the estate and most settlors are advised that they should not choose a
trustee if they don’t trust them to serve without a bond
 §113.001 – Limitations on Power
o A power given to a trustee by this subchapter does not apply to a trust to the
extent that the instrument creating the trust, a subsequent court order, or
another provision of this subtitle conflicts with or limits the power
 §113.002
o Codification of concept of implied power to do what is necessary to carry out
purpose of trust
 §111.0035
o Major change from common law to modern trust practice!
 (a) EXCEPT as provided by the terms of the trust and (b), this
subtitle governs:
 (1) Duties and powers of trustee
 (2) Relations among trustees; and
 (3) The rights and interest of beneficiary
 (b) Terms of trust prevail over provisions of this subtitle except that
the terms may not limit:
 The requirements under §112.031 (purpose)
 The applicability of §114.007 to an exculpation term of trust
 The periods of limitation for commencing a judicial proceeding
regarding a trust
 A trustee’s duty to act in good faith and in accordance with

terms of trust
o At common law, trusts were purely a property law concept. Today, there is a
merging of contract law and property law.
 We are only going to impose responsibilities that the trustee agrees to
accept!
 The settlor defines duties and powers of trustee with certain
limitations in (b)
o So, if it is a trust issue, ALWAYS look to the terms of the trust first!
Trustee’s Powers
 Trustee has powers granted expressly in the document PLUS statutory powers
(unless settlor negated in document) PLUS any additional implied powers that are
necessary to carry out purposes of trust
 To determine trustee’s powers:
o Start with the trust document
 Express grant of power?
 Has settlor negated any statutory powers?
 What are the purposes? Does trustee have implied powers to carry
out the purposes of the trust?
 Distributive Powers
o Mandatory v. discretionary v. ascertainable standard
 Administrative powers
o Day to day management
o Trustee has duty to do what a reasonable prudent fiduciary would do under
similar circumstances
 Under common law, uncle Tom and bank of America would be held to
same fiduciary standards!
 MUST look to terms of trust!
Liability
 §114.001 (TTC)
o (a) The trustee is accountable to a beneficiary for the trust property and for
any profit made by the trustee though or arising out of the administration of
the trust, even though the profit does not result from a breach of trust
 Ties into duty of undivided loyalty – the trust must be administered
solely for the benefit of beneficiary and trustee shall not derive any
benefit from the trust other than reasonable compensation
 §114.008 – Remedies for Breach
o To remedy a breach of trust, the court may:
 Compel trustee to perform the duties
 Enjoin the trustee from committing breach of trust

 Compel trustee to redress breach of trust including compelling trustee
to pay money or restore property
 Order trustee to account
 Appoint a receiver to take possession of and administer the trust
 Suspend the trustee
 Remove trustee as provided in §113.082
 Reduce or deny compensation to trustee
 Order any other appropriate relief
o (b) A person other than a beneficiary who without knowledge that trustee is
exceeding powers, in good faith assists a trustee or in good faith and for
value deals with a trustee is protected from liability as if the trustee had
property exercised power
 §114.007 – Exculpation
o A term of a trust cannot relieve liability of a trustee for:
 (1) A breach of trust committed:
 In bad faith
 Intentionally; OR
 With reckless indifference to interest of beneficiary
 (2) Any profit derived by trustee from a breach of trust
o Clauses that relieve personal liability are enforceable as long as it doesn’t
relieve liability for a major screw up
 Common to see such clauses when trustee is a family member and
especially when trustee is a family ember acting without
compensation
The Perfect Estate Planning Tool?

Historically
 Originally, at Common Law, when someone died, the entirety of their estate passed
PROBATE to heirs at law and devisees under a will (unless true joint tenancy)
 Pre-1943: trusts were irrevocable unless it expressly said revocable
 1943-present: TX reversed common law presumption and trusts are revocable
unless expressly say they are revocable
 In 1965  probate revolution began!
o Dacey wrote a book criticizing probate process and proposed a solution:
With an inter vivos declaration of trust, settlor could create a revocable trust,
retaining an equitable life estate as trustee and giving equitable remainder to
kids
Revocable inter vivos declaration of trust: settlor declares himself trustee and retains an
equitable life estate, giving an equitable remainder interest to eventual beneficiaries.
Settlor also retains power of revocation and provides a shifting executory interest to a
successor trustee in event of settlor’s incapacity.
 Recognized as VALID arrangement in TX
 §112.033 (TTC)
o If during the life of the settlor an interest in trust or the trust property is
created in a beneficiary other than the settlor, the disposition is not invalid as
an attempted testamentary disposition merely because the settlor reserves
or retains, either in himself or another person who is not the trustee, any or
all of the other interests in or powers over the trust or trust property.
Revocable Trusts as Will Substitutes

