Texas Probate Litigation

Fiduciary relationships - Texas common law

A fiduciary owes a duty to act for someone else's benefit, while subordinating one's personal interests to those of the other person.  It is commonly referred to as the highest standard imposed by law.  Recognizing the  circumstances that impose such a duty under Texas law is not always simple.  However, Texas law imposes a fiduciary duty in certain common relationships, including:

Attorney-client
Partners
Agents
Spouses
Holder of a power of attorney
Officers of corporation
Joint venturers
Executor of an estate
Trustee of a trust
Stockbrokers
Taxpayers
Class action representatives
Mineral rights holders to holders of non-executive interests
Condominium board members
Employees

Credit to O'Connor's, Texas Causes of Action (2008).

Texas fiduciary litigation attorneys - North Texas - Collin, Grayson, Dallas counties and surrounding areas

Estate of Wilson - Applicant failed to overcome presumption regarding lost will

In Estate of Wilson, the Texarkana Court of Appeals held that an applicant failed to overcome the presumption that a lost will had been revoked.

Section 63 of the Texas Probate Code provides that a testator can revoke a will by physically destroying it. Under Texas law, when a will cannot be located and was last known to be in the testator's possession, a presumption arises that the testator destroyed the will. The presumption can be rebutted by evidence that the will was not revoked but instead simply lost, or that it was fraudulently destroyed by some other person.

The Court of Appeals found no support in the record to rebut the presumption of revocation.  The applicant had filed an affidavit stating, "As far as I know and believe, Decedent left a will dated August 25, 2004 and never revoked." The Court found that conclusory statement was no evidence to counter the presumption of revocation.  The Court did give the applicant a break and remanded the case back to County Court for further proceedings.  That will presumably give the applicant another shot at presenting more evidence.

North Texas Probate, Grayson and Collin County Probate

Testamentary Capacity

In Texas, a person cannot dispose of their property through a will unless they are of "sound mind" at the time they execute the will.  "Sound mind" is often referred to as "testamentary capacity" in the context of a will.

How is testamentary capacity defined? In Texas, it generally means sufficient mental ability, at the time of the will execution, to:

a) understand the business in which the testator is engaged;
b) the effect of the act in making a will;
c) the general nature and extent of her property;
d) know who is her next of kin;
e) sufficient memory to assimilate elements of a transaction and the ability to hold that memory; and
f) to form a reasonable judgment as to those elements

Those elements can be found, in various forms and wording, in various published cases dealing with the issue of testamentary capacity. The above elements are certainly not precise and are difficult to apply to every circumstance.  But the goal is to ensure that the testator really knew what they were doing when they executed a will.  Generally mental capacity declines with age. It is no secret that wills are often executed late in life, sometimes very late in life. 

An allegation that a testator lacked capacity is the foundation of many will contests in Texas.

Financial planning, estate litigation, and the second family

The April 27 Wall Street Journal contains an excellent article entitled Another Family? Keep the Money Straight. Second marriages often call for unique financial and estate planning techniques.  In my North Texas estate and trust litigation practice I have seen the second marriage circumstance lead to will contests.  As the article notes:

"When you have children with a prior marriage, you want to keep the harmony," Mr. Bouklas says. "I've seen too many situations where the spouse dies and the children who had a nice relationship with their stepparent end up at odds with them."

That means that amid the wedding planning, couples may want to take the time to sit down and do some estate planning.

"It's far more important for seniors than for a younger couple," says Martin Shenkman, an attorney in Teaneck, N.J.

Among the tools that could be most useful is a legal document that most people might think is only for the rich and famous: a prenuptial agreement. While prenuptial agreements are often used for defining who gets what in a divorce, they also can also set guidelines for what happens when one spouse dies.

Consider a simple scenario involving a couple who both have children from a previous marriage. The wife, in this example, has a will saying that all her assets should go to her children. So, when she dies, everything goes to her kids, right? Wrong.

Most states have laws dictating that irrespective of the will, a certain percentage of those assets must go to the spouse. That spouse could leave his assets to his children -- and the wife's children don't get what they were originally supposed to receive under her will. "You can end up with your hard-earned savings ending up with kids of your second spouse," says Bernard Krooks, a New York attorney.

Ambiguity in this context is quite likely to lead to probate litigation.  Planning described in the article may help avoid an estate fight.  But at times a will contest is unavoidable, particular where the children of the first marriage suspect the involvement of undue influence or that their parent lacked capacity.

A probate litigation attorney can evaluate if particular circumstances may support allegations of lack of testamentary capacity or undue influence.  Collin, Dallas, Grayson County will contest lawyers.

Power of attorney abuse

Abuse of a power of attorney is an all too common phenomenon in Texas, and nationally. This article  in the Wall Street Journal highlights what I perceive as a growing area of concern. All too often "trusted" friends or family members use the power of attorney for their own benefit.

At the recent Fiduciary Litigation seminar in Dallas, James Woo  spoke of the increase he is seeing in those with power of attorney facilitating the creation of a joint account of survivorship in either a bank or brokerage account.  This often occurs in the context of a child  excluding those assets from the estate the parent meant to pass on to all the children.  The parent believes the children are being treated equally because that is what he provided in his will.   But upon his death the other children learn that the probate estate is surprisingly small, and that their sibling with power of attorney gets all the bank and brokerage accounts.

This scenario calls for aggressive action and the consultation of a litigation attorney.  The holder of a power of attorney owes a fiduciary duty to the principal.  He has the burden to prove the account designation changes were fair.  The other siblings can assert claims of undue influence, lack of capacity and tortious interference with inheritance rights.

Growing dissatisfaction with trustees?

