Court Opinion

ID: 4649334
Source: CourtListenerOpinion
Date Created: 2021-01-06 07:13:48.157157+00
Date Added: 2024-06-11T08:01:24.411969
License: Public Domain

Affirmed in part, Reversed and Remanded in part; Opinion Filed
December 30, 2020

                                      In The
                            Court of Appeals
                     Fifth District of Texas at Dallas
                               No. 05-19-01192-CV

         THE ESTATE OF LEAH RITA TILLOTSON, DECEASED

                On Appeal from the County Court at Law No. 2
                             Hunt County, Texas
                        Trial Court Cause No. 18359

                        MEMORANDUM OPINION
              Before Justices Schenck, Osborne, and Partida-Kipness
                       Opinion by Justice Partida-Kipness
      In this probate proceeding, Thomas Tillotson appeals the trial court’s order

approving the inventory, appraisement, and list of claims filed by the administratrix

of his wife’s estate. In five issues, Thomas contends the trial court erred in

overruling his objections to the administratrix’s claims to a community interest in

his Rollover IRA, Roth IRA, and U.S. savings bonds, and for reimbursement related

to a down payment made on the community residence and funds used to benefit

Thomas’s separate real property. We reverse and remand in part and affirm in part.
                                BACKGROUND

      Thomas and decedent Leah Rita Tillotson were married in 1980. Leah died

intestate on August 31, 2017. Kristi Sherrill Hoyl, one of Leah’s daughters from a

previous marriage, was appointed administratrix of Leah’s estate.

      Hoyl filed an initial and amended inventory, appraisement, and list of claims

with the trial court. Thomas objected to the amended inventory, appraisement, and

list of claims. Specifically, Thomas objected that Hoyl had included among the

estate’s community property inventory Thomas’s Rollover IRA, Roth IRA, and U.S.

savings bonds. He argued that any community property interest the estate had in

these items was preempted by federal law that established the investments and

rendered them his separate property. Thomas also objected to two items listed

among the claims owed to the estate: reimbursement to the estate of $25,000 in

Leah’s separate property used as down payment to purchase the couple’s home in

1984; and community funds allegedly used to pay mortgage, taxes, and insurance on

Thomas’s separate real property. According to Thomas, the $25,000 down payment

came from community funds, and the estate actually benefited from rent on his

separate real property. The trial court heard and overruled Thomas’s objections.

This appeal followed.

                           STANDARD OF REVIEW

      Any interested person who considers an inventory, appraisement, or list of

claims to be erroneous, unjust, or missing property or claims may file a written

                                       –2–
complaint to compel the personal representative to appear and show cause why the

alleged error should not be corrected. TEX. EST. CODE §§ 309.102(a), 309.103(a).

A trial court shall conduct a hearing, and if the court is satisfied that the evidence

has proven that property or claims have been omitted or that the inventory,

appraisement, or list of claims is erroneous, the court shall enter an order addressing

the corrections.      TEX. EST. CODE §§ 309.102(b) (requiring the personal

representative to file “an additional inventory and appraisement or list of claims, of

both, as applicable”), 309.103(b) (the trial court’s order shall specify “the erroneous

or unjust item and the corrections to be made”).

       We review a trial court’s order on a complaint under sections 309.102 and

309.103 for an abuse of discretion. See In re Estate of Walker, 250 S.W.3d 212, 214

(Tex. App.—Dallas 2008, pet. denied) (reviewing an order under predecessor

section 258 of the probate code for an abuse of discretion); In re Estate of Denton,

No. 11-10-00341-CV, 2012 WL 3063845, at *4 (Tex. App.—Eastland July 26, 2012,

no pet.) (mem. op.) (reviewing an order approving an amended inventory under

section 255 of the probate code, predecessor to section 309.054 of the estates code,

for an abuse of discretion). “A trial court abuses its discretion if it acts in an arbitrary

or unreasonable manner without reference to any guiding rules or principles.” In re

Estate of Walker, 250 S.W.3d at 214 (citing Downer v. Aquamarine Operators, Inc.,

701 S.W.2d 238, 241–42 (Tex. 1985)).

                                            –3–
                                   ANALYSIS

      In five issues, Thomas contends the trial court erred in overruling his

objections and approving Hoyl’s amended inventory, appraisement, and list of

claims.

