Trust Enforcement

Question 1

Can You Sue a Trust?

Answer 1

1. Generally, a trust is not a legal entity that can sue or be sued.
2. An action against a trust should be brought against its legal representative, the Trustee.

Question 2

Trustees and Unauthorized Practice of Law

Answer 2

1. A trustee can represent him/herself with regard to claims in their individual capacity, but has no right to proceed pro se in their representative capacity.
2. “If a non-attorney trustee appears in court on behalf of the trust, he or she necessarily represents the interests of others, which amounts to the unauthorized practice of law” (See In Re Guetersloh, 326 S.W.3d 737 (Tex App. – Amarillo 2010, no writ)).

Question 3

Standing to Bring Suit

Answer 3

1. Beneficiaries and trustees can bring action b/c they have legal or equitable interest in the trust property
   
   1. But contingent beneficiaries may not have standing (e.g., revocable trusts)
2. Settlor may not have standing unless they have retained a power or right under the trust.
3. Contingent beneficiaries may not have standing (e.g., revocable trusts)
4. AG has standing for charitable trusts

Question 4

Necessary Parties to Actions Involving a Trust

Answer 4

1. The necessary parties (persons who have to be served with process regarding the action) to a trust action include:
   
   1. All beneficiaries (including both current and remainder beneficiaries); and
   2. The trustee.

Question 5

Original Jurisdiction of Court

1. General Rule
2. Exceptions

Answer 5

1. General Rule – district courts have original and exclusive jurisdiction for trust actions.
2. Exceptions -
   
   1. Testamentary Trusts - under jurisdiction of statutory probate court or county court at law.
   2. Court Created Trusts (1301 & 142 Trusts) - under jurisdiction of court that created them.

Question 6

Venue to File Trust Action -

1. Single Trustees
2. Multiple Co-Trustees
3. Corporate Trustees
4. Just and Reasonable cause

Answer 6

1. SINGLE TRUSTEES – If there is a single, non-corporate trustee, the action should be brought in the county which:
   
   1. The trustee resides (or has resided at any time in prior 4yrs); or
   2. The situs of administration of the trust at any time in prior 4yrs.
2. MULTIPLE CO-TRUSTEES – (Changed by Legislature in 2013) – If there are multiple non-corporate trustees, the action should be brought in the county where:
   
   1. Any trustee resided at any time during the prior 4yrs, or
   2. The situs of the administration of the trust is or has been maintained any time in prior 4yrs.
3. CORPORATE TRUSTEES – For corporate trustees, the action should be brought in the county where:
   
   1. Corporate trustee’s maintains its principal office, or
   2. The county where the situs of the trust is maintained anytime during the previous 4yrs

For just and reasonable

Question 7

Remedies for Breach of Trust

Answer 7

1. To remedy a breach of trust that has occurred or might occur, the court may:
   
   1. Compel the trustee to perform the trustee’s duty or duties;
   2. Enjoin the trustee from committing a breach of trust;
   3. Compel the trustee to redress a breach of trust, including compelling the trustee to pay money or to restore property;
   4. Order the trustee to account;
   5. Appoint a receiver to take possession of the trust property and administer the trust;
   6. Suspend the trustee;
   7. Remove the trustee (see TTC 113.082);
   8. Reduce or deny compensation to the trustee;
   9. …. Void an act by the trustee, impose a lien or a constructive trust on trust property, or trace and recover trust property or proceeds from the property; or
   10. Order any other appropriate relief.

Question 8

Remedies Against Trustee - Generally

Answer 8

1. Money Damages (TTC 114.001)
   
   1. Lost value
   2. Profit made by trustee
   3. Lost profits
   4. Punitive Damages (if intentional breach of fiduciary duty)
2. Removal of Trustee (TTC 113.082)
3. Decree to Carry Out Trust (TTC 115.001)
4. Injunction (TTC 115.001(b))
5. Receivership (TTC 115.001(b)) – takes over trustee’s duties
6. Require or Increase Bond (TTC 113.058(d))
7. Declaratory Judgment (TTC 115.001)
8. Award of Attorney Fees (TTC 114.064)
9. Criminal Sanctions (Penal Code 32.45)
10. Liability of Successor Trustee for Predecessor Trustee Actions (TTC 114.002)

