Who Pays Trust Litigation Attorney Fees?

A common question that arises during litigation concerning trusts is how the attorney’s fees are going to be paid. There are often several parties, trustees, beneficiaries, and potential third parties who are all looking at each other for payment of attorney’s fees in contested litigation. The reality of payment and the expense of litigation may come to surprise beneficiaries when they begin to contemplate litigation regarding their trust.

Must Be Necessary & Beneficial

The Texas Trust Code provides that a trustee may employ attorneys, accountants, and agents “reasonably necessary in the administration of the trust estate.” In the litigation context, especially in those situations involving potential breaches of trust or breaches of fiduciary duty, the question of whether the trustee’s attorney’s fees may be paid from the Trust revolves around whether a benefit can be conferred on the trust.

The questions of whether attorney’s fees are “reasonably necessary” and whether the trust was benefited by the Trustee’s actions come into play when the court is assessing the costs of litigation.

When filing a lawsuit, the beneficiary about to engage in long, protracted litigation with a trustee should be wary – the trustee potentially has, at least at the opening of the litigation, the upper hand. A trustee has access to, and use of, the trust’s assets and, in many cases, might be able to outspend the beneficiary. There may be ways to attempt to constrict the trustee’s ability to make use of the funds or assets of the trust, but that relief is not guaranteed nor is it mandatory.

Because trust litigation often involves a disagreement between the beneficiary and the trustee about how the trust assets should be or have been administered, there is often disagreement about whether the assessment of the trustee’s attorney’s fees against the trust is proper. The precedent in Texas is that, generally, a trustee may charge the trust for its attorney’s fees incurred in defending charges of breach of trust, so long as the trustee is acting reasonably and in good faith.

Bad behavior on behalf of the trustee, or even negligent behavior, may cause a finding by the Court that the attorney’s fees charged may not be reimbursed or may need to be repaid to the trust corpus, which is the principal amount in the trust. Ultimately the beneficiary, or rather the assets which the beneficiary has an interest in pursuant to the trust, may be paying all of the attorney’s fees, depending on the outcome of the litigation.

As it specifically relates to a beneficiary in trust litigation, there is no direct provision that relates to a beneficiaries’ ability to collect either from the Trust or the Trustee. Beneficiaries have, in case law, made use of the Court’s broad discretion under Texas Property (Trust) Code §114.064 to have the court allocate fees.

When Bad Conduct Worsens

A pleading filed by a beneficiary in trust litigation should include provisions related to the payment of attorney’s fees – including a request for the court to assess fees under Texas Property (Trust) Code §114.064 as is equitable and just. But what if the conduct is worse? What can you do as a beneficiary when you know the trustee has breached their duty and yet you continue to watch them spend trust assets to defend the wrongful conduct?

The first place a beneficiary should turn is Section 114.008 of the Texas Property (Trust) Code. This section contains various remedies that the court can exercise when a breach of trust has occurred or might occur. The beneficiary need not wait until the trustee has breached his duty, but can act to prevent it from occurring. Specifically, in response to allegations of a breach of trust or impending breach of trust, the Court may:

• Compel the trustee to perform a duty
• Enjoin the trustee from committing a breach of trust
• Compel the trustee to redress a breach of trust, including compelling the trustee to pay money or restore property
• Order a trustee to account
• Appoint a receiver over the trust and its assets
• Suspend the trustee
• Remove the trustee
• Reduce or deny trustee compensations
• Void an act of the trustee, impose a lien, or a constructive trust on trust property
• Order any other appropriate relief

The court may not award the beneficiary’s full request for relief against the trustee, but may be inclined to tailor a result that best suits the case. In that vein, the beneficiary seeking interim relief should also likely consider the cost of such remedies as well. Imposition of a receiver, accounting for long periods of time, or replacing trustees may have a significant financial impact on the total value of the trust corpus.

Courts may decline to use harsher remedies if the circumstances of the case or assets remaining might be quickly depleted. The request for interim remedies may net you discovery that you needed, an overdue accounting, or production of documents that may assist in the construction of your case.

One such interim remedy is “injunctive relief”’. This is a court order that temporarily protects the trust’s assets by restricting certain actions of the trustee. Injunctive relief ensures that the assets are preserved and kept safe while the legal issues are being resolved, preventing any potential misuse or loss until a final decision is made.

Conclusion

There are mechanisms in place to recover and potentially stop a trustee from taking steps that would allow trust assets to be diverted to cover a fiduciary’s wrongdoing. Additionally, there are also mechanisms to protect the long-suffering trustee. But, at the end of the day, when considering who is paying the attorney’s fees, the beneficiary should always be cognizant that, unless the Court orders otherwise, the cost and expense of the litigation are likely going to be borne by the very assets which they are about to go to war over. The depletion of the trust estate in long and protracted litigation can be a real fear in pursuing claims against a trustee.