Special Rules and Proceedings: Rule 98

RULE 98


Trustees


Section 1. Where trustee appointed. —

A trustee necessary to carry into effect the provisions of a will on written instrument shall be appointed by the Court of First Instance in which the will was allowed, if it be a will allowed in the Philippines, otherwise by the Court of First Instance of the province in which the property, or some portion thereof, affected by the trust is situated.


Where Trustee is Appointed

  1. A trustee necessary to carry into effect the provisions of a:

    1. Will, or

    2. Written instrument

  2. shall be appointed by The RTC in which the will is allowed, or

  3. RTC of the province in which the property or some portion thereof affected by the trust is situated.


  • Section 1 above determines the venue where a petition for the appointment of a trustee should be filed. 

  • However, note that the petition may also be filed in the settlement proceedings of a decedent's estate if the decedent willed that certain properties should be placed in trust.


Trust Defined

  • A trust is a confidence reposed in one person, called the trustee, for the benefit of another called the cestui que trust, with respect to property held by the former for the benefit of the latter.


Exercise of Sound Judgment by the Court in the Appointment of a Trustee

  • We learn from Lorenzo v. Posadas that a probate court may exercise sound judgment in appointing a trustee to carry into effect the provisions of the will where:

    1. A trust is actually created by the will,

    2. There is a provision that certain property shall be kept together undisposed during a fixed period, and

    3. The trust is created for a stated purpose.


Acquiring the Trust by Prescription

  • While a trust may be created by provisions in a testator's will, a trustee may acquire the trust by prescription provided that there is:

    1. A repudiation of the trust, and

    2. Such repudiation is open, clear, and unequivocal, known to the cestui que trust.

  • Rule 98 applies only to an express trust—one which is created by will or written instrument—and not to an implied trust, which:

    • is deducible from the nature of the transaction as a matter of intent, or

    • is superinduced on the transaction by operation of law as a matter of equity, independent of the particular intention of the parties.


Distinguished from Executor or Administrator

  • A trustee, like an executor or administrator, holds an office of trust, particularly when acting under judicial authority. However:

    1. The executor's or administrator's duties are fixed or limited by law.

    2. The trustee's duties are usually governed by the intention of the trustor or the parties, if the trust is established by contract.

  • A trustee's duties generally cover a wider range than those of executors or administrators of an estate.


  1. Accounts

    • Executor/Administrator:

      • Accounts are filed only when required by the court.

      • Only initial and final accounts are required to be under oath.

    • Trustee:

      • Must file an annual account under oath.

  2. Where to File

    • Executor/Administrator:

      • Filed in the Municipal Trial Court or Regional Trial Court, depending on the gross value of the estate.

    • Trustee:

      • Will: Filed in the Regional Trial Court that admitted the will to probate.

      • Written instrument: Filed in the Regional Trial Court of the province where the property is located.

  3. Acts of Administration

    • Executor/Administrator:

      • Upon application to the court with written notice to the heirs, the executor may sell, encumber, or mortgage the property if it is 

        1. necessary for the purpose of paying:

          1. debts

          2. expenses of administration

          3. legacies, or 

        2. for the preservation of the property, or

        3. beneficial to the heirs, legatees, or devisees

    • Trustee:

      • On petition and after due notice and hearing, the court may order the sale or encumbrance of the property held

      • in trust if it is necessary or expedient. 

      • The proceeds shall be reinvested or applied in such a manner as will best effect the objects of the trust.

  4. Order of Sale

    • Executor/Administrator:

      • No time limit

    • Trustee:

      • No time limit

  5. When Appointment is Made

    • Executor/Administrator:

      •  For the settlement of the decedent's estate.

    • Trustee:

      • To carry into effect the provisions of a will or a written instrument.

  6. Bond Requirement

    • Executor/Administrator:

      • Not exempted from filing a bond, even if the will provides for exemption.

      • If the will exempts the executor, a bond is still required for payment of debts.

    • Trustee:

      • General rule: Trustee must file a bond.

      • Failure to file a bond = deemed refusal or resignation from the trust.

      • Exemptions:

        1. If the testator explicitly exempts the trustee in the will.

        2. If all beneficiaries (of full age) request exemption.

  7. Termination

    • Executor/Administrator: 

      • Ends after paying debts and distributing the estate to the heirs.

