In Ron v. Ron, a wife created a trust with her husband as a trustee, a friend as a trust protector, and their children as the beneficiaries. No. 3:19-CV-00211, 2020 U.S. Dist. LEXIS 52507 (S.D. Tex. February 4, 2020). The wife alleged that the husband made inappropriate transfers of community property to the trust before and after their divorce and that the trust protector inappropriately added the husband as a beneficiary of the trust. The wife sued the trust protector for breach of fiduciary duty and other similar claims. The trust protector filed a motion to dismiss, arguing that he did not owe her any fiduciary duties.

The federal magistrate discussed the trust protector role in Texas:

The trust protector’s role is relatively new in modern trusts. Thus, “there is little authority discussing the role of trust protectors, which the [Texas] Trust Code only recognized in 2015.” In re Macy Lynne Quintanilla Tr., No. 04-17-00753-CV, 2018 WL 4903068, at *5 (Tex. App.—San Antonio Oct. 10, 2018, no pet.) (citing Tex. Prop. Code § 114.0031). The Texas Trust Code provides that a trust protector has only the power and authority granted to him by the trust terms, which may include: (1) the power to remove and appoint trustees, advisors, trust committee members, and other protectors; (2) the power to modify or amend the trust terms to achieve favorable tax status or to facilitate the efficient administration of the trust; and (3) the power to modify, expand, or restrict the terms of a power of appointment granted to a beneficiary by the trust terms. Tex. Prop. Code § 114.0031(d). See also In re Macy Lynne Quintanilla Tr., 2018 WL 4903068, at *5. The Texas Trust Code recognizes that a trust protector may be a fiduciary or nonfiduciary. See Tex. Prop. Code § 114.0031(e).

Id.

The wife contended that the trust created a formal fiduciary relationship between herself and the trust protector. The Trust expressly stated that the “Trust Protector’s authority is conferred in a fiduciary capacity.” Id. The trust also provided that: “The purpose of a Trust Protector is to direct my Trustee in certain matters concerning the trust, and to assist, if needed, in achieving my objectives as expressed by the other provisions of my estate plan hereunder.” Id. In the wife’s view, the use of “my objectives” and “my estate plan hereunder” demonstrates that the trust protector’s duties were owed to her. The magistrate disagreed:

In my view, nothing in Section 4.01 of the Trust creates a fiduciary relationship between Stein and Suzanne. If anything, the provision strongly suggests that the fiduciary relationship is between Stein and the Trustee—who Stein is to “direct” and “assist”—or perhaps, between Stein and the Trust—which contains Suzanne’s memorialized objectives. The mere fact that Section 4.01 references Suzanne’s objectives means nothing when the Trust explicitly states that “[a]ll provisions of this agreement are to be construed to accomplish these objectives.” Given this reality, literally every provision in the Trust is expressly intended to achieve Suzanne’s objectives. Surely, this does not mean that every individual implicated by a given provision has entered a fiduciary relationship with Suzanne.

Id. The wife also argued that the following trust provision created a duty:

To the extent that I have provided in this agreement that a Trust Protector holds any power or authority in a fiduciary capacity, the Trust Protector has no general duty to monitor or remain informed about the trust. Specifically, and not in limitation of the foregoing, the Trust Protector has no duty to investigate the action or inactions of the Trustee, to audit the books of the trust, to review the investments of the trust, or to evaluate the performance of the trust portfolio, unless at least one trust beneficiary or some other interested party (i) files a written complaint with the Trust Protector alleging a breach of trust and detailing the matters the Trust Protector should investigate, audit, review, or evaluate, or (ii) requests an action that I have authorized the Trust Protector to perform. If the Trust Protector possesses the power to direct, consent to, or veto the actions of a Trustee described in the written complaint, I direct that the Trust Protector defer to the Trustee’s judgment except in those instances in which the Trust Protector can find no rational basis for the Trustee’s actions, or failure to act, and the Trust Protector shall only suffer liability for failing to act if the trust surfers monetary loss and the Trust Protector made no reasonable inquiry when alerted that the Trustee might have breached the Trustee’s fiduciary duties; or, even if the Trust Protector made a reasonable inquiry, no other reasonable person would have failed to take action against the Trustee under those circumstances.

Id. The magistrate, once again, disagreed with the wife and held that “nothing in this language implies or even suggests the existence of a fiduciary relationship between Stein and Suzanne.” Id. Rather, “the provision clearly states that only a ‘trust beneficiary or some other interested party’ can file a complaint capable of getting the Trust Protector to act in accordance with the provision.” Id. The magistrate concluded that as the wife was neither a trust beneficiary nor an interested party, that the trust protector did not owe a fiduciary duty to her. Id. (citing Lee v. Rogers Agency, 517 S.W.3d 137, 159-60 (Tex. App.—Texarkana 2016, pet. denied) (“[A] settlor who under the terms of the Trust does not manage any of the aspects of the Trust and does not stand to inherit any of the trust assets is not an ‘interested person’ who has standing to bring an action against a trustee or to bring other proceedings related to a trust under the Texas Property Code.”)).