A.    Thomas’s Rollover and Roth IRAs

      In his first and second issues, Thomas contends the trial court erred in

approving Hoyl’s inventory and appraisement to include his Rollover IRA and Roth

IRA among the estate’s community property interests. Hoyl’s amended inventory

lists two IRAs:

       Institution: Fidelity
        Account type: Rollover IRA
        Account/CD No: XXXXX0935
        Total value of asset: $1,305,906.86
        Less surviving spouse share: $652,953.40
        Co-owners: Tom Tillotson and Leah Rita Tillotson
        Decedent’s interest: 1/2 community property

       Institution: Fidelity
        Account type: Roth IRA
        Account/CD No: XXXXX8220
        Total value of asset: $22,599.96
        Less surviving spouse share: $11,299.98
        Co-owners: Tom Tillotson and Leah Rita Tillotson
        Decedent’s interest: 1/2 community interest.

      According to Thomas, the federal law that created these IRAs for the

exclusive benefit of the individual investor or his beneficiaries preempts state law

that would treat them as community property. Hoyl contends the funds in both IRAs

were earned during Thomas and Leah’s marriage, and there is no legal authority

                                        –4–
supporting Thomas’s position. Although Thomas admits the IRAs were funded with

community property, he maintains any community property rights under state law

are federally preempted by Sections 408 and 408A of the Internal Revenue Code.

      Section 408(a) defines “individual retirement account” as “a trust created or

organized in the United States for the exclusive benefit of an individual or his

beneficiaries.” 26 U.S.C. § 408(a) (2019). Section 408(g) states, “This section shall

be applied without regard to any community property laws.” 26 U.S.C. § 408(g).

Section 408A(a) states that “[e]xcept as provided in this section, a Roth IRA shall

be treated for purposes of this title in the same manner as an individual retirement

plan.” 26 U.S.C. § 408A(a). According to Thomas, these provisions are sufficient

to preempt Texas community property law because state law conflicts with section

408(a)’s intent that his IRAs were created for his and his beneficiaries’ “exclusive

benefit.” See Hyundai Motor Co. v. Alvarado, 974 S.W.2d 1, 4 (Tex. 1998) (quoting

Maryland v. Louisiana, 451 U.S. 725, 746 (1981), and holding, “A state law is

preempted and ‘without effect’ if it conflicts with federal law”). Consequently,

Thomas argues the estate could not hold a community interest in the IRAs. Thomas

cites no case law to support this proposition.

      Hoyl, however, cites United States v. Berry, CR H-17-385, 2018 WL
6602184, at *1 (S.D. Tex. Dec. 17, 2018), supplemented, H-17-385, 2019 WL
545334 (S.D. Tex. Jan. 17, 2019), for the proposition that section 408 does not

                                         –5–
abrogate substantive rights under state law. Although only persuasive, we find Berry

helpful to our analysis.

      Berry concerned Gwendolyn Berry’s conviction and imprisonment for wire

fraud, mail fraud, and making a false tax return. Id. The conviction required

Gwendolyn to pay restitution, and the government filed an application for writ of

garnishment from five retirement accounts. Id. Gwendolyn was married to Michael

Berry, and the requested garnishment would include 50% of Michael’s investment

in two IRAs on the grounds that the funds were Michael’s solely managed

community property. Id. The Berrys moved to quash the application on various

grounds, including conflict-preemption of the state-law characterization of the IRAs.
Id.

      The trial court noted that “[t]he disputed accounts are comprised of funds that

were once regulated by ERISA and are now regulated by Section 408 of the Tax

Code.” Id. The Berrys argued that “[l]ike ERISA as construed in [Boggs v. Boggs,

520 U.S. 833 (1997)], the federal law which is § 408 renders state efforts to

categorize retirement funds as separate, community or anything else meaningless.”
Id. The court noted, however, “There is no federal case, involving an IRA rollover,

that holds that some federal law, other than ERISA, preempts state community

property law.” Id. at *2. The court also cited IRS private letter ruling 1999-37-055

in which the IRS ruled that § 408(g) “does not abrogate any substantive rights under

State law.” Id. (citing I.R.S. Priv. Ltr. Rul. 199937055 (Sept. 17, 1999)). The court

                                        –6–
noted that “[t]he IRS explained that § 408(g) only applies to sections 219 and 220,

as such, the classification of an IRA rollover as community property was a matter of

state law.” Id. Thus, the court held that section 408 does not preempt state

community property law. Id. After Hoyl filed her brief here, the Fifth Circuit issued

its opinion affirming the trial court’s ruling in Berry. United States v. Berry, 951
F.3d 632, 636 (5th Cir. 2020).

