Trust & Trust Amendment Contest
A Trust & Trustee and Beneficiary Rights
A trust is a relationship created for the benefit of the beneficiary. The relationship between the trustee and a beneficiary is a fiduciary relationship that creates fiduciary duties and obligations. A "trustee" owns/holds legal title to property and "beneficiary" owns/holds beneficial title. Legal title gives the trustee the power and authority to make all decisions about the ownership of the property - also known as, the trust administration or administration of trust property. The Texas Trust Code defines "trustee" as "the person holding the property in trust, including an original, additional, or successor trustee, whether or not the person is appointed or confirmed by a court." Tex. Prop. Code §111.004(18). It defines "beneficiary" as "a person for whose benefit property is held in trust, regardless of the nature of the interest." Tex. Prop. Code §111.004(2). A beneficiary of a trust is an “interested person” in relation to that trust and its property and it is defined as:
a trustee, beneficiary, or any other person having an interest in or a claim against the trust or any person who is affected by the administration of the trust. Whether a person, excluding a trustee or named beneficiary, is an interested person may vary from time to time and must be determined according to the particular purposes of and matter involved in any proceeding.
Tex. Prop. Code §111.004(7). A trust can be created as simply as handing some denomination of money to another person to hold and keep safe for another; it does not, technically, require anything writing. But, most of the time a trust relationship is defined by a written trust agreement. The first rule of being a trustee is to follow the trust's "Rulebook", which is the trust agreement, because it defines the purpose of the trust - the overriding reason it exists. After following the trust agreement, the fiduciary relationship requires of the trustee all other fiduciary duties under Texas law and common-law, in default of statutory law.
Fiduciary Duties. The trustee must act in the beneficiary's best interest at all time. In addition, the trustee's fiduciary duties to the beneficiary include (i) providing full disclosure, which requires the trustee to tell the beneficiary all material information that affects his or her interests or rights, a duty (ii) of loyalty, (iii) of good faith and fair dealing, (iv) to avoid bias, (v) to avoid hostility, (vi) to avoid self-dealing, among others. A beneficiary has a right to enforce those fiduciary duties - meaning, to require the trustee to recognize them and perform; however, the beneficiary cannot dictate the administration of the trust.
There are two types of trusts: (i) revocable and (ii) irrevocable. The creator of a trust is called a settlor or grantor or trustor. When a trust is created, the settlor, grantor, or trustor must (a) have the mental capacity to know the business in which he or she is engaged and the effect of the transaction (creating the trust) the trust property, and (b) must sign the trust agreement of his or her own free will and without any duress or undue influence. When a revocable trust is created the settlor, grantor, trustor may revoke or amend it at any time in any way he or she wants, which is the nature of a trust. Of course, to revoke it or to make a change or amendment, the revocation or amendment must be in writing and the settlor, grantor, trustor must have mental capacity and must sign of his or her own free will and without any duress or undue influence whatsoever.
Revocation or Amendment & Contest. A trust and its amendments are examined more closely after a settlor or grantor dies. A lawsuit may be filed contesting any change or amendment, if the settlor, grantor, or trustor lacked mental capacity at the time each was signed that prevented him or her from being able to understand the effect of the revocation or amendment. It may also be possible to contest the validity of any change or amendment to a revocable trust if the settlor, grantor, or trustor, was so weak or infirm he or she could not resist the undue pressures of another and signed a document they would not have otherwise signed but for those undue pressures (undue influence).
Irrevocable Trust. An irrevocable trust, on the other hand, is not revocable or amendable by the settlor, grantor, or trustee, and there is a complete separation of ownership between the settlor, grantor, or trustor and the trust property. An irrevocable trust can only be changed by a court under certain statutorily required circumstances or by the trustee, who can change certain parts of an irrevocable trust, upon meeting certain conditions, depending on the type of discretionary standard for distributions imposed upon the trustee by the trust agreement.
Court Ordered Modifications. When a lawsuit is filed to request a court ordered modification of an irrevocable trust all "interested persons" in the trust, which necessarily includes named beneficiaries, must be given notice (due process) and joined as a party to any legal action taken to make such changes. The legal proceeding allows each beneficiary to complain in the proceeding, i.e., file an objection, response or modification of their own.
Avoid Merger of Interests. The trustee is not to allow the beneficiary the ability to dictate administration of the trust property, else there is no need for the trust relationship in the first place; also, all parties to the trust relationship must avoid a merger of interests, i.e., where legal title and beneficial title merge. Typically, merger is where the trustee becomes or is also the beneficiary. They must avoid even the appearance of a merger of interest, else the trust will cease to exist.
Signing a Trust & Trust Amendment Requires “Mental Capacity”
Notice the standard for mental acuity, or lack thereof, is different for a trust as compared to a will. A will requires “testamentary capacity”, while signing a trust and trust amendment requires “mental capacity”. Mental capacity is a higher standard under the law and, even though the methodology for proving a lack of mental capacity is generally the same, technically, a trust lawsuit, involves mental capacity requires extra or additional proof. It is important to hire an attorney experienced in such cases to pursue, develop and take such cases to trial because the alternative will, instantly, have you at a disadvantage.