Texas has not favored JTROS arrangements, except in the case of bank accounts and financial depositary...

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Texas has not favored JTROS arrangements, except in the case of bank accounts and financial depositary and/or brokerage accounts, and certainly not in the real estate context. Sec. 101.002 of the Estates Code provides the general rule to be followed in Texas: "If two or more persons hold an interest in property jointly and one joint owner dies before severance, the interest of the decedent in the joint estate: (1) does not survive to the remaining joint owner or owners; and (2) passes by will or intestacy from the decedent as if the decedent's interest had been severed." In the 2009 81st Legislative Session, the Texas Legislature codified Section 46 of the former Probate Code into Chapter 111 of the Estates Code which allows "Notwithstanding Section 101.002, two or more persons who hold an interest in property jointly may agree in writing that the interest of a joint owner who dies survives to the surviving joint owner or owners." (Texas Estates Code Section 111.001(a)) Section 111.001(b) continues to provide "an agreement described by Subsection (a) may not be inferred (my emphasis) from the mere fact that property is held in joint ownership. This Chapter specifically does not apply to an agreement between spouses regarding the spouses' community property which is covered by Chapter 112 (Texas Estates Code Section 111.002). This raises another question. Can you create a JTROS with community property and if so, what are the formalities required? Sec. 112.051 of the Estates Code provides: "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." Sec. 112.052 goes on to require an acceptable form of agreement must: a. be in writing and signed by both spouses. b. is sufficient to create a right of survivorship in the community property described in the agreement 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." c. (omitted) d. A survivorship agreement may not be inferred from the mere fact that an account is a joint account or that an account is designated as JT TEN, Joint Tenancy, or joint, or with other similar language. What has been an underwriting dilemma for years is what constitutes an "agreement in writing between co-owners or spouses sufficient to create a valid JTROS. One would think under Chapters 111 & 112 a mere statement in the granting clause in a deed stating the interest being created is a JTROS is not sufficient because that relationship cannot be inferred under Chapter 101, although Texas attorneys have been utilizing this method for years. Lately savvy drafters have been having the Grantees (being all the joint tenants) also sign the deed to evidence this is a "writing" worthy of satisfying the requirements of Chapters 111 & 112. But what do the Courts have to say on the topic? We will examine these two issues separately, starting with Chapter 112 applying to community property. Creating a JTROS with Community Property. There are not a lot of cases on point but the two most interesting ones I found are Beatty v Holmes, 233 SW3d 475, Tex Civ App-Houston (14th) (2007) and Haas v Voight, 940 SW2d 198, Tex Civ App-San Antonio (1996). There is a great summary of the history on the topic in Haas (at 200) so we'll start there. Prior to 1925, there was a presumption that community property in Texas was held between spouses as JTROS. In 1925 Art 2580 passed and abolished this presumption of a JTROS as a matter of law, but still allowed a JTROS could be created in certain situations. See Chandler v Kountze (discussed below). Later the Courts clarified the process to create a valid JTROS on community property now required a two-step process, first a partition from community to separate property and then creation of the JTROS with a written agreement. (Hilley v Hilley 342 SW2d 565 (Tex 1961). Shortly after Hilley the Legislature amended Section 46 of the Probate Code (now Section 112.051 of the Estates Code) to allow spouses to create a JTROS for community property with a written agreement signed by both spouses, and the Texas Supreme Court promptly declared Section 46 unconstitutional in Williams v McKnight 402 SW2d 505 (Tex 1966) reiterating the holding in Hilley that community property must first be partitioned to separate property of the spouses before creation of a valid JTROS. In 1987 the Texas Constitution was amended and in response the 1989 Legislature amended Section 46 of the Probate Code (now Section 112.051 of the Estates Code). As a result of all this, there are two ways to create JTROS with community property, the partition route or by written agreement. In Haas Bert & Emma Haas were married and had three children, namely Joyce, Shirley & Herman. Bert died in 1994 leaving everything to Emma, who was declared NCM soon after Bert died. Emma died July 1994 but at some point (it is not clear when from the facts discussed) Herman was declared her legal guardian. Emma had a will leaving everything to the three children in equal shares. The children starting fighting over the assets but reached settlement on everything except as to three deposit accounts with Bank of America and 1 account with Nations Bank. Bert & Emma had created the BOA accounts as JTROS, while Bert and his son Herman created the Nations account, again as JTROS. All 4 accounts were funded with community funds and parties conceded there was no partition