Elderly persons often sign new estate documents, including trusts and trust amendments. Certainly, all persons with competence and without improper influences have the right to leave their property to whoever, and however, they please. However, there are instances where individuals have signed documents where they do not have the mental capacity to do so or where they are unduly influenced. This can place the person or entity named in the newly signed document as the executor, trustee, or agent into a difficult position. Does the person or entity have the duty to investigate the document that names them in their fiduciary role?
The first issue is whether the named person or entity has a duty before he, she or it accepts the position. A named person or entity can formally accept the position by signing an acceptance document or being named in a court order or the named person can constructively accept the position. A named successor trustee that has not formally accepted the role of trustee can constructively accept the role of trustee by exercising power or performing duties under the trust, unless the named successor trustee was merely (1) acting to preserve trust property, and within a reasonable time after acting gives notice of the rejection of the trust to the settlor or to the beneficiaries if the settlor is deceased, or (2) inspecting or investigating trust property for any purpose. Tex. Prop. Code Ann. § 112.009(a).
Before formally or constructively accepting the role of successor trustee, a named successor trustee has no duty to take any actions on behalf of the trust. In re Est. of Webb, 266 S.W.3d 544, 549 (Tex. App.—Fort Worth 2008, pet. denied) (stating “A person designated in a trust instrument as a trustee incurs no liability with respect to the trust until he accepts the trust.”) (citing Tex. Prop. Code Ann. § 112.009(b)); Blieden v. Greenspan, 751 S.W.2d 858, 859 (Tex. 1988) (stating “a breach of the duty to administer the trust can only occur if the trustee has accepted or acquiesced in his appointment as trustee.”); Tex. Prop. Code Ann. § 112.009(b) (“A person named as trustee who does not accept the trust incurs no liability with respect to the trust.”); Restatement (Third) of Trusts § 35 (2003) (“A person who has not accepted the office cannot be compelled to act as trustee.”); Restatement (Third) of Trusts § 76 (2007) (“A person has no duty to administer the trust unless he or she accepts the trusteeship.”); Restatement (Second) of Trusts § 169 (1959) (“[T]he trustee is not under a duty to administer the trust unless he accepts” the appointment of trustee); McCarthy v. Poulsen, 173 Cal. App. 3d 1212, 1217 (Ct. App. 1985) (“the universal rule in this country [is] that a person may not be forced to be a trustee without his consent.”). So, a named trustee who has not formally or constructively accepted the position has no duty to investigate whether the trustor had the requisite capacity to execute the trust instrument before accepting the role.
There is little authority in Texas regarding whether a person who has accepted the role of trustee has a duty to investigate whether the trustor had capacity. From a general standpoint, a trustee has two potentially conflicting duties: (1) the duty to uphold and defend the trust instrument as modified by the settlor, and (2) the duty to not comply with a trust instrument that it knows, or should have known, is invalid. Tex. Prop. Code § 113.051 (a trustee has a duty to administer the trust in accordance with the terms of the trust instrument); Tex. Prop. Code Ann. § 113.002 (“a trustee may exercise any powers in addition to the powers authorized by this subchapter that are necessary or appropriate to carry out the purposes of the trust.”); Restatement (Third) of Trusts § 76 (2007) (a trustee has a duty to administer the trust in accordance with the terms of the trust instrument including terms that have been modified or amended by the settlor); 2 Tex. Prac. Guide Wills, Trusts and Est. Plan. § 5:376 (where there is a challenge to the terms of the trust, the trustee is under a duty to uphold and defend the terms of the trust); Restatement (Third) of Trusts § 72 (2007) (“A trustee has a duty not to comply with a provision of the trust that the trustee knows or should know is invalid because the provision is unlawful or contrary to public policy.”).
While there is no case law discussing this issue in regards to a trustee, there is a case discussing this issue in regards to an executor. See In re Estate of Robinson, 140 S.W.3d 801 (Tex. App.—Corpus Christi 2004, pet. dism’d). Because “[t]he fiduciary standards of an executor of an estate are the same as the fiduciary standards of a trustee,” this case law can be applied to trustees. McLendon v. McLendon, 862 S.W.2d 662, 670 (Tex. App.—Dallas 1993, writ denied). In Robinson, the court held that an executor did not have a duty to investigate or contest the validity of decedent’s will and concluded that the trial court abused its discretion in disqualifying the executor based on the alleged duty to investigate or contest the will. In re Estate of Robinson, 140 S.W.3d at 811.
In Robinson, Garland Sandhop (“Sandhop”) served as the co-executor of the estate of Velma Robinson (“Robinson”), and co-trustee of certain trusts executed by Robinson. Id. at 804. The trial court admitted Robinson’s 1995 will to probate. Id. Contestants filed a will contest alleging that Robinson lacked the requisite mental capacity when she signed the 1995 will and was unduly influenced. Id. Contestants offered a different will for probate—one that Robinson had signed in 1983 which named Sandhop as co-executor and named different beneficiaries than the 1995 will. Id. Sandhop did not join in contesting the 1995 will. Id. The 1995 will was set aside and the 1983 will was admitted to probate. Id. When Sandhop sought to be appointed co-executor of the estate under the 1983 will, a contestant filed a motion to disqualify Sandhop alleging, among other things, that he had disregarded his duty to investigate and contest the validity of the 1995 will. Id. at 811. Ultimately, the trial court disqualified Sandhop from serving as co-executor and denied his request for appointment. Id. at 805. On appeal, Sandhop argued that he did not investigate or contest the validity of the 1995 will because: (1) he did not think he had a duty to do so, and (2) he had no reason to do so. Id. at 811. The court addressed the issue, “[Contestant] provides no authority for her argument that [Sandhop], who was named co-executor in Robinson’s 1983 will, had a duty to investigate or contest the 1995 will, and we find none.” Id. The court concluded that the trial court had abused its discretion in disqualifying Sandhop as co-executor based on the alleged duty to investigate or contest the will. Id. Using the court’s rationale from Robinson, it follows that a trustee or executor would not have a general duty to investigate the validity of a will or trust affecting the trust or estate or to bring claims to have the document set aside.
