CHAPTER 114. LIABILITIES, RIGHTS, AND REMEDIES OF TRUSTEES, BENEFICIARIES, AND THIRD PERSONS - Texas Statutes

PROPERTY CODE

TITLE 9. TRUSTS

SUBTITLE B. TEXAS TRUST CODE: CREATION, OPERATION, AND

TERMINATION OF TRUSTS

CHAPTER 114. LIABILITIES, RIGHTS, AND REMEDIES OF TRUSTEES,

BENEFICIARIES, AND THIRD PERSONS

SUBCHAPTER A. LIABILITY OF TRUSTEE

Sec. 114.001. LIABILITY OF TRUSTEE TO BENEFICIARY. (a) The

trustee is accountable to a beneficiary for the trust property

and for any profit made by the trustee through or arising out of

the administration of the trust, even though the profit does not

result from a breach of trust; provided, however, that the

trustee is not required to return to a beneficiary the trustee's

compensation as provided by this subtitle, by the terms of the

trust instrument, or by a writing delivered to the trustee and

signed by all beneficiaries of the trust who have full legal

capacity.

(b) The trustee is not liable to the beneficiary for a loss or

depreciation in value of the trust property or for a failure to

make a profit that does not result from a failure to perform the

duties set forth in this subtitle or from any other breach of

trust.

(c) A trustee who commits a breach of trust is chargeable with

any damages resulting from such breach of trust, including but

not limited to:

(1) any loss or depreciation in value of the trust estate as a

result of the breach of trust;

(2) any profit made by the trustee through the breach of trust;

or

(3) any profit that would have accrued to the trust estate if

there had been no breach of trust.

(d) The trustee is not liable to the beneficiary for a loss or

depreciation in value of the trust property or for acting or

failing to act under Section 113.025 or under any other provision

of this subtitle if the action or failure to act relates to

compliance with an environmental law and if there is no gross

negligence or bad faith on the part of the trustee. The provision

of any instrument governing trustee liability does not increase

the liability of the trustee as provided by this section unless

the settlor expressly makes reference to this subsection.

(e) The trustee has the same protection from liability provided

for a fiduciary under 42 U.S.C. Section 9607(n).

Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2,

eff. Jan. 1, 1984. Amended by Acts 1984, 68th Leg., 2nd C.S., ch.

18, Sec. 13, eff. Oct. 2, 1984; Acts 1989, 71st Leg., ch. 341,

Sec. 2, eff. Aug. 28, 1989; Acts 1993, 73rd Leg., ch. 846, Sec.

30, eff. Sept. 1, 1993; Acts 1997, 75th Leg., ch. 263, Sec. 1,

eff. Sept. 1, 1997; Acts 2003, 78th Leg., ch. 1103, Sec. 8, eff.

Jan. 1, 2004.

Sec. 114.002. LIABILITY OF SUCCESSOR TRUSTEE FOR BREACH OF TRUST

BY PREDECESSOR. A successor trustee is liable for a breach of

trust of a predecessor only if he knows or should know of a

situation constituting a breach of trust committed by the

predecessor and the successor trustee:

(1) improperly permits it to continue;

(2) fails to make a reasonable effort to compel the predecessor

trustee to deliver the trust property; or

(3) fails to make a reasonable effort to compel a redress of a

breach of trust committed by the predecessor trustee.

Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec.

2, eff. Jan. 1, 1984.

Sec. 114.003. POWERS TO DIRECT. (a) The terms of a trust may

give a trustee or other person a power to direct the modification

or termination of the trust.

(b) If the terms of a trust give a person the power to direct

certain actions of the trustee, the trustee shall act in

accordance with the person's direction unless:

(1) the direction is manifestly contrary to the terms of the

trust; or

(2) the trustee knows the direction would constitute a serious

breach of a fiduciary duty that the person holding the power to

direct owes to the beneficiaries of the trust.

(c) A person, other than a beneficiary, who holds a power to

direct is presumptively a fiduciary required to act in good faith

with regard to the purposes of the trust and the interests of the

beneficiaries. The holder of a power to direct is liable for any

loss that results from a breach of the person's fiduciary duty.

Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec.

2, eff. Jan. 1, 1984.

Amended by:

Acts 2005, 79th Leg., Ch.

148, Sec. 19, eff. January 1, 2006.