of the community into separate property first. Right before Bert died, Bert and Herman sign new signature cards at BOA removing Emma and purporting to create a JTROS account between Bert and Herman. The trial court found the accounts belonged to the Emma's estate. The Court of Appeals affirmed, reasoning an attempt to create a JTROS between Bert and Herman was ineffective on community property because there was no prior partition (as to the Nations Bank account) nor a revocation of the prior JTROS (which were effective) created by Bert & Emma. Therefore, the attempt by Bert and Herman to create a JTROS where Herman was the beneficiary was ineffective as to the community property simply because Herman was not a spouse. Beatty, out of the 14th Appellate Court in Houston in 2007, is perhaps is the most definitive case on creation of a JTROS with community property. Thomas & Kathryn Holmes married in 1972. Kathryn died in July 1999 and Thomas in May 2000. Beatty, Kathryn's son from a previous marriage was appointed Independent Executor of her estate. Holmes, Thomas' son from a previous marriage was appointed Independent Executor of his estate. Together Thomas and Kathryn had multiple brokerage accounts valued in the millions. Thomas and Kathryn contributed community funds to the accounts that were shown to be established as JTROS. Holmes claimed the brokerage accounts were JTROS and thus Kathryn's %2 passed to Thomas when she died and thus was no part of Kathryn's estate. Beatty obviously wanted Kathryn's community interest to be included in Kathryn's estate. The Probate Court, summary judgement, ruled the accounts were a JTROS and had passed to Thomas when Kathryn died and no part of the brokerage accounts were part of Kathryn's Estate. The Appellate Court reversed, holding the JTROS was not validly created, citing the Estates Code requirement to create a JTROS of community property requires certain formalities, including an agreement in writing signed by both spouses. The Court focused on the form Thomas and Kathryn signed when creating the account in determining whether it met the formalities of the Code. The Court noted in the form there were three options/opportunities for Thomas and Kathryn to complete the form and clearly indicate their intent to establish a JTROS, but they did not comply with any one of them. Thomas and Kathryn merely signed and dated a blank form, without strikeouts or filling in any blanks, and as a result the Court ruled the minimum requirements to establish a valid JTROS were not met and it was inappropriate to presume the spouses intent to create a JTROS with this community property. The Court held that Thomas' estate did not own 100% of the account and 50% of the brokerage account should be included in Kathryn's estate. Texas has not favored JTROS arrangements, except in the case of bank accounts and financial depositary and/or brokerage accounts, and certainly not in the real estate context. Sec. 101.002 of the Estates Code provides the general rule to be followed in Texas: "If two or more persons hold an interest in property jointly and one joint owner dies before severance, the interest of the decedent in the joint estate: (1) does not survive to the remaining joint owner or owners; and (2) passes by will or intestacy from the decedent as if the decedent's interest had been severed." In the 2009 81st Legislative Session, the Texas Legislature codified Section 46 of the former Probate Code into Chapter 111 of the Estates Code which allows "Notwithstanding Section 101.002, two or more persons who hold an interest in property jointly may agree in writing that the interest of a joint owner who dies survives to the surviving joint owner or owners." (Texas Estates Code Section 111.001(a)) Section 111.001(b) continues to provide "an agreement described by Subsection (a) may not be inferred (my emphasis) from the mere fact that property is held in joint ownership. This Chapter specifically does not apply to an agreement between spouses regarding the spouses' community property which is covered by Chapter 112 (Texas Estates Code Section 111.002). This raises another question. Can you create a JTROS with community property and if so, what are the formalities required? Sec. 112.051 of the Estates Code provides: "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." Sec. 112.052 goes on to require an acceptable form of agreement must: a. be in writing and signed by both spouses. b. is sufficient to create a right of survivorship in the community property described in the agreement 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." c. (omitted) d. A survivorship agreement may not be inferred from the mere fact that an account is a joint account or that an account is designated as JT TEN, Joint Tenancy, or joint, or with other similar language. What has been an underwriting dilemma for years is what constitutes an "agreement in writing between co-owners or spouses sufficient to create a valid JTROS. One would think under Chapters 111 & 112 a mere statement in the granting clause in a deed stating the interest being created is a JTROS is not sufficient because that relationship cannot be inferred under Chapter 101, although Texas attorneys have been utilizing this method for years. Lately savvy drafters have been having the Grantees (being all the joint tenants) also sign the deed to evidence this is a "writing" worthy of satisfying the requirements of Chapters 111 & 