By P. Keith Staubus
There is a wide array of legal tools available to address a trustee who, convinced of their absolute discretion as to the investment of the trust assets and as to distributions to the beneficiaries, becomes obstinate in their duty to provide information to the beneficiaries, to make appropriate distributions to the beneficiaries, or to invest and diversify the investments of the trust.
Beneficiaries have long had available traditional extraordinary relief pursuant to the Texas Civil Practice and Remedies Code and the Texas Rules of Civil Procedure, including receivership (T. C. P. R. C. 64.001, et seq.), injunctive relief (T. C. P. R. C. 65.001, et seq.), the appointment of an auditor (T. R. C. P. 172), as well as other equitable common law remedies. In addition to these traditional tools, the Texas Trust Code now codifies the relief available to the beneficiary.
Judicial Trust Supervision
Texas Trust Code §115.001, which became effective January 1, 2006, provides that “the court may intervene in the administration of a trust to the extent that the court’s jurisdiction is invoked by an interested person or is otherwise provided by law. A trust is not subject to continuing judicial supervision unless the court orders continuing judicial supervision.” Thus, the Trust Code authorizes the court to intervene and supervise the administration of the trust during the pendency of the lawsuit, as well as granting permanent relief. While it is true that the administration of a trust is not normally supervised by a court in Texas, commentator Frank N. Ikard, Jr. has concluded that “clearly, the case law in Texas has long held that courts have the equitable jurisdiction to administer a trust.” The Trust Code now clearly authorizes such judicial supervision.
Trust Code §114.008 specifically empowers a court to remedy breaches of trust in the following ways:
(1) compel the trustee to perform the trustee’ 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 a 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 as provided under Section 113.082;
(8) reduce or deny compensation to the trustee;
(9) subject to Subsection (b), void an act of the trustee, impose a lien or a constructive trust on trust property, or trace trust property of which the trustee wrongfully disposed and recover the property or the proceeds from the property; or
(10) order any other appropriate relief.
As to the injunctive relief provided for under the Trust Code, there is authority for the proposition that the beneficiary can seek not only to enjoin fiduciary breaches during the pendency of the case, but also to enjoin the trustee from utilizing trust assets to fund their defense (Trust Code § 113.018: the trustee has a right to employ attorneys when “reasonably necessary in the administration of the trust.”). When a beneficiary’s claim involves a claim of self-dealing or other conflict of interest, the beneficiary has a solid argument that the trustee should fund the legal defense personally while the case is pending.
Note that Subsection (10) of Trust Code § 114.008 grants the court broad discretion to “order any other appropriate relief.” Clearly, the Trust Code gives a court broad discretion to fashion extraordinary relief to address the runaway trustee.
An important consideration for the beneficiary prior to seeking extraordinary relief is the selection of the forum for filing suit. In counties such as Dallas, Collin, Tarrant, and Denton Counties, a beneficiary has the option to file suit in a statutory Probate Court (Probate Code §5(e)). In counties that do not have statutory Probate Courts, lawsuits concerning trusts must be brought in the District Court. The statutory Probate Court generally has the advantage of a significantly less crowded docket, and more familiarity with the fiduciary duties and other issues relating to trusts, and therefore is normally the preferred forum for relief.
Ultimately, the beneficiary has a right to seek recovery of their attorney’s fees from the trust or from the trustee (Trust Code § 114.064) incurred in pursuing the relief, in addition to the other remedies provided under Trust Code § 114.008.
Thus, a trust beneficiary may invoke the broad supervisory powers of the Probate Court under the Texas Trust Code to obtain extraordinary and permanent relief, in addition to the relief provided by the Rules of Civil Procedure, the Civil Practice and Remedies Code, and other common law equitable relief.
P. Keith Staubus is a partner with Staubus & Randall, L.L.P., and is immediate Past Chair of the Probate, Trusts & Estates Section of the Dallas Bar.