      Thomas argues that Berry is inapplicable here because it does not address

section 408(a), which states that IRAs are created “for the exclusive benefit of an

individual or his beneficiaries.” See 26 U.S.C. § 408(a). We disagree. By denying

the Berrys’ motion to quash, the Berry court effectively held not only that section

408(g) did not abrogate state community property law, but also that an IRA could

contain community property. Were it to have held otherwise, it could not have

permitted the garnishment. This holding is also consistent with the I.R.S. private

letter ruling cited by the Berry court. In that letter ruling, the I.R.S. ruled that funds

invested in an IRA may be classified as marital property, subject state community

property laws. I.R.S. Priv. Ltr. Rul. 199937055 (Sept. 17, 1999). Although Berry

concerned the application of state community property law in the context of criminal

restitution, Thomas has not provided, and we are not aware of, any authority

suggesting that Berry’s reasoning should not apply here.

      Thomas also argues that tax implications associated with the withdrawal of

IRA funds further demonstrate that state law is preempted. According to Thomas,

                                           –7–
he will incur the tax liability on a forced distribution of IRA funds to the estate, and

this “is an outcome that § 408 is, in part, intended to avoid.” Again, Thomas cites

no authority supporting this argument. However, as Hoyl points out, the United

States Tax Court has recognized that an IRA may contain community funds, which

have no effect on the tax liability at distribution. See Bunney v. C.I.R., 114 T.C. 259,

261–64 (2000) (“[S]ection 402(g) precludes taxation of petitioner’s former spouse

as a distributee in recognition of her State community property interest in petitioner’s

IRA’s. Accordingly, the distributions from petitioner’s IRA’s are wholly taxable to

petitioner.”). In other words, the tax liability on IRA distributions has no effect on

the community classification of the funds invested in the IRA. Having determined

that Thomas did not establish federal preemption, we conclude the trial court did not

abuse its discretion in approving Hoyl’s inventory as to the Rollover and Roth IRAs.

We overrule Thomas’s first and second issues.

B.     Thomas’s U.S. savings bonds

       In his third issue, Thomas contends the trial court erred in approving Hoyl’s

community property inventory to include U.S. savings bonds issued solely in his

name. Hoyl’s amended inventory lists among the estate’s community property

interests:

             BONDS - various instruments: $70,665.36
             Decedent’s interest: 1/2 community property.

The record reflects that these are series “EE” and “I” U.S. savings bonds purchased

by Thomas between 1990 and 2008, while he was married to Leah. Like the IRAs,
                                   –8–
Hoyl contends the bonds were purchased with community property and are,

therefore, part of the estate. Thomas, however, maintains that federal regulations

controlling bond ownership established his right of survivorship and his resulting

sole ownership of the bonds at Leah’s death. Thomas argues these regulations

preempt the conflicting community property law on which Hoyl relies.

       The bonds at issue are considered “beneficiary bonds” because they are

registered to one individual, “Thomas C Tillotson,” and include a payable-on-death

designation, “POD Leah R Tillotson.                  See 31 C.F.R. §§ 353.7(a)(3) (2020)

(“Beneficiary form. A bond may be registered in the name of one individual payable

on death to another. ‘Payable on death to’ may be abbreviated to ‘P.O.D.’”),

360.6(a)(3) (2020) (same).1            Sections 353.70 and 360.70 establish the rules

governing “ownership or entitlement” to payment or bond reissue when certain

persons named on a beneficiary bond have died. 31 C.F.R. §§ 353.70 (2020), 360.70

(2020). For a beneficiary bond, “[i]f the beneficiary’s death occurs before, or

simultaneously with, that of the registered owner, payment or reissue will be made

as though the bond were registered in the owner’s name alone.” 31 C.F.R §§

353.70(c)(2), 360.70(c)(2). Additionally, sections 353.20 and 360.20 declare that

“[t]he Department of the Treasury will not recognize . . . a judicial determination

   1
     Part 353 of Treasury Department regulations governs series “EE” bonds, and part 360 governs series
“I” bonds.
                                                 –9–
that impairs the rights of survivorship conferred by the regulations in this part upon

a co[-]owner or beneficiary.” 31 C.F.R. §§ 353.20(a), 360.20(a).

