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Trust property could be tied up by a long-term lease

A Texas man put some ranch property into a trust. The trust was designed to pay regular income from the property to the man’s son. When the son died, the ranch was to go to his grandson.

The trustee (a bank) entered into a long-term lease for the property. The result was that when the son died, the grandson didn’t get the ranch all to himself; instead, he inherited it subject to the lease, which meant he couldn’t immediately sell it.

The grandson sued the bank trustee. But a Texas appeals court sided with the bank. It said there was nothing in state law or in the trust agreement that said the trustee couldn’t enter into a long-term lease, if that was otherwise an appropriate use of the property and a good way to provide income to the son.

The moral of the story is that if you’re setting up a trust and you want the ultimate beneficiary of the assets to have an unlimited right to them when the time comes, you’ll want to limit the power of the trustee to tie up the property in such a way.

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