August 12, 2022

Volume XII, Number 224

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Court Holds That Probate Court Had Jurisdiction Over Inter Vivos Trust Dispute And That A Beneficiary Waived A Complaint About A “No Liability” Order For A Trustee

In Goepp v. Comerica Bank & Trust, N.A., the settlors created inter vivos trusts and their three children were the remainder beneficiaries. No. 03-19-00485-CV, 2021 Tex. App. LEXIS 5461 (Tex. App.—Austin July 9, 2021, no pet. history). The three children became co-trustees and then had disputes. They entered into a family settlement agreement, and had a corporate trustee appointed successor trustee. The corporate trustee then filed a “First Amended Petition for Settlement of Trustee’s Final Account and Order of No Liability.” Id. One of the children objected “to the Trustee’s Petition, complaining about the timing of certain preferential distribution payments, about the calculations of interest on the distributions, and that he ‘has yet to be reimbursed the monies owed to him for out of pocket expenses of durable medical equipment purchased on behalf of Iraida.’” Id. After the trial court entered the relief requested by the corporate trustee, several of the children appealed.

One child argued that the statutory probate court did not have jurisdiction over the inter vivos trust dispute. The court of appeals disagreed:

Although subsection 115.001(a) of the Texas Property Code grants a district court “original and exclusive jurisdiction over all proceedings by or against a trustee and all proceedings concerning trusts,” that subsection is prefaced with “[e]xcept as provided by Subsection (d) of this section.” Tex. Prop. Code § 115.001(a). Subsection (d)(1) states, “The jurisdiction of the district court is exclusive except for jurisdiction conferred by law on: (1) a statutory probate court[.]”And jurisdiction is conferred by law on a statutory probate court by section 32.006 of the Texas Estates Code: “In a county in which there is a statutory probate court, the statutory probate court has jurisdiction of” both “an action by or against a trustee” and “an action involving an intervivos trust, testamentary trust, or charitable trust.” It is undisputed that the Goepp Trusts are intervivos trusts and that Comerica, as trustee, brought the underlying suit in a statutory probate court in Travis County. Thus, in light of section 32.006 of the Texas Estates Code, section 115.001 of the Texas Property Code did not deprive the probate court of subject matter jurisdiction over the underlying case.

Id. The court also rejected the child’s argument that the venue statute meant that the trial court did not have jurisdiction: “But ‘[v]enue pertains solely to where a suit may be brought and is a different question from whether the court has ‘jurisdiction of the property or thing in controversy,’’ and ‘unlike subject-matter jurisdiction . . . venue may be waived if not challenged in due order and on a timely basis.’” Id.

The court also rejected the child’s complaint about the “no liability” order for the corporate trustee because it was not preserved and was waived:

In her fifth and final issue, Heidi argues that the probate court “abus[ed] [its] discretion in issuing an order of ‘no liability’ . . . to extinguish [Heidi’s] claims for breach of trust and breach of fiduciary duty in violation of the law.” Heidi does not challenge the sufficiency of the evidence supporting the order; rather, she argues that the probate court “cannot rule that Comerica . . . has no liability or attempt to adjudicate this claim, which would have a preclusive effect on further litigation elsewhere.” Heidi’s argument is not exactly clear. To the extent Heidi is challenging the order on the jurisdictional grounds raised in her first four issues, we have overruled those issues. And if Heidi is raising a nonjurisdictional ground to challenge the issuance of the “no liability” order, she did not preserve error as to this issue by making this complaint to the probate court and obtaining a ruling on the complaint.

Id.

Interesting Note: Trustees often file suits and seek some form of discharge or no liability relief. The Texas Trust Code provides that a court has jurisdiction to “determine the powers, responsibilities, duties, and liability of a trustee” and also to “require an accounting by a trustee, review trustee fees, and settle interim or final accounts.” Tex. Prop. Code 115.001(a). The Texas Trust Code also authorizes the court to accept a trustee’s resignation and discharge the trustee from the trust on the terms and conditions necessary to protect the rights of other interested parties. Texas Trust Code 113.081(b).

Due to this right, when a trustee resigns or has some other significant event occur, it is standard practice to request that the beneficiaries provide the trustee with a private release. If the beneficiary refuses, the trustee has the right to file an accounting and request a discharge, which would normally be paid for by the trust. So, the beneficiary is encouraged to sign the private release to save on expense. There is nothing particularly unfair about this where there is a corporate trustee that has produced regular statements and the beneficiary has had the opportunity to raise a complaint if he or she has one.

There is a difference between an approval of accounting and discharge and a finding of no-liability. Obtaining court approval of a final accounting alone is not or should not be an adjudication of claims by the beneficiaries. Texas State Bank v. Amaro, 87 S.W. 3d 538 (Tex. 2002). In Amaro, the Texas Supreme Court stated:

[T]he Trust Code does not contemplate that an accounting will settle the trustee’s tort liability. As noted, section 113.152 establishes the contents of an accounting and requires the trustee to list trust property, transactions, property, cash, and all known liabilities owed by the trust. It simply does not reach the trustee’s tort liability. This conclusion is supported by the Trust Code’s structure, which includes Subchapter E “Accounting by Trustee” within Chapter 113, entitled “Administration.” In contrast, Chapter 114 concerns “liabilities, rights, and remedies of trustees,   beneficiaries, and third persons.” Thus, the final accounting “forms the basis for a winding up of the trust to ascertain the balance due to the beneficiary.” Supra, 74 S.W.3d at 397. As TSB states in its brief, “TSB’s requested relief in essence provided for determination of what amounts should be paid to Vargas by TSB and the closing of the trust and issues relating thereto.” Determining TSB’s tort liability is not necessary to the closing of the trust or ascertaining the trust balance due the beneficiary, and, as we held above, was not within the scope of TSB’s requested relief. Accordingly, because approving the accounting, including the distributions, costs, and expenses, was not an adjudication of TSB’s tort liabilities, Vargas was not entitled to a jury or to forty-five days notice of the hearing.

IdSee also  Riley v. Alpert, No. 01-11-00430-CV,2012 Tex. App. LEXIS 6049, 2012 WL 3042991(Tex. App. July 26, 2012, no pet.); Bank of Texas, N.A. Trustee v. Mexia, 135 S.W.3d 356, 362 (Tex. App.—Dallas 2004, pet. denied)(approval of an accounting is an administrative function, not an adjudication of trustee’s tort liability).

So, the trustee must plead for a release and no tort liability finding, and the court must conduct an evidentiary hearing regarding the trustee’s actions. The trustee can do so under Section 115.001(a) and also via the Texas Uniform Declaratory Judgment Act in the Texas Civil Practice and Remedies Code Chapter 37. The case discussed above raises an important point, if a court grants a no-liability finding, and no one preserves any error regarding that finding, then it will be res judicata and enforceable. Cable Walt Trust Co. Inc. v. Palmer, 859 S.W.2d 475, 480-81 (Tex. App.—San Antonio 1993, writ denied).

© 2022 Winstead PC.National Law Review, Volume XII, Number 2
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About this Author

David Johnson Financial Institution lLtigation Winstead Law Firm Fort Worth Texas
Managing Shareholder - Fort Worth

David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the Texas Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary field in Texas. 

David's financial institution experience includes (but is not limited to): breach of contract, foreclosure litigation, lender liability, receivership and injunction remedies upon default, non-recourse and other real estate lending, class...

817.420.8223
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