Trusts - Successor Trustee

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 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.