The magistrate then looked to see if Texas law (as opposed to the trust document) created a duty from the trust protector to the wife. The magistrate considered a provision of the Texas Trust Code that mentions trust protectors and their fiduciary duty. The magistrate stated:

Section 114.0031(a)(1) of the Texas Trust Code states: “‘Advisor’ includes protector.” Tex. Prop. Code § 114.0031(a)(1). Section 114.0031(e) then provides: If the terms of a trust give a person the authority to direct, consent to, or disapprove a trustee’s actual or proposed investment decisions, distribution decisions, or other decisions, the person is an advisor. An advisor is a fiduciary regardless of trust terms to the contrary except that the trust terms may provide that an advisor acts in a nonfiduciary capacity if: (1) the advisor’s only power is to remove and appoint trustees, advisors, trust committee members, or other protectors; and (2) the advisor does not exercise that power to appoint the advisor’s self to a position described by Subdivision.

Id. (citing Tex. Prop. Code § 114.0031(e). The magistrate noted that this section discusses the trust protector in his role as advisor to the trustee and suggests that the fiduciary relationship is between the trust protector and trustee or between the trust protector and the trust itself. The magistrate held that the Texas law does not create a fiduciary duty between the trust protector and the settlor.

After briefly analyzing the wife’s informal confidential relationship allegation, which the magistrate disagreed with, the magistrate recommended dismissing the wife’s claims against the trust protector.

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, was selected to receive the JD Supra Readers’ Choice Award in Wealth Management. The annual award recognizes top authors and firms who were read by C-suite executives, in-house counsel, media, and other professionals across the JD Supra platform during 2019.

JD Supra’s Readers’ Choice Awards encompass 26 different categories and are based on timeliness as well as proven, ongoing importance. In each category, 10 authors are recognized for consistently highest readership and engagement within that category for all of 2019. In total across all categories, only 235 authors were selected from more than 50,000 who were published on the platform last year.

David serves as the managing shareholder of Winstead’s Fort Worth office. He maintains an active trial practice focused on advising and representing clients in the financial services industry. David has a triple Board Certification in Civil Trial Law, Civil Appellate and Personal Injury Trial Law by the Texas Board of Legal Specialization

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, presented his paper on “Joint Account Litigation in Texas” to the Texas Bankers Association via a webinar on April 29, 2020. This presentation addresses the creation, ownership, and disputes that arise from joint accounts.  It also addresses who owns money in an account during the parties’ life times, the language that is sufficient/necessary to create survivorship effect, community property issues arising from joint accounts, issues arising from missing account agreements, a bank’s potential liability for not properly setting up a survivorship account, bank’s rights and defenses arising from transfers from joint accounts, and general litigation issues surrounding disputes arising from survivorship accounts.  See below for a copy of the presentation paper and slides.

In Fox v. Fox, a father deeded real property in Louisiana to one of his sons. No. 14-18-00672-CV, 2020 Tex. App. LEXIS 2211 (Tex. App.—Houston [14th Dist.] March 17, 2020, no pet. history). The father later died, and his sons had a dispute regarding whether the deed was effective. A different son was his executor in Texas, and the son that was the recipient of the gift filed a declaratory judgment petition in his estate to establish that the deed was effective. The executor filed a plea to the jurisdiction, arguing that the Texas court did not have jurisdiction over the deed concerning real property in Louisiana. The trial court granted the plea, and an appeal was filed. Continue Reading Texas Probate Court Did Not Have Subject Matter Jurisdiction Over A Title Dispute To Real Property In Louisiana

In Bethany v. Bethany, a party filed a motion to remove his brother as executor of their mother’s estate. No. 03-19-00532-CV, 2020 Tex. App. LEXIS 2350 (Tex. App.—Austin March 20, 2020, no pet.). The movant also sought costs and expenses incurred by him incident to removal, including reasonable attorney’s fees. In his response to the motion, the respondent similarly moved for costs and expenses in defending against removal, including reasonable attorney’s fees. Following a hearing, the trial court denied the motion but did not address the issue of attorney’s fees. The movant appealed, and the respondent filed a motion to dismiss the appeal because the order was not a final judgment.

The court of appeals noted that appeals may generally be taken only from final judgments. “Probate proceedings are an exception to the ‘one final judgment’ rule; in such cases, ‘multiple judgments final for purposes of appeal can be rendered on certain discrete issues.’” Id. However, “[n]ot every interlocutory order in a probate case is appealable.” Id. The test is whether the order “dispose[s] of all parties or issues in a particular phase of the probate proceedings.” Id. The court agreed with the respondent and dismissed the appeal:

This phase of the probate proceedings involved Paul’s motion to remove Stephen as independent executor. That motion and Stephen’s response to the motion included claims for costs and expenses, including reasonable attorney’s fees, incident to the removal proceedings. However, the trial court’s written judgment did not dispose of those claims or address them in any manner. It is well established that an order that does not dispose of all pending claims, including attorney’s fees, is not a final order. Accordingly, we grant Stephen’s motion to dismiss the appeal and dismiss the appeal for want of jurisdiction.

