General Practice Digest Update Spring 2008

PROBATE LAW

SPRING 2008

In re: White Intervivos Trusts, W.L. 3355127; LEXIS 8964 (Tex. App.—San Antonio 2007)

Trust Termination: The grantors established four irrevocable trusts naming their grandchildren as beneficiaries and their sons as trustees in 1992, 1994, and 1997. In 2006, the trustees filed to terminate the trusts and alleged that the grantors intended that the trustees were the beneficiaries of the trusts. One of the grantors testified at a hearing on the petition that he did not understand the difference between a trustee and a beneficiary, and he intended that the trustees were beneficiaries of the trusts. No other evidence was presented at the hearing on the petition. The trial court terminated the trusts and distributed the trust assets equally to the trustees. The guardian ad litem for the minor grandchildren beneficiaries appealed the decision. The Court reasoned that the language in the trust agreements clearly identified the beneficiaries and both the grantors and the trustees signed the trust agreements. The Court further reasoned that the record did not support a finding of “circumstances not known to or anticipated by the settlor” under Texas Trust Code § 112.054(a)(2). Held: The portion of the judgment related to the termination of the trusts for the minor grandchildren was reversed, and the remainder of the judgment was affirmed.

In re: Estate of James W. Kappus, Deceased, 242 S.W.3d 182 (Tex App.—Tyler 2007)

Conflict of Interest; Removal of Independent Executor; Removal of Trustee: In the 1980s, James, John, and their father formed a partnership, and the partnership purchased real property in Anderson County. James and John inherited their father’s share of the partnership upon his death, and they allowed the partnership to dissolve and continued to own the Anderson County property together. James married Sandra in the early 1990s, and they divorced in 2004. Over the years, several improvements were made to the Anderson County property by James, James and Sandra, and John. After James’ death in 2005, John began probate proceedings and was appointed by the court as independent executor since he was appointed in James’ Will. John took efforts to sell the Anderson County property and located a buyer willing to pay $110,000 and assume a debt of approximately $7,000 for one of the improvements on the property, a double wide mobile home. John intended to divide the sales proceeds equally between himself and the estate. Sandra, on the behalf of her children with James, opposed the proposed distribution of the sales proceeds and obtained an injunction to stop the sale. In addition, she sought to have John removed as independent executor because of alleged conflicts of interest, waste, and mismanagement of funds. Further, she sought to have John removed as trustee of the testamentary trust created under James’ Will.

The trial court held that the estate owned 58.59% and John owned 41.41% of the Anderson County property, and the trial court denied the application to remove John as independent executor and trustee. Sandra appealed the trial court’s decision and argued: the evidence was legally and factually insufficient to support the trial court’s division of the Anderson County property and the estate should own 63.45% of the property instead of 58.59%, the trial court erred in failing to remove John as independent executor, and the trial court erred in finding that the testamentary trust never came into existence. The Court reasoned that the evidence presented to the trial court was sufficient to support the trial court’s determination of the division of the Anderson County property. The Court further reasoned that since John and the estate were asserting ownership over the same property and a conflict of interest existed between John and the estate as to ownership of some of the property, John could not serve as the independent executor. In addition, the Court reasoned that the trial court erred when it found that the testamentary trust never came into existence since under Texas Probate Code § 37 James’ will vested title to his residuary estate in John as the trustee of the testamentary trust at the time of James’ death. Further, the Court reasoned that since John asserted ownership of a portion of the property claimed by the testamentary trust, the attempted appropriation was a violation of a fiduciary duty, a repudiation of a trust in relation to the property, and therefore a ground for removal of John as trustee. Held: The portion of the judgment related to the trial court’s disposition of the Anderson County property and improvements was affirmed, and the portion of the judgment related to the trial court’s denial of Sandra’s application to remove John as independent executor and trustee was reversed. Further, the Court rendered judgment ordering that John be removed as independent executor of the estate and as trustee of the testamentary trust.

In the Interest of Aleta B. Arreguin Lowe Roy, Deceased, W.L. 191293, LEXIS 512 (Tex. App.—Waco 2008)

Duty to Disclose Information; Removal of Independent Executor: Imperial Tank Company (“ITC”) was owned by the Arreguin family and managed by Clark Arreguin (“Clark”), but in 1991 Clark became the full owner of ITC. For over ten years, ITC leased approximately ten acres from the decedent for its business operations. In 2004, the decedent died leaving a will that divided the acreage equally between Clark and the decedent’s other three children. Clark was appointed as the independent executor of the decedent’s estate (the “estate”). Before the decedent’s death she prepared a lease regarding the acreage with rent at $10,000 per month, but the lease was not signed by Clark on behalf of ITC as of the decedent’s date of death. Before renewing the lease, Clark obtained an independent appraisal of the acreage and Clark determined that the rental value was $5,085 per month. Without notifying his siblings, Clark executed annual one year term leases in 2004, 2005, and 2006 that changed the rent paid by ITC to $5,085 per month. The siblings learned of the reduction and also had other concerns about the administration of the estate, including Clark’s failure to provide a copy of the closing statement upon the sale of the decedent’s residence and a service fee and administrative expense fee paid to Clark upon the sale of the decedent’s residence. The siblings sued to remove Clark as independent executor.

The trial court removed Clark as independent executor and held that the three leases were void and unenforceable. Clark appealed the trial court’s decision and argued that the evidence was insufficient to support his removal as independent executor. The Court reasoned that Clark’s positions as a beneficiary of the estate, the independent executor, and the president of ITC created a conflict of interest. The Court further reasoned that although this conflict of interest would not alone disqualify him from serving as independent executor, the evidence supported a finding that Clark exercised “gross mismanagement” by violating his fiduciary duty to disclose information regarding the estate to his siblings. In addition, the Court held that the trial court properly determined that Clark was not entitled to reasonable attorneys’ fees for defending the removal action since the trial court found that Clark breached his fiduciary duty to the estate. Held: Affirmed. Note: Chief Justice Gray concurred in the judgment in a note regarding his opinion concerning the majority’s reliance on the determination that the new leases were improper self-dealing. Chief Justice Gray’s note stated that he reasoned that such reliance was improper and played no part in his concurrence in the judgment of the Court.