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The terms of a trust won’t always excuse breaches

As this blog has discussed on previous occasions, Texas trustees, that is, those who manage the property held in a trust, have both a lot of power and a lot of responsibility.

With considerable freedom, trustees are allowed to manage what is often a large amount of wealth; however, they are responsible to do so consistent with the best interest of those who ultimately stand to benefit from the trust.

A trustee who fails to do so may be held accountable for breach of fiduciary duty. After proving a breach, the beneficiaries of the trust can force the trustee from his or her office and make him or her pay compensation out of his or her personal funds.

One wrinkle about which a beneficiary of a trust should be aware is that, in Texas, those who create a trust are allowed to include what is called an exculpatory clause in the trust.

As the name implies, the exculpatory clause allows a trustee to avoid suits for what might be called accidental or even careless breaches of fiduciary duty. For instance, an exculpatory clause may protect a hapless but honest trustee who just made some bad financial decisions about how to invest the trust’s money.

On the other hand, exculpatory clauses are not enforceable when a trustee breaches his or her fiduciary duty on purpose, say by self-dealing or pilfering the trust. Likewise, if a trustee acts in bad faith or recklessly, an exculpatory clause will not shield the trustee from liability.

Exculpatory clauses can and often do appear in trust documents for a number of reasons. Those in the Houston area who feel they have a claim against a trustee should be aware that an exculpatory clause might affect their case. An attorney with experience in trust litigation can answer detailed questions.