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Di Portanova v. Monroe, 229 S.W.3d 324 (Tex. App.—Houston [1^st Dist.] 2006, pet. denied).

Trusts

Declaratory Judgments

Guardian of incapacitated beneficiary filed a declaratory judgment action to determine whether it would be within the terms of the trust for Trustees to make certain tax-motivated gifts from the trust and pay the taxes thereon which together would total over $6.5 million.  The trial court issued a declaratory judgment that these expenditures would be authorized.  Trustees appealed.

The appellate court reversed.  The court recognized that resolving a trust dispute by way of a declaratory judgment is clearly authorized under Civil Practice & Remedies Code § 37.004.  But, in this case, there was no justiciable controversy.  Instead, Guardian’s action was in actuality a request for an advisory opinion.  The trust granted Trustees the power to determine whether to make distributions and then those distributions must be in the best interests of Beneficiary.  Guardian was attempting to side-step Trustees and have a court determine what would be in Beneficiary’s best interest, rather than Trustees as Settlor intended.  Thus, the ultimate issue presented to the trial court, that is, whether Beneficiary’s best interest would be served by making these gifts, did not present a justiciable controversy for the court.

Moral:  A beneficiary who wishes the trustee of a discretionary trust to take some action cannot obtain a declaratory judgment that such action would be within the trustee’s powers and then force the trustee to take that action.

Wills

No Contest Clause

Not Breached

Beneficiary’s guardian brought a declaratory judgment action to determine whether it would be within the terms of the trust for Trustees to make certain tax-motivated gifts from the trust and pay the taxes thereon which together would total over $6.5 million.  Trustees asserted that this action triggered the in terrorem clause of the will.  The trial court held that clause was not triggered and the parties who would benefit from a forfeiture appealed.

The appellate court affirmed.  The clause provided for forfeiture if a beneficiary brings an action “for the purpose of modifying, varying, setting aside or nullifying any provision” of the will.  The court determined that the declaratory judgment action did not fall within the scope of this clause.  The court rejected the argument that the declaratory judgment would have, in effect, changed the beneficiaries of the trust because of the gifts that would occur.  The court explained that the action was actually to clarify the authority of Trustees, not to alter it.

Moral:  A no contest clause is unlikely to be triggered by actions to ascertain the extent of a fiduciary’s authority.

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