Family Settlement Agreement Instead of a Probate

The process of probate administration can be lengthy, complicated, and costly.

Fortunately, Texas law provides various alternatives to a full probate administration. These alternatives include 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.

In the right circumstances, a family settlement agreement can be the most flexible and easiest to implement option. However, it’s important to understand the requirements and potential consequences of using a family settlement agreement.

When to Use Family Settlement Agreements in Texas

Family settlement agreements are used to resolve probate disputes without trial. They can help avoid litigation costs and uncertainty associated with trial.

Family settlement agreements can be used to resolve a number of probate disputes, such as will contests, will construction suits, claims and trust modifications, etc.

A family settlement agreement is also useful in situations where there are multiple wills or where a will contest is contemplated by an heir. They can also be used to divide probate property as the heirs and other interested parties desire.

Family Settlement Agreements are Favored in Texas

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 in Texas have to address three basic criteria:

  1. the decedent’s right to make a testamentary disposition,
  2. the beneficiaries’ right to convey their rights, and
  3. 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:

  1. The agreement does not have to be in writing, but the terms must be clear.
  2. All interested parties must agree to distribution.
  3. All interested parties must be over 18, as a minor could not be bound by a family settlement agreement.
See also Ladybird Deeds in Texas: An Often Overlooked Opportunity

If these requirements are met, all beneficiaries by signing the agreement are then estopped 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 are they are barred.

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.

Also, the 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
See also Claiming Unclaimed Property of a Deceased Loved One

The Takeaway

If you are facing the prospect of probate administration in Texas, it’s important to know that there are alternatives available that can save you time, money, and reduce the likelihood of family disputes. While a small estate affidavit, an affidavit of heirship, and a family settlement agreement are all options, a family settlement agreement can be particularly useful when certain circumstances are met. With the right approach, you can settle the estate efficiently and effectively, while preserving family relationships and minimizing legal costs.

If you need help with your Texas probate matter, call us today for a FREE attorney consultation at (281) 219-9090 .

Our Houston Probate Attorneys provide a full range of probate services to our clients, including helping with disputes between heirs. Affordable rates, fixed fees, and payment plans are available. We provide step-by-step instructions, guidance, checklists, and more for completing the probate process. We have years of combined experience we can use to support and guide you with probate and estate matters. Call us today for a FREE attorney consultation.

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.