Barrientos v. Nava, 94 S.W.3d 270 (Tex. App.—Houston [14th Dist.] 2002, no pet.).
The final decree of divorce required Ex-Husband to name Children as
beneficiaries of a life insurance policy and Ex-Wife as the trustee.
Ex-Husband did not comply. Instead, he designated his parents to receive
the proceeds outright upon his death. Ex-Husband also had various
benefits payable at his death through his employer. He named his Sister
as trustee of these proceeds for the benefit of Children. After
Ex-Husband’s death, his surviving parent received and spent almost all
of the proceeds of the insurance policy without Ex-Wife’s knowledge.
Although Sister was aware of the shenanigans regarding the life
insurance policy, she did not inform Ex-Wife. When these facts came to
light, Ex-Wife sued. The trial court found that Ex-Husband did not
actually create a trust when he named Sister as the trustee of the
benefits because there were no definite trust terms. Nonetheless, the
court determined that it had the equitable power to “remove” Sister as
the “trustee” of the benefits and “substitute” Ex-Wife as the “trustee”
to compensate Ex-Wife for the loss of the insurance proceeds. Sister
appealed asserting, among other claims, that Ex-Husband had not created
a trust when he designated her as the trustee.
The court held that Ex-Husband created a valid trust. The court began
its analysis by studying the beneficiary designation forms. In the space
for information regarding the primary beneficiary, Ex-Husband placed his
Sister’s name followed by a statement that she was trustee for Children.
The court recognized that no particular form of words is required to
create a trust. The court determined that these statements were
sufficient inter vivos transfers to create trusts under Trust Code §
112.001.
The court next addressed whether the designations provided reasonable
certainty regarding the property, purpose, and beneficiary of the trust
so that the trust would not fail for vagueness. The court held that the
property and beneficiaries were clearly set forth. In addition, the
court determined that by naming minor beneficiaries, it was reasonably
certain that Ex-Husband intended the proceeds to be used for the general
welfare of Children. The comprehensive provisions of the Trust Code
provided the remaining terms of the trust.
Moral: This case demonstrates the extent to which courts are willing to
reach to find that a person created a trust, especially if the
beneficiaries are minor children. An attorney, however, should not rely
on such minimalist language and should instead draft a comprehensive
trust instrument.
Barrientos v. Nava, 94 S.W.3d 270 (Tex. App.—Houston [14th Dist.] 2002, no pet.).
The final decree of divorce required Ex-Husband to name Children as
beneficiaries of a life insurance policy and Ex-Wife as the trustee.
Ex-Husband did not comply. Instead, he designated his parents to receive
the proceeds outright upon his death. Ex-Husband also had various
benefits payable at his death through his employer. He named his Sister
as trustee of these proceeds for the benefit of Children. After
Ex-Husband’s death, his surviving parent received and spent almost all
of the proceeds of the insurance policy without Ex-Wife’s knowledge.
Although Sister was aware of the shenanigans regarding the life
insurance policy, she did not inform Ex-Wife. When these facts came to
light, Ex-Wife sued. The trial court found that Ex-Husband did not
actually create a trust when he named Sister as the trustee of the
benefits because there were no definite trust terms. Nonetheless, the
court determined that it has the equitable power to “remove” Sister as
the “trustee” of the benefits and “substitute” Ex-Wife as the “trustee”
to compensate Ex-Wife for the loss of the insurance proceeds. Sister
appealed asserting, among other claims, that there was no basis to
remove her as the recipient of the proceeds.
After holding that Ex-Husband had created valid trusts, the appellate
court examined the facts and determined that they were adequate to
support the trial court’s decision to remove Sister as trustee under
Trust Code § 113.082(a)(3) “for other cause.” The court conducted an
extensive evaluation of Sister’s conduct and agreed that Sister had not
made reasonably prudent decisions regarding the investment of trust
funds, did not have the ability to manage them for Children’s best
interest, and had hostility which interfered with her ability to manage
the property.
Moral: The court will consider a wide array of factors in determining
whether it is proper for a court to remove a trustee “for other cause.”
Barrientos v. Nava, 94 S.W.3d 270 (Tex. App.—Houston [14th Dist.] 2002, no pet.).
The final decree of divorce required Ex-Husband to name Children as
beneficiaries of a life insurance policy and Ex-Wife as the trustee.
Ex-Husband did not comply. Instead, he designated his parents to receive
the proceeds outright upon his death. Ex-Husband also had various
benefits payable at his death through his employer. He named his Sister
as trustee of these proceeds for the benefit of Children. After
Ex-Husband’s death, his surviving parent received and spent almost all
of the proceeds of the insurance policy without Ex-Wife’s knowledge.
Although Sister was aware of the shenanigans regarding the life
insurance policy, she did not inform Ex-Wife. When these facts came to
light, Ex-Wife sued. The trial court found that Ex-Husband did not
actually create a trust when he named Sister as the trustee of the
benefits because there were no definite trust terms. Nonetheless, the
court determined that it has the equitable power to “remove” Sister as
the “trustee” of the benefits and “substitute” Ex-Wife as the “trustee”
to compensate Ex-Wife for the loss of the insurance proceeds. Sister
appealed asserting, among other claims, that there it was not
appropriate to substitute Ex-Wife as the trustee.
After holding that Ex-Husband had created valid trusts and that it was
proper to remove Sister, the appellate court examined the facts and
determined that they were adequate to support the trial court’s decision
to substitute Ex-Wife as trustee. The court noted that Ex-Wife was the
mother of the beneficiaries and thus in the best position to ascertain
their needs. In addition, Ex-Wife’s conduct demonstrated that she had
the ability to invest the property on behalf of Children.
Moral: A person displeased with a trial court’s naming of a successor
trustee will have a difficult time showing that the trial court’s
decision was arbitrary or unreasonable.