Texas law provides various alternatives to a full probate administration, such as a small estate affidavit, an affidavit of heirship, and a family settlement agreement.
While each of these options has its own unique set of requirements and limitations, a family settlement agreement can be a particularly useful tool when certain circumstances are met due to its flexibility and easy implementation
Family Settlement Agreement
A family settlement agreement is a preferred alternative method of administration of an estate in Texas.
Section 154.002 of the Texas Civil Practice and Remedies Code defines the Texas public policy on family settlement agreements:
It is the policy of this state to encourage the peaceable resolution of disputes, with special consideration given to disputes involving the parent/child relationship, including mediation of issues involving conservatorship, possession and support of children, and the early settlement of pending litigation through voluntary settlement procedures.
The Texas courts have affirmed this preference for settlement agreements.
Requirements for a Family Settlement Agreement in Texas
Family settlement agreements have to address three basic criteria:
- the decedent’s right to make a testamentary disposition,
- the beneficiaries’ right to convey their rights, and
- balancing those competing rights by requiring an agreement to an alternative distribution plan.
Texas law provides several requirements that must be met to establish a family settlement agreement in Texas. These requirements include that:
- The agreement does not have to be in writing, but the terms must be clear.
- All interested parties must agree to distribution.
- All interested parties must be over 18, as a minor could not be bound by a family settlement agreement.
If these requirements are met, all beneficiaries by signing the agreement are then estopped or barred from challenging the agreement later on, and the agreement is enforceable as any other written contract.
It should also be noted that any claims of fraud or other challenges to the agreement by the parties have to be made within four years or they are barred.
A family settlement agreement is useful in situations where there are multiple wills or where a will contest is contemplated by an heir. They can also be used to avoid probate altogether in some cases.
To accomplish this, they can be used to divide probate property as the heirs and other interested parties desire. This is true even if the decedent had a will. The family can usually agree on some other disposition of property, even if it is contrary to the terms of the will.
Tax Implications
The tax implications of family settlement agreements are particularly important. Distributions that are different than those called for in the will and/or intestacy laws can trigger taxable gain or loss. The parties should factor this into any agreement they are contemplating.
Terms of the agreement should include language to take advantage of exchange treatment, to lock in capital or ordinary gain or loss treatment were desired, and to maximize allowable deductions and credits.
Depending on how it is drafted, the family settlement agreement can also have significant estate and gift tax consequences.
Overrides the Decedent’s Intent
In the case of a will, a question arises as to how persons can agree to a distribution of an estate that runs contrary to a decedent’s intentions.
It is possible because under the Texas Estates Code, when a person dies leaving a will, all of the estate devised or bequeathed by the will immediately vests in the distributees, subject to payment of the decedent’s debts. This allows heirs to enter into family settlement agreements given that they are able to transfer property as they see fit immediately after the decedent’s death.
The family settlement agreement is a shortcut that allows the parties to avoid having to accept property and then trade property among themselves.
When in Lieu of a Probate
In Texas, a family settlement agreement can be used in lieu of a probate administration under certain circumstances. Some common situations where a family settlement agreement can be used include:
- No Minor Beneficiaries: If there are no minor beneficiaries or heirs involved, a family settlement agreement can be used instead of going through the probate process. This is because minors cannot legally enter into contracts, and therefore cannot agree to the terms of a settlement agreement.
- No Disputes: A family settlement agreement can be used when there are no disputes among the beneficiaries or heirs. This means that everyone involved agrees on how the estate should be divided and distributed.
- Accessible Bank Accounts: If all of the decedent’s bank accounts are joint accounts that the surviving owner can access, a family settlement agreement may be used to distribute the assets in those accounts without the need for a probate administration.
- No Real Property: If the decedent’s estate does not include any real property, a family settlement agreement can be used instead of going through probate. Note: if there is real estate, the affidavit of heirship may need to be combined with the family settlement agreement.
The Takeaway
Texas law offers a range of alternatives to full probate administration such as a family settlement agreement. While it requires clear terms and unanimous agreement among interested parties, it offers the advantage of preventing future challenges to the agreement and can even be used to bypass probate proceedings in certain situations.
Ultimately, a family settlement agreement can serve as a valuable tool when navigating the intricate landscape of estate administration in Texas.
Do you need help with a probate matter in Austin or the surrounding area? We are Austin probate attorneys. We help clients navigate the probate process. Call today for a free confidential consultation, 512-273-7444.
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Disclaimer
The content of this website is for informational purposes only and should not be construed as legal advice. The information presented may not apply to your situation and should not be acted upon without consulting a qualified probate attorney. We encourage you to seek the advice of a competent attorney with any legal questions you may have.