Credit to Michael Bonasera of the Ohio Trust Estate Blog for spotting this article in the New York Times regarding growing dissatisfaction with trustees, particularly of the corporate variety.  The article notes:

As a family trust moves into its second and third generations, it is almost inevitable that someone will be unhappy with a trustee.      

The current beneficiaries may want a more daring investment strategy than the trust bank’s usual allocation of 60 percent stocks plus 40 percent bonds. The original trust officers have probably retired, and the beneficiaries may not like their replacements. If some of the beneficiaries have moved, they may prefer a bank with more convenient headquarters. Then there’s the 20-year-old grandson who thinks the trustees are being stingy because they won’t give him the money to buy a Ferrari.

As the article notes, replacing a trustee under such circumstance isn't easy, particularly if the trust documents don't provide a mechanism for removal or replacement of the trustee.

In Texas, a trustee can be removed for breaching the fiduciary duty owed to the beneficiaries. But as the article notes, often the issue isn't such a breach, but more a lack of effective communication between the trust department personnel of a financial institution and the beneficiaries.  This circumstance is particularly likely when the personnel change regularly.  The trustee-beneficiary relationship is built upon personal trust and comfort as much as upon legal duty.  Having a rotating door in the trust department does not inspire confidence, nor does it allow for the development of long term relationships.

Texas Bar - Fiduciary Litigation Seminar

The Texas Bar is sponsoring a Fiduciary Litigation Seminar in Dallas on April 24-25.  Topics will include the fiduciary duties of executors, trustees, attorneys, business partners, and others.  Other topics will include damages, judgments, and non-monetary remedies.

I look forward to meeting other Dallas area fiduciary litigation attorneys at the seminar.

Texas sized trust dispute

The March issue of D Magazine features the Dallas trust dispute involving one of Texas' most prominent families. Hunt vs. Hunt: The Fight Inside Dallas' Wealthiest Families details a lawsuit brought by Al Hunt III, great grandson of the legendary HL Hunt.

Filed in Dallas County district court, the suit seeks the usual accounting and removal of the trustee, Tom Hunt, from management of the dozens of Hunt family trusts. Curiously enough, Al III also alleges the trusts owe hundreds of millions of dollars to the IRS.

Most of the Hunt clan is understandably upset with Al III, including his father. In classic melodrama fashion, the family blames  Al's beauty queen wife for stirring up the case, while he claims it isn't about the money:

“I want the truth, I want the facts, I want the evidence, taken under oath, so help me God. Instead of trying to get my lawyer removed, playing these games, let’s adjudicate this. It’s castle keep, and they’ve got the castle. My father always said, ‘He who has the gold makes the rules.’ That’s their mentality in business, and this is business.”

Most likely, of course, it is all about the money.  I have little doubt I will be revisiting this Dallas trust litigation over the next several months, if not years.

Mandatory arbitration

Arbitration has long been a feature of certain types of litigation.  I've seen mandatory arbitration clauses most extensively utilized in securities (client/broker), construction, employment, and general commercial disputes.  In my personal experience - which is shared by many attorneys on both sides of the bar - the oft-touted cost and time saving advantages of arbitration are highly overrated.  Filing and arbitrator fees can run into six figures in some cases, especially when a panel consists of three arbitrators. And that is apart from the attorney fees and expenses. In some cases, the expenses of arbitration prevent a plaintiff from pursuing even a meritorious case. 

Apart from the cost issue, Defendants often prefer mandatory arbitration because the arbitrators are drawn from the industry and perceived to be more conservative than a jury in awarding damages.  For that reason, mandatory arbitration clauses are often attacked as unfair, particularly when the parties are in positions of unequal bargaining.

These clauses are becoming increasingly favored by nursing homes trying to limit liability for substandard care. However,nothing would seem more unequal than an elderly patient "negotiating" with  the management of a nursing home. The reason people are admitted to nursing homes is because of failing physical and/or mental health.  Not an ideal circumstance for well informed, arms-length negotiating. 

As this article details, Congress has become concerned and a bipartisan bill in the US Senate would curtail the use of such clauses, particularly as a pre-requisite for care.  I imagine this bill has a decent chance of passage, but would likely face a veto from President Bush.

Fiduciary duty

Fiduciary duty will be an ongoing topic of this blog, because the duty is typically imposed by law on executors, administrators, and trustees.  Hence, it is an important concept in probate litigation.

In Texas, the term "fiduciary" generally applies to any person who occupies a position of peculiar confidence to another.  It refers to "integrity and fidelity" and contemplates "fair dealing and good faith."  Daniel v. Falcon Interest Realty Corp., 190 S.W.3d 177, 185 (Tex.App.-Houston 2005, no pet.). One who occupies a fiduciary relationship to another must measure his conduct by high equitable standards, and not by the standards required in dealings between ordinary parties.  Simply put, a fiduciary must put the interests of the other party above his own. Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503, 509 (Tex.App.-Houston [1st Dist.] 2003, no pet.).

In certain circumstances, a fiduciary duty is imposed due to a formal relationship between the parties. Typical examples are relationships between an executor and beneficiary, trustee and beneficiary, attorney and client, agent and principal, and partners. 

Fiduciary duties can also arise in more informal relationships of trust between parties typically described as a "confidential relationship."  However, Texas courts are often reluctant to impose fiduciary duties in such informal circumstance.  In these situations, Texas courts will closely scrutinize the relationship between the parties at issue.

The concept of fiduciary duty will be a recurring topic of Texas Probate Litigation blog.  While I can't give legal advice on this blog, I will consider particular topics of interest posted or emailed by readers. J. Michael Young