Is a trustee a necessary party to a family settlement or testamentary trust modification?

In the case of In re Estate of Webb, 266 S.W.3d 544 (Tex. App.—Fort Worth 2008, pet. filed), will and testamentary trust beneficiaries reached a settlement with respect to various will and trust matters.  Beneficiaries then sought to modify the trust under Property Code § 112.054 to bring it into compliance with their settlement.  Trustee objected claiming that he was not a party to the settlement.  The trial court held that Trustee was not a necessary party to the modification action and granted Beneficiaries’ motion to strike the Trustee’s intervention in the case.

The appellate court reversed.  The court determined that Trustee was a necessary party to the settlement as well as a necessary party to any action to modify the trust.  Property Code § 115.011 provides that the trustee is a necessary party if the “trustee is serving at the time the action is filed.”  The court explained that under Probate Code § 37, title to property vests in the beneficiary immediately upon a testator’s death unless the will provides otherwise.  The testator’s will did not provide otherwise and thus when the testator died, the trustee, as a beneficiary of the property albeit it trust, had title to the property.  Thereafter, Trustee accepted the trust and thus he was serving as a trustee making him a necessary party to the action.  Likewise, because Trustee was a beneficiary of the will, a family settlement agreement would not be binding upon him without his consent.

Moral:  A testamentary trustee is a necessary party to (1) family settlement agreements and (2) actions involving the trust.