 SCoTx recognized revocable trusts used in the way described by Dacey in
Westerfeld v. Huckaby
o Dissent criticized it as a contrived use of trust principle to effect a
testamentary disposition during lifetime. Remaindermen could never sue for
breach of duty because trustee (settlor) would just revoke trust or amend
and kick beneficiary out!
 But, in TX, this is a valid arrangement!
o TX allows this because there is a separation of equitable and legal title and
the trust is not contrary to public policy
 In TX, settlor may retain rights and powers as long as there is an
equitable future interest in someone else
Using Revocable trusts to AVOID:

 (1) Probate
o In states like CA, settlors use inter vivos revocable trusts to avoid probate
because it is a long and expensive process
o BUT in TX, it is not as common because we have independent administration
and minument of title options
 Most valuable purpose in TX is to avoid guardianship in the event of
incapacitation
o It is possible to avoid probate id ALL the assets prior to death are in the trust
agreement
 This is unlikely because often settlors over look assets or acquire
assets after executing the trust and never get around to transferring
title from settlor to “settlor in trust”
 “Pour Over Will”
 After marshaling estate and paying debts, any left over assets
will pour over into the trust
o Also voids guardianship in event of settlor’s future incapacity
 Another way to avoid guardianship is to use a durable power of
attorney + will:
 (1) A durable power of attorney that creates an agency
relationship and states that it will not terminate upon
incapacity of the principal will allow the agent to manage the
principal’s financial affairs in event of incapacity.
 (2) Upon death of settlor, settlor’s will kicks in.
 (2) Creditors
o Putting assets in a revocable trust does NOT avoid creditors
o During O’s lifetime and at O’s death, O’s creditors can still go after O’s assets
in the trust
o Cannot use this technique to dodge creditors
 (3) Spousal Rights
o Illusory Transfer Doctrine
 (4) Taxes
o The “death tax” does NOT exist
o We have inheritance tax, estate tax and transfer tax
o The creation and funding of a revocable trust is NOT considered a taxable
event
 For rest of settlor’s life, all income, credits, deductions, etc. are
reported on settlor’s tax return
 When O dies, all assets of revocable trust are part of the taxable estate
o So, revocable trust is tax neutral.
 The same tax consequences will result from will or revocable trust
Illusory Transfer Doctrine

 Land v. Marshall
o H transfers BA (H’s special community property) to daughter as trustee. The
terms of the trust instruct daughter to pay income to H during life, then to W
for life, then distribute to grandchild. H retains power to revoke. H dies.
 Normally, BA would DWAP, but because H has made it nonprobate, it
does not DWAP
 The illusory transfer doctrine is a new marital property right!
o The property in the Land v. Marshall case was validly conveyed. It was H’s
SCP, so he is permitted to transfer all of it, and it was a valid trust with all the
requirements and had a valid purpose & terms.
 “Illusory Trust”
o Not really an illusory trust though, because all the elements are there, it is a
real, valid trust. But, because H retained the power of revocation, the trust is
“illusory”
o Wife has two options:
 (1) When marriage terminates, Wife can leave the trust as is. H made a
valid disposition and W can choose to enjoy the income from the
property for her life and allow the will to be carried out according to
H’s plan.
OR
 (2) Wife can assert this “illusory” concept and pull her ½ interest of
blackacre out of the trust
 In Land v. Marshall the wife made this choice. Upon pulling out
her interest though, the entire trust failed.
o This is because the purpose of the trust was to give
income of all to wife and then all to daughter. Wife
cannot pull her ½ interest out and then continue to get
income from H also. The purpose FAILS.
o When purpose of trust fails, we have a resulting trust
and H’s ½ interest reverts back to H and passes to his
heirs/devisees!
 Fraud on the Community v. Illusory Transfer
o Ex. #1: During life, H transfers BA (HSCP) to third party.

 H has power to do this, but on termination of marriage, Wife may have
a claim for fraud on the community
o Ex. #2: In a will, H devises BA to third party.

