Key Takeaways
- Texas does have a trust code, which is covered in Subtitle B of Title 9 of the Texas Property Code.
- The Trust Code is designed to provide clarity on how trusts should be created by a settlor, managed and administered by a trustee, and overseen by the courts.
- Texas Trust Code includes multiple sections found at Property Code sections 111.001 to 117.012, which explain what requirements a trust document must meet, what legal remedies exist for disputes, and much more.
- If you have questions about the Texas Trust Code or how it applies to your family’s trust, you should consult a skilled trust administration attorney as soon as possible.
Introduction
Yes, Texas does have a trust code. This code can be found in Subtitle B of Title 9 of the Texas Property Code and encompasses multiple sections to provide crucial information about how trusts should be managed in Texas. If you plan on developing a trust in Texas, it’s important that you understand the nuances of Texas trust law, from how to create a valid trust to what responsibilities the trustee has in managing the trust.
The Texas Trust Code covers all a wide range of topics that govern the rights and responsibilities of trust creators, trustees, and trust beneficiaries. For example, the Code provides guidance and clarity to trustees for how to execute, manage, and administer a trust. This guide clarifies what information is included in the Texas Trust Code and what aspects are important to know if you plan on creating a trust.
Overview of the Texas Trust Code
The Texas Trust Code is ultimately a compilation of multiple sections in the Texas Property Code that apply to trusts. Subtitle B of Title 9 of the Texas Property Code contains almost all of the relevant provisions that apply to the creation, administration, and termination of the trusts. All of Title 9 governs trusts, but Subtitle B is referred to as the Texas Trust Code, featuring multiple sections that address how to create, manage, modify, and terminate trusts.
Key sections that make up the Texas Trust Code include:
- Chapter 113 – Trust Administrations
- Chapter 114 – Liabilities, Rights, and Remedies of Trustees and Beneficiaries
- Chapter 116 – the Uniform Principal and Income Act
- Chapter 117 – the Uniform Prudent Investor Act
These sections provide rules and guidelines for the creation, management, and oversight of trusts by the settlor, the trustee, and the courts. Understanding these sections and their terms is crucial for proper management of both revocable and irrevocable trusts, as well as ensuring the wishes of a trust creator are carried out without unnecessary roadblocks in the process. Perhaps most importantly, the Texas Trust Code provides numerous remedies to beneficiaries and trustees to utilize if a trust dispute arises.
Key Provisions in the Texas Property Code Chapter 112
Texas Property Code Chapter 112 is a fundamental part of the Texas Trust Code. This section of the trust code features multiple subchapters that govern the creation, validity, modification, and termination of trusts under Texas law.
Key provisions of Chapter 112 include:
- Methods for how to create a trust
- Requirements for ensuring a trust is valid
- How to revoke, modify, or terminate a trust
This chapter provides steps for creating a trust and also accounts for contingencies in the event that a trust administration process involves unique circumstances, such as a need to modify unproductive provisions in the trust agreement. A skilled trust administration attorney will be able to offer more guidance regarding what sections of this chapter may be relevant to you and your case.
Creating a Valid Trust in Texas
For a trust to be considered valid in the state of Texas, it must be executed in accordance with the following requirements by the trust creator, also known as a settlor.
Documentation Requirements
To create a valid trust, a settlor must establish the trust document in writing and demonstrate clear intent to create the trust. The settlor must also have contractual capacity to do so, which means that they must understand that they are making a trust, the effect of the trust, and the consequences of their actions.. The trust document should also clearly state the grantor’s intent to create the trust.
This document, also called a trust agreement, should outline the specific terms of the trust so that it is clear how the trust should be administered and its assets should be distributed to beneficiaries. A valid trust document should include the following:
- The name of the trustee
- A declaration of the grantor’s intent to create the trust
- The grantor’s signature
- Names of beneficiaries who will receive trust assets
- Rules and guidelines to determine which trust assets should be distributed to beneficiaries and when
- The conditions that cause the trust to terminate
Witnessing and Notarization
Texas does not require additional signatures from witnesses on the trust agreement, but this practice is typically encouraged, especially if the trust may be challenged. Similarly, notarizing the trust instrument is not required in Texas, but it is recommended as an additional step for ensuring the trust’s validity.
Signing the trust before a notary provides an additional layer of credibility and may help alleviate concerns that fraud or undue influence was involved in altering a trust against the settlor’s wishes. With proof that the trust was signed before witnesses and a notary, it may reduce the risk of a trust contest contesting the validity of the trust.
Trust Recording
In Texas,trusts do not need to be recorded with the relevant county records , although trust creators occasionally choose to do so. The vast majority of people prefer not to record a trust so that they can maintain privacy for their estate and its assets, which is one of the key benefits of creating a trust over a will.
Although a trust itself does not need to be recorded, if the trust agreement provides for the conveyance of real estate, the deed transferring that property into the trust must be recorded with the county court in which the property is located.
A Texas certificate of trust can provide documented evidence on public record that a trust exists without disclosing the full details of the trust instrument. This certificate is not required, and it is the settlor’s choice whether to file it. Sometimes a settlor or trustee files a trust certificate to support a pending or contemplated transaction. For example, the settlor or trustee may file the certificate of trust to assist title companies who are examining the chain of title for a property that was conveyed into or out of a trust..
