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Court Affirms Modification of Trust That Relied on Extrinsic Evidence and Contradicted Express Trust Terms

Court Affirms Modification of Trust That Relied on Extrinsic Evidence and Contradicted Express Trust Terms
Sunday, May 26, 2024

In In re Poe Trust, a co-trustee of a trust filed suit to modify the trust to change distribution provisions, increase the number of trustees, and change the method for trustees to vote on issues as well as other modifications. No. 08-18-00074-CV, 2023 Tex. App. LEXIS 5598 (Tex. App.—El Paso July 28, 2023, pet. filed). The trial court denied the defendant co-trustee’s request for a jury trial on underlying fact issues and held a two-day bench trial. After the trial court granted the plaintiff’s modifications, the defendant co-trustee appealed.

The court of appeals determined that the trial court did not abuse its discretion in reviewing extrinsic evidence and in modifying the trust. The court held that the trial court could rely on extrinsic evidence to determine whether the modification predicates existed, i.e., whether the purposes of the trust had become impossible to fulfill and whether, because of changed circumstances not known or anticipated by the settlor, a modification would further the purposes of the trust.

The co-trustee contends the trial court was not permitted to rely on extrinsic evidence in determining the manner in which to modify the trust—at least to the extent the evidence contradicted or varied the express and unambiguous terms of the trust itself. The co-trustee argued that, in construing trust terms, a trial court is generally confined to ascertaining the meaning of the terms and the settlor’s intent by reviewing the four corners of the document itself without resorting to extrinsic evidence. The other co-trustee argued that when a trustee or beneficiary seeks to modify trust terms under Section 112.054 due to changed circumstances, by the very nature of the proceeding, the court must consider evidence to not only establish whether changed circumstances exist but what modifications would most clearly conform with the settlor’s “probable intention” and further the purposes of the trust. The court held: “Richard has not convinced us that the trial court erred in considering extrinsic evidence to determine how to modify the trust.” Id.

“The trial court added four new provisions to the Trust allowing the trustees to take into account several factors in making distributions: (1) authorizing payment of travel expenses for Troy and any needed assistants and travel companions; (2) making distributions that take into account the standard of living Troy enjoyed at the time of Dick’s death; (3) recognizing that there will be an indirect benefit to Troy’s caregivers and other family members in making distributions for Troy’s benefit; and (4) giving primary consideration to Troy’s needs without considering the interests of any vested or contingent remainder beneficiaries.” Id. The court affirmed, concluding that “the record clearly supports a finding that Dick was fully aware that those who socialized with and traveled with Troy were receiving both a direct and indirect benefit from the various expenditures, and approved of such as it furthered Dick’s goal of providing Troy with the best life possible given his limitations.” Id. The court also noted that after the settlor’s death, the co-trustees were embroiled in disputes regarding the caregiver’s reimbursement requests and whether to approve disbursements to ensure Troy maintained the same standard of living he had prior to his father’s death, and these disputes were interfering with trust administration that had a negative impact on Troy’s well-being.

The trust provided that the settlor, his son Richard, and Bock would be co-trustees, that they would make decisions jointly, and that there was no provision to add any additional trustee upon the settlor’s death. The trial court modified the trust to add an additional trustee, allowed majority rule, and allowed Bock to appoint successor trustees. “Given the evidence of gridlock and delays, however, the trial court could have reasonably found that the unanimity provision was interfering with and would continue to interfere with the ability to accomplish the Trust’s purposes. Based on the evidence, the trial court could have reasonably concluded that appointing a third trustee who was aware of and sensitive to Troy’s needs was an appropriate way to modify the Trust to allow it to continue serving its purpose in accordance with Dick’s probable intent.” Id. The court of appeals affirmed the trial court’s modification.

There was a dissenting justice, who stated:

Although § 112.054 of the Property Code empowers a trial court to order a modification, the court must still conform as nearly as possible to the probable intention of the settlor when doing so. See Tex. Prop. Code Ann. § 112.054(b). Here, as settlor of the Trust, Dick plainly stated he wanted trustees to make decisions “jointly,” not by majority vote. Moreover, Dick further stated that any trustee has the right to serve without appointment of a successor if, for any reason, any of the trustees either fails or ceases to act as a trustee. If the last trustee fails or ceases to act, he stated he wanted a corporate successor trustee appointed as sole Trustee. Because the trial court contravened Dick’s intent as was expressed in these terms, I would conclude it abused its discretion.

Id.

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