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Trust Accountings and the Duty to Inform in Texas

Trustees have a duty to share trust information with beneficiaries. The nature and extent of the duty to inform is not well defined in the Texas Trust Code, however, and there is little case law on point.  There is slightly more guidance with regard to the duty to account, which is a subpart of the duty to inform, although many questions remain and can pose significant problems for trustees.

When considering a trustee’s fiduciary duty, most practitioners turn to the Texas Trust Code first.  However, the thoughtful practitioner will notice that the common law duty to inform predates the Trust Code and is broader than the statutory duty to account.  Also, the Trust Code directs trustees to “perform all of the duties imposed on [them] by the common law,” so an examination that is limited to the Trust Code may be incomplete.

A broad array of people are generally entitled to trust information and may include “a trustee, beneficiary, or any other person having an interest in or a claim against the trust or any person who is affected by the administration of the trust.”

Trust beneficiaries need information to protect their interests.  For a beneficiary to hold a trustee accountable, the beneficiary must know of the trust’s existence, the beneficiary’s interest in the trust, the trust property, and how that property is being managed. Trustees have a duty to provide this information to beneficiaries. This duty to inform is independent of the trustee’s duty of care.  Although a trustee holds legal title to trust property, that property is held for the benefit of the beneficiary.  Similarly, the books and records of the trust belong to the trust estate.  As such, it stands to reason that the beneficiaries should have access to them as well. 

On the other hand, settlors may not want their children to know about assets in their trusts for fear that they might become “trust fund babies,” and information sharing may be a security concern in the modern world. Formal accountings, in particular, are burdensome on both trustees and trust assets.  A typical accounting takes many hours to prepare.  A trustee may be able to do much of the initial work to prepare the accounting, but significant time spent by attorneys, accountants, and other professionals will likely also be required, and the related fees will usually be borne by the trust.

Additionally, the duties to inform and account cannot be waived in a trust instrument.  If this were possible, no trustee would serve unless such a waiver were present.  However, the duties may be limited in Texas to so-called “first-tier beneficiaries” who are generally entitled to distributions, either presently under the trust’s terms, or hypothetically, if the trust were to terminate.  By restricting the non-waivable provisions to first-tier beneficiaries, settlors can minimize frivolous pestering by contingent remainder beneficiaries.

Even where beneficiaries are entitled to information, caution is advised to those seeking it.  If a trust is revocable by, or grants a power of appointment to, someone who might be perturbed by such request, the requesting party might find herself written out of the trust! 

The common law duty to inform and the statutory duty to account are complicated elements of Texas law.  Farrow-Gillespie Heath Witter, LLP has helped many beneficiaries gain the information they need about their trusts.  We have also advised many trustees through the accounting process.  If you are in either position, we would be glad to talk with you about your rights or responsibilities and the potential risks you face.


Christian Kelso | Farrow-Gillespie & Heath LLP | Dallas, TX

Christian S. Kelso, Esq. is a partner at Farrow-Gillespie Heath Witter LLP.  He draws on both personal and professional experience when counseling clients on issues related to estate planning, wealth preservation and transfer, probate, tax, and transactional corporate law. He earned a J.D. and LL.M. in taxation from SMU Dedman School of Law.

Those Pesky Trusts! A Brief Primer on Terminating Unwanted Trusts

Estate planning attorneys often wax poetic about the multitude of advantages found in a simple trust instrument. They’re not wrong. A well-crafted trust is an excellent vehicle for addressing a client’s concerns under a variety of different circumstances. Clients may place assets in a trust for tax benefits, creditor and divorce protection, planning for incapacity, family dynamics and a host of other reasons.

Yet no trust exists without a level of complexity and sophistication. Every trust has a trustee who must fulfill strict fiduciary duties and carefully manage the trust assets for the beneficiaries. The terms for distributing property from the trust may involve difficult calculations or restrictive standards that are not easily met. In some cases, a trust instrument’s vague provisions may leave both the trustee and beneficiaries confused as to how to proceed with the trust administration. Eventually, these complexities may become overly burdensome. Life circumstances may also render the trust’s intended benefits and purpose unnecessary.

