Myrick v. Enron Oil & Gas Co., 296 S.W.3d 724 (Tex. App.—El Paso 2009, no pet.).
Shortly after a trust terminated, Trustee executed an oil and gas
lease covering a portion of the trust property which had been negotiated
before the trust ended. Trustee later distributed this property to
Beneficiary after Beneficiary signed a document stating that Beneficiary
released the Trustee from any liability for its acts as a trustee up to
the time of the distribution. Beneficiary later sued Trustee alleging it
breached its fiduciary duties by entering into the lease. Trustee
responded claiming that it had the authority to enter into the lease and
by pointing to both an exculpatory clause in the trust and the release
which Beneficiary signed with full knowledge of the allegedly improper
lease. The trial court granted summary judgment in favor of Trustee
holding that the lease was proper and that Beneficiary’s claims were
barred by the trust’s exculpatory clause, Beneficiary’s release, and the
statute of limitations. Beneficiary appealed.
The appellate court affirmed. The court focused on Trust Code § 112.052
which provides that “the trustee may continue to exercise the powers of
the trustee for the reasonable period of time required to wind up the
affairs of the trust and to make distribution of its assets to the
appropriate beneficiaries.” The court explained that because of
litigation involving the trust, Trustee could not immediately distribute
the property. Thus, entering into the previously negotiated lease only
two months after the trust’s termination and before the litigation was
resolved was not in breach of Trustee’s duties. In fact, Trustee had a
duty to continue managing the property and to seek the best possible
result for Beneficiary.
Note: The court did not rule on the validity of the trust’s exculpatory
clause or the Beneficiary’s release because it determined that the lease
was not in breach of Trustee’s duties.
Moral: A trustee may continue to exercise trust powers while winding up
the trust. To avoid later disputes, a trustee should wrap up the trust
as promptly as possible making as few major investments as is reasonably
prudent during the “gap” period.