Court Affirms Finding Of An Oral Trust And Breach Of Duty By The Trustee
Wednesday, September 6, 2023
breach of fiduciary duty claim against trustee

In Ahlgren v. Ahlgren, plaintiffs sued a defendant alleging that the defendant was a trustee of an oral trust who breached duties by refusing to return certain property. No. 13-22-00029-CV, 2023 Tex. App. LEXIS 4182 (Tex. App.—Corpus Christi – Edinburg,  June 15, 2023, no pet. history). After the trial court entered judgment for the plaintiff, the defendant appealed. The court of appeals first discussed the requirements for an oral trust:

The Texas Trust Code provides that “[a] trust may be created by . . . a property owner’s inter vivos transfer of the property to another person as trustee for the transferor or a third person[.]” Tex. Prop. Code Ann. § 112.001(2). “A trust in either real or personal property is enforceable only if there is written evidence of the trust’s terms bearing the signature of the settlor or the settlor’s authorized agent.” Id. § 112.004. However, an oral trust in personal property “is enforceable if created by . . . a transfer of the trust property to a trustee who is neither settlor nor beneficiary if the transferor expresses simultaneously with or prior to the transfer the intention to create a trust.” Id. § 112.004(1); see Ayers v. Mitchell, 167 S.W.3d 924, 928 (Tex. App.—Texarkana 2005, no pet.).

“A trust is created only if the settlor manifests an intention to create a trust.” Tex. Prop. Code Ann. § 112.002. Although “[t]echnical words of expression” are not essential, the beneficiary, the res, and the trust purpose must be identified. Perfect Union Lodge No. 10, A.F. & A.M., of San Antonio v. Interfirst Bank of San Antonio, N.A., 748 S.W.2d 218, 220 (Tex. 1988); ETC Tex. Pipeline, Ltd. v. Addison Expl. & Dev., LLC, 582 S.W.3d 823, 840 (Tex. App.—Eastland 2019, pet. denied); Pickelner v. Adler, 229 S.W.3d 516, 526 (Tex. App.—Houston [1st Dist.] 2007, pet. denied).

“[W]hen a valid trust is created, the beneficiaries become the owners of the equitable or beneficial title to the trust property and are considered the real owners.” Bradley v. Shaffer, 535 S.W.3d 242, 248 (Tex. App.—Eastland 2017, no pet.) (quoting City of Mesquite v. Malouf, 553 S.W.2d 639, 644 (Tex. App.—Texarkana 1977, writ ref’d n.r.e.)). “[I]t is well established that the legal and equitable estates must be separated; the former being vested in the trustee and the latter in the beneficiary.” Perfect Union Lodge, 748 S.W.2d at 220. However, “[i]t is not absolutely necessary that legal title be granted to the trustee in specific terms.” Id. Furthermore, “[p]roperty may be added to an existing trust from any source in any manner unless the addition is prohibited by the terms of the trust or the property is unacceptable to the trustee.” Tex. Prop. Code Ann. § 112.006.

An express trust establishes “a fiduciary relationship with respect to property which arises as a manifestation by the settlor of an intention to create the relationship and which subjects the person holding title to the property to equitable duties to deal with the property for the benefit of another person.” Id. § 111.004(4). “The trustee shall administer the trust in good faith according to its terms . . . .” Id. § 113.051. “[I]n administering the trust[,] the trustee shall perform all of the duties imposed on trustees by the common law.” Id. “The trustee is accountable to a beneficiary for the trust property and 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[.]” Id. § 114.001(a). A trustee is liable for “any damages resulting from” a breach of trust, including lost trust property, profit to the trustee, and profit the trust would have realized without breach. Id. § 114.001(c); see also Williams v. Williams, No. 03-21-00109-CV, 2022 Tex. App. LEXIS 8164, 2022 WL 16702520, at *3 (Tex. App.—Austin Nov. 4, 2022, no pet.) (mem. op.).

Id. The court held that there was sufficient evidence of intent to create a trust:

While Nim did not describe a transfer of legal title in explaining the agreement, Nim clearly identified the beneficiary—Nim; the res—Nim’s First Tennessee assets; and the trust purpose—the management and investment of Nim’s holdings. See id. Paco’s own representations confirmed the intent of the parties—”I’m going to continue to legally transfer as much of Nim’s estate as I can into my own name”; “any money I move into my name from Nim’s accounts I intend to keep in my name until he needs me to help him out”; “I’ve been managing [Nim’s] money for four years.” See id.; see also In re Borbidge, 90 B.R. 728, 735 (Bankr. E.D. Pa. 1988), aff’d sub nom. Eckell v. Borbidge, 114 B.R. 63 (E.D. Pa. 1990) (concluding that an oral trust was intended based on testimony by son “that his mother gave him control and access to her assets to be exercised for her benefit”). Viewing the evidence in the light most favorable to the verdict, we conclude that the record would enable reasonable and fair-minded people to find that Nim intended to create an express trust.

Id. The court also held that there was evidence of a transfer of assets where the defendant liquidated certain investments and transferred them. The court held that the intent and the transfer did not have to occur at the same time.

The court also held that the statute of frauds did not defeat the oral trust where the assets at the time of the creation of the trust were personal property:

[A]appellants argue that the statute of frauds bars the enforcement of the oral trust. We disagree. As noted above, the Trust Code’s statute of frauds provision permits the enforcement of oral trusts if the trust consists of personal property at its creation. See Tex. Prop. Code Ann. § 112.004(1) (“A trust consisting of personal property . . . is enforceable if created by . . . a transfer of the trust property to a trustee who is neither settlor nor beneficiary . . . .”) (emphasis added). If the settlor funds the oral trust with personal property, the trustee cannot render the entire trust unenforceable by later converting the trust assets to real property.

Id. The court affirmed the trial court’s holding that there was an express oral trust.

The defendant also challenged an award of profit disgorgement alleging that there was no evidence of the value of the asset at the time of the breach. The court noted that there was evidence of the asset at the time of trial, which was sufficient for a breach of fiduciary duty claim:

Next, appellants argue that the Bitcoin should have been valued at the time of breach—not the time of trial—in calculating Paco’s profits. Appellants cite a rule of law applying to contract damages. See Miga v. Jensen, 96 S.W.3d 207, 214 (Tex. 2002) (“But the rule in Texas has long been that contract damages are measured at the time of breach, and not by the bargained-for goods’ market gain as of the time of trial.”). However, appellants cite no authority applying this limitation to a breach of fiduciary duty claim, and we have found none. See Tex. R. App. P. 38.1(i). Rather, “[u]nlike a contract case, the law favors granting the benefit of the delay to the victim of the fraud.”

Id. The court affirmed the judgment for the plaintiff.


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