When it comes to trust litigation, both trustees and beneficiaries commonly ask, “Who pays for it?” The more accurate questions, however, may be: “Who initially pays for it?” and “Who ultimately pays for it?” The answer to the latter question depends on a variety of factors and, to the surprise of many trustees and beneficiaries, does not depend on which party is successful. A beneficiary or trustee should never assume he or she will recover his or her attorney’s fees against the unsuccessful party or that the trust – the very asset the parties are usually trying to protect –will not be depleted by the payment of attorney’s fees.
Taking the first question – who initially pays attorney’s fees – it is important to note that a beneficiary may not have the individual resources to pay for an attorney to protect his or her rights. This can put the beneficiary at a real disadvantage compared to a trustee. Indeed, a trustee has the initial advantage when it comes to funding the litigation because the trustee has control over and access to the trust (at least until the trustee’s control over the trust is restricted, for example, by an injunction or other court order). This initial advantage often stems from the terms of the trust governing the trustee’s powers as well as Texas Trust Code Sections 113.018 and 114.063, which provide:
- A trustee may employ attorneys and other agents which are reasonably necessary in the administration of the trust estate.1
- “[A] trustee may discharge or reimburse himself from trust principal or income or partly from both for … advances made for the convenience, benefit or protection of the trust or its property” and for “expenses incurred while administering or protecting the trust or because of the trustee’s holding or owning any of the trust property.”2
Additionally, Texas common law establishes that a trustee may incur expenses that are necessary to carry out the purposes of the trust.3 But, here’s the key point: the fact that a trustee has the power to retain an attorney and initially pay such an attorney from the trust, does not mean the trust will forever remain the sole and exclusive source from which the trustee’s attorney’s fees will be paid.4
Thus, in answering the second question – who ultimately pays attorney’s fees – a court may decide the payment of the trustee’s attorney’s fees out the trust was improper – especially where a trustee is unsuccessful in defending against a breach of fiduciary duty claim. In certain situations, a trustee may be ordered to reimburse the trust. Texas Trust Code Sections 113.018 and 114.063 are not fail-safes for a trustee accused of wrongdoing:
- With Texas Trust Code Section 113.018, the trustee runs the risk that a court might not view the trustee’s retention of an attorney as “reasonably necessary” for “the administration of the trust estate.”
- With Texas Trust Code Section 114.063, there is a risk that a court may ultimately determine that a trustee found liable for breach of fiduciary duty did not retain an attorney for “the convenience, benefit, or protection of the trust or its property” or for “administering or protecting the trust or because of the trustee’s holding or owning any of the trust property.”
Under Texas common law, a trustee may charge the trust for attorney’s fees the trustee, acting reasonably and in good faith, incurs defending charges of breach of trust.5 Texas courts have followed this good faith and reasonableness test even after the codification of Texas Trust Code Section 114.064.6 For example, a trustee may appropriately incur expenses for costs in maintaining or defending a judicial proceeding for the benefit of the trust estate, such as litigation to resist claims that may result in a loss to the trust estate.7 When a trustee properly incurs expenses, the trustee is entitled to reimbursement out of the trust estate for such expenses.8
However, a trustee who uses trust funds to retain attorneys in a trust proceeding runs the risk the trustee may have to pay the trust back at the end of the litigation – particularly where the trustee is found liable for breaching his or her duties. Where an expense is not properly incurred, the trustee is not entitled to reimbursement from the estate.9 Generally, a trustee is not entitled to reimbursement for expenses that do not confer a benefit on the trust estate, such as expenses related to litigation resulting from the trustee’s fault:10
Where litigation results from the fault of the trustee, he is not entitled to charge the expenses of litigation against the trust estate. Thus, where a trustee is found to have committed a breach of trust, the trustee is not entitled to attorney’s fees for defending the suit . . . or where the trustee engages in obstructive tactics in order to prolong litigation, his legal fees must be borne by him individually . . . Finally, where the trustee engages in such conduct which requires his removal, he is not entitled to reimbursement from the trust estate for attorney’s fees in connection with his resistance to such action.11
A beneficiary who is concerned about a rogue trustee raiding the trust to pay defense costs, has a few options:
- First, on the front end, the beneficiary should explore seeking to eliminate or reduce that risk by “locking up” the trust through an injunction or other court order.