      According to Thomas, these sections establish his right of survivorship in the

bonds and preempt conflicting Texas law on which Hoyl relies to establish the

estate’s community property interest in the bonds. At the outset, however, we note

that sections 353.20(a) and 360.20(a) protect “rights of survivorship conferred by

the regulations in this part upon a co[-]owner or beneficiary.”        31 C.F.R. §§

353.20(a), 360.20(a). Yet, the record reflects that Thomas was neither a “co[-]owner

or beneficiary” of the bonds before Leah’s death. As such, we conclude those

provisions are inapplicable here.

      Additionally, Thomas did not offer evidence, argument, or authority to show

that his interest in the bonds qualified as a survivorship interest.      A right of

survivorship provides the holder with a right to receive a property interest held by

another party upon that party’s death. See Mims-Brown v. Brown, 428 S.W.3d 366,

373 (Tex. App.—Dallas 2014, no pet.) (“All that is required to make an interest

‘survive’ to another party is a word or phrase expressing that the interest of the

deceased party will survive to the surviving party.”); see, e.g., TEX. EST. CODE §

113.052 (“On the death of the party, ownership of the account passes to the P.O.D.

beneficiaries of the account.”). As confirmed by Treasury regulations, a beneficiary

does not have title to the bond, but merely a vested, defeasible interest. 31 C.F.R.

§§ 353.47(c) (2020) (permitting the owner of beneficiary bonds to “substitute

                                        –10–
another individual as beneficiary” or “eliminate the beneficiary”), 360.47(c) (2020)

(same); see also Edds v. Mitchell, 184 S.W.2d 823, 830 (Tex. 1945) (holding a bond

beneficiary has only a vested, defeasible interest, not title).

       Instead, Thomas argues his right of survivorship arises from sections 353.70

and 360.70, which terminate a predeceased beneficiary’s interest and convert the

beneficiary bond into a single-owner bond.           See 31 C.F.R §§ 353.70(c)(2),

360.70(c)(2). We note, however, that the subsections on which Thomas relies do

not refer to the remaining interest as a survivorship. 31 C.F.R §§ 353.70(c)(2),

360.70(c)(2).    In contrast, other inapplicable subsections do characterize the

remaining interest as a survivorship. See 31 C.F.R §§ 353.70(b)(1) (death of one co-

owner), 360.70(b)(1) (same), 353.70(c)(1) (death of the owner of a beneficiary

bond), 360.70(c)(1) (same). Indeed, it is an illogical conclusion that the owner of a

property interest could have a right of survivorship in a beneficiary’s interest in the

same property. He would be surviving to his own interest. Accordingly, we

conclude that Thomas could not hold a right of survivorship in Leah’s beneficiary

interest.

       This determination, however, does not resolve the issue. We must also

determine whether the Treasury regulations specifying ownership of the beneficiary

bonds preempt conflicting Texas law.

       Thomas also cites Free v. Bland, 369 U.S. 663 (1962), to support his

contention that federal regulations establish his survivorship right and preempt

                                          –11–
conflicting Texas law.     Hoyl contends that Free concerns only savings bond

survivorship provisions and does not support Thomas’s preemption argument. As

we have established, however, Thomas did not have a survivorship right in Leah’s

beneficiary interest. Regardless, the Supreme Court’s holding in Free is not as

limited as Hoyl contends and establishes that federal regulations preempt any state

law that frustrates the nature of the rights and obligations created by the bonds

themselves.

      J.W. and Mary Free were a married couple living in Texas. Free, 369 U.S. at

664. Mary had a son, James Bland, by a previous marriage. Id. When Mary died,

a controversy arose between J.W. and Bland regarding U.S. savings bonds purchased

by J.W. during the marriage. Id. at 664–65. The bonds were registered to “‘Mr. or

Mrs.’ Free.” Id. at 665. Bland was the principal beneficiary under Mary’s will and

claimed a community-property interest in the bonds. Id. J.W. claimed exclusive

ownership under federal savings bond regulations. Id. at 664–65 (quoting 31 C.F.R.

§ 315.61 [recodified at 31 C.F.R. § 315.70(b)(1) (2020)]).

      The trial court awarded J.W. full title to the bonds based on the federal

regulations but awarded reimbursement to Bland based on Texas community

property laws. Id. at 665. The court of appeals affirmed the award of title but

reversed the reimbursement award. Id. The Texas Supreme Court reversed the court

of appeals and reinstated the trial court’s judgment, relying on its opinion in Hilley

v. Hilley, 342 S.W.2d 565, 570 (1961), issued while the appeal was pending,

                                        –12–
rejecting the argument that federal savings bond regulations governing survivorship

preempt conflicting state law. Id. at 665–66.

