Trustees and fiduciaries in Texas
Key takeaway
Trustees and fiduciaries in Texas operate under the Texas Trust Code and the Texas Property Code. These laws set duties of disclosure and accounting, investment standards, limits on liability relief, and grounds for removal. Owners of businesses, real estate and private investments, along with their spouses and adult children, meet these rules when a trust holds those assets or when a family member acts as trustee.
Disclosure and accounting duties
A Texas trustee owes beneficiaries a fiduciary duty of full disclosure of material facts that might affect their rights. The duty stands independent of the procedural rules of litigation.
Under Texas Trust Code Sec. 113.151(a), a beneficiary may demand a written accounting. The trustee's accounting frequency is limited unless the court requires otherwise.
Section 111.0035 of the Property Code bars trust terms from limiting a trustee's duty to respond to an accounting demand or to act in good faith. The Texas Legislature added that section by amending the Property Code after a Texas Supreme Court holding on self-dealing.
Investment and diversification duties
Texas Property Code Section 117.006 requires a trustee, within a reasonable time after accepting the trusteeship or receiving assets, to review the assets and decide on retention and disposition. The goal is a portfolio that complies with the trust's purposes, terms and distribution requirements.
Texas law does not require diversification in all circumstances. A trustee shall diversify unless it reasonably determines that, because of special circumstances, the trust's purposes are better served without diversifying.
Texas Property Code Section 117.003(b) allows a trust's provisions to expand, restrict, eliminate or alter the statutory investment standard.
Relief from trustee liability
A trust term relieving a trustee of liability for a breach committed in bad faith, intentionally, or with reckless indifference, or for any profit from the breach, is unenforceable under Texas Property Code Section 114.007(a).
Successor trustees
Under Texas Trust Code Sec. 114.002, a successor trustee's liability for a predecessor's breach turns on the successor's knowledge of it and a failure to act.
Removal and compensation
A Texas court may remove a trustee and deny part or all of the trustee's compensation in two described situations. The first is a material violation of the trust terms that causes material financial loss to the trust. The second is when the trustee becomes incompetent or insolvent.
Attorney-client privilege for trustees
The Texas Supreme Court has held that the attorney-client privilege protects confidential communications between the trustee and the trustee's attorney under Texas Rule of Evidence 503.
Common questions
Can a Texas trust limit a beneficiary's accounting demand?
Trust terms cannot cut back the trustee's duty to answer an accounting demand or to act in good faith. A beneficiary holds the right to ask for a written accounting under the Texas Trust Code, and a court may require accounting more often than the trustee otherwise must provide.
When is a successor trustee in Texas liable for a predecessor's breach?
Liability for a predecessor's breach depends on the successor's knowledge of it and a failure to act.