Whatever the reason, trustees and beneficiaries often find themselves stuck with a trust that no longer meets their needs. But many of these trusts are or have become irrevocable and cannot be unilaterally terminated. Trustees and beneficiaries should not despair, however. Texas law has recognized several different ways to modify or ultimately terminate those pesky trusts.

A. Uneconomical Trusts

The Texas Trust Code enables a trustee to terminate a trust whose assets are valued less than $50,000. The trustee must consider the purpose of the trust and the nature of the assets, and ultimately determine that the value of the assets is insufficient to match the costs of continued administration. A common example of this occurs when a trust established under the provisions of a deceased person’s will receives only minimal funding from the deceased’s estate. The amount held in trust often does not justify the time, effort, and cost in administering the trust.

B. Combining Separate Trusts

Typically, the Texas Trust Code does not allow the outright termination of a trust without petitioning a court of proper jurisdiction for approval. But its provisions do allow for combining two or more separate trusts into a single trust without a judicial proceeding. This is only permissible where the combination would not impair the rights of any beneficiary or prevent the trustee from carrying out the purposes of either trust. Again, this is a great tool for consolidating trusts established under a deceased person’s will.

C. “Decanting”

Another alternative to judicial termination of a trust, “decanting,” is the distribution of trust assets from one trust to a new trust that may have slightly different terms. The helpfulness of this provision of the Texas Trust Code largely depends on how much discretion the original trust grants the trustee. An attorney will need to carefully evaluate the level of variance the new trust may have under the circumstances.

D. Judicial Termination

A trustee or beneficiary may petition a court of proper jurisdiction to order the termination or modification of a trust. However, the grounds to do so are limited and specifically outlined in the Texas Trust Code. Petitioners should not expect a quick and easy process; terminating a trust in a court of law requires careful preparation, evidence, and a willing judge.

E. Termination by Agreement

Texas case law has recognized that in certain instances the settlor, trustee, and beneficiaries of an irrevocable trust may collectively agree to terminate the trust. This is a great tool if all parties are agreeable. But it does have its drawbacks. If the settlor is dead, then no agreement may be reached. Furthermore, an incapacitated beneficiary may not enter the agreement, further halting any opportunity to proceed under this method.

Trusts are excellent vehicles to achieve any number of tax, asset protection, or family dynamics-related objectives. At some point, these irrevocable trusts may become burdensome and unnecessary. An attorney may use the methods mentioned above to terminate or modify those pesky trusts.


Spencer Turner is an associate attorney at Farrow-Gillespie Heath Witter LLP. Since obtaining his license to practice law in 2016, Mr. Turner primarily has focused his legal efforts in the trust and estates arena. He has been featured as a speaker on various aspects of the probate process at several seminars hosted by the National Business Institute. Spencer graduated from Baylor University School of Law.  

The Effects of Divorce on Wills and Estate Plans in Texas

Here is a guide to the legal effects of divorce on Wills, Trust instruments, and financial accounts in Texas.

Wills and Divorce in Texas.  When a person’s marriage is dissolved by divorce, the former spouse cannot receive any payments, benefits or inherit property from that person’s will unless it expressly states otherwise. Not only is the former spouse not allowed to take any benefits or serve in a fiduciary role with regard to the estate, but neither can a relative of the former spouse do so, unless the relative is also a relative of the testator.

Trust Instruments and Divorce in Texas.  A person can create a trust through provisions in a will. However, if that person’s marriage is dissolved by divorce, Texas law will operate as if the former spouse has disclaimed his or her interest in the trust. The divorce cancels the former spouse’s right to receive any property from the trust, to act as trustee, or to be appointed in any other fiduciary capacity. However, this rule applies only to trusts created in a will, and not to trusts created during one’s lifetime.