Sec. 114.004. ACTIONS TAKEN PRIOR TO KNOWLEDGE OR NOTICE OF

FACTS. A trustee is not liable for a mistake of fact made before

the trustee has actual knowledge or receives written notice of

the happening of any event that determines or affects the

distribution of the income or principal of the trust, including

marriage, divorce, attainment of a certain age, performance of

education requirements, or death.

Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec.

2, eff. Jan. 1, 1984.

Sec. 114.005. RELEASE OF LIABILITY BY BENEFICIARY. (a) A

beneficiary who has full legal capacity and is acting on full

information may relieve a trustee from any duty, responsibility,

restriction, or liability as to the beneficiary that would

otherwise be imposed on the trustee by this subtitle, including

liability for past violations.

(b) The release must be in writing and delivered to the trustee.

Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec.

2, eff. Jan. 1, 1984.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

451, Sec. 8, eff. September 1, 2007.

Sec. 114.006. LIABILITY OF COTRUSTEES FOR ACTS OF OTHER

COTRUSTEES. (a) A trustee who does not join in an action of a

cotrustee is not liable for the cotrustee's action, unless the

trustee does not exercise reasonable care as provided by

Subsection (b).

(b) Each trustee shall exercise reasonable care to:

(1) prevent a cotrustee from committing a serious breach of

trust; and

(2) compel a cotrustee to redress a serious breach of trust.

(c) Subject to Subsection (b), a dissenting trustee who joins in

an action at the direction of the majority of the trustees and

who has notified any cotrustee of the dissent in writing at or

before the time of the action is not liable for the action.

Amended by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec.

2, eff. Jan. 1, 1984.

Amended by:

Acts 2005, 79th Leg., Ch.

148, Sec. 20, eff. January 1, 2006.

Sec. 114.007. EXCULPATION OF TRUSTEE. (a) A term of a trust

relieving a trustee of liability for breach of trust is

unenforceable to the extent that the term relieves a trustee of

liability for:

(1) a breach of trust committed:

(A) in bad faith;

(B) intentionally; or

(C) with reckless indifference to the interest of a beneficiary;

or

(2) any profit derived by the trustee from a breach of trust.

(b) A term in a trust instrument relieving the trustee of

liability for a breach of trust is ineffective to the extent that

the term is inserted in the trust instrument as a result of an

abuse by the trustee of a fiduciary duty to or confidential

relationship with the settlor.

(c) This section applies only to a term of a trust that may

otherwise relieve a trustee from liability for a breach of trust.

Except as provided in Section 111.0035, this section does not

prohibit the settlor, by the terms of the trust, from expressly:

(1) relieving the trustee from a duty or restriction imposed by

this subtitle or by common law; or

(2) directing or permitting the trustee to do or not to do an

action that would otherwise violate a duty or restriction imposed

by this subtitle or by common law.

Added by Acts 2005, 79th Leg., Ch.

148, Sec. 21, eff. January 1, 2006.

Sec. 114.008. REMEDIES FOR BREACH OF TRUST. (a) To remedy a

breach of trust that has occurred or might occur, the court may:

(1) compel the trustee to perform the trustee's duty or duties;

(2) enjoin the trustee from committing a breach of trust;

(3) compel the trustee to redress a breach of trust, including

compelling the trustee to pay money or to restore property;

(4) order a trustee to account;

(5) appoint a receiver to take possession of the trust property

and administer the trust;

(6) suspend the trustee;

(7) remove the trustee as provided under Section 113.082;

(8) reduce or deny compensation to the trustee;

(9) subject to Subsection (b), void 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; or

(10) order any other appropriate relief.

(b) Notwithstanding Subsection (a)(9), a person other than a

beneficiary who, without knowledge that a trustee is exceeding or

improperly exercising the trustee's powers, in good faith assists

a trustee or in good faith and for value deals with a trustee is

protected from liability as if the trustee had or properly

exercised the power exercised by the trustee.

Added by Acts 2005, 79th Leg., Ch.

148, Sec. 21, eff. January 1, 2006.

SUBCHAPTER B. LIABILITY OF BENEFICIARY

Sec. 114.031. LIABILITY OF BENEFICIARY TO TRUSTEE. (a) A

beneficiary is liable for loss to the trust if the beneficiary

has:

(1) misappropriated or otherwise wrongfully dealt with the trust

property;

(2) expressly consented to, participated in, or agreed with the

trustee to be liable for a breach of trust committed by the

trustee;

(3) failed to repay an advance or loan of trust funds;

(4) failed to repay a distribution or disbursement from the

trust in excess of that to which the beneficiary is entitled; or

(5) breached a contract to pay money or deliver property to the

trustee to be held by the trustee as part of the trust.

