Source: https://www.txfiduciarylitigator.com/2018/11/a-court-rejects-a-trust-protectors-claims-and-holds-that-a-trustee-properly-merged-trusts/
Timestamp: 2019-04-18 19:00:58+00:00

Document:
In In re Macy Lynne Quintanilla Trust, a settlor created three trusts for his children in 2014. No. 04-17-00753-CV2018 Tex. App. LEXIS 8223 (Tex. App.—San Antonio October 10, 2018, no pet. history). The trust agreements named Perry as trustee and West as trust protector. The trust agreements gave the trust protector the power to remove the trustee and appoint a successor trustee. After the settlor and the trust protector had a falling out, the trust protector requested an accounting of the 2014 trusts and told the settlor that he was considering removing the trustee. The settlor then created three new trusts in 2016. The 2016 trusts were virtually identical to the 2014 trusts, except that they named a new trust protector. The trustee then executed three agreements to merge each of the 2014 trusts into the 2016 trusts. The trustee then filed suit and sought declarations that the trust protector was not an “interested person” under the Texas Trust Code and had no right to demand an accounting or to receive financial information regarding either the 2016 trusts or the merged 2014 trusts. The trust protector answered and asserted counterclaims seeking declarations that: (1) the 2014 trusts cannot be merged into the 2016 trusts; or, alternatively, (2) he was an “interested person” with the right to an accounting and financial information regarding the 2014 Trusts up to the date of merger with the 2016 Trusts; and (3) he fulfilled his duties regarding the 2014 Trusts. The trial court granted two summary judgments for the trustee, and the trust protector appealed.
The trust protector argued that the trustee did not prove that the 2016 trusts were properly created. The court of appeals disagreed. The 2016 trust agreements stated: “Settlor hereby conveys, transfers and assigns to the Trustee, in trust, the separate property of Settlor described on Schedule A. attached hereto and made a part hereof, receipt of which is hereby acknowledged by the Trustee.” Id. Schedule A stated simply: “$5,000.00.” The trust protector argued this evidence did not prove that funds were actually transferred into the 2016 trusts. The court of appeals held that “a trust agreement itself may be sufficient summary judgment evidence that the trust was in fact funded. Absent any evidence in the record to the contrary, we conclude Perry met his summary judgment burden of demonstrating no genuine issue of material fact exists that the 2016 Trusts were funded.” Id.
The trust protector also argued that the trustee did not conclusively establish that the 2014 trusts were properly merged. A provision entitled “Merger” in each of the 2014 trust agreements expressly provided for merger of the 2014 Trusts into newly formed, substantially identical trusts for the benefit of the same beneficiaries. Therefore, the 2014 trust agreements anticipated and permitted the merger of the 2014 trusts into the 2016 trusts. Each merger agreement stated that “Perry, as Trustee of the  Trust and the 2016 Trust, has determined that the combination of the 2016 Trust and the  Trust will not impair the rights of any beneficiary or adversely affect achievement of the purposes of any of the trusts,” and each beneficiary signed his or her respective merger agreement acknowledging and agreeing to its terms. Id.
There is scant authority interpreting when a merger of trusts “impair[s] the rights of any beneficiary or adversely affect[s] achievement of the purposes of one of the respective trusts.” West argues the merger adversely affected achievement of the purpose of the 2014 Trusts because it removed him as Trust Protector. However, the 2014 trust agreements do not provide a method for removing or replacing the Trust Protector that was circumvented by merging the trusts. Rather, the 2014 trust agreements are silent regarding the removal and replacement of the Trust Protector. The 2014 trust agreements are not silent regarding the method for merging the trusts and expressly authorize and empower the Trustee to do so “in [his] discretion.”2Link to the text of the note Therefore, we disagree that a fact question exists regarding whether the merger impaired the rights of any beneficiary or adversely affected the achievement of the purposes of any of the trusts. Absent any evidence in the record to the contrary, we conclude Perry met his summary judgment burden of demonstrating no genuine issue of material fact exists that the 2014 Trusts were properly merged with the 2016 Trusts.
