This post concerns fiduciary duties in Texas. The case that is discussed deals with an Executor but could also apply to a trustee or any other fiduciary in Texas. A court of appeals ruled in 2014 that a Texas Executor commits breach of trust not only where he violates a duty in bad faith, or intentionally although in good faith, or negligently but also where he violates a duty because of a mistake. Executor Violates Duty because of a Mistake even if he relied on his attorney for advise. No. 02-14-00170-CV.
Executor Violates Duty because of a Mistake
A man died. He had two sons. First son was appointed executor under the man’s will. Second son was, for some reason, not (more…)
When a judge orders someone to do something and that person doesn’t do it, the judge can hold him in contempt and put him in jail.
Failure To Pay A Debt Of The Estate
In cases where an Executor or Trustee has been ordered to pay a debt out of the estate, he can’t be put in jail if he refuses because the Texas and U.S. constitutions prohibit putting someone in jail for a debt. It doesn’t mean that the Executor or Trustee doesn’t have to pay the debt, he does. It just means that the court will have to use another method to get the debt paid such as seizing assets rather than jail.
Failure To Distribute The Assets To A Beneficiary.
However, when an Executor or Trustee refuses an order of the judge to turn over estate assets to a beneficiary, he can be put in jail if he refuses even if the asset is money. The beneficiary owns the property in question. It is not a debt. Courts reason that the Executor or Trustee is holding the assets in trust for the rightful owner, the beneficiary. The critical difference is that the Executor or Trustee possesses the property of another but refuses to deliver it to the rightful owner, despite being ordered to do so. Since it is not a debt it is off to jail he goes if he refuses. 316 sw3 787.
On occasion, an attorney contesting a will will run across a Deed to a Trustee when there is no trust. For instance a deed that is given “To John Smith, Trustee.” There are no documents showing that a trust ever existed. The question comes up about ownership of the property. Does the person listed as trustee own the property outright? Is it owned by someone else? How do you untangle the title to the property?
Courts have devised several ways to handle these situations based on the facts of the case. If the deed shows that the property was given for consideration paid by the person named as trustee, then that person named trustee owns the property outright. Even though he is listed as trustee, he has full ownership of the property if no trust document is found.
On the other hand, if the deed does not indicate that consideration was involved, a resulting trust is said to exist. In a resulting trust, the original grantor, the person who gave the deed to the person named “as trustee” retains ownership of the property. If that person is dead, his heirs own the property. Compare 802sw2d880 with 564sw2d404.
Title search after conveyance
When not considering ownership but just considering whether a deed from a “Trustee” is valid then the mere designation of a party as “Trustee,” “as Trustee,” or “Agent” following the name of a grantee, without additional language actually identifying a trust, does not in itself create a trust and it does not give notice or put an examiner upon inquiry that a trust does exist or that any person other than the present grantee has a beneficial interest. 12SW2d175, 137ALR460, 462-65; 682SW2d246. This “blind trustee” concept was first enacted into statutory form as a conveyancing statute. This statute was used for many years to avoid filing trust instruments of record and to escape the formality of creating a trust where title was held by a “nominee.” For example, when a conveyance is made to “Jack Smith, Trustee” and the creating instrument does not identify a trust or the name of any beneficiary, the trustee may “convey, transfer, or encumber the title of the property without subsequent question by a person who claims to be a beneficiary under a trust or who claims by, through, or under any undisclosed beneficiary or by, through, or under the person designated as trustee in that person’s individual capacity.” TPC § 101.001. Moreover, in this situation, “the trust property is not liable to satisfy the personal obligations of the trustee.” TPC § 101.002. See also TCP § 114.082 and 164SW2d488. If there is no subsequent conveyance out of the “blind trust” and no other evidence that a trust exists, record title to the property interest in question is deemed to be in the named trustee or the trustee’s successors. 802 S.W.2d 880.
Recent cases where the trust instrument can’t be found
A 2016 case shows additional complications that arise when a trust instrument doesn’t exist. No. 03-13-00768-CV.
In Texas, a trustee or other fiduciary may not be able to avoid liability for breach of his fiduciary duty by relying on other professionals like accountants and attorneys. In a case in Houston, children sued their father who was the trustee of the grandmother’s trust. During his deposition, the father repeatedly answered “I don’t recall” and “I don’t remember” to questions about his handling of trust assets. He said that he relied on the advise of his accountant and his attorney.
The father filed a no-evidence summary judgment, a trial mechanism that basically says the other side has no evidence to support their case and it should be dismissed. Normally, the children would have to put on evidence that the father did what they alleged. However, as the appeals court pointed out in cases of breach of fiduciary duty, the burden was on the father to show that he did not breach that duty, not on the children to show that he did. The court also pointed out that the father’s answers of “I don’t recall” and “I don’t remember” were evidence of a breach. The reliance on professionals like accounts and attorneys might win a jury verdict but they could not be used in a no-evidence summary judgment. No. 14-09-00837-CV.
In Texas, fiduciaries like trustees, executors, administrators, etc. are held to the highest duty imposed by law in civil cases. Once a claim is made that they breached that duty, the burden shifts to them to show that they did not breach any duty.
Copyright by Robert Ray a Texas inheritance attorney. The foregoing information is general in nature and does not apply to every fact situation. If you are concerned about inheritance laws, inheritance rights, have a family inheritance dispute, a property dispute or want information about contesting a will and need an inheritance lawyer, we can help. Please go to our main site www.texasinheritance.com and use the contact form to contact us today. We are Texas inheritance lawyers and would love to learn about your case and there is no fee for the initial consultation.
When someone is found to have breached a duty, a large judgment can be rendered against them. If they can’t afford to pay the judgment, they can file for bankruptcy and ask that the judgment be discharged meaning that they don’t have to pay it. There are some exceptions to this when dealing with fiduciaries. The bankruptcy code specifically prohibits the discharge of a judgment if the judgment is for breach of fiduciary duty. In March, 2013, the Supreme Court of the United States was asked to interpret that provision of the bankruptcy code. In the case before the court, a brother had breached his fiduciary duty as found by a state court but all the monies had been paid back into the trust and the brother did not breach is duty intentionally or with knowledge that his actions were a breach of his duties. The Supreme Court held that in order to deny a discharge of a fiduciary, the judgment must be related to intentional bad conduct by the fiduciary. They held that in the case before it, since the brother did not intentionally breach his duty, the money had been repaid and there was no malice involved, the judgment against him for breach of his fiduciary duty could be discharged in bankruptcy. No. 11-1518.
Copyright by Robert Ray a Texas inheritance attorney. The foregoing information is general in nature and does not apply to every fact situation. If you are concerned about inheritance laws, inheritance rights, have a family inheritance dispute, a property dispute or want information about contesting a will and need an inheritance lawyer, we can help. Please go to our main site www.texasinheritance.com and use the contact form to contact us today. We are Texas inheritance lawyers and would love to learn about your case and there is no fee for the initial consultation.
Intentional or Negligence Acts
