Trusts - Removal of Trustee - "For Other Cause"

Barrientos v. Nava, 94 S.W.3d 270 (Tex. App.—Houston [14th Dist. 2002, no pet. h.).

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.”