      The United States Supreme Court granted certiorari and reversed the Texas

Supreme Court. Id. at 671. The Supreme Court upheld the preemptive power of the

federal regulations at issue and rejected the argument that the regulations were

intended merely to provide a convenient method of payment. Id. at 667–68. The

Court further noted that “[t]he success of the management of the national debt

depends to a significant measure upon the success of the sales of the savings bonds.”

Id. at 669. Thus, “[t]he Treasury is authorized to make the bonds attractive to savers

and investors.” Id. Survivorship provisions are one such inducement. Id. Thus, the

Court held that state law requiring the holder of a survivorship interest to reimburse

the estate of the deceased co-owner as a matter of law, “interfer[es] directly with a

legitimate exercise of the power of the Federal Government to borrow money.” Id.

More broadly, the Court held, “Federal law of course governs the interpretation of

the nature of the rights and obligations created by the Government bonds

themselves.” Id. at 669–70 (quoting Bank of Am. Nat. Tr. & Sav. Ass’n v. Parnell,

352 U.S. 29, 34 (1956)).

      Although the survivorship provision is not an issue here, the principle

identified by the Court still applies. Namely, that state law cannot interfere with the

nature of rights and obligations created by the bonds themselves. See id.; see also

Laturner v. United States, 933 F.3d 1354, 1363 (Fed. Cir. 2019), cert. denied, 19-

                                        –13–
1279, 2020 WL 5882248 (U.S. Oct. 5, 2020) (holding state escheat laws setting

deadline for bond redemption preempted by federal regulations permitting retention

without limitation); Treasurer of New Jersey v. U.S. Dep’t of Treasury, 684 F.3d

382, 407 (3d Cir. 2012) (citing Free and holding federal regulations preempt seven

states’ attempt to recover proceeds from matured but unredeemed U.S. savings

bonds). Federal regulations controlling bond registration state that “registration is

conclusive of ownership,” except for reissue to correct error. 31 C.F.R. §§ 353.5(a)

(2020), 360.5(a) (2020).     “[S]uch regulations are dispositive on the issue of

ownership and thus pre-empt state law.” In re Mears, 94-60902, 1995 WL 81936,

at *2 (Bankr. N.D. Ohio Feb. 13, 1995) (citing Free).

      Here, Thomas is listed as the sole owner of the bonds. Federal regulations

mandate that “payment or reissue will be made as though the bond were registered

in the owner’s name alone.”      31 C.F.R §§ 353.70(c)(2), 360.70(c)(2).       These

regulations preempt conflicting state law. See Free, 369 U.S. at 669–70.

      Hoyl points out that the Supreme Court recognized in Free that preemption

could not be used as “a shield for fraud and relief would be available in a case where

the circumstances manifest fraud or a breach of trust tantamount thereto on the part

of a husband while acting in his capacity as manager of the general community

property.” Id. The Court addressed fraud in Yiatchos v. Yiatchos, 376 U.S. 306, 307

(1964), cited by Hoyl for the proposition that “short of providing for a survivorship

                                        –14–
or co-ownership issuance of the bonds, federal law should not permit relief which

would constitute [Thomas’s] breach of trust over the community assets.”

      Yiatchos concerned a non-spouse beneficiary’s survivorship interest in

savings bonds purchased with community property. Id. at 308. The issue on appeal

was whether the bond purchase was fraud as a matter of law such that state law

controlled the disposition of the bonds. Id. at 308–09. The Court noted that the state

law at issue allowed spouses to change the status of community property by

agreement or gift. Id. at 309. There was no evidence the surviving spouse agreed

or consented to a gift of the community property used in the purchase. Id. However,

the parties had stipulated to the facts before the Court had issued its opinion in Free.

Id. at 310. Thus, the Court reversed state supreme court’s judgment that the bond

purchase was void and remanded the case to prove facts regarding the surviving

spouse’s knowledge or participation in the purchase. Id.

      Hoyl, like the respondent in Yiatchos, made no claim of fraud. However,

unlike the respondent in Yiatchos, Hoyl had access to the Supreme Court’s opinion

in Free, upholding and limiting the Treasury regulations’ preemptive power to

prevent fraud. Indeed, Hoyl cited Yiatchos and Free in her response to Thomas’s

motion for summary judgment, arguing, as she does here, that “federal law should

not permit relief which would constitute [Thomas’s] breach of trust over the

community assets.” Yet, Hoyl offered no evidence or argument at the hearing on

Thomas’s objections to show that he had committed fraud. Thus, Hoyl failed to

                                         –15–
claim and prove fraud, and merely purchasing beneficiary bonds with community

property is not fraud as a matter of law. See id. at 312.

