Category: Estate Planning and Probate

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Rights of Survivors to Homestead, Exempt Property and Allowances

Rose

Have you ever heard of a “forced share” (historically called “widow’s share”) when it comes to dealing with estate assets?   Whether a decedent had a will or not, his surviving spouse and children might have rights to estate property which trump the rights of other interested parties, including other beneficiaries and most creditors.

For example, the intestacy statutes provide that when a decedent having no will dies with children who are not also children of his surviving spouse, the children (and not his spouse) inherit his half of the community property and most of his separate property.  This can become troublesome for surviving spouses, who will effectively become co-owners with their step-children.  In many cases, the step-children might demand that the spouse agree to sell the property or pay them rent.

Texas law protects surviving spouses and children in various ways.

Homestead and Exempt Personal Property

Chapter 353 of the Texas Estates Code provides for setting aside the homestead and exempt personal property.  Section 353.051(a) states:

… the court by order shall set aside:

(1) the homestead for the use and benefit of the decedent’s surviving spouse and minor children; and

(2) all other exempt property described by Section 42.002(a), Property Code, for the use and benefit of the decedent’s:

(A) surviving spouse and minor children;

(B) unmarried adult children remaining with the decedent’s family; and

(C) each other adult child who is incapacitated.

Note that only minor children benefit from the homestead set-aside, while certain adult children can benefit from the exempt personal property set-aside.
For more information on the type and extent of real estate which qualifies as a homestead, see this article.
Chapter 102 of the Estates Code provides that the spouse and minor children have the exclusive right to use and occupy the homestead for the duration of their lives rent-free.  The case law holds they need only pay for property taxes and do not have to keep the home insured.  In addition, they must pay the interest portion (and not the principal) of any unpaid mortgage.  The remainder owners are responsible for the principal portion of the mortgage.

Example:
Don is married to Sally and has an adult son, Ben, from a prior marriage.  Prior to his marriage to Sally, Don owned the home Sally and he live in.  Therefore, it is his separate property.  Don and Sally have a lot of credit card debt.  Sally files a petition for divorce from Don.  Don changes his will to leave everything he owns to Ben.
Don dies before the divorce proceedings are finalized.  Regardless of Don’s will, Sally receives a life estate to occupy the home for the remainder of her life rent-free.  She is required to pay property taxes and the interest portion of the mortgage.  She does not have to insure the home.  She is required to maintain it at her expense.
Ben must pay the principal portion of the mortgage.  If he wants the property to be insured, he will have to pay for the insurance himself.  He cannot force Sally to sell the home.  He has no right to occupy it so long as Sally occupies it as her homestead.
Since Ben might be waiting many years before he is entitled to do anything with the home, this rule provides incentives for one party to cash-out the other.
As stated in Section 353.051(a)(2) above, exempt personal property is also set aside for Sally.  Ben gets none of it.

Allowances in Lieu of Exempt Property

Section 353.053 provides:

(a) If all or any of the specific articles of exempt property described by Section 353.051(a) are not among the decedent’s effects, the court shall make, in lieu of the articles not among the effects, a reasonable allowance to be paid to the decedent’s surviving spouse and children as provided by Section 353.054.

(b) The allowance in lieu of a homestead may not exceed $45,000, and the allowance in lieu of other exempt property may not exceed $30,000, excluding the family allowance for the support of the surviving spouse, minor children, and adult incapacitated children provided by Subchapter C.

What this means is this:  If there is no homestead, or if there is debt against the homestead, the survivor can give up any homestead rights and elect to receive an allowance of up to $45,000.  If there isn’t much exempt personal property, the survivor can receive an allowance of up to $30,000 in addition to the exempt personal property.  The amounts to be awarded are within the discretion of the court or independent executor.

Set Asides are not Subject to Administration

Allen v. Ramey makes clear that the foregoing set asides of the homestead and exempt personal property remove these assets from the estate.  This means they cannot be used to pay debts of the estate, including the family allowance discussed below.

Family Allowance

In addition to the foregoing set-asides and allowances, Section 353.101, et seq. provides for a family allowance for each surviving spouse, minor child and adult, incapacitated child equal to the person’s expected needs for living expenses for the first year after the decedent’s death.  The amount to which each person is entitled will be reduced to the extent he or she had his or her own separate property at the time of the decedent’s death.

The family allowances take precedence over the rights of all other beneficiaries and heirs to property of the estate and also trump the claims of all creditors, except for Class 1 claims (i.e., the first $15,000 of funeral expenses and the first $15,000 of expenses of last illness).

According to Estate of Nielsen, the family allowance is payable out of the entirety of the decedent’s and surviving spouse’s community estate and not solely out of the survivor’s half.  It is a debt of the estate to be paid out of administration and may not be satisfied using homestead and exempt personal property which has been set aside.

There are  a lot of interesting scenarios and questions which pertain to exempt property and allowances in connection with decedent’s estates.  As shown above, these exemptions and allowances are very powerful and can be rather generous since they are to the exclusion of other beneficiaries, heirs and most creditors of the estate.