- Second, on the back end, the beneficiary should include a request that the court order the trustee to reimburse the trust for all or a portion of the trustee’s attorney’s fees which were paid from the trust. In that instance, the beneficiary should consider invoking Texas Trust Code Sections 114.001 and 114.008.12
Texas Trust Code Section 114.001 provides that “a trustee who commits a breach of trust is chargeable with any damages resulting from such breach of trust, including but not limited to any loss . . . in value of the trust estate as a result of the breach of trust.”13 Additionally, Texas Trust Code Section 114.008 allows a court to remedy a breach of trust that has occurred or might occur, by, among other things: compelling the trustee to redress a breach of trust, including compelling the trustee to pay money or to restore property; voiding an act of the trustee, imposing a lien or a constructive trust on trust property, or tracing trust property of which the trustee wrongfully disposed and recovering the property or the proceeds from the property; and ordering any other appropriate relief.14 These statutes give a court broad authority to require the trustee to “pay back” attorney’s fees.
In any trust dispute, the award of attorney’s fees – or the court’s determination of who ultimately pays – is governed by Texas Trust Code Section 114.064. That section provides that a court may make such award of costs and reasonable and necessary attorney’s fees as may seem “equitable and just.”15 In applying Texas Trust Section 114.064, a trial court’s conclusion that an award of attorney’s fees is equitable and just is not dependent on a finding that a party “substantially prevailed.”16
Consequently, Texas Trust Code Section 114.064 is not a prevailing party statute.17 The use of the term “may” in an attorney’s fees statute affords the trial court with a measure of discretion in deciding whether to award attorney fees or not.18 In other words, just because a party is successful in a trust dispute, doesn’t meant that party is automatically entitled to recover its attorney’s fees under Texas Trust Code Section 114.064. Alternatively, the converse is also true.19
Similarly, just because a party’s attorney’s fees are reasonable and necessary does not mean a court will automatically award them. In fact, a court may conclude that it is not equitable or just to award even reasonable and necessary fees.20
Whether attorney’s fees are reasonable and necessary are fact questions to be determined by the fact finder.21 In contrast, determining whether an award or denial of attorney’s fees is equitable and just under Texas Trust Code Section 114.064 are questions of law for the court to decide in its discretion.22 Awarding or denying attorney’s fees on an equitable and just basis depends on the concept of fairness in light of all the surrounding circumstances.23
Disputes often arise among the trustee and the trust’s beneficiaries about the administration of the trust. In situations where a beneficiary will not agree to release a trustee, a trustee should not assume seeking judicial intervention will come at a “zero cost” to the trust. In fact, a court may approve a trustee’s conduct, and yet make the trust bear the trustee’s attorney’s fees. If a trustee is also a beneficiary of the trust, this can effectively mean the trustee used a portion of his or her own money to gain judicial absolution.
For example, one Texas court refused to order a beneficiary who had sued a trustee and lost to reimburse the trust for the amount of the attorney’s fees the trustee incurred in defending the action.24 In that case, when discord arose between the trustee and the beneficiary, the trustee offered to resign only if the beneficiary released him from liability.25 While acknowledging that the beneficiary was not required to give him a release, the trustee argued that there would have been no litigation if the beneficiary had provided the release.26 The litigation may have drained the Trust, but the Court observed that the trustee’s “actions show[ed] that he deemed it more important to obtain the release than to preserve his mother’s funds.”27
The payment of attorney’s fees in trust litigation can significantly affect the rights of both trustees and beneficiaries. The law governing the award of attorney’s fees in trust litigation may provide powerful incentives and disincentives to both trustees and beneficiaries. To maximize the chance of a successful outcome, it is important to understand these dynamics before initiating trust litigation.
1 Tex. Trust Code § 113.018.
2 Tex. Trust Code § 114.063.
3 The Moody Found. v. Estate of Moody, 03-99-00034-CV, 1999 WL 1041541, at *3 (Tex. App.—Austin Nov. 18, 1999, pet. denied)(citing Restatement (Second) of Trusts § 188).
4 Conte v. Conte, 56 S.W.3d 830, 834 (Tex. App.—Houston [1st Dist.] 2001, no pet.)(noting that Texas Trust Code Section 113.018 authorizes a trustee to employ an attorney, but it does not address the conditions for reimbursement of attorney’s fees from the trust estate)(emphasis added).
5 The Moody Found. v. Estate of Moody, 03-99-00034-CV, 1999 WL 1041541, at *5 (Tex. App.—Austin Nov. 18, 1999, pet. denied)(citing Grey v. First Nat’l Bank, 393 F.2d 371, 387 (5th Cir.1968)(applying Texas law); duPont v. S. Nat. Bank of Houston, Tex., 575 F. Supp. 849, 863 (S.D. Tex. 1983), aff’d in part, vacated in part sub nom. duPont v. S. Nat. Bank of Houston, Tex., 771 F.2d 874 (5th Cir. 1985); see generally 90 C.J.S. Trusts § 285 (1955); Rowland v. Moore, 168 S.W.2d 911, 916 (Tex. Civ. App.—Fort Worth), rev’d on other grounds, 174 S.W.2d 248 (Tex. 1943).
6 Stone v. King, 13-98-022-CV, 2000 WL 35729200, at *8 (Tex. App.—Corpus Christi Nov. 30, 2000, pet. denied)(where trustee committed conversion, trial court could reasonably have concluded that the litigation seeking to remove trustee resulted from the trustee’s own improper actions, that the trustee did not act reasonably and in good faith in incurring the attorney’s fees, and was, therefore, not entitled to charge the trust for the fees); See also In re Guardianship of Hollis, 14-13-00659-CV, 2014 WL 5685570, at *4 (Tex. App.—Houston [14th Dist.] Nov. 4, 2014, no pet.)(citing Grey v. First Nat’l Bank, 393 F.2d 371 (5th Cir. 1968) for the proposition that a trustee may charge his trust for attorney’s fees that the trustee, acting reasonably and in good faith, incurs in defending a charge of breach of trust).
7 Id. citing 3 Scott on Trusts § 188.4 at 62 (4th ed.1988).
8 Id. citing Restatement (Second) of Trusts § 244.
9 Id. citing Restatement (Second) of Trusts § 245.
10 Id. citing 3 Scott on Trusts § 188.6 at 70; duPont v. Southern Nat’l Bank, 575 F.Supp. 849, 864 (S.D.Tex.1983), modified, 771 F.2d 874 (5th Cir.1985).
11 duPont v. S. Nat. Bank of Houston, Tex., 575 F. Supp. 849, 864 (S.D. Tex. 1983), aff’d in part, vacated in part sub nom. duPont v. S. Nat. Bank of Houston, Tex., 771 F.2d 874 (5th Cir. 1985)(internal citations omitted); Goughnour v. Patterson, Tr. of Deborah Patterson Howard Tr., 12-17-00234-CV, 2019 WL 1031575, at *17 (Tex. App.—Tyler Mar. 5, 2019, pet. denied), reh’g denied (Mar. 27, 2019).
12 Goughnour v. Patterson, Tr. of Deborah Patterson Howard Tr., 12-17-00234-CV, 2019 WL 1031575, at *18 (Tex. App.—Tyler Mar. 5, 2019, pet. denied), reh’g denied (Mar. 27, 2019)(stating argument that trustee should reimburse trust for attorneys’ fees paid by trustee from the trust is not a Tex. Trust Code Section 114.064 issue; discussing instead the beneficiary’s request for equitable disgorgement).
13 Tex. Trust Code § 114.001.
14 Tex. Trust Code § 114.008(a)(3), (9) and (10).
15 Tex. Trust Code § 114.064.
16 Hachar v. Hachar, 153 S.W.3d 138, 142 (Tex. App.—San Antonio 2004, no pet.).
17 Id.
18 See e.g. Bocquet v. Herring, 972 S.W.2d 19, 20 (Tex. 1998)(discussing Tex. Civ. Prac. & Rem. Code §37.009).
19 See e.g. Am. Nat. Bank of Beaumont v. Biggs, 274 S.W.2d 209, 221 (Tex. Civ. App.—Beaumont 1954, writ ref’d n.r.e.)(holding that although the trustees may have acted improperly in administering the trust, their actions were “reasonable” and their attorney’s fees should be paid from the trust); see also Grey v. First Nat’l Bank, 393 F.2d 371, 387 (5th Cir. 1968) (“[A] trustee may charge his trust for attorney’s fees which the trustee, acting reasonably and in good faith, incurs in defense of litigation charging him with a breach of trust.”); see also Hachar v. Hachar, 153 S.W.3d 138, 142 (Tex. App.—San Antonio 2004, no pet.).
20 Goughnour v. Patterson, Tr. of Deborah Patterson Howard Tr., 12-17-00234-CV, 2019 WL 1031575, at *15 (Tex. App.—Tyler Mar. 5, 2019, pet. denied), reh’g denied (Mar. 27, 2019)(citing Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex.1998).
21 Lesikar v. Moon, 237 S.W.3d 361, 375 (Tex. App.—Houston [14th Dist.] 2007, pet. denied).
22 Lesikar, 237 S.W.3d at 375 (Tex. App.—Houston [14th Dist.] 2007, pet. denied)(“The grant or denial of attorney fees under . . . the Property Code lies within the discretion of the trial court, and its judgment will not be reversed on appeal absent a clear showing it abused that discretion.”); Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex. 1998); Lyco Acquisition 1984 Ltd. P’ship v. First Nat. Bank of Amarillo, 860 S.W.2d 117, 121 (Tex. App.—Amarillo 1993, writ denied).
23 Goughnour v. Patterson, Tr. of Deborah Patterson Howard Tr., 12-17-00234-CV, 2019 WL 1031575, at *15 (Tex. App.—Tyler Mar. 5, 2019, pet. denied), reh’g denied (Mar. 27, 2019)(citing Ridge Oil Co. v. Guinn Invs., Inc., 148 S.W.3d 143, 162 (Tex. 2004)).
24 Goughnour, 2019 WL 1031575, at *15 (noting that while trustee who engaged in self-dealing ultimately prevailed, “a win on affirmative defenses is not on equal footing with a win on the merits”; Texas Trust Code Section 114.064 is not a prevailing party statute; therefore an award of attorney’s fees under that statute is not dependent on a finding that a party substantially prevailed).
25 Id. at *16.
26 Id.
27 Id.
Ellen Bennett is Board-certified in Estate Planning and Probate and a shareholder with the law firm of Caldwell, Bennett, Thomas, Toraason & Camp, PLLC, in Dallas, Texas. She focuses her practice in trial and appellate courts on litigation concerning estates, trusts, and guardianships. Ellen also guides personal representatives, trustees, beneficiaries, and guardians through the administration process. Her successful experience includes will contests and interpretations, guardianship disputes, trust disputes and modifications, accounting challenges, and suing and defending on breach of fiduciary duty claims. She recognizes that each case presents complex facts, and she knows that the legal process can be confusing. Ellen enjoys working with her clients to bring clarity to the legal process and achieve the resolution her clients seek – whether through settlement or at trial.
Mark R. Caldwell routinely represents executors, guardians, and beneficiaries in complex estate, trust, and guardianship litigation. He has also represented fiduciaries in all phases of estate, trust, and guardianship administration. Mark is passionate about holding those who exploit others accountable and defending those who have been wrongfully accused of doing so. Mark enjoys the investigatory aspects of estate and trust litigation, including reviewing and analyzing medical, financial, and suspicious property records and transactions. Mark is committed to developing and maintaining strong, personal relationships with his clients. He endeavors to offer smart, pragmatic and cost-effective legal advice. Mark believes that the strongest winning position is one that is simple, direct, and understandable.