       Having determined that federal regulations controlling ownership and

entitlement to payment of the beneficiary bonds at issue preempt conflicting state

law applied by the trial court, we sustain Thomas’s third issue.

C.     Down Payment Reimbursement

       In his fourth issue, Thomas contends the trial court erred in approving Hoyl’s

claim for reimbursement of Leah’s separate property used for a down payment on

the family home in 1984.

       “Property possessed by either spouse during or on dissolution of marriage is

presumed to be community property.” TEX. FAM. CODE § 3.003(a). “The degree of

proof necessary to establish that property is separate property is clear and convincing

evidence.” Id. § 3.003(b). Thus, a party asserting separate property has the burden

of rebutting the community property presumption by clear and convincing evidence.

Chavez v. Chavez, 269 S.W.3d 763, 767 (Tex. App.—Dallas 2008, no pet.). “‘Clear

and convincing evidence’ means the measure or degree of proof that will produce in

the mind of the trier of fact a firm belief or conviction as to the truth of the allegations

sought to be established.” TEX. FAM. CODE § 101.007.

       Although the testimony of a spouse seeking to overcome the community-

property presumption need not be corroborated to meet the clear and convincing

standard, a party’s unsupported and contradicted testimony may not meet the clear

                                           –16–
and convincing standard. Pace v. Pace, 160 S.W.3d 706, 714 (Tex. App.—Dallas

2005, pet. denied).   Thus, to rebut the community-property presumption, the

contesting party must generally trace and clearly identify property claimed as

separate property. Chavez, 269 S.W.3d at 767. “Tracing involves establishing the

separate origin of the property through evidence showing the time and means by

which the spouse originally obtained possession of the property.”        Id.   Mere

testimony that property was purchased with separate property funds, without tracing

the funds, is generally insufficient to rebut the presumption. Id. “Any doubt as to

the character of property should be resolved in favor of the community estate.” Id.

      The record reflects that Thomas and Leah built a house on River Oaks in 1984

(River Oaks House). They paid either $25,000, $33,000, or $45,000 as a down

payment and financed the remaining balance, approximately $185,000. Hoyl’s list

of claims includes a claim for $25,000 of Leah’s separate property used for the down

payment. Evidence regarding the source of the down payment is conflicting.

      In a deposition taken before the hearing on Thomas’s objections, Thomas

testified that the money came from the sale of a house owned by Leah (Windy Hill

House). The parties do not dispute that the Windy Hill House was Leah’s separate

property bought before the marriage. At the hearing, however, Thomas testified that

the proceeds from the sale of the Windy Hill House did not go directly into the down

                                       –17–
payment for the River Oaks House. 2 Rather, the proceeds were deposited into a

community bank account, and the down payment was drawn from this account.

Thomas also testified that he could not tell how much Leah received from the sale

of the Windy Hill House “because it was an assumable loan and [he did not] know

the difference between the sales amount and the loan amount.” Yet, Thomas claimed

the proceeds were combined with a “pretty big tax refund” to make the down

payment. Thomas testified at various points that both the tax refund and the sale

proceeds were either $33,000 or $25,000.

       At the hearing, Hoyl testified that Leah told her that she sold the Windy Hill

House to make the down payment on the River Oaks House. Thomas objected to

the testimony as hearsay, and the trial court overruled the objection. According to

Hoyl, Leah “was very proud of being able to . . . put the down payment on the River

Oaks home.” Contrary to Thomas’s testimony, Hoyl said that Leah indicated the

down payment was $45,000. Hoyl also admitted that the proceeds from the sale of

the Windy Hill House went into a community bank account. She did not know how

long the money was in the account before the down payment was made on the River

Oaks House or what other funds were put into the account.

   2
      Thomas acknowledged that his hearing testimony differed from his deposition testimony. According
to Thomas, however, he was merely correcting his prior testimony, which was based on his imperfect
recollection of events that occurred thirty-five years prior.
                                                –18–
      Although the testimony regarding the source and amount of the down payment

on the River Oaks House varied, both parties testified that the proceeds from the sale

of the Windy Hill House went into a community bank account before the down

payment was made. Thus, Leah’s separate property in the proceeds was commingled

with community property.

