Family members sometimes create trusts for elderly parents as part of estate planning or to protect assets. An adult child acting under a durable power of attorney transfers the parent’s home, bank accounts, and personal property into a trust. The child names an attorney as trustee. Other family members become concerned. They question whether the parent had the mental capacity to authorize these transfers or whether the power of attorney gave the child authority to create a trust.
When disputes arise over a trust created shortly before guardianship proceedings begin, the guardianship court faces difficult questions. Does the court have authority to void the trust? Can the court order trust assets transferred to the court’s registry? What happens when the attorney serving as trustee claims the trust is valid and irrevocable?
These questions become particularly pressing when evidence suggests the person lacked decision-making capacity at the time the trust was created. The tension between protecting an incapacitated person’s assets and respecting property transfers that may have been validly executed presents challenges for probate courts handling guardianship matters.
Ross v. Sims, No. 03-16-00179-CV, 2017 WL 592212 (Tex. App.—Austin Feb. 15, 2017, no pet.) (mem. op.) provides an opportunity to consider this issue.
Facts & Procedural History
Sybil had three children: Harold Jr., Cynthia, and Suzanne. After Sybil suffered a stroke in December 2014, disputes arose between her children about her care and control of her assets. Shortly after the stroke, Sybil signed a durable power of attorney appointing Suzanne as her agent.
Central to the dispute was a trust purportedly created on September 8, 2015. Philip Ross signed two separate trust agreements as trustee. In one trust agreement, Suzanne signed as Sybil’s “agent pursuant to a Durable Power of Attorney.” Sybil signed the other trust agreement on her own behalf. Sybil also signed a contract for legal services hiring Ross as her attorney, a special warranty deed transferring her house to Ross as trustee, and a bill of sale transferring her personal property to Ross as trustee. Suzanne, as agent for Sybil pursuant to the durable power of attorney, contemporaneously signed a bill of sale also transferring Sybil’s personal property to the trust.
A few days after the trust was purportedly created, Harold filed an application for appointment of permanent guardian of the person and estate of Sybil in Bexar County. Harold alleged that Suzanne was moving Sybil, who was 91 years old, and Sybil’s property from her house in San Antonio to an undisclosed location. He sought to be appointed guardian of the person and requested that Cynthia be appointed guardian of the estate. Cynthia subsequently joined as an applicant for appointment of a guardian.
The trial court appointed an attorney ad litem. A court investigator filed a report with the trial court. The court investigator reported about the transfer of Sybil’s assets to the trust and about Sybil’s mental and physical condition. The investigator noted that Sybil had a diagnosis of dementia rated from mild to moderate since December 2013, that she had a stroke in December 2014, and that she did not have decision-making capacity.
Sybil and Suzanne entered a special appearance through their attorney Ross. The parties agreed to transfer the case to Comal County because Sybil and Suzanne had moved to an apartment there. After the transfer, the trial court appointed a guardian ad litem and authorized an independent medical examination of Sybil. Harold and Cynthia filed a motion to show authority challenging Ross’s authority to represent Sybil.
A hearing was held on the motion to show authority on January 13, 2016. The psychiatrist who examined Sybil pursuant to the court-ordered medical examination testified about her medical conditions, including dementia and Alzheimer’s disease. Based on his observations and testing of Sybil in November 2015, he concluded with virtual medical certainty that Sybil had not had decision-making capacity after having a stroke in December 2014. The psychiatrist testified there was no possibility that on September 8, 2015, Sybil could have understood that she was transferring her home into the trust, that all of her personal property including cash was going to be transferred into the trust, or that she had the decision-making capacity to hire a lawyer, sign a deed, execute any legal document, or change powers of attorney.
Ross cross-examined the psychiatrist and called Suzanne to testify about her mother’s decision-making capacity on September 8, 2015. Suzanne testified that Sybil “seemed clear and understood what she was doing.” Ross also called a psychiatrist he had hired to examine Sybil, but the trial court sustained objections to that psychiatrist’s testimony. At the conclusion of the hearing, the trial court orally granted the motion to show authority, removed Ross from representing Sybil in the guardianship proceeding, and instructed him to turn over all documents related to Sybil to the attorney ad litem.
Ross later filed a plea in intervention asserting he had standing to intervene as a person interested in the welfare of Sybil. Harold and Cynthia filed a motion to strike the plea in intervention and jury demand. They also filed an application for an emergency temporary restraining order and temporary injunction seeking to enjoin the withdrawal of money from any account associated with Sybil or the transfer or sale of any of Sybil’s property.
The probate court held a hearing and granted the motions to strike Ross’s intervention and jury demand. The trial court found that Ross’s intervention was not timely and that his position was adverse to Sybil. The trial court then granted a temporary injunction against Ross.
The trial court later signed orders voiding the trust and removing funds to the Comal County Court at Law. The court found that Sybil did not have requisite mental capacity to contract with Ross on September 8, 2015, regarding the legal services he offered, to contract or dispose of her property regarding the trust, or to sign the statutory power of attorney dated December 31, 2014. The court found that Suzanne did not have authority under any statutory power of attorney to create a trust on behalf of Sybil or to transfer Sybil’s assets thereto. The trial court ordered bank accounts holding funds that were purportedly transferred to the trust closed and the funds from those accounts placed with the County Court at Law “for the benefit of Sybil B. Sims.”
The trial of the guardianship proceeding occurred on March 23, 2016. Following the trial, the court signed an order appointing Cynthia as the permanent guardian over the person and estate of Sybil. In the order, the trial court found by clear and convincing evidence that Sybil was an incapacitated person. Ross appealed.
Does a Guardianship Court Have Authority to Void a Trust?
