pjc-family-2024-lib

E XPRESS T RUSTS

PJC 235.12

PJC 235.12 Breach of Duty by Trustee—Self-Dealing—Duty of Loyalty Eliminated QUESTION ______ Did TRUSTEE fail to comply with his duty as trustee when he purchased the trust property ? A trustee fails to comply with his duty as trustee if he fails to act in good faith or fails to act in accordance 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 instructions should be submitted in cases in which the trustee is accused of self-dealing and the trust agreement permits self-dealing by completely eliminating the duty of loyalty. 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.” However, the terms of the trust may not limit a trustee’s duty to act in good faith and in accor dance with the purposes of the trust. Tex. Prop. Code § 111.0035(b)(4)(B). 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.— Houston [14th Dist.] 2001, pet. denied) (executor could recover attorney’s fees in removal action despite breaches of fiduciary duty as long as he subjectively believed his defense was viable and his belief was reasonable under existing law). But note that in other contexts—for example, forfeiture and attorney’s fees—the disjunctive stan dard (“or”) is used. The Committee expresses no opinion on whether the definitions are appropriate for use in other contexts.

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