      Commingled separate funds do not lose their identity as separate property if

they may be traced. Beal Bank v. Gilbert, 417 S.W.3d 704, 709 (Tex. App.—Dallas

2013, no pet.). However, if separate and community property have been so

commingled as to defy resegregation and identification, the commingled property is

presumed to be community property.          Id.   Additionally, when separate and

community funds are commingled in a single bank account, we presume the

community funds are drawn out before separate funds. Zagorski v. Zagorski, 116

S.W.3d 309, 319–20 (Tex. App.—Houston [14th Dist.] 2003, pet. denied).

      As the party contesting the community-property presumption, Hoyl had the

burden to prove by clear and convincing evidence that the $25,000 down payment

came from Leah’s separate property. See Chavez, 269 S.W.3d at 767. Hoyl’s own

testimony proved the proceeds at issue were deposited into a community bank

account before the down payment was made, which gave rise to a further

presumption that the down payment was made from community property. See Beal

Bank, 417 S.W.3d at 709; Zagorski, 116 S.W.3d at 319–20. Hoyl did not offer any

evidence to trace Leah’s separate funds after they were commingled. See Beal Bank,

                                        –19–
417 S.W.3d at 709. Indeed, Hoyl testified only that she did not know how long the

funds were in the community bank account before the down payment was made.

Further, the evidence offered did not clearly establish the exact amount of the down

payment. See Chavez, 269 S.W.3d at 767 (requiring clear identification of property

claimed as separate property).    Accordingly, we conclude that Hoyl failed to

overcome the community-property presumption, and the trial court abused its

discretion in approving Hoyl’s claim for reimbursement of the $25,000 down

payment. We sustain Thomas’s fourth issue.

D.    Reimbursement of Community Property Expended on Thomas’s
      Separate Property

      In his fifth issue, Thomas contends the trial court erred in approving Hoyl’s

claim for reimbursement of community property expended on Thomas’s separate

real property.

      A claim for reimbursement includes “payment by one marital estate of the

unsecured liabilities of another marital estate” and “the reduction of the principal

amount of a debt secured by a lien on property owned before marriage, to the extent

the debt existed at the time of marriage.” TEX. FAM. CODE § 3.402(a)(1), (3); Hinton

v. Burns, 433 S.W.3d 189, 195 (Tex. App.—Dallas 2014, no pet.). “A right of

reimbursement arises when the funds or assets of one estate are used to benefit and

enhance another estate without itself receiving some benefit.” Hinton, 433 S.W.3d

at 195. The party claiming the right of reimbursement has the burden to plead and

prove the expenditures and improvements were made and are reimbursable. Id. A
                                    –20–
trial court must resolve a claim for reimbursement by using equitable principles. Id.;

see also TEX. FAM. CODE § 3.402(b) (courts shall resolve claims for reimbursement

by using equitable principles).      A court has broad discretion in evaluating a

reimbursement claim.       Penick v. Penick, 783 S.W.2d 194, 198 (Tex. 1988)

(discretion is as broad as that “exercised by the trial court in making a ‘just and right’

division of the community property”).

      When evaluating such a claim, the fact finder must offset the enhancement

value to the benefitted estate against any benefits returned to the paying estate. See

Penick, 783 S.W.2d at 197–98.         “The party seeking an offset to a claim for

reimbursement has the burden of proof with respect to the offset.” TEX. FAM. CODE

§ 3.402(e).

      The record reflects that Thomas and Leah owned separate houses when they

married in 1980. Thomas retained his house (Bonnie View House) after the couple

were married and moved into the Windy Hill House. Eventually, Thomas and Leah

built and relocated to the River Oaks House. During the course of the marriage,

community funds were used to pay ad valorem taxes, insurance, and the mortgage

on the Bonnie View House. Thus, Hoyl asserts a claim for reimbursement of the

community property expended on the Bonnie View House. Specifically, Hoyl

claims:

                                          –21–
         Community interest in reimbursement
         for investment in Separate Property real property
         (2308 Bonnie View) owned by Tom Tillotson to wit:
         66 payments x 163.98, mortgage = $10,822.68,
         Ad Valorem Taxes 1995-2017 = $55,986.31,
         31 payments x 212.00 = $6,752.00 insurance on house.
         Total claim $73,380.99. Decedent's estate community
         reimbursement 1/2 =                                 $36,690.50.

