Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Saturday, September 4, 2010

Trustee removal and appointment of successor trustee

Texas

After the trial court removed Trustee from office, Trustee asserted that an earlier settlement agreement addressing Trustee’s use of over $500,000 of trust funds for her personal use was an election of remedies precluding or waiving the removal action.  The appellate court disagreed explaining that the settlement remedied a past injury while the removal action was to prevent future injury.

Trustee also alleged that trial court abused its discretion in removing her from office even though the court found she used trust funds to pay her personal expenses, violated the trust causing the trust to suffer material financial loss, and had personal interests adverse to and in conflict with her duties as trustee.  After a review of the evidence, the appellate court found that there was sufficient evidence to support the trial court’s findings and thus agreed that the trial court did not abuse its discretion when it removed Trustee from office.  The court noted that merely because Trustee acknowledged she misappropriated trust funds after being caught does not cure the breach of trust.

Moral:  A trustee who is caught misusing trust funds may be removed from office even if the trustee (1) is found liable for damages and (2) acknowledges the bad behavior.

Note:  This is the remand of Ditta v. Conte, 298 S.W.3d 187 (Tex. 2009), in which the Supreme Court of Texas held that “no statutory limitations period restricts a court’s discretion to remove a trustee.  A limitations period, while applicable to suits seeking damages for breach of fiduciary duty, has no place in suits that seek removal rather than recovery.”

After the trial court properly removed Trustee from office, the court appointed a successor trustee without following Settlor’s instructions for how a successor trustee should be selected.  The appellate court held that the court exceeded its authority to deviate from the terms of the trust under Trust Code § 112.054.  Instead, the court should follow the terms of the trust which authorized the majority of adult beneficiaries to appoint a successor trustee.  See Trust Code § 113.083.  A court exercising its deviation power must do so in the manner that conforms as nearly as possible to Settlor’s intent.  Here, Settlor’s intent was expressed in the trust when he provided instructions on the method of ascertaining a successor trustee.  The fact that one of the beneficiaries was the removed trustee did not impact her rights as a beneficiary.  Thus, a proper deviation would be to prevent the beneficiaries from appointing anyone who had been already removed as a trustee.

Moral:  If a trust contains instructions of the appointment of a successor trustee, those instructions should be followed as closely as possible under the circumstances.

Conte v. Ditta, 312 S.W.3d 951 (Tex. App.—Houston [1st Dist.] 2010, no pet. h.).

https://lawprofessors.typepad.com/trusts_estates_prof/2010/09/trustee-removal-and-appointment-of-successor-trustee.html

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