Ross argued that the trial court violated his due process rights by voiding the trust and transferring funds to the trial court’s registry without allowing him a meaningful opportunity to participate in an evidentiary hearing or jury trial. He contended that as trustee, he was deprived of property without due process of law.
The court of appeals concluded that Ross’s due process arguments were without merit. The orders voiding the trust were based on evidence presented at the January 2016 hearing. Ross fully participated in that hearing in which the trial court considered his authority to represent Sybil and Sybil’s decision-making capacity. Ross had the opportunity to argue his positions, present evidence to support his positions that Sybil had decision-making capacity to hire him as her attorney and to transfer her assets to the trust, and cross-examine the court-appointed psychiatrist.
A party’s right to due process does not mean that a case may never be disposed of before a trial. The right to be heard is fundamental to the concept of due process. A litigant’s right to be heard generally includes the right to a full and fair hearing before a court having jurisdiction over the matter, the right to introduce evidence and to examine witnesses, and the right to have judgment rendered only after a trial on the merits. However, due process does not require a full trial in every circumstance.
Here, Ross participated in the January hearing where the trial court considered evidence about Sybil’s capacity. At the following hearing in February, Ross similarly had the opportunity to participate. The trial court considered Harold’s and Cynthia’s motions to strike Ross’s plea in intervention and jury demand and their request for a temporary injunction. After hearing arguments from the parties, including Ross, the trial court found that Ross’s position was adverse to Sybil and that his intervention was not timely.
Was Ross Entitled to a Jury Trial?
Ross argued that the trial court improperly denied his demand for a jury trial before declaring the trust void and transferring its assets. Section 1055.052 of the Texas Estates Code entitles a party in a contested guardianship proceeding to a jury trial on request. Ross demanded a jury in pleadings that he filed as Sybil’s attorney, in pleadings filed as intervenor, and in his response to the application for temporary injunction.
The court of appeals concluded that Ross had not cited authority that would support his position that he was entitled to a jury trial in this guardianship proceeding. After Ross’s plea in intervention was struck, his request for a jury trial as an intervenor was moot. Similarly, after the trial court granted the motion to show authority and removed him from representing Sybil, the pleadings that he filed as Sybil’s attorney were struck, including her request for a jury demand.
The court noted that only ultimate issues of fact are to be submitted to a jury. A motion to show authority in a guardianship proceeding does not involve determination of ultimate issues of fact for a jury. The trial court can determine such a motion even though the determination touches on the proposed ward’s capacity. The Texas Estates Code requires the court to determine a person’s standing to commence or contest a proceeding and gives the court discretion to grant or deny intervention by an interested person.
Can Trust Assets Be Used to Pay Guardianship Costs?
Ross argued that the trial court erred in paying costs from trust funds that were unlawfully transferred to the registry of the trial court. He contended that payment of those costs was an obligation of Sybil’s estate or the county treasurer, but not an obligation of his as trustee of the trust.
The court of appeals concluded this argument was without merit. Costs such as attorney’s fees generally are properly assessed against an estate in a guardianship proceeding. Section 1155.054 of the Texas Estates Code addresses payment of attorney’s fees out of a ward’s estate unless the estate is insufficient to pay the amounts. Section 1155.151 addresses costs in guardianship proceedings generally. The Estates Code requires appointment of an attorney ad litem to represent the proposed ward’s interests and addresses appointment of a guardian ad litem.
The trial court is required to pay the costs of the guardian ad litem and the attorney ad litem out of the guardianship estate if the estate is sufficient to pay the costs. The trial court ordered that Sybil’s funds be placed with the court for the benefit of Sybil. Those funds properly could be used to pay costs of the guardianship proceeding.
Did the Evidence Support Voiding the Trust?
The court of appeals reviewed whether Ross had shown that any alleged due process violations probably caused the trial court to render an improper judgment or prevented him from presenting his case. Ross’s issues did not challenge the trial court’s appointment of Cynthia as the permanent guardian of Sybil. In the order appointing Cynthia, the trial court found by clear and convincing evidence that Sybil was an incapacitated person.
This finding was supported by the court-appointed psychiatrist’s testimony that it was a virtual medical certainty that Sybil had not had decision-making capacity since the time of her stroke. The psychiatrist also testified that he examined Sybil in November 2015 and that she could not tell him anything about the trust. Mental capacity means that the grantor at the time of execution of a deed must have had sufficient mind and memory to understand the nature and effect of the act.
The court concluded that Ross failed to show that his due process rights were violated when the trial court voided the trust and ordered Sybil’s funds placed with the trial court for Sybil’s benefit. Ross also failed to show that any such violation caused the rendition of an improper judgment or prevented him from presenting his case to the court.
The Takeaway
A guardianship court has authority to void a trust and order trust assets transferred to the court’s registry when evidence establishes that the settlor lacked decision-making capacity at the time the trust was created. Due process does not require a full trial on the merits when the party seeking to uphold the trust has had opportunities to participate in hearings, present evidence, and cross-examine witnesses regarding the settlor’s capacity. A party claiming to be trustee of a trust created shortly before guardianship proceedings is not automatically entitled to a jury trial on the validity of the trust when the trial court strikes the trustee’s plea in intervention for being untimely and adverse to the proposed ward’s interests. The Ross case demonstrates that courts will scrutinize trusts created near the time guardianship proceedings are initiated, particularly when medical evidence establishes that the settlor suffered from dementia and lacked decision-making capacity after a stroke. Costs of guardianship proceedings, including attorney ad litem and guardian ad litem fees, may properly be paid from funds that were transferred into a trust that is subsequently voided by the court.
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