Substitute Fiduciary Act

Wood v. Victoria Bank & Trust Co., 170 S.W.3d 885 (Tex. App.—Corpus Christi-Edinburg 2005, pet. denied).


The settlors named a particular corporation as trustee of their trusts. After a series of corporate buyouts, mergers, and the formation of subsidiary trust companies, a new corporation became the trustee of these trusts. Despite compliance with the Substitute Fiduciary Act (current version found at Tex. Fin. Code §§ 274.001-.203), the beneficiaries of these trusts objected when the trust company was sold to a third party. The trial court ruled against the beneficiaries who subsequently appealed.

The appellate court affirmed. The court explained that the beneficiaries received proper notice of the fiduciary substitution under the Act and failed to object. The court explained that the Act does not require the fiduciary substitution to result in a consolidation and the court was unwilling to read into the Act a requirement not evident from the plain language of the statute. The court also examined legislative history and found nothing to support the beneficiaries’ claims that the Act was designed for use only as a consolidating tool. Accordingly, it is acceptable for the Act to be used to de-consolidate, as well as consolidate, fiduciary appointments.

The court also rejected the application of the common law principles that a trustee may not resign or transfer the office as trustee for a monetary consideration. The court explained that the transfers in this case were statutorily authorized and that the corporate entities involved complied with the applicable statutes.

Moral: Corporations may rely on transactions made in compliance with the Substitute Fiduciary Act and related Texas statutes.