pjc-family-2024-lib

E XPRESS T RUSTS

PJC 235.11

PJC 235.11 Breach of Duty by Trustee—Self-Dealing—Duties Modified but Not Eliminated by Trust QUESTION ______ Did TRUSTEE comply with his duties as trustee in connection with the pur chase of trust property ? TRUSTEE complied with his duties if his purchase of the trust property was for fair and adequate consideration and he acted in good faith and in accor dance with the purposes of the trust. “Good faith” means an action that is prompted by honesty of intention and a reasonable belief that the action was probably correct. Answer “Yes” or “No.” Answer: _______________ COMMENT When to use. The foregoing question and instruction should be submitted in cases in which the trustee is accused of self-dealing and the trust agreement permits self-dealing under stated circumstances or otherwise modifies the duty of loyalty but does not completely eliminate it. Care should be taken to track the language of the document verbatim. See Jochec v. Clayburne , 863 S.W.2d 516, 520–22 (Tex. App.— Austin 1993, writ denied) (court’s failure to instruct jury that trust instrument modified trustee’s duty of loyalty was reversible error). Source. Under current law, a settlor may modify or eliminate the duty of loyalty, which would otherwise prohibit the trustee from engaging in transactions with the trust from which the trustee or an affiliate of the trustee would personally profit or benefit. See Tex. Prop. Code § 111.004(1) for the definition of “affiliate.” Although many duties may be modified or eliminated by the settlor, Tex. Prop. Code §111.0035(b)(4)(B) provides that a trustee’s duty to act in good faith and in accor dance with the purposes of the trust may not be limited by the terms of the trust. The definition of “good faith” is based on cases under Texas Probate Code section 243 (codified as Tex. Est. Code § 352.052) (will contests). See Ray v. McFarland , 97 S.W.3d 728, 730 (Tex. App.—Fort Worth 2003, no pet.); Collins v. Smith , 53 S.W.3d 832, 842 (Tex. App.—Houston [1st Dist.] 2001, no pet.). Although the foregoing cases use the disjunctive standard (intention or reasonable belief), the Committee has chosen the conjunctive standard (“and”) because the Committee believes that both the subjec tive standard of intention and the objective standard of reasonableness are appropriate to measure the conduct of a fiduciary. See Lee v. Lee , 47 S.W.3d 767, 795 (Tex. App.—

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