In In the Matter Of the Estate Of Collins, a December 1, 2021 opinion, the Texas Court of Appeals, Twelfth District, reversed an order of the Texas probate court removing an independent executor and ordering him to pay his attorneys fees from personal funds, determining that as a joint holder of a multiple party account with the decedent, the executor was equally entitled to the funds during decedent’s lifetime and that there was no grounds for removal or showing of an inability to fulfill his duties as executor under the Texas Estates Code.
The Facts Of In the Matter of the Estate Of Betty Jo Collins
Decedent’s grandson, Phillip Bailey, filed an application to probate decedent’s will. Decedent left her entire estate to Bailey. Bailey stated in his application that the decedent died on June 22, 2018, and that the will named John Hobbs as independent executor. The Texas probate court admitted the will to probate and issued letters testamentary to Hobbs.
Hobbs filed an inventory, appraisement, and list of claims in April 2019. One of the items identified on the inventory, appraisement, and list of claims was a checking account at Southside Bank. Hobbs stated the Southside Bank account contained $4,836.58. Bailey asserted that statements from the Southside Bank account showed payments of approximately $800,000 from the account to either Hobbs individually or to Hobbs’ sole proprietorship, JRH. According to Bailey, said payments to Hobbs and JRH occurred after decedent had suffered a major stroke and her husband had died.
Hobbs contended that decedent opened a multiple party account with right of survivorship with him in 1995, and that although Bailey was named as the beneficiary of the joint account, the account “was not designated as a payable on death account.” According to Hobbs, the joint account is “non-testamentary and not subject to being probated.” Hobbs further asserted that the probate assets of the estate have been disbursed, and “[n]o complaint or allegation has been made with regard to any acts and/or omissions on the part of Hobbs in his capacity as the independent executor.” Additionally, Hobbs argued that as a stranger to the Southside Bank account, Bailey lacked standing to question the actions of the joint account holders prior to the decedent’s death.
Records from Southside Bank show that the account was a Multiple-Party Account With Right of Survivorship. The account terms and conditions state that “[o]n the death of a party, the party’s ownership of the account passes to the surviving parties.” The account did not have a payable on death designation.
Hobbs and JRH filed a plea to the jurisdiction, asserting that the joint account was “nontestamentary and not subject to being probated.”
Bailey subsequently filed a motion to remove Hobbs as executor, in which he asserted that “evidence obtained over the preceding months indisputably shows that Hobbs stole approximately $800,000 from the decedent during the final four years of her life – after her husband died, after she suffered a serious stroke, and while she was living in a memory care facility.” Bailey stated that he filed the motion “in his capacity as applicant and sole will beneficiary” and asserted that he is an “interested person” under the Texas Estates Code.
The Texas trial judge signed orders (1) denying Hobbs’s plea to the jurisdiction, and (2) removing Hobbs as executor and ordering Hobbs to pay his attorney’s fees and expenses from his personal funds rather than from funds of the estate.
Standing To Remove An Independent Executor In Texas
On appeal Hobbs first argued that the trial court lacked subject matter jurisdiction because Bailey did not have standing to seek to remove Hobbs as executor
The Texas Estates Code provides that upon the motion of any interested person, the probate court may remove an independent executor who “is proved to have been guilty of gross misconduct or gross mismanagement in the performance of the independent executor’s duties[]” or “the independent executor becomes incapable of properly performing the independent executor’s fiduciary duties due to a material conflict of interest.” TEX. EST. CODE ANN. § 404.0035(b)(2), (4).
The Texas Estates Code defines an “interested person” as “an heir, devisee, . . . or any other having a property right in . . . an estate being administered[.]” Id. § 22.018(1).
The Court summarized Cardona v. Cardona, a case heavily relied on by Hobbs, and distinguished the standing issue in that case:
Cardona involved a lawsuit by some of the decedent’s children (the Appellants) against their brother Francisco regarding Francisco’s alleged breach of fiduciary duty to the decedent and to Appellants. Id. at *1. While acting pursuant to a power of attorney from the decedent, Francisco sold the decedent’s home and placed the proceeds from the sale into an account that was payable on death to himself. Id. The Cardona court concluded that the Appellants lacked standing to pursue a claim against Francisco for breach of fiduciary duty. Id. at *4. In Cardona, the Court of Appeals noted that payable on death accounts are governed by a written agreement and are not part of the decedent’s estate, and the Court concluded that Appellants failed to prove that Francisco breached any fiduciary duty to the decedent that diminished his estate. Id. Cardona did not involve the attempted removal of an executor by a devisee under Section 404.0035(b) of the Texas Estates Code. Rather, Cardona involved a separate lawsuit for breach of fiduciary duty, which was not filed in the probate court. We therefore conclude that, with respect to the issue of standing, Cardona is distinguishable and inapposite to the facts presented in the instant case.