112. But what do the Courts have to say on the topic? We will examine these two issues separately, starting with Chapter 112 applying to community property. Creating a JTROS with Community Property. There are not a lot of cases on point but the two most interesting ones I found are Beatty v Holmes, 233 SW3d 475, Tex Civ App-Houston (14th) (2007) and Haas v Voight, 940 SW2d 198, Tex Civ App-San Antonio (1996). There is a great summary of the history on the topic in Haas (at 200) so we'll start there. Prior to 1925, there was a presumption that community property in Texas was held between spouses as JTROS. In 1925 Art 2580 passed and abolished this presumption of a JTROS as a matter of law, but still allowed a JTROS could be created in certain situations. See Chandler v Kountze (discussed below). Later the Courts clarified the process to create a valid JTROS on community property now required a two-step process, first a partition from community to separate property and then creation of the JTROS with a written agreement. (Hilley v Hilley 342 SW2d 565 (Tex 1961). Shortly after Hilley the Legislature amended Section 46 of the Probate Code (now Section 112.051 of the Estates Code) to allow spouses to create a JTROS for community property with a written agreement signed by both spouses, and the Texas Supreme Court promptly declared Section 46 unconstitutional in Williams v McKnight 402 SW2d 505 (Tex 1966) reiterating the holding in Hilley that community property must first be partitioned to separate property of the spouses before creation of a valid JTROS. In 1987 the Texas Constitution was amended and in response the 1989 Legislature amended Section 46 of the Probate Code (now Section 112.051 of the Estates Code). As a result of all this, there are two ways to create JTROS with community property, the partition route or by written agreement. In Haas Bert & Emma Haas were married and had three children, namely Joyce, Shirley & Herman. Bert died in 1994 leaving everything to Emma, who was declared NCM soon after Bert died. Emma died July 1994 but at some point (it is not clear when from the facts discussed) Herman was declared her legal guardian. Emma had a will leaving everything to the three children in equal shares. The children starting fighting over the assets but reached settlement on everything except as to three deposit accounts with Bank of America and 1 account with Nations Bank. Bert & Emma had created the BOA accounts as JTROS, while Bert and his son Herman created the Nations account, again as JTROS. All 4 accounts were funded with community funds and parties conceded there was no partition of the community into separate property first. Right before Bert died, Bert and Herman sign new signature cards at BOA removing Emma and purporting to create a JTROS account between Bert and Herman. The trial court found the accounts belonged to the Emma's estate. The Court of Appeals affirmed, reasoning an attempt to create a JTROS between Bert and Herman was ineffective on community property because there was no prior partition (as to the Nations Bank account) nor a revocation of the prior JTROS (which were effective) created by Bert & Emma. Therefore, the attempt by Bert and Herman to create a JTROS where Herman was the beneficiary was ineffective as to the community property simply because Herman was not a spouse. Beatty, out of the 14th Appellate Court in Houston in 2007, is perhaps is the most definitive case on creation of a JTROS with community property. Thomas & Kathryn Holmes married in 1972. Kathryn died in July 1999 and Thomas in May 2000. Beatty, Kathryn's son from a previous marriage was appointed Independent Executor of her estate. Holmes, Thomas' son from a previous marriage was appointed Independent Executor of his estate. Together Thomas and Kathryn had multiple brokerage accounts valued in the millions. Thomas and Kathryn contributed community funds to the accounts that were shown to be established as JTROS. Holmes claimed the brokerage accounts were JTROS and thus Kathryn's %2 passed to Thomas when she died and thus was no part of Kathryn's estate. Beatty obviously wanted Kathryn's community interest to be included in Kathryn's estate. The Probate Court, summary judgement, ruled the accounts were a JTROS and had passed to Thomas when Kathryn died and no part of the brokerage accounts were part of Kathryn's Estate. The Appellate Court reversed, holding the JTROS was not validly created, citing the Estates Code requirement to create a JTROS of community property requires certain formalities, including an agreement in writing signed by both spouses. The Court focused on the form Thomas and Kathryn signed when creating the account in determining whether it met the formalities of the Code. The Court noted in the form there were three options/opportunities for Thomas and Kathryn to complete the form and clearly indicate their intent to establish a JTROS, but they did not comply with any one of them. Thomas and Kathryn merely signed and dated a blank form, without strikeouts or filling in any blanks, and as a result the Court ruled the minimum requirements to establish a valid JTROS were not met and it was inappropriate to presume the spouses intent to create a JTROS with this community property. The Court held that Thomas' estate did not own 100% of the account and 50% of the brokerage account should be included in Kathryn's estate.

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