      The record reflects that the only evidence regarding community property

expended on the Bonnie View House came in the form of Hoyl’s and Thomas’s

testimony. Specifically, Hoyl testified that sixty-six mortgage payments were made

on the Bonnie View House: $163 per month. Thomas acknowledged the mortgage

payments were made from community funds. Hoyl also testified that the community

estate paid ad valorem taxes on the property between 1995 and 2017, totaling

$55,986.31. She claimed the community estate had paid taxes back to 1980, but she

could not obtain records from before 1995. Thomas also acknowledged these

payments but claimed they “came out of rent,” referring to rental income generated

by the property. Hoyl testified that thirty-one insurance payments were made from

the community estate, totaling $6,752. Thomas testified that the insurance was also

paid from rental proceeds. According to Thomas, the property generated rental

income and provided personal tax advantages to himself and Leah through interest,

tax, and insurance deductions. Regarding the rental income, Thomas testified,

“[F]or the last eleven years, I looked at the rental net gain and over the last eleven

years, 2007 to 2017, we averaged $257 a month gain.” He did not specify how this

                                        –22–
“gain” was calculated or whether included the personal tax advantages he

mentioned.

      The trial court acknowledged the testimony in open court, specifically noting

the rental income and the need to “take that into account in splitting the difference

in the reimbursement.” The trial court stated:

      So what I did was and it’s not exact, but it is as good as we’re going to
      get here. I gave him credit for [the rental income] and put it toward the
      amounts toward the mortgage, which paid off the mortgage, actually, if
      you take the sixty-six payments, which I’m sure it wasn’t all there, but
      we cannot specifically grant how many times and how many months it
      was rented. So I just gave him credit for all sixty-six months.

      ***

      The total claim would be 5,600 – 4 – $418. Her half would be $28,209.

      Thomas contends that the trial court misconstrued his testimony regarding the

rental income, treating it as rent received versus a net gain. Thomas, however, does

not direct the Court to the record demonstrating his objection to the trial court’s

error. From our review of the record, it does not appear that Thomas raised an

objection so as to preserve this error for our review. See TEX. R. APP. P. 33.1(a).

Regardless, Thomas’s testimony did not indicate how the “gain” was calculated or

whether it was received during the time the payments at issue were being made, but

merely that it was received from 2007 to 2017. Thomas bought the Bonnie View

House in 1966, and he and Leah were married from 1980 to 2017. The record

reflects that the trial court received what evidence the parties provided, which

consisted solely of testimony, and balanced the benefit to the community estate
                                        –23–
against the payments made by the community estate. See Penick, 783 S.W.2d at

197–98. Accordingly, we conclude the trial court did not abuse its discretion and

we overrule Thomas’s fifth issue.

                                  CONCLUSION

      We conclude that the trial court abused its discretion in approving Hoyl’s

inventory to include Thomas’s U.S. savings bonds among the estate’s share of

community property and in approving Hoyl’s claim for reimbursement of $25,000

of Leah’s separate property used for a down payment on the River Oaks House.

Accordingly, we sustain Thomas’s third and fourth issues and reverse the trial

court’s order as to these issues. We affirm the trial court’s order as to all remaining

issues and remand this case for further proceedings consistent with this opinion.

                                        /Robbie Partida-Kipness/
                                        ROBBIE PARTIDA-KIPNESS
                                        JUSTICE

191192F.P05

                                        –24–
                            Court of Appeals
                     Fifth District of Texas at Dallas
                                  JUDGMENT

THE ESTATE OF LEAH RITA                       On Appeal from the County Court at
TILLOTSON, DECEASED                           Law No. 2, Hunt County, Texas
                                              Trial Court Cause No. 18359.
No. 05-19-01192-CV                            Opinion delivered by Justice Partida-
                                              Kipness. Justices Schenck and
                                              Osborne participating.

       In accordance with this Court’s opinion of this date, the order of the trial
court approving the estate administratrix’s Amended Inventory, Appraisement and
List of Claims is AFFIRMED in part and REVERSED in part.

       We REVERSE those portions of the trial court’s order approving the
estate’s inventory to include U.S. savings bonds owned by Thomas Tillotson
among the estate’s share of community property and the estate’s claim for
reimbursement of $25,000 of decedent’s separate property used for a down
payment on the River Oaks House. In all other respects, the trial court’s order is
AFFIRMED. We REMAND this cause to the trial court for further proceedings
consistent with this opinion.

      It is ORDERED that each party bear its own costs of this appeal.

Judgment entered this 30th day of December, 2020.

                                       –25–