Family settlement agreements are most often used to resolve probate litigation without trial. They are often used in will contests, will construction lawsuits, claims and trust modification lawsuits. They can help avoid litigation costs and uncertainty associated with trial.
A family settlement agreement is also useful in situations where there are multiple wills or where a will contest is contemplated by a heir.
Family settlement agreements can be used to avoid probate altogether in some cases. That is why we included the topic in this section of the book.
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.
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 in probate matters.
Family settlement in Texas have to address three basic criteria:
Texas law provides several requirements that must be met to establish a family settlement agreement in Texas. These requirements include that:
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 are they are barred.
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.
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. One should consult with their probate attorney about these nuanced issues.
If there is a will, another option is to probate the will as a muniment of title. Let’s consider that topic next. Click here to continue reading. >>>>
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