What Is Texas Property Code Chapter 112? | RMO Lawyers
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What Is Texas Property Code Chapter 112?

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Texas Property Code Chapter 112 is part of the Texas Trust Code. A trust is a legal arrangement where one party, called the “trustee,” holds legal title to certain property and manages it for the benefit of other parties, called the “beneficiaries.”

Chapter 112 of the Texas Trust Code governs the creation, validity, modification, and termination of trusts under Texas law. It provides essential information on creating, changing, or ending a trust.

How Do I Transfer Property from a Trust to a Beneficiary?

Trustees are responsible for transferring property from the trust to its beneficiaries by making distributions according to the trust document’s terms. A trustee, whether original, additional, or successor trustee, appointed by instrument or by the Court, typically possesses, manages, and control assets held in trust for beneficiaries. How and when distributions must be transferred will vary depending on the language of the trust.   A “settlor” is defined as “a person who contributes property to a trustee of a trust” and is also known as the grantor or trustor.

Some trusts require trustees to make certain distributions at certain times. For instance, trusts are often used as an estate planning tool to transfer assets to the grantor’s heirs outside of the probate process or to reduce estate tax. In a situation like this, the trustee may be required to distribute all of the trust property to the beneficiaries upon the grantor’s death.

Trusts can also be used to distribute assets to the grantor’s beneficiaries over time. Sometimes, the trust instrument will outline rules for when distributions must be made, such as in certain intervals or upon a beneficiary reaching a particular age or life event. However, trusts can also grant the trustee discretion to decide when to make distributions and how much or what specific property to transfer.

Does a Trustee Own the Property?

Technically, yes. A trustee holds legal title to trust property that has not yet been distributed to beneficiaries. 

However, as fiduciaries, trustees have a legal duty to manage trust assets for the benefit of the beneficiaries and not for their own interests. So even though they are the titleholders of the trust assets, they do not have the typical rights an individual has when they own property. 

What If a Beneficiary Contests the Trust?

Under Texas law, a beneficiary or another interested party can dispute a trust under certain circumstances. If a beneficiary contests a trust, they will have the opportunity to offer evidence that the trust instrument is legally invalid in an attempt to have it thrown out. 

However, a beneficiary can’t just contest a trust because they don’t like its terms or how much they are entitled to receive under it. To succeed in a trust dispute, a beneficiary must be able to prove that there is some type of legal defect with the trust. 

Here are some of the most common reasons that Texas trusts can be challenged:

  • The grantor lacked the testamentary capacity to make a trust
  • The trust instrument or the grantor’s signature was forged
  • A third party caused the grantor to make the trust through undue influence or coercion
  • A third party fraudulently induced the grantor to make the trust, for instance, by telling them they were signing a different document

Texas Civil Practice and Remedies Code Section 37.005

Texas Civil Practice and Remedies Code Section 37.005 allows a person who is interested in the administration of a trust to request that a court make a “declaratory judgment.” A declaratory judgment is a legally-binding judgment issued by a court to resolve issues of legal uncertainty.

Under this statute, interested parties may petition for a declaratory judgment for any of the following reasons: 

  • To ascertain any class of creditors, devisees, legatees, heirs, next of kin, or others
  • To direct the executors, administrators, or trustees to do or abstain from doing any particular act in their fiduciary capacity
  • To determine any question arising in the administration of the trust or estate, including questions of construction of wills and other writings
  • To determine rights or legal relations of an independent executor or independent administrator regarding fiduciary fees and the settling of accounts.

Remedies for Breach of Trust Under Texas Property Code Section 114.008

An interested party may request a court to remedy a breach of trust that has occurred or might occur under Texas Property Code Section 114.008 by:

  • 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 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

For example, a co-trustee may be put in the position to require Court intervention to compel a co-trustee to perform its duties.  Trustees may potentially be liable for a co-trustee’s actions if the trustee does not act with reasonable care. 

Texas Property Code Ch. 115

Texas Property Code Chapter 115 is another part of the Texas Trust Code. It covers jurisdiction, venue, and proceedings for issues involving trusts.

For instance, Section 115.01 states that “a district court has original and exclusive jurisdiction over all proceedings by or against a trustee and all proceedings concerning trusts” except for jurisdiction conferred on statutory probate courts. This means that, in Texas, generally, any legal action involving a trust must be filed in the local district court. However, statutory probate courts have jurisdiction over testamentary trust (trusts arising under a will) and have the power to transfer a trust proceeding if it is related to a probate or guardianship proceeding.

Trust litigation can be complex, and it requires a deep understanding of the Texas Property Code and case precedent. If you are involved in a trust dispute as a beneficiary or a trustee, you should discuss the conflict as soon as possible with an experienced trust litigation lawyer. 

Have questions? We’re happy to discuss.
Call (424) 320-9444 or email hello@rmolawyers.com

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About RMO, LLP

RMO LLP serves clients in Los Angeles, Santa Monica, Ventura, Santa Barbara, San Francisco, Orange County, San Diego, Kansas City, Miami, and communities throughout California, Florida, Missouri, and Kansas. Our founder, Scott E. Rahn, has been named “Top 100 – Trust and Estate Litigation” by SuperLawyers, Trusts and Estates Litigator of the Year, and Best Lawyers in America for Litigation – Trusts and Estates. For a free consultation, call (424) 320-9444 or visit: https://rmolawyers.com.

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