Id.

Recorded Webinar

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, discusses the topic of beneficiaries requesting loans from trustees. There are multiple issues that arise regarding the trustee’s authority to do so under the trust’s language and statutory and common law, and the loan’s impact on duties of loyalty, confidentiality, impartiality, and proper management of a trust’s assets. The presentation will also cover due diligence and other practical considerations in documenting the loan as well as alternatives to decrease a trustee’s risk when facing these types of lending transactions.

CLICK HERE FOR WEBINAR

Trust Loans to Beneficiaries – Paper

Trust Loans to Beneficiaries – PowerPoint

Texas has recently had two opinions that seemingly take opposite views on whether a contingent remainder beneficiary has standing to sue a trustee for trust administration issue.

In In re Estate of Little, a settlor of a revocable trust withdrew trust assets and deposited them into an account with rights of survivorship with one child as the beneficiary. No. 05-18-00704-CV, 2019 Tex. App. LEXIS 7355 (Tex. App.—Dallas August 20, 2019, pet. denied). His other children, who were beneficiaries of the revocable trust, sued the non-settlor co-trustee for allowing that to happen. The trial court granted summary judgment for the co-trustee, and the beneficiaries appealed.

The court of appeals first held that the beneficiaries had standing to bring their claims. The co-trustee argued that as contingent beneficiaries of a revocable trust, the beneficiaries had no standing to complain about what the settlor chose to do with his money during his lifetime. The court of appeals disagreed with this argument: Continue Reading Texas Courts Conflict On Whether Contingent Remainder Beneficiaries Have Standing To Assert Claims Regarding Trust Administration

On April 9, 2020, the governor suspended certain statutes concerning appearance before a notary public to execute a self-proved will, a durable power of attorney, a medical power of attorney, a directive to physician, or an oath of an executor, administrator, or guardian. These suspensions temporarily allow for appearance before a notary public via videoconference when executing such documents, avoiding the need for in-person contact during the COVID-19 pandemic.

The following conditions will apply whenever this suspension is invoked:

A notary public shall verify the identity of a person signing a document at the time the signature is taken by using two-way video and audio conference technology.

A notary public may verify identity by personal knowledge of the signing person, or by analysis based on the signing person’s remote presentation of a government-issued identification credential, including a passport or driver’s license, that contains the signature and a photograph of the person.

The signing person shall transmit by fax or electronic means a legible copy of the signed document to the notary public, who may notarize the transmitted copy and then transmit the notarized copy back to the signing person by fax or electronic means, at which point the notarization is valid.

Continue Reading Notary Services In A World of Social Distancing: Texas Temporarily Allows For Videoconference Notarization In Addition To Online Notary Services

 

Upcoming Webinar

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog,  will address beneficiaries requesting loans from trustees. There are multiple issues that arise regarding the trustee’s authority to do so under the trust’s language and statutory and common law, and the loan’s impact on duties of loyalty, confidentiality, impartiality, and proper management of a trust’s assets. The presentation will also cover due diligence and other practical considerations in documenting the loan as well as alternatives to decrease a trustee’s risk when facing these types of lending transactions.

Date: Tuesday, April 21, 2020
Time: 10:00 – 10:45 a.m. Central Time
Cost: Complimentary
Speaker: David F. Johnson

Continuing Education Credit Information:
Accreditation of this activity by the MCLE Committee of the State Bar of Texas is pending

Who should attend:
In-house counsel and other litigation contacts, trust officers, risk management contacts, and wealth advisors

REGISTER HERE

In In the Estate of Mendoza, a decedent’s son’s children filed a petition claiming their entitlement to their father’s beneficial interest in a trust created under the decedent’s will. No. 04-19-00129-CV, 2020 Tex. App. LEXIS 1845 (Tex. App.—San Antonio March 4, 2020, no pet. history). The son had predeceased the decedent. The decedent’s daughters moved for summary judgment on the sole ground that a dead person could not be a beneficiary of a trust. The trial court granted the daughters’ summary judgment motion. The son’s children appealed.

The court of appeals reversed the summary judgment, holding that the mere fact that the decedent’s son predeceased the decedent did not establish the son’s beneficial interest in the trust created under the decedent’s will lapsed as a matter of law. The daughters argued that a dead person cannot be a beneficiary of a trust and cited to Longoria v. Lasater, 292 S.W.3d 156, 167 (Tex. App.—San Antonio 2009, pet. denied) and Section 112, comment f of the Restatement (Second) of Trusts. However, the court of appeals held that the daughters ignored the difference between an inter vivos trust, which was the type of trust analyzed in Longoria, and a testamentary trust. The court cited to Section 112, comment f, of the Restatement (Second) of Trusts: Continue Reading Court Holds That A Deceased Testamentary Trust Beneficiary Can Still Be A Beneficiary