In Trinh v. Cent. River Healthcare Group, a brother sued his sister over the management of a PLLC. No. 03-19-00393-CV, 2021 Tex. App. LEXIS 4542 (Tex. App.—Austin June 9, 2021, no pet. history). The brother claimed that the sister promised to pay him a salary, and she did not. The court of appeals affirmed the jury’s finding that there was no such promise based on the sister’s testimony that she did not remember making such a proposal, and even so: “evidence of a proposal does not prove an agreement.” Id.

The brother also challenged the jury’s finding that the sister complied with her duty by disputing that “the transactions in question were fair and equitable to Khiem . . . and 4. Loann [] placed the interests of Khiem [] before her own and did not use the advantage of her position to gain any benefit for herself at the expense of Khiem.” The brother argued that he contributed more than a half million dollars to the business when the sister claimed to own 100% of it and that the sister required the brother to pay federal income tax on 5% of the company’s profits most years, and on 50% of the profits one year while the brother received nothing in return. The jury heard testimony from the sister that

Khiem may have forfeited whatever interest he had in CRHG. In October 2011, he emailed Loann: “I don’t want to run the clinics. I am saving it before they collapse. Those are your clinics. I built them in the beginning for you. . . . I want you to take over without any headache. . . . Every investment in there is yours.” Loann testified to the point of Khiem’s email: “So basically he’s willing to forfeit everything so that way I can come back and run and resuscitate the clinic. That to me means that everything is under my management, my care[]. The whole business is legally under my direction[].” She also testified that she understood this email to mean “that he’s relinquished all his positions whether management, ownership, all investment. So it says every investment is yours.”

Id. Further, regarding the taxes, the court noted:

[T]he evidence does not support Khiem’s assertion that Loann “required” Khiem to pay those amounts of federal income tax. Khiem testified that he and Loann were equally responsible for the preparation of the tax return, that he sent the tax documents to the tax advisor and relied on him to prepare the filings, that he signed the tax filings that indicated the profit attribution of 95% for Loann and 5% for Khiem for the relevant tax years (2005-2012) except the 2007 tax filing indicated a 50% split, and that he “wasn’t interest[ed] in the profit [during] that period of time because there’s no profit.”

Id. The court affirmed the trial court’s judgment and the jury’s verdict for the sister.

David Johnson presented his paper “The More The Merrier? Issues Arising From Co-Trustees Administering Trusts” to the State Bar of Texas’s Advanced Estate Planning and Probate Course on June 9, 2021. This presentation addressed the advantages and drawbacks for co-trustee management, who can be a co-trustee and succession issues, fiduciary duties and joint management, the duty and right to participate in management and cooperation, delegation of duties between co-trustees, the duty to disclose, co-trustee compensation, co-trustee deadlock and methods for breaking same, liability for co-trustee’s actions, third party reliance on co-trustee’s actions, the duty to sue a co-trustee,  the payment of costs of litigation (ultimate and in the interim), litigation issues, attorney/client privilege issues, and drafting issues.

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In Austin v. Mitchell, a wife filed suit alleging her ex-husband fraudulently transferred a portion of his limited partnership interest in a family limited partnership to a trust for the benefit of his children. No. 05-19-01359-CV, 2021 Tex. App. LEXIS 4536 (Tex. App.—Dallas June 8, 2021, no pet. history). The trial court granted summary judgment for the husband and the wife appealed. Continue Reading Wife’s Fraudulent Transfer Claim Against Husband For Transferring Business Interests To Trust Failed Due To The Statute Of Repose

In In re Estate of Stewart, siblings filed claims regarding the administration of their father’s estate. No. 04-20-00103-CV, 2021 Tex. App. LEXIS 3897 (Tex. App.—San Antonio May 19, 2021, no pet. history). Among other claims, a sister claimed that her brother breached fiduciary duties as executor by distributing real property to three of the siblings, but not to her. The brother claimed that he had the right to do so under the Estates Code. The jury found that the brother breached his fiduciary duties, but found that the sister had not been harmed. The brother appealed. The court of appeals first discussed an executor’s fiduciary duties to the estate’s beneficiaries:

“The relationship between an executor and the estate’s beneficiaries is one that gives rise to a fiduciary duty as a matter of law.” “An executor’s fiduciary duty to the estate’s beneficiaries arises from the executor’s status as trustee of the property of the estate.” “The executor thus holds the estate in trust for the benefit of those who have acquired a vested right to the decedent’s property under the will.” “The fiduciary duties owed to the beneficiaries of an estate by an independent executor include a duty of full disclosure of all material facts known to the executor that might affect the beneficiaries’ rights.” “A fiduciary also ‘owes its principal a high duty of good faith, fair dealing, honest performance, and strict accountability.’” “When an independent executor takes the oath and qualifies in that capacity, he or she assumes all duties of a fiduciary as a matter of law which, in addition to other duties, includes the duty to avoid commingling of funds.”