Divorce on P.O.D. and Multiple-party accounts.  If a deceased individual has established a “pay on death”, multiple-party account, or any other beneficiary designation during a marriage that ends in divorce, the beneficiary designation of the former spouse, as well as of relatives of the former spouse who are not a relative of the decedent, are no longer effective.

Exceptions to the Rule. Some exceptions to the general rules occur under the following circumstances:

  1. The Court’s divorce decree so orders.
  2. Express terms in a trust instrument grant rights regardless of divorce.
  3. An express provision of a pre-nup or post-nup relates to the division of the marriage estate.
  4. The decedent reaffirms the survivorship agreement in writing.
  5. There are express provisions in joint trust documents.
  6. The former spouse is re-designated as the P.O.D. payee or beneficiary after a divorce.

This article brushes the surface of the many estate planning issues that can occur after a divorce in Texas. Be sure to review your estate planning documents yearly and seek the counsel of an attorney when there has been a major life event, such as marriage, birth, death, changes in investment accounts, property changes, or divorce.


Elaine Price practices in the areas of probate, heirship, and guardianship proceedings. Ms. Price is a graduate of the Thurgood Marshall School of Law and holds a Bachelor of Arts in political science from Prarie View A&M. Elaine was formerly with the law office of Rhonda Hunter.

Upjohn Clause: A Trap for the Unwary Trustee

Featured image: Bethany and Preston Kelso. Photo used with subjects’ permission.

Many trust instruments prohibit trustees from relieving themselves of a legal duty under applicable law.  Such language, which is sometimes referred to as an “Upjohn” clause after the case of Upjohn v. U.S.  (30 A.F.T.R. 2d. 72-5918 (W.D. Mich 1972)), is most often, intended to prohibit a trustee from using trust assets to pay for anything which he or she is obligated to provide to his or her child as a matter of law and regardless of the trust.

Section 151.001 of the Texas Family Code imposes a legal obligation on parents to support their minor children.  This includes the duty to provide a child with clothing, food, shelter, education, and medical and dental care.

The prohibitive language of an Upjohn clause typically comes into play in one of two scenarios:  Either a grandparent has established a trust for the benefit of a minor grandchild and named the intervening child as trustee, or a spouse has established a trust for the benefit of a minor child and named the other spouse as trustee.  In either case, the trustee is the parent of the beneficiary and owes the beneficiary a legal duty of support because the beneficiary is a minor.  Although there are other circumstances where an Upjohn clause might apply (for example in the context of a marriage or guardianship), corporate and unrelated trustees generally do not need to concern themselves with this particular legal landmine.

The legal obligations prohibition is primarily meant to prevent inclusion of the entire trust corpus in a trustee’s estate under Treas. Reg. § 20.2041-1(c)(1), which treats the power to relieve a support obligation as a general power of appointment.  Importantly, the trustee does not have to actually discharge an obligation.  The mere power to do so is enough to cause inclusion.  This is why some affirmative mechanism is needed to deny the trustee such power in the first place.

Legal support prohibitions are often contained in the boilerplate of a trust instrument which individual trustees are unlikely to bother reading and less likely to understand.  Litigators who specialize in trust administration issues know to look for these clauses and point out violations.  If a trustee makes even a small distribution in violation of an Upjohn clause, he or she has violated his or her fiduciary duty and may be subject to severe reprimand.  This underscores the point that trustees, and in particular individual trustees, should maintain a close relationship with their attorneys and other professional advisors.

Although the distributions prohibited by an Upjohn clause are narrow in scope, there is very little legal precedent for determining exactly what is prohibited and what is not, so the best course of action is to proceed conservatively and with an abundance of caution.

In the absence of legal precedent to the contrary, more conservative guidelines are advisable.  Thus, where an Upjohn clause applies, the following expenditures are best avoided:

  • Rent or any similar payments
  • Home improvements or decor
  • Homeowners or renters’ insurance
  • Basic utilities for the home
  • Property taxes
  • Clothing
  • Health insurance
  • Non-elective healthcare
  • General dentistry
  • Dentures
  • Optometry
  • Prescription glasses
  • Food

On the other hand, there are a number of expenses which do not fall within support obligation, so trust assets may be properly expendable on the following:

  • Cell phones
  • Pets
  • TV, cable, or satellite service
  • Internet service
  • Personal accessories
  • Automobiles
  • Auto insurance
  • Private school education
  • Extracurricular activities
  • Trips and vacations
  • Elective health care
  • Orthodontics

If you would like to discuss the particular language in your trust instrument, or the circumstances in which it operates, please contact one of our trust attorneys for guidance.