Question 9

Remedies Against Trustee - Money Damages

Answer 9

1. A trustee is accountable to the beneficiary for any profit made by the trustee through or arising out of the administration of the trust – even though the profit does not result from a breach of trust
   
   1. Exception – doesn’t apply to trustee fees
2. A trustee is responsible for the loss or depreciation in value to trust property caused by a breach of trust
3. A trustee may be liable for profits the trust would have earned had the trustee not breached trustee’s fiduciary duties (speculative profits).
4. An intentional breach of a duty owed by the trustee is considered a tort and may be subject to punitive damages (see Interfirst Bank Dallas v Risser).

Question 10

Remedies - Removal of Trustee

Answer 10

1. Court can remove trustee and deny compensation:
   
   1. For breach of trust terms resulting in loss
   2. If incapacitated
   3. Fails to make accounting as required by trust or law
   4. For other good cause

Question 11

Remedies - Criminal Sactions Against Trustee

Answer 11

1. A trustee can go to jail!!!
2. When a fiduciary, such as a trustee, intentionally, knowingly, or recklessly misapplies property contrary to the trust instrument or trust code, criminal penalties may apply.
   
   1. Mere negligent conduct will not give rise to a criminal offense – but it may be subject to civil liability
3. No actual loss to the property or gain to the fiduciary is necessary.
   
   1. Only a “risk of loss” is necessary.
4. Types of Criminal Penalties – TPC 32.45(c) – ranges from misdemeanor to first degree felony depending on severity of misapplied trust fund property.
   
   1. Anything intentionally, knowingly, or recklessly misapplied over $2,500 is a felony.
   2. Criminal Sanctions Higher for Breach Against Elderly - An offense described for purposes of punishment by Texas Penal Code 32.45(c)(1)-(6) is increased to the next higher category – if the offense was committed against an elderly individual 65 yrs of age or older. (see Penal Code 32.45(d))

Question 12

Remedies - Against Beneficiary

Answer 12

1. A beneficiary is liable to the trust, if the beneficiary has:
   
   1. Misappropriated or otherwise wrongfully dealt with trust property
   2. Expressly consented to, participated in, or agreed with the trustee to be liable for a breach of trust committed by the trustee;
   3. Failed to repay an advance or loan of trust funds;
   4. Failed to repay a distribution or disbursement from the trust in excess of that to which the beneficiary is entitled, or
   5. Beached a contract to pay money or deliver property to the trustee to be held by the trustee as part of the trust.
2. Unless the trust provides otherwise, the trustee is authorized to offset a liability of the beneficiary to the trust estate against the beneficiary’s interest (regardless of a spendthrift provision)

Question 13

Actions Against Third Parties

Answer 13

1. Third parties may also be liable to the trust
2. Trustee must bring action against 3^rd parties if:
   
   1. Breach of contract
   2. Damage to trust property
3. If Trustee does not pursue third party, then they have breached their fiduciary duty
   
   1. Trustee can be removed
   2. Beneficiaries can pursue third party for damages

Question 14

Statute of Limitations for Enforcement

Answer 14

1. Four years after the day the cause of action is, or should have been, discovered
   
   1. Note that the SOL doesn’t begin to run until the beneficiary has knowledge, or should have had knowledge, of the breach of trust.
      
      1. Should have knowledge? (e.g., B has constructive knowledge where they are getting regular fund statements from trustee).
   2. The Beneficiary does not have a duty to investigate until the beneficiary has knowledge of facts which are sufficient to trigger a reasonable person to inquire

Question 15

Court Costs and Attorneys Fees

Answer 15

1. If you win a suit under the Trust code, can a court award attorney’s fees and reimbursement of other costs?
   
   1. MAYBE – TTC 114.064 says the court “may make such award of costs and reasonable and necessary attorney’s fees as may seem equitable and just.”
   2. Therefore, it’s usually in your client’s best interest to ask the court to award your client attorney fees (if they win suit).
2. Never hurts to ask !!!