FCLT Loans, L.P. v. Estate of Bracher, 93 S.W.3d 469 (Tex. App.—Houston [14th Dist.] 2002, no pet.).
Settlor funded several revocable trusts in 1988. After Settlor’s
death, Creditor claimed that Settlor funded these trusts in a fraudulent
manner and sought to set aside the transfers. The executors of Settlor’s
estate obtained a summary judgment from the trial court that the
transfers could not be set aside because Creditor’s action was barred by
the four year statute of limitations in Business and Commerce Code §
24.010. Creditor appealed.
The appellate court reversed. The court focused on the definition of
“transfer” in Business and Commerce Code § 24.007(1)(A) which provides
that a transfer does not occur until it “is so far perfected that a good
faith purchaser of the asset from the debtor against whom applicable law
permits the transfer to be perfected cannot acquire an interest in the
asset that is superior to the interest of the transferee.” The court
held that because Settlor retained the power to revoke the trust, the
transfer did not occur until Settlor died in 1997 and thus Creditor’s
claim was not barred by limitations.
Moral: A settlor who wants to use a trust to protect assets from
creditors must make certain the trust is irrevocable.
FCLT Loans, L.P. v. Estate of Bracher, 93 S.W.3d 469 (Tex. App.—Houston [14th Dist.] 2002, no pet.).
Creditor of Decedent alleged that Executors violated their fiduciary
duties to Creditor by allowing Decedent’s assets to be distributed
without first paying Creditor’s claim. The trial court granted Executors
request for a summary judgment and Creditor appealed.
The court provided a detailed analysis of the type of relationship which
exists between an executor and the decedent’s creditors. The court began
by recognizing that there is no formal recognition of such a fiduciary
duty as a matter of law. The court explained that Probate Code § 146(a)
merely imposes a statutory duty on independent executors to approve and
pay proper claims against the estate. The court held that this statutory
duty does not provide a sufficient basis on which to hold that an
independent executor holds estate assets in trust for the benefit of the
creditors. The court looked at several Texas cases which described the
relationship between the executor and the creditors as “fiduciary” in
character but concluded that they did not stand for the principle that
an independent executor automatically holds estate assets for the
benefit of estate creditors. The court did recognize, however, that the
wording of a court order could impose such a duty.
Moral: Creditors of a decedent need to recognize that they must look out
for their own interests because the independent executor does not,
without more, stand in a fiduciary relationship with them.
FCLT Loans, L.P. v. Estate of Bracher, 93 S.W.3d 469 (Tex. App.—Houston [14th Dist.] 2002, no pet.).
Creditor of Decedent alleged that Trustees violated their fiduciary
duties to Creditor by allowing Decedent’s assets which were transferred
to the trust to be distributed without first paying Creditor’s claim.
Both the trial and appellate courts agreed that Creditor provided no
evidence of a relationship between Trustees and Creditor which would
give rise to a fiduciary duty.
Moral: A trustee does not generally owe fiduciary duties to the
creditors of the settlor.
FCLT Loans, L.P. v. Estate of Bracher, 93 S.W.3d 469 (Tex. App.—Houston [14th Dist.] 2002, no pet.).
Settlor created revocable trusts for Settlor’s benefit which
contained spendthrift provisions. After Settlor’s death, Creditor
asserted that the property in the trusts was subject to its claim
because Trust Code § 112.035(d) provides that a spendthrift clause is
ineffective to prevent creditors from reaching trust assets to satisfy
claims if the settlor is also a beneficiary. Creditor requested a
summary judgment declaring that Creditor has a statutory lien on the
trust assets.
The trial and appellate courts agreed that Creditor was not entitled to
a summary judgment because there is no Texas authority determining
whether a creditor may recover from the trust property after the settlor
of a self-settled spendthrift trust dies. The court recognized that this
was an issue of first impression in Texas and stated that it expressed
no opinion as to whether Trust Code § 112.035(d) applies after a
settlor’s death.
Moral: A creditor of the settlor of a self-settled spendthrift trust
should begin proceedings to collect from trust property while the
settlor is still alive because the creditor’s ability to collect from
trust property after the settlor’s death has not been determined under
Texas law.