When a person dies who has set up a trust, the trustee becomes responsible for managing the trust, including paying any creditors in a timely and reasonable fashion. In some situations, there may not be sufficient assets. The trustee, however, must make payments in accord with Texas law and statutes. In this blog post, our Dallas-based trust attorneys overview some of these important issues.
An executor must follow statutory rules regarding priority and payment of creditor claims.
Although most claim procedures applicable to creditor claims in supervised administrations do not apply to independent administrations, independent executors must observe the statutory requirements with regard to the classification of claims and their priority, and order of payment. TEC § 403.051(a)(3); See Bunting v. Pearson, 430 S.W.2d 470 (Tex. 1968) (holding that independent executors are required to handle claims in accordance with provisions of the statute dealing with classifications, priority, and proration of claims). An independent executor is thus charged with the duty of paying the claims against the estate, subject to the order and classification set out in the Estates Code, and the Estates Code provisions dealing with classification of claims (TEC § 355.102), priority of payments (TEC § 355.103), and proration (TEC § 355.108) apply to independent administrators and independent executors. If there are insufficient assets with which to pay all creditors of the same class, then TEC § 355.108 mandates the claims of creditors of such class be paid on a pro rata basis. The independent executor is not authorized to give preference to creditors of the same class. See Jenkins v. First Nat’l Bank of Coleman, 101 S.W.2d 845 (Tex. App. – Austin, 1937, n.w.h.) (finding independent executors liable for executing mortgages on all assets of estate to secure claims of some unsecured creditors to exclusion of others having equal right where estate became insolvent; executor had duty to delay payment of claims until pro rata portion due each creditor could be ascertained). A failure to pay creditors in the correct order can result in personal liability for the independent executor. See Ertel v. O’Brien, 852 S.W.2d 17 (Tex. App. – Waco 1993, writ denied) (“The failure to pay the claims on an estate, or to pay the claims of creditors on a pro rata basis, subjects the executor to individual liability for such failure.”)
Being a trustee is a big responsibility. The trustee is responsible for managing the affairs of the trust, including making payments to any creditors. While the trustee has a lot of leeway, he or she must pay creditors in accord with Texas statutes and laws. In this blog post, our Dallas trust attorneys overviewed some of the issues concerning how Texas law and statutes impact the decisions of a trustee. If you or a loved one is facing a possible dispute over a trust, reach out to one of our Dallas-based attorneys who specialize in trust disputes and litigation under Texas law. Note that we also have a new, satellite office in Plano / Frisco, Texas, that is convenient to all of North Texas.