Christian Kelso | Farrow-GIllespie & Heath LLP | Dallas, TX

Christian S. Kelso, Esq. is a Senior Associate at Farrow-Gillespie Heath Witter, LLP.  He draws on both personal and professional experience when counseling clients on issues related to estate planning, wealth preservation and transfer, probate, tax, and transactional corporate law.  He earned a J.D. and LL.M. in taxation from SMU Dedman School of Law.

It’s time to make your 663(b) trust and estate distributions!

Christian Kelso | Farrow-GIllespie & Heath LLP | Dallas, TX

Contact Christian Kelso to guide you through the estate planning process.

Trusts and estates often pay more tax than individuals in like circumstances.  This is not because they are taxed at higher rates, but rather because the same rates applicable to individuals are “compressed,” meaning that each marginal rate increase happens at a lower level of income than it does for individuals.  For example, the highest rate of income tax for both trusts and individuals for 2016 was 39.6%, but whereas this rate only applies to income over $415,050 for single individual filers, for trusts and estates, this rate applies to all income over $12,400.  Other tax burdens, such as the 3.8% Net Investment Income Tax (a/k/a the “Obamacare Tax”) and higher rates of capital gains tax follow suit along similar lines.  Obviously, these add up to a significant potential tax burden.

Fortunately, there is a way to mitigate this tax burden.  Trusts and estates may take a deduction for “distributable net income,” which is generally the amount of income that is distributed from the trust to a beneficiary.  When this happens, the income is effectively shifted from the trust to the beneficiary, who simply adds it to their personal return and pays at whatever rate is applicable to them (including the distributed trust income, of course).

Since large amounts of unnecessary tax can be avoided by shifting income to beneficiaries in this manner, it is common practice for trustees to make distributions for this purpose, assuming, of course, that such distributions are permissible and proper under the terms of the trust.  But there is a problem:  How does the trustee know how much income to distribute from a given trust before the close of a given tax year?  Unfortunately, it is impossible, to know exactly how much income a trust has until after the tax year has closed, at which point, it’s too late to distribute all the income.

Enter IRC §663(b).  Under this special provision, a trust or estate may elect to treat any distribution made within the first 65 days of a given tax year as having been made on December 31 of the previous year.  In other words, the trustee gets 65 days after the actual close of the year to calculate how much income should have been distributed and then actually make that distribution.  The trustee then makes an election on the trust or estate’s income tax return (Form 1041) and voila, the problem is solved!

Although §663(b) distributions may provide a significant benefit, the can also represent a significant danger to trustees.  On the one hand, any distribution from a trust should only be made if and to the extent it is proper under the terms of the trust.  Even if such a distribution is permissible, it may not be in the best interests of a given beneficiary, as taxes are only one of many considerations.  On the other hand, a §663(b) distributions can save a significant amount of tax, so failing to make such a distribution, if permitted, could subject a trustee to liability for waste.

Making the right decision requires careful analysis.  The fiduciary attorneys at Farrow-Gillespie Heath Witter, LLP are well-versed with the applicable law and have the practical experience to understand the nuanced process that is involved with make the right decision.  If we can help you with this, please don’t hesitate to call.

The trust and estate planning attorneys at Farrow-Gillespie Heath Witter LLP, located in downtown Dallas, serve all of your trust and estate planning needs, including:

  • Estate planning for small estates
  • Estate planning for large, taxable estates
  • Trust review and modification
  • Trust and estate administration
  • Trust litigation
  • Will contests
  • Probate
  • Heirship proceedings
  • Guardianships