In In re Estate of Boylan, a father died in 2006 and named his son Cooper as executor. No. 02-14-00170-CV, 2015 Tex. App. LEXIS 1427 (Tex. App.—Fort Worth February 12, 2015, no pet. hist.). His other son Lonnie opposed an application to probate the father’s will due to alleged testamentary incapacity. The will had a no-contest clause. After some discovery, Lonnie dismissed his opposition. Cooper believed that Lonnie’s action violated the no-contest clause and refused to distribute any estate property to him. After a bench trial, the court found that Lonnie did not violate the clause, but also held that Cooper did not violate his fiduciary duty by not distributing the estate at that time. Both parties appealed.
The court of appeals affirmed the finding that the no-contest clause did not apply due to the good-faith exception in Texas Estates Code section 254.005 – clauses will not be enforced where just cause existed for bringing the action and the action was brought in and maintained in good faith. However, the court reversed on breach of fiduciary duty. The court held that an executor owes the same duties as a trustee. The court held that a trustee owes a duty to exercise the judgment and care that persons of ordinary prudence, discretion, and intelligence exercise in the management of their own affairs.
Further, the court held that a trustee commits a breach of trust not only where he violates a duty in bad faith or negligently but also where he violates a duty because of a mistake. The court held that a breach based on a mistake may be found when a trustee interprets trust provisions as permitting certain action or inaction that a court later determines to be improper. Citing the Restatement, the court held that “A breach of trust may be found even though the trustee acted reasonably and in good faith, perhaps even in reliance on advice of counsel. Trustees can ordinarily be protected from this risk by obtaining instructions concerning uncertainties of law or interpretation.” Id. (citing Restatement (Third) of Trusts § 93 cmt. c (2012)).
The court held that “Cooper’s mistake was one of law, and the trial court correctly concluded that Cooper’s failure to give Lonnie his inheritance was not excused by the language of the will. The defense of good faith was not available to him.” The court noted that Cooper did not seek judicial guidance or seek advice of counsel. See Restatement (Third) of Trusts § 77 cmt. b(2), c (“Taking the advice of legal counsel on such matters evidences prudence on the part of the trustee. . . . Lack of awareness or understanding of the terms of the trust normally will not excuse a trustee from liability.”). Cooper was personally liable for the breach as he benefited from it.
INTERESTING NOTE: This case states that a trustee is protected from liability if he seeks instructions on legal issues. But the opinion means that a trustee is protected by seeking instructions from courts – not just hiring attorneys. Rather, a trustee may use the advice of counsel solely as a “factor” in determining whether the trustee acted reasonably. Moreover, trustees should be aware that raising an advice of counsel defense may well waive the attorney/client privilege on those issues made the basis of the defense.