 H cannot do this! Upon H’s death, DWAP. H does not have
testamentary power over W’s undivided ½ interest in black acre.
 This is not a fraud on the community issue because this was not an
inter vivos transfer.
 Wife retains her ½ interest, and H’s ½ interest passes to third party
under the will
o Ex. #3: During life, H makes inter vivos transfer in trust to third party.
 The answer here depends on if trust was revocable or irrevocable!
 If irrevocable  H has power to do this, but on H’s death, it will
be a question of fraud on the community
 If revocable  W can assert illusory and pull her ½ interest
out of the trust
o If wife pulls her ½ interest out here, the trust does not
fail as it did in Land v. Marshall
o Here, the purpose of the trust was to give blackacre to
third party. H’s ½ interest will remain in trust for third
party. The overall purpose is not disrupted and no
resulting trust.
o Ex. #4: H devises blackacre in trust in his will on death

 DWAP occurs on H’s death. W retains her ½ interest and H’s ½ goes to
trustee for benefit of third party
 H does not have testamentary power over W’s ½ interest
 Inter vivos Revocable Trust in Divorce v. Probate Context

o “H conveys black acre o H as trustee for life, remainder to third party” (H is
retaining legal title as trustee and an equitable life estate)
 Third party has a vested remainder subject to divestment (if H
revokes)
 On Divorce  This is illusory because H retained power of revocation.
W can pull her ½ interest out.
 In divorce context, it is illusory as to marital property because
on divorce, the court can make a just and right division of ALL
community interest in the trust
o Illusory as to ALL 100% of black acre because court can
award community property as just and right
 At death  In probate, this is illusory only as to W’s undivided ½
interest!

Texas: Trusts & Estates Outline

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TRUSTS & ESTATES OUTLINE

ATTRIBUTES OF PROPERTY OWNERSHIP

 When O gives deed to A&B as joint tenants, that is not enough.

 (2) The Testator must die

(1) Descendants  (Children, Children’s descendants, Grandchildren)

 Early American law differentiated between maternal and paternal

 Usually the biological mother who gave up the kid on reliance

(2) Ascendants  (Parents, Grandparents)

(3) Collateral  (Siblings, nieces, nephews, aunts uncles)

 §22.016 Tex. Estates Code

How do we divvy up the estate after we identify heirs?

(1) If Decedent dies without a spouse  §201.001

(2) If person dies WITH a spouse: (§201.002 & 201.003)

Representation  “Per Stirpes” v “Per Capita” (See pg 144 of text)

 There are two primary types of representation:

 §201.101  ONLY applies to intestacy. If a will or trust is present, then the

Remote Heirs  “Next of Kin” v. “Parentelic”

Basic Family Unit

 Parentelic  Moiety System

o ½ goes to the Paternal side, and ½ goes to the maternal side

Escheat to the State  §71.001 Tex. Prop. Code

 Example  O has multiparty bank account, that is payable on death to

Effect of Invalid Disclaimer  §122.102

Transactions Before O Dies  Gift v. Loan v. Advancement

o Prevents a caretaker from manipulating an elderly individual into marrying

Other Facts Effecting Estate

§251.002 - introduction to wills.

 The intestate process becomes irrelevant pursuant to §100.001 if we have a valid,

§254.003: Devises and Bequests to Attorneys and Other Persons 

A devise in a will is VOID if made to:

BUT devise is not void if made to:

Statutory Requirements  “Due Execution”

(1) Testamentary Intent

(2) Testamentary Capacity

(3) Must Comply With Statutory Formalities

(2) Signed by the Testator

 Can sign testator’s signature and then “by: Jessica Schwartz at

(3) Attestation (unless wholly in the testator’s handwriting)

 Does not mean they need to establish trustworthiness in a hearing

 What if witness is a beneficiary?

Self Proving Wills

What Actually Constitutes a Will?

(2) Incorporation By Reference

(3) Events of Independent Significance

(4) Memorandum at Death

(5) Pour-Over Will  §254.001

(6) Republication by Codicil

§253.002 – Revocation of a Will

o Example: In 2000, A makes a will, leaving all to X. In 2010, A makes a document

Revocation is a testamentary act, which requires:

(1) Revocation by Subsequent Document

(2) Revocation by Physical Act

(3) Implied Revocation - Revocation by Inconsistency

(4) Partial Revocation - (or an amendment)

(5) Proxy Revocation

(7) Lost Will

(8) Revocation by Changed Circumstances/ by operation of law

(9) Dependent Relative Revocation

 Recognizes the ambulatory nature of wills. They don’t become