This certificate should include the following elements:
- The name of the trustee
- The name and address of any successor trustees
- A brief summary of important trust terms
- An acknowledgment that the trustees will act according to the terms of the trust and Texas law
- A signature from all trustees
Trustee Roles and Responsibilities
A trustee has the central authority to manage and administer a trust and ensure that the settlor’s wishes are followed. In managing a trust, a trustee has all the following responsibilities.
Fiduciary Duties of Trustees
A trustee has a fiduciary duty to act in the best interests of the trust, its creator, and its beneficiaries. This duty states that a trustee must act within the terms of the trust to carry out important responsibilities. This fiduciary duty is an overarching responsibility that encompasses several other key duties.
Some of these duties may require the trustee acts as follows:
- Communicate with beneficiaries regularly
- Act with impartiality in decision making
- Maintain accurate and complete records
- Avoid conflicts of interest
A breach of fiduciary duty occurs when the trustee fails to perform their duties or acts in some way that is against the best interests of the trust estate, which results in harm to the trust, a personal benefit to the trustee, or both. There are several actions that may constitute a breach of fiduciary duty, including theft of trust assets or the neglect of trust property.
If a trustee fails to uphold their fiduciary duty, beneficiaries have the right to pursue legal action against the trustee, which could result in trustee removal, damages assessed against the trustee personally, or a temporary restraining order. An experienced trust administration attorney can help trustees understand their legal responsibilities and how to uphold them.
Handling Beneficiary Distribution Requests
The trustee is responsible for ensuring that distributions of trust assets are provided to beneficiaries in a timely manner and in alignment with the terms of the trust agreement, settlor’s wishes, provisions of the Texas Trust Code, and common law. If a beneficiary requests a distribution, the trustee should first seek guidance from the instructions in the trust instrument.
For example, if a trust beneficiary requests an irregular distribution of cash assets from the trust, the trustee may need to consider the following factors:
- how the beneficiary intends to use that cash;
- whether the beneficiary has sufficient assets in the absence of the cash distribution;
- the effect that the cash distribution will have on trust income and principal growth; or
- whether the distribution will cause the beneficiary to receive an unfairly large share of the trust in comparison to the other present beneficiaries or the future beneficiaries.
The trustee’s decision should be guided by the terms of the trust agreement and circumstances of the trust, its assets, and its beneficiaries.
Addressing Trust Contests
A trustee is responsible for promoting the interests of the trust, the wishes of its creator, and the rights of its beneficiaries. If an interested party suspects that the trust is invalid, the trustee may have the responsibility to defend the trust against any legal challenges.
A trustee may be called by the court to offer their perspective on the validity of the trust, provide any supporting evidence around the trust’s creation or modification, and describe any actions they may have taken so far in the trust administration process. In any case, a trustee should consult an attorney as soon as possible if a trust contest or dispute arises for advice and guidance on how to proceed.
Can I Contest a Trust?
Yes, you can contest a trust if you are an “interested person” and have legal grounds to challenge the trust instrument’s validity.
Under Texas Property Code Section 111.004(7), an “interested person” means a trustee, beneficiary, or any other person who has an interest in or a claim against the trust or who is affected by the administration of the trust. In other words, you must have a financial interest in the trust. You must be an interested person to dispute or contest a trust in Texas.
You can’t contest a trust just because you disagree with its terms or think you should receive larger distributions. To successfully dispute a trust, you must identify and prove some legal defect that invalidates the trust in its entirety or partially.
Some of the most common grounds for contesting a trust include:
- Creator’s lack of mental capacity
- Fraud or forgery
- Undue influence
- Prior revocation
- Illegal purpose
If you are considering contesting a trust or you have been denied your rights as a beneficiary, you should discuss your situation with a reputable trust litigation lawyer as soon as you can. This type of litigation is complicated, and it can be challenging to succeed in these cases. To have your best shot at challenging a trust, you’ll need the help of a professional who can understand and apply the Texas trust laws.
Legal Remedies for Breaches of Trust
A breach of trust is any act that violates a trustee’s fiduciary duties to the trust or its beneficiaries. The following are key provisions of the Texas Trust Code relating to breaches of trust.
Overview of Texas Property Code Section 114.008
Texas Property Code Section 114.008 provides an outline for possible actions that a court can take to remedy a breach of trust by a trustee. An interested party may request a court to remedy a breach of trust that has occurred by taking a list of potential actions.
Potential remedies that may be ordered by a court under Texas Property Code Section 114.008 include:
- Compelling the trustee to perform the trustee’s duty or duties
- Enjoining the trustee from committing a breach of trust
- Compelling the trustee to redress a breach of trust, including compelling the trustee to pay money or to restore trust property
- Ordering a trustee to account
- Appointing a receiver to take possession of the trust property and administer the trust
- Suspending the trustee
- Removing the trustee as provided under Section 113.082
- Reducing or denying compensation to the trustee
- Voiding an act of the trustee, impose a lien or a constructive trust on trust property, or trace trust property of which the trustee wrongfully disposed and recover the property or the proceeds from the property (subject to other restrictions)
- Ordering any other appropriate relief
As an example, a co-trustee may be put in the position where the other trustee is failing to carry out their responsibilities. In this case, court intervention may be required to compel a co-trustee to perform their duties. Trustees may potentially be liable for a co-trustee’s actions if the trustee does not act with reasonable care.