Continue Reading Court Holds That An Executor May Breach Duties In Making A Non-Pro Rata Distribution Of Assets

In Villareal v. Saenz, two co-owners of a limited liability company sued each other regarding conduct surrounding a business divorce. 5-20-CV-00571-OLG-RBF, 2021 U.S. Dist. LEXIS 94183 (W.D. Tex. May 18, 2021). After the parties asserted allegations against each other, they entered into a release agreement. The parties agreed that “Saenz would assign his entire interest to ZroBlack LLC to Villarreal.” After the release, Saenz refused to return certain property to the company. Villarreal sued for breach of fiduciary duty and other claims.

Saenz filed a motion to dismiss, and the district court magistrate judge recommended that the claims that arose before the release be dismissed, but recommended that the claims that arose after the release continue. Regarding Saenz’s fiduciary duties after the release agreement was executed, the court stated: Continue Reading Business Divorce: Exiting Member of LLC May Still Owe Fiduciary Duties

In Austin Trust Co. v. Houren, beneficiaries of a trust executed a family settlement agreement with the trustee and the former trustee’s estate. No. 14-19-00387-CV, 2021 Tex. App. LEXIS 1955 (Tex. App.—Houston March 16, 2021, no pet. history). After the settlement agreement was executed, one of the parties sued the former trustee’s estate for over a $37 million debt (or due to over distributions). The estate then filed a motion for summary judgment based on the release in the settlement agreement, which the trial court granted. The court of appeals affirmed, finding that the release’s language was sufficiently broad to cover these claims: Continue Reading Court Upheld A Release In A Family Settlement Agreement That Protected A Former Trustee’s Estate From Claims

In Marshall v. Marshall, a beneficiary sued the original trustee and five co-trustees of two trusts regarding claims that they breached fiduciary duties. No. 14-17-00930-CV, 2021 Tex. App. LEXIS 1949 (Tex. App.—Houston [14th Dist.] March 16, 2021, no pet. history). After the original lawsuit was filed in Texas, the original trustee filed a petition for declaratory relief in a Louisiana court, requesting the court declare, among other things, that the co-trustees were properly appointed as co-trustees of the trust. The beneficiary obtained a temporary injunction preventing the co-trustees from receiving compensation, disposing of trust assets, and participating in litigation against the beneficiary in Louisiana. The co-trustees appealed.

The court of appeals first reversed the anti-suit injunction aspect of the temporary injunction order because allowing the suit to continue would not create a miscarriage of justice: Continue Reading Court Reversed Temporary Injunction Against Co-Trustees

In In the Estate of Johnson, a child of the decedent accepted over $143,000 from the decedent’s estate and then decided to challenge the will due to mental capacity and undue influence. No. 20-0424, 2021 Tex. LEXIS 426 (Tex. May 28, 2021). The trial court ruled that the child could not accept a benefit under the will and then challenge the will and dismissed the child’s claim. The court of appeals reversed, holding that the child did not receive anything that the child would not also receive if there was no will, and therefore, she was not inconsistent and was not estopped from bringing her will contest. The court held that the executor “failed to satisfy her burden, as the Will’s proponent, by failing to demonstrate that [MacNerland] accepted greater benefits than those to which she was entitled under the Will or intestacy laws.” Id. The Texas Supreme Court accepted the will proponent’s petition for review and reversed the court of appeals. Continue Reading Texas Supreme Court Holds That A Beneficiary May Not Accept Any Benefit From A Will And Then Later Challenging The Will

The Texas Legislatures recently passed a bill that takes effect on September 1, 2021 that extends the rule against perpetuities to 300 years for trusts. The Legislature forwarded the bill (HB 654) to the governor on May 20, 2021, but he has not yet signed the bill into law. But unless he vetoes the bill, it will become law after ten days.

The Texas Constitution prohibits perpetuities: “Perpetuities and monopolies are contrary to the genius of a free government, and shall never be allowed . . . .” Tex. Const. art. I, § 26. A perpetuity is a restriction on the power of alienation that lasts longer than a prescribed period. ConocoPhillips Co. v. Koopmann, 547 S.W.3d 858, 866-67 (Tex. 2018). The rule against perpetuities “should be a check on vain, capricious action by wealthy empire builders. But it should not be a constantly present threat to reasonable dispositions which slightly overstep a technical line.” Rekdahl v. Long, Tex., 417 S.W.2d 387 (1967) (Steakley, J., dissenting) (citing W. B. Leach & O. Tudor, The Rule Against Perpetuities § 24.11 at 43 (1957)). Continue Reading Texas Legislature Extends The Rule Against Perpetuities To 300 Years For Trusts