Removal of Trustees — When Trustee Discretion Meets Cautious Courts

Stay tuned as we closely follow an appeal currently before the 14th Court of Appeals in Houston. The facts of the case are similar to those encountered by counsel and our courts all across the state. The outcome, one way or the other, will either add some certainty to fiduciaries properly exercising their discretion, or it will provide courts with some additional ammunition when questioning whether that discretion constitutes mismanagement.

Brandy Hollis was severely injured in a car accident. Years later, a management trust was created to administer the proceeds of a settlement resulting from a lawsuit related to her injuries. Compass Bank was appointed to administer Brandy’s trust, and the trust was carefully crafted to maximize Brandy’s resources and provide her with resources she would need on a long road to recovery. With careful planning, “special needs” provisions were incorporated so that Brandy could still qualify for certain governmental benefits without the trust property robbing her of her eligibility.

As the years progressed, Brandy improved with the help of invaluable therapies. Swimming, according to Brandy’s doctors, was especially important to her recovery. So, it probably came as little surprise when Brandy’s parents (with whom Brandy lives) asked Compass Bank to approve the construction of a handicapped-accessible pool at their home. Compass thoughtfully considered the suggestion, spoke with inside and outside counsel, and ultimately paid for the pool’s construction from Brandy’s trust.

This decision, which to most would seem an appropriate, thoughtful and responsible use of Brandy’s resources, came under heavy scrutiny by the trial court tasked with routinely reviewing the trust and the trustee’s actions. After all, Brandy’s money had been spent to build a pool at a house owned not by her, but by her parents. Should Compass have denied the request, potentially depriving Brandy of needed aquatherapy? Should Compass have given Brandy some legal interest in the home, potentially disqualifying Brandy from other much needed program benefits?

Ultimately, the trial court found the decision that Compass made to be grounds for removal as Brandy’s trustee. Moreover, the trial court was particularly displeased with the notion that Brandy’s trust might pay for the innovative legal work that resulted in a good solution for Brandy. Compass is currently appealing the court’s decision to remove the bank as Brandy’s trustee, and their appellate brief sets out some very strong arguments against the trial court’s decision. Time will tell what the lesson will be for fiduciary counsel, Texas courts and the families of incapacitated individuals much like Brandy.