The Court concluded that as the sole devisee under decedent’s will, Bailey is an “interested person” who is statutorily authorized to seek removal of the executor under the Texas Estates Code, and the trial court therefore had subject matter jurisdiction over Bailey’s motion to remove Hobbs.
Removal of an Executor in Texas Probate
Hobbs also argued that the Texas probate court should not have removed him as executor, and that Bailey failed prove a statutory ground justifying his removal under Section 404.0035(b) of the Texas Estates Code. See id. § 404.0035(b).
An interested person may seek removal of an independent executor who “is proved to have been guilty of gross misconduct or gross mismanagement in the performance of the independent executor’s duties[]” or if “the independent executor becomes incapable of properly performing the independent executor’s fiduciary duties due to a material conflict of interest.” TEX. EST. CODE ANN. § 404.0035(b)(2), (4). The party seeking to have an independent executor removed has the burden of establishing a violation of the statute. Kappus v. Kappus, 284 S.W.3d 831, 835 (Tex. 2009).
Money held in a multiple party account on the death of a party belong to the surviving party or parties. Here, Bailey argued that the Texas probate court properly removed Hobbs as the executor because Hobbs would not pursue any claim that the decedent’s estate might have against him, and that Hobbs is guilty of “gross misconduct and/or gross mismanagement.”
The Court determined that because Hobbs and the decedent had equal rights to the funds in the multiple party account during the decedent’s lifetime, there was no evidence that Hobbs engaged in gross misconduct in his performance as executor or was incapable of performing his fiduciary duties, stating:
All of Bailey’s contentions involve the multiple-party account with right of survivorship. The signature card and terms and conditions of the account indicate that the account was created as a multiple-party account with right of survivorship, and that upon the death of one party, the deceased party’s ownership of the account would pass to the other party. See TEX. EST. CODE ANN. § 113.151. Therefore, under the Texas Estates Code, the account was non-testamentary, and the funds passed to Hobbs pursuant to the account contract. See id. § 113.158. Furthermore, because the account was non-testamentary and Hobbs and the decedent had equal rights to the funds in the account during decedent’s lifetime, there was no evidence that Hobbs either (1) engaged in gross misconduct or gross mismanagement in the performance of his duties as executor or (2) was incapable of properly performing his fiduciary duties due to a material conflict of interest. See id. § 404.0035(b)(2), (4); Stauffer, 801 S.W.2d at 863. We conclude that Bailey failed to meet his burden of establishing a violation of the statute, and the trial court therefore abused its discretion by removing Hobbs. See TEX. EST. CODE ANN. § 404.0035(b)(2), (4); Kappus, 284 S.W.3d at 835; Downer, 701 S.W.2d at 241-42; In re Estate of Clark, 198 S.W.3d at 275; Lee, 47 S.W.3d at 786. Accordingly, we sustain issue two.
Requiring Executor To Pay Expenses and Fees With Personal Funds
Hobbs also argued that the trial court erred by ordering him to pay his attorney’s fees and expenses in defending the removal action with his personal funds rather than estate funds. The appellate court agreed, stating:
Section 404.0037(a) of the Texas Estates Code provides as follows: “An independent executor who defends an action for the independent executor’s removal in good faith, whether successful or not, shall be allowed out of the estate the independent executor’s necessary expenses and disbursements, including reasonable attorney’s fees, in the removal proceedings.” TEX. EST. CODE ANN. § 404.0037(a) (West 2020) (emphasis added). “Because the word ‘shall’ normally imposes a mandatory requirement, and nothing in the statute indicates a different intent, the requirement that an independent executor who defends a removal action in good faith be allowed to pay the executor’s reasonable and necessary legal fees from estate funds is mandatory.” Estate of Nunu, 542 S.W.3d 67, 81 (Tex. App.—Houston [14th Dist.] 2017, pet. denied).
We concluded above in our analysis of issue two that the trial court abused its discretion by removing Hobbs because there was no evidence of the statutory grounds for doing so. It necessarily follows that Hobbs defended the removal action in good faith, and it was therefore mandatory for the trial court to allow Hobbs to recover his attorney’s fees and expenses from the estate. See TEX. EST. CODE ANN. § 404.0037(a); see generally id. §§ 113.151, 113,158, 404.0035(b)(2), (4).
The Texas appellate court reversed the order removing Hobbs as executor and requiring Hobbs to pay his attorney’s fees and expenses from his personal funds.