Neither the 2014 trust agreements nor the Trust Code itself requires notice be given to a trust protector. Rather, a trustee is only required to give notice to “each beneficiary who might then be entitled to receive distributions from the separate trusts being combined or to each beneficiary who might be entitled to receive distributions from the separate trusts once the trusts are funded.” Tex. Prop. Code Ann. § 112.057(c)(1). Here, each of the three beneficiaries expressly waived notice of the mergers. Therefore, we conclude Perry met his summary judgment burden of demonstrating no genuine issue of material fact exists that West was not entitled to notice of the mergers.
An “interested person” is “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.” Tex. Prop. Code Ann. § 111.004(7) (West 2014). “The phrase ‘administration of a trust’ refers to when a trustee manages a trust in accordance with its terms and conditions and section 113.051 of the Texas Property Code.” Gonzalez v. DeLeon, No. 04-14-00751-CV, 2015 Tex. App. LEXIS 8940, 2015 WL 5037396, at *4 (Tex. App.—San Antonio Aug. 26, 2015, pet. dism’d) (mem. op.) (citing Faulkner v. Bost, 137 S.W.3d 254, 259 (Tex. App.—Tyler 2004, no pet.)). “Whether a person, excluding a trustee or named beneficiary, is an interested person may vary from time to time and must be determined according to the particular purposes of and matter involved in any proceeding.” § 111.004(7).
We have recognized that “[t]here is very little case law interpreting the meaning of the phrase ‘interested person.’” Gonzalez, 2015 Tex. App. LEXIS 8940, 2015 WL 5037396, at *4. However, generally, a person who does not manage a trust (a trustee) or stand to inherit any trust assets (a beneficiary) is not an “interested person” by virtue of being a “person who is affected by the administration of the trust.” See Lee v. Rogers Agency, 517 S.W.3d 137, 159-60 (Tex. App.—Texarkana 2016, pet. denied) (holding settlor who did not manage any aspects of the trust and did not stand to inherit any trust assets was not “affected by the administration of the trust”); Gonzalez, 2015 Tex. App. LEXIS 8940, 2015 WL 5037396, at *5 (holding co-attorneys-in-fact and co-executors for settlors who did not manage trust and did not stand to inherit trust assets were not “interested persons”); Hunter v. NCNB Tex. Nat’l Bank, No. 14-94-01199-CV, 1996 Tex. App. LEXIS 1754, 1996 WL 223584, at *3 (Tex. App.—Houston [14th Dist.] May 2, 1996, writ denied) (mem. op.) (holding daughter of settlor/beneficiary who had only expectancy to inherit trust property was not interested person); Davis v. Davis, 734 S.W.2d 707, 709 (Tex. App.—Houston [1st Dist.] 1987, writ ref’d n.r.e.) (holding father of trust beneficiaries who was not managing conservator and only expected to inherit was not interested person).
Here, although he is neither a trustee nor a beneficiary, West argues he is affected by the administration of the 2014 Trusts because he is the Trust Protector. As West acknowledges, there is little authority discussing the role of trust protectors, which the Trust Code only recognized in 2015. See Tex. Prop. Code Ann. § 114.0031 (West Supp. 2017). The Trust Code provides that a trust protector has only the power and authority granted to him by the trust terms, which may include: (1) the power to remove and appoint trustees, advisors, trust committee members, and other protectors; (2) the power to modify or amend the trust terms to achieve favorable tax status or to facilitate the efficient administration of the trust; and (3) the power to modify, expand, or restrict the terms of a power of appointment granted to a beneficiary by the trust terms. Id. § 114.0031(d).
The unambiguous language of the trust agreements governs our analysis in this case. See Ray Ellison Grandchildren Trust, 261 S.W.3d at 121. The 2014 trust agreements only grant the Trust Protector the power to appoint, remove, and replace the Trustee in accordance with the terms of the agreements. Nothing in the 2014 trust agreements grants the Trust Protector any power to manage any aspects of the trust, to request or obtain an accounting or other financial information, or to inherit any trust assets. The 2014 trust agreements also expressly provide that the Trust Protector is not entitled to any compensation. Therefore, by the express terms of the 2014 trust agreements, the Trust Protector is not “affected by the administration of the trust.” For these reasons, we conclude West is not an “interested person” under section 111.004(7).
Id. The court of appeals affirmed the summary judgments for the trustee.

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