Application of Texas Property Code Chapter 115
Texas Property Code Chapter 115 is another key section within the Texas Trust Code that may apply to matters involving a breach of trust. This portion of the Trust Code addresses jurisdiction, venue, and proceedings for issues involving trusts. In other words, the section clarifies which courts will oversee matters relating to trusts.
According to Section 115.01 of the Trust Code, Texas district courts and statutory probate courts share original jurisdiction over proceedings by or against a trustee or concerning trusts. Therefore, most matters related to a trust in Texas will be heard by the local district court where the matter arises. In large counties, trust matters are commonly heard by the statutory probate courts.
Procedural Aspects Under Texas Civil Practice and Remedies Code Section 37.005
Texas Civil Practice and Remedies Code Section 37.005 is not part of the Trust Code, but it provides interested parties with additional trust-related remedies. This statute allows an interested person in the administration of a trust to request that the court enter declaratory judgment, which can resolve competing positions on the interpretation of a trust provision, the duties that a trustee is subject to, or even the validity of the trust as a whole.
Interested parties may request a declaratory judgment in some of the following circumstances:
- To ascertain any class of trust beneficiaries,
- To direct trustees to act in a certain way or abstain from doing any particular act in their fiduciary capacity
- To determine any questions arising in the trust administration, including the interpretation of the trust agreement
- To determine the rights or legal relations of a trustee regarding fiduciary fees and the settling of accounts
A declaratory judgment can help resolve deadlock in the trust administration process and allow the administration to move forward.
Final Transfer of Trust Property to Beneficiaries
The terms of the trust agreement should provide for the conditions that will trigger termination of the trust. The Texas Property Code provides other methods to terminate the trust. When a termination condition occurs, the trustee must wind down the trust and distribute the remaining trust property according to the terms of the trust.
Procedures and Requirements
The final step of the trust administration process is to distribute the remaining trust assets to the identified beneficiaries, which may involve transferring cash or title to the final beneficiaries. This step should follow the terms of the trust instrument and may involve the identification of the final beneficiaries. For example, a trust may exist to provide distributions to a primary beneficiary during that beneficiary’s lifetime; and upon the primary beneficiary’s death, the trust is distributed to their descendants. In that circumstance, the trustee must carefully identify the primary beneficiary’s descendants. An improper distribution may cause a breach of trust.
The Texas Trust Code does not establish a set deadline for how long a trustee has to distribute trust assets, as every trust is different. This is called this winding-down period. When winding down, trustees are required to follow the trust terms and act with reasonable diligence based on the requirements of the particular trust they are administering.
For example, a trustee may have to wait to terminate the trust and distribute its assets to a beneficiary until the beneficiary reaches the age of 25. The trustee’s actions will depend on the instructions provided in the trust document. Every trust provides unique circumstances, so as long as the trustee can prove that they are acting with diligence and a clear respect for the intentions in the trust instrument, they will be well-positioned in court.
Implications for Trustee Ownership
During the trust administration process, the trustee is considered the legal owner of property under the trust, and it is their responsibility to protect that property. However, this does not mean that the trustee has free rein to decide how that property should be managed.
The trustee must follow the trust terms outlined in the settlor’s trust instrument. In some cases, the trustee may be granted discretion to make decisions around how to handle assets, such as whether to sell property or investments. Sections of the Texas Trust Code, such as the Uniform Prudent Investor Act, may further guide the trustee’s management of trust assets. In any event, the trustee’s decisions should be grounded in upholding the best interests of the estate, preserving the legacy of the grantor, and protecting the inheritance of the trust’s beneficiaries.
Navigate Texas Trust Laws With Help From RMO Lawyers
Texas trust laws are outlined under the Texas Trust Code, which is spread across multiple sections of the Texas Property Code. These laws describe the processes for properly executing, managing, and administering a trust. To fully understand Texas trust laws, you should consult a skilled trust administration attorney.
The trust administration attorneys at RMO have decades of experience in supporting Texas families in managing and administering trusts. If you experience a dispute at any point in the process, our trust litigation attorneys may be able to help you seek a resolution sooner through either litigation or an alternative resolution method like mediation.
Schedule a consultation with the attorneys at RMO LLP to discuss your case today and learn more about how we can support you.
Glossary
Grantor – An individual who transfers their assets to another, such as into a trust to be passed down to their children or future generations.
Settlor – Another word for trustor. A person who creates a trust to specify how they want their assets distributed upon their death and to which beneficiaries.
Trust – A legal agreement that grants a third party, or fiduciary, the authority to hold and manage assets for the beneficiaries of an estate.
Trustee – A person appointed by a trust’s creator to coordinate the administration of the trust, manage the trust’s assets and distribute the assets to the trust’s beneficiaries.