Even if a trustee could be charged with a duty to investigate the validity of a trust document, that duty would only spring forward when the trustee had some knowledge of facts that would trigger the duty and would be judged against the trustee’s discretionary standard. In determining whether a trustee should have known that a trust instrument was invalid, or should have investigated the instrument’s validity, “among the relevant factors for a court to consider are the particular trustee’s experience, familiarity with trust law and practice, and representations concerning competence to serve as a trustee.” Restatement (Third) of Trusts § 72, cmt. c (2007). Trustees owe beneficiaries “an unwavering duty of good faith, fair dealing, loyalty, and fidelity.” In re Estate of Boylan, No. 02-14-00170-CV, 2015 Tex. App. LEXIS 1427, at *10 (Tex. App.—Fort Worth Feb. 12, 2015, no pet.). This duty requires trustees to “exercise the judgment and care that persons of ordinary prudence, discretion, and intelligence exercise in the management of their own affairs.” Id. Good faith is no defense when the trustee or executor has not exercised diligence or has acted unreasonably. See, e.g., id. at *11–12; In re Estate of Bryant, No. 07-18-00429-CV, 2020 Tex. App. LEXIS 2131, at *16–17 (Tex. App.—Amarillo March 11, 2020, no pet.).
Courts scrutinize a fiduciary’s conduct in a given situation for reasonableness and diligence. See Boylan, 2015 Tex. App. LEXIS 1427, at *10–11 (analyzing reasonableness and good faith of executor’s interpretation of a will); American Nat’l Bank v. Biggs, 274 S.W.2d 209, 220–21 (Tex. App.—Beaumont 1954, no writ) (analyzing facts supporting trustees’ reasonableness and good faith when administering trust); In re XTO Energy Inc., 471 S.W.3d 126, 131–32 (Tex. App.—Dallas 2015, no pet.) (analyzing trustee’s conduct and determining that trustee’s understanding of certain conveyances was not wrongful, fraudulent, or an abuse of discretion). The Third Restatement of Trusts states:
The duty of care requires the trustee to exercise reasonable effort and diligence… in making and implementing administrative decisions, and in monitoring the trust situation, with due attention to the trust’s objectives and the interests of the beneficiaries. This will ordinarily involve investigation appropriate to the particular action under consideration, and also obtaining relevant information about such matters as the contents and resources of the trust estate and the circumstances and requirements of the trust and its beneficiaries.
…
In addition to the duty to use care and skill, the trustee must exercise the caution of a prudent person managing similar assets for similar purposes. The duty to act with caution does not, of course, mean the avoidance of all risk, but refers to a degree of caution that is reasonably appropriate or suitable to the particular trust, its purposes and circumstances, the beneficiaries’ interests, and the trustee’s plan for administering the trust and achieving its objectives.
Restatement (Third) Of Trusts § 77 cmt b.
Further, a court may not interfere with the exercise of a trustee’s discretionary powers and substitute its discretion for that of the trustee except in cases of fraud, misconduct, or a clear abuse of discretion. In re XTO Energy Inc., 471 S.W.3d at 131–32 (citing Di Portanova v. Monroe, 229 S.W.3d 324, 330 (Tex. App.—Houston [1st Dist.] 2006, pet. denied). A trustee’s power is discretionary if a trustee may decide whether or not to exercise it. Id. (citing Caldwell v. River Oaks Trust Co., No. 01–94–00273–CV, 1996 WL 227520, at *12 (Tex. App.—Houston [1st Dist.] May 2, 1996, writ denied) (not designated for publication)). When a trustee is granted the authority to commence, settle, arbitrate or defend litigation with respect to the trust, the trustee is authorized, but not required, to pursue litigation on the trust’s behalf. Id. (citing DeRouen v. Bryan, No. 03–11–00421–CV, 2012 WL 4872738 at *4 (Tex. App.—Austin Oct. 12, 2012, no pet.) (mem. op.), and quoting Restatement (Second) of Trusts § 177 cmt c). “It is not the duty of the trustee to bring an action to enforce a claim which is a part of the trust property if it is reasonable not to bring such an action, owing to the probable expense involved in the action or to the probability that the action would be unsuccessful or that if successful the claim would be uncollectible owing to the insolvency of the defendant or otherwise.” Restatement (Second) of Trusts § 177 cmt c. Based on the foregoing, a trustee likely has no duty to investigate whether the trustor had the requisite capacity to execute the trust instrument, unless refusing to do so would be unreasonable or an abuse of discretion.
Finally, a trustee has a duty to disclose “all material facts known to [it] that might affect [the beneficiaries’] rights.” Montgomery v. Kennedy, 669 S.W.2d 309, 313 (Tex.1984). A trustee may owe a duty to provide the beneficiaries with any information known to the trustee that indicated the trust instrument was invalid. If a trustee fails to do so, it may be in breach of a duty to disclose.
The issue of whether a trustee has a duty to investigate the validity of the document naming it a trustee, is a complicated one, and an issue for which there is little guidance in Texas. The only authority in Texas would seem to imply that there is no duty to investigate. Even if a duty could arise, a trustee’s conduct would likely be judged against a discretionary standard.