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Texas Supreme Court Holds That There Was No Trust Protecting Church Assets And A Withdrawing Faction Was Entitled To Those Assets

In Episcopal Diocese of Fort Worth v. Episcopal Church, the Texas Supreme Court addressed whether a withdrawing faction was entitled to church property and also addressed a trust issue. No. 18-0438, 2020 Tex. LEXIS 434 (Tex. May 22, 2020). Following a disagreement over religious doctrine dealing with homosexuals, the Episcopal Diocese of Fort Worth and a majority of its congregations withdrew from The Episcopal Church. The church replaced the diocese’s leaders with church loyalists, and both the disaffiliating and replacement factions claimed ownership of property held in trust for the diocese and local congregations. Interestingly, on a congregation by congregation approach, the withdrawing factions may be been in the minority.

The church relied on the Dennis Canon and argued that it was a trust that protected the property for it. That canon provided, in relevant part, that “all real and personal property held by or for the benefit of any Parish, Mission or Congregation is held in trust for [TEC][.]” The parties dispute the trust’s validity under Texas law and its revocability.

The Texas Supreme Court held that under Texas trust law, a trust may be created by any of the following methods: (1) a property owner’s declaration that the owner holds the property as trustee for another person; (2) a property owner’s inter vivos transfer of the property to another person as trustee for the transferor or a third person; (3) a property owner’s testamentary transfer to another person as trustee for a third person; (4) an appointment under a power of appointment to another person as trustee for the donee of the power or for a third person; or (5) a promise to another person whose rights under the promise are to be held in trust for a third person. Id. (citing Tex. Prop. Code § 112.001).

The Texas Supreme Court held that the Dennis Cannon did not create an irrevocable trust that could not revoked:

A trust is created only if the settlor manifests, in writing, an intention to create a trust, and a settlor may revoke a trust “unless it is irrevocable by the express terms of the instrument creating it or of an instrument modifying it.” Id. The court of appeals held that the Dennis Canon is not a valid trust under Texas law because “an entity that does not own the property to be held in trust cannot establish a trust for itself simply by decreeing that it is the beneficiary of a trust.” As to revocability, we held in Masterson and Episcopal Diocese that even assuming the Dennis Canon is a valid trust, it is revocable under Texas law because it was not made expressly irrevocable. Moreover, “[e]ven if the Canon could be read to imply the trust was irrevocable, that is not good enough under Texas law. The Texas statute requires express terms making [the trust] irrevocable.” For the reasons stated by the court of appeals (among others), the Majority Diocese asserts the Dennis Canon is not a valid trust, but even if it were valid, it was revocable and revoked by the 1989 amendment to the Diocesan Constitution and Canons, nearly two decades before this dispute arose. TEC contends the Dennis Canon creates a valid trust and argues it is entitled to possession of the disputed property under that trust for two independent reasons: (1) the 1989 amendment was ineffective to revoke the Dennis Canon trust because, at that time, the Diocesan Constitution and Canons only authorized amendments to the diocese’s canons that were “not inconsistent” with the national church’s constitution and canons and (2) the trust is irrevocable because it is a contractual trust supported by valuable consideration. Neither argument is persuasive. While it is true, as TEC says, that the diocese’s organizational documents prohibited the adoption of canons inconsistent with the national church’s constitution and canons, revocation is not inconsistent with a revocable trust. Moreover, in the twenty years between revocation and eruption of a dispute over the property, TEC lodged no objection to the amended canon and does not now contend the 1989 amendment is invalid for any other reason than purported “inconsistency.” In the alternative, and contrary to our holdings in Masterson and Episcopal Diocese, TEC insists that the Dennis Canon is irrevocable notwithstanding the absence of express language of irrevocability, as required by Texas Property Code section 112.051.… TEC has not identified any provision constraining revocation of the Dennis Canon, so the statutory requirement of express language retains its legal force.

Id. Therefore, the Court held that no trust existed to protect the church and held for the faction that left the church.

© 2020 Winstead PC.National Law Review, Volume X, Number 156

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About this Author

David Johnson Financial Litigator Winstead Law Firm

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...

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