In In the Guardianship of Hollis, a special needs trust’s trustee used $67,000 to build a pool on the beneficiary’s parent’s property. No. 14-13-00659-CV, 2014 Tex. App. LEXIS 12038 (Tex. App.—Houston [14th Dist.] November 4, 2014, no pet.). The trial court ordered show cause hearings to determine the appropriateness of the expense. The trustee then spent $23,000 in attorney’s fees to defend itself in the show cause hearings. The trial court removed the trustee because it sought reimbursement from trust funds for defending is actions. The trustee appealed. The court of appeals held that one ground for removal is being guilty of gross misconduct or mismanagement, which means more than ordinary misconduct and implies serious and willful wrongdoing. The appellate court reversed the removal, stating that the trustee had the right to reimburse itself for reasonable costs and expenses in connection with administering or protecting the trust. Court cited to Grey v. First Nat’l Bank, which held that a trustee may charge his trust for attorney’s fees that the trustee, acting reasonably and in good faith, incurs in defending a charge of breach of trust. 393 F.2d 371 (5th Cir. 1968).
INTERESTING NOTE: A trustee has a right to retain counsel to assist with the administration of a trust. It is not entirely clear that defending breach of fiduciary duty claims is truly a matter of trust administration. Moreover, the Texas Property Code allows a court to award any party attorney’s fees arising from a trust dispute. But is not clear that a trustee can use self-help to pay those fees from the trust, in the interim, before the court awards them. This is an unclear area of the law regarding whether a trustee has the right to sua sponte pay its attorneys’ fees from the trust in the interim during the course of litigation with a beneficiary.