(b) Unless the terms of the trust provide otherwise, the trustee

is authorized to offset a liability of the beneficiary to the

trust estate against the beneficiary's interest in the trust

estate, regardless of a spendthrift provision in the trust.

Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2,

eff. Jan. 1, 1984.

Sec. 114.032. LIABILITY FOR WRITTEN AGREEMENTS. (a) A written

agreement between a trustee and a beneficiary, including a

release, consent, or other agreement relating to a trustee's

duty, power, responsibility, restriction, or liability, is final

and binding on the beneficiary and any person represented by a

beneficiary as provided by this section if:

(1) the instrument is signed by the beneficiary;

(2) the beneficiary has legal capacity to sign the instrument;

and

(3) the beneficiary has full knowledge of the circumstances

surrounding the agreement.

(b) A written agreement signed by a beneficiary who has the

power to revoke the trust or the power to appoint, including the

power to appoint through a power of amendment, the income or

principal of the trust to or for the benefit of the beneficiary,

the beneficiary's creditors, the beneficiary's estate, or the

creditors of the beneficiary's estate is final and binding on any

person who takes under the power of appointment or who takes in

default if the power of appointment is not executed.

(c) A written instrument is final and binding on a beneficiary

who is a minor if:

(1) the minor's parent, including a parent who is also a trust

beneficiary, signs the instrument on behalf of the minor;

(2) no conflict of interest exists; and

(3) no guardian, including a guardian ad litem, has been

appointed to act on behalf of the minor.

(d) A written instrument is final and binding on an unborn or

unascertained beneficiary if a beneficiary who has an interest

substantially identical to the interest of the unborn or

unascertained beneficiary signs the instrument. For purposes of

this subsection, an unborn or unascertained beneficiary has a

substantially identical interest only with a trust beneficiary

from whom the unborn or unascertained beneficiary descends.

(e) This section does not apply to a written instrument that

modifies or terminates a trust in whole or in part unless the

instrument is otherwise permitted by law.

Added by Acts 1999, 76th Leg., ch. 794, Sec. 3, eff. Sept. 1,

1999.

SUBCHAPTER C. RIGHTS OF TRUSTEE

Sec. 114.061. COMPENSATION. (a) Unless the terms of the trust

provide otherwise and except as provided in Subsection (b) of

this section, the trustee is entitled to reasonable compensation

from the trust for acting as trustee.

(b) If the trustee commits a breach of trust, the court may in

its discretion deny him all or part of his compensation.

Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2,

eff. Jan. 1, 1984.

Sec. 114.062. EXONERATION OR REIMBURSEMENT FOR TORT. (a)

Except as provided in Subsection (b) of this section, a trustee

who incurs personal liability for a tort committed in the

administration of the trust is entitled to exoneration from the

trust property if the trustee has not paid the claim or to

reimbursement from the trust property if the trustee has paid the

claim, if:

(1) the trustee was properly engaged in a business activity for

the trust and the tort is a common incident of that kind of

activity;

(2) the trustee was properly engaged in a business activity for

the trust and neither the trustee nor an officer or employee of

the trustee is guilty of actionable negligence or intentional

misconduct in incurring the liability; or

(3) the tort increased the value of the trust property.

(b) A trustee who is entitled to exoneration or reimbursement

under Subdivision (3) of Subsection (a) is entitled to

exoneration or reimbursement only to the extent of the increase

in the value of the trust property.

Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2,

eff. Jan. 1, 1984.

Sec. 114.063. GENERAL RIGHT TO REIMBURSEMENT. (a) A trustee

may discharge or reimburse himself from trust principal or income

or partly from both for:

(1) advances made for the convenience, benefit, or protection of

the trust or its property;

(2) expenses incurred while administering or protecting the

trust or because of the trustee's holding or owning any of the

trust property; and

(3) expenses incurred for any action taken under Section

113.025.

(b) The trustee has a lien against trust property to secure

reimbursement under Subsection (a).

(c) A potential trustee is entitled to reimbursement from trust

principal or income or partly from both for reasonable expenses

incurred for any action taken under Section 113.025(a) if:

(1) a court orders reimbursement or the potential trustee has

entered into a written agreement providing for reimbursement with

the personal representative of the estate, the trustee of the

trust, the settlor, the settlor's attorney-in-fact, the settlor's

personal representative, or the person or entity designated in

the trust instrument or will to appoint a trustee; and

(2) the potential trustee has been appointed trustee under the

terms of the trust instrument or will or has received a written

request to accept the trust from the settlor, the settlor's

attorney-in-fact, the settlor's personal representative, or the

person or entity designated in the trust instrument or will to

appoint a trustee.

Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2,

eff. Jan. 1, 1984. Amended by Acts 1993, 73rd Leg., ch. 846, Sec.

31, eff. Sept. 1, 1993.

Sec. 114.064. COSTS. (a) In any proceeding under this code

the court may make such award of costs and reasonable and

necessary attorney's fees as may seem equitable and just.

Added by Acts 1985, 69th Leg., ch. 149, Sec. 4, eff. May 24,

1985.

SUBCHAPTER D. THIRD PERSONS

Sec. 114.081. PROTECTION OF PERSON DEALING WITH TRUSTEE. (a) A

person who deals with a trustee in good faith and for fair value

actually received by the trust is not liable to the trustee or

the beneficiaries of the trust if the trustee has exceeded the

trustee's authority in dealing with the person.

(b) A person other than a beneficiary is not required to inquire

into the extent of the trustee's powers or the propriety of the

exercise of those powers if the person:

(1) deals with the trustee in good faith; and

(2) obtains:

(A) a certification of trust described by Section 114.086; or

(B) a copy of the trust instrument.

(c) A person who in good faith delivers money or other assets to

a trustee is not required to ensure the proper application of the

money or other assets.

(d) A person other than a beneficiary who in good faith assists

a former trustee, or who in good faith and for value deals with a

former trustee, without knowledge that the trusteeship has

terminated, is protected from liability as if the former trustee

were still a trustee.

(e) Comparable protective provisions of other laws relating to

commercial transactions or transfer of securities by fiduciaries

prevail over the protection provided by this section.

Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2,

eff. Jan. 1, 1984.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

451, Sec. 9, eff. September 1, 2007.

Sec. 114.082. CONVEYANCE BY TRUSTEE. If property is conveyed or

transferred to a trustee in trust but the conveyance or transfer

does not identify the trust or disclose the names of the

beneficiaries, the trustee may convey, transfer, or encumber the

title of the property without subsequent question by a person who

claims to be a beneficiary under the trust or who claims by,

through, or under an undisclosed beneficiary.

Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2,

eff. Jan. 1, 1984. Amended by Acts 1987, 70th Leg., ch. 683, Sec.

4, eff. Aug. 31, 1987.

Sec. 114.0821. LIABILITY OF TRUST PROPERTY. Although trust

property is held by the trustee without identifying the trust or

its beneficiaries, the trust property is not liable to satisfy

the personal obligations of the trustee.

Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2,

eff. Jan. 1, 1984. Renumbered from Sec. 114.082(b) by Acts 1987,

70th Leg., ch. 683, Sec. 4, eff. Aug. 31, 1987.

Sec. 114.083. RIGHTS AND LIABILITIES FOR COMMITTING TORTS. (a)

A personal liability of a trustee or a predecessor trustee for a

tort committed in the course of the administration of the trust

may be collected from the trust property if the trustee is sued

in a representative capacity and the court finds that:

(1) the trustee was properly engaged in a business activity for

the trust and the tort is a common incident of that kind of

activity;

(2) the trustee was properly engaged in a business activity for

the trust and neither the trustee nor an officer or employee of

the trustee is guilty of actionable negligence or intentional

misconduct in incurring the liability; or

(3) the tort increased the value of the trust property.

(b) A trust that is liable for the trustee's tort under

Subdivision (3) of Subsection (a) is liable only to the extent of

the permanent increase in value of the trust property.

(c) A plaintiff in an action against the trustee as the

representative of the trust does not have to prove that the

trustee could have been reimbursed by the trust if the trustee

had paid the claim.

(d) Subject to the rights of exoneration or reimbursement under

Section 114.062, the trustee is personally liable for a tort

committed by the trustee or by the trustee's agents or employees

in the course of their employment.

Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2,

eff. Jan. 1, 1984.

Sec. 114.084. CONTRACTS OF TRUSTEE. (a) If a trustee or a

predecessor trustee makes a contract that is within his power as

trustee and a cause of action arises on the contract, the

plaintiff may sue the trustee in his representative capacity, and

a judgment rendered in favor of the plaintiff is collectible by

execution against the trust property. The plaintiff may sue the

trustee individually if the trustee made the contract and the

contract does not exclude the trustee's personal liability.

(b) The addition of "trustee" or "as trustee" after the

signature of a trustee who is party to a contract is prima facie

evidence of an intent to exclude the trustee from personal

liability.

(c) In an action on a contract against a trustee in the

trustee's representative capacity the plaintiff does not have to

prove that the trustee could have been reimbursed by the trust if

the trustee had paid the claim.

Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2,

eff. Jan. 1, 1984.

Sec. 114.085. PARTNERSHIPS. (a) To the extent allowed by law,

a trustee who takes the place of a deceased partner in a general

partnership in accordance with the articles of partnership is

liable to third persons only to the extent of the:

(1) deceased partner's capital in the partnership; and

(2) trust funds held by the trustee.

(b) A trustee who contracts to enter a general partnership in

its capacity as trustee shall limit, to the extent allowed by

law, the trust's liability to:

(1) the trust assets contributed to the partnership; and

(2) other assets of the trust under the management of the

contracting trustee.

(c) If another provision of this subtitle conflicts with this

section, this section controls. This section does not exonerate a

trustee from liability for negligence.

Added by Acts 1983, 68th Leg., p. 3332, ch. 567, art. 2, Sec. 2,

eff. Jan. 1, 1984.

Sec. 114.086. CERTIFICATION OF TRUST. (a) As an alternative to

providing a copy of the trust instrument to a person other than a

beneficiary, the trustee may provide to the person a

certification of trust containing the following information:

(1) a statement that the trust exists and the date the trust

instrument was executed;

(2) the identity of the settlor;

(3) the identity and mailing address of the currently acting

trustee;

(4) one or more powers of the trustee or a statement that the

trust powers include at least all the powers granted a trustee by

Subchapter A, Chapter 113;

(5) the revocability or irrevocability of the trust and the

identity of any person holding a power to revoke the trust;

(6) the authority of cotrustees to sign or otherwise

authenticate and whether all or less than all of the cotrustees

are required in order to exercise powers of the trustee; and

(7) the manner in which title to trust property should be taken.

(b) A certification of trust may be signed or otherwise

authenticated by any trustee.

(c) A certification of trust must state that the trust has not

been revoked, modified, or amended in any manner that would cause

the representations contained in the certification to be

incorrect.

(d) A certification of trust:

(1) is not required to contain the dispositive terms of a trust;

and

(2) may contain information in addition to the information

required by Subsection (a).

(e) A recipient of a certification of trust may require the

trustee to furnish copies of the excerpts from the original trust

instrument and later amendments to the trust instrument that

designate the trustee and confer on the trustee the power to act

in the pending transaction.

(f) A person who acts in reliance on a certification of trust

without knowledge that the representations contained in the

certification are incorrect is not liable to any person for the

action and may assume without inquiry the existence of the facts

contained in the certification.

(g) If a person has actual knowledge that the trustee is acting

outside the scope of the trust, and the actual knowledge was

acquired by the person before the person entered into the

transaction with the trustee or made a binding commitment to

enter into the transaction, the transaction is not enforceable

against the trust.

(h) A person who in good faith enters into a transaction relying

on a certification of trust may enforce the transaction against

the trust property as if the representations contained in the

certification are correct. This section does not create an

implication that a person is liable for acting in reliance on a

certification of trust that fails to contain all the information

required by Subsection (a). A person's failure to demand a

certification of trust does not:

(1) affect the protection provided to the person by Section

114.081; or

(2) create an inference as to whether the person has acted in

good faith.

(i) A person making a demand for the trust instrument in

addition to a certification of trust or excerpts as described by

Subsection (e) is liable for damages if the court determines that

the person did not act in good faith in making the demand.

(j) This section does not limit the right of a person to obtain

a copy of the trust instrument in a judicial proceeding

concerning the trust.

(k) This section does not limit the rights of a beneficiary of

the trust against the trustee.

Added by Acts 2007, 80th Leg., R.S., Ch.

451, Sec. 10, eff. September 1, 2007.