    • Trustee: 

      • Ends after turning over the property to the beneficiary upon trust expiration.

  8. Obligation to Pay Debts

    • Executor/Administrator: 

      • Required to pay the debts of the estate.

    • Trustee: 

      • Not obligated to pay the debts of the trustor or beneficiaries.



Section 2. Appointment and powers of trustees under will. Executor of former trustee need not administer trust. — 

If a testator has omitted in his will to appoint a trustee in the Philippines, and if such appointment is necessary to carry into effect the provisions of the will, the proper Court of First Instance may, after notice to all persons interested, appoint a trustee who shall have the same rights, powers, and duties, and in whom the estate shall vest, as if he had been appointed by the testator. No person succeeding to a trust as executor or administrator of a former trustee shall be required to accept such trust.


Appointment and Powers of Trustees under a Will

  • If a testator failed to appoint a trustee in the Philippines, the RTC may appoint one after notifying all interested parties.

    • The appointed trustee will have the same rights, powers, and duties as if the testator had designated them.

  • An executor or administrator of a deceased trustee is not required to assume the trust.



Section 3. Appointment and powers of new trustee under written instrument. — 

When a trustee under a written instrument declines, resigns, dies or removed before the objects of the trust are accomplished, and no adequate provision is made in such instrument for supplying the vacancy, the proper Court of First Instance may, after due notice to all persons interested, appoint a new trustee to act alone or jointly with the others, as the case may be. Such new trustee shall have and exercise the same powers, right, and duties as if he had been originally appointed, and the trust estate shall vest in him in like manner as it had vested or would have vested, in the trustee in whose place he is substituted and the court may order such conveyance to be made by the former trustee or his representatives, or by the other remaining trustees, as may be necessary or proper to vest the trust estate in the new trustee, either or jointly with the others.


Appointment and Powers of New Trustee under a Written Instrument

  • If a trustee named in a written instrument declines, resigns, dies, or is removed before fulfilling the trust the RTC may appoint a new trustee if no provision was made for filling the vacancy.

  • The appointment must be made after due notice to all interested parties.

  • The new trustee will have the same powers, rights, and duties as the original trustee.

  • The trust estate will vest in the new trustee as it would have in the original trustee.

  • The court may order necessary conveyances to transfer the trust estate to the new trustee.



Section 4. Proceedings where trustee appointed abroad. — 

When land in the Philippines is held in trust for persons resident here by a trustee who derives his authority from without the Philippines, such trustee shall, on petition filed in the Court of First Instance of the province where the land is situated, and after due notice to all persons interested, be ordered to apply to the court for appointment as trustee; and upon his neglect or refusal to comply with such order, the court shall declare such trust vacant, and shall appoint a new trustee in whom the trust estate shall vest in like manner as if he had been originally appointed by such court.


Proceedings Where Trustee is Appointed Abroad

  • If a trustee holding land in the Philippines derives their authority from outside the country:

    • They must apply for appointment as trustee before the RTC of the province where the land is located.

  • If they neglect or refuse to apply, the court shall declare the trust vacant and appoint a new trustee.

  • The newly appointed trustee will have the same authority as if originally designated by the court.



Section 5. Trustee must file bond. — 

Before entering on the duties of his trust, a trustee shall file with the clerk of the court having jurisdiction of the trust a bond in the amount fixed by the judge of said court, payable to the Government of the Philippines and sufficient and available for the protection of any party in interest, and a trustee who neglects to file such bond shall be considered to have declined or resigned the trust; but the court may until further order exempt a trustee under a will from giving a bond when the testator has directed or requested such exemption and may so exempt any trustee when all persons beneficially interested in the trust, being of full age, request the exemption. Such exemption may be cancelled by the court at any time and the trustee required to forthwith file a bond.


Trustee Must File a Bond

  • Before assuming duties, a trustee must file a bond with the court clerk, in an amount set by the judge.

  • The bond must be:

    • Payable to the Philippine Government

    • Adequate to protect the interests of beneficiaries

  • If a trustee fails to file the bond, they are deemed to have declined or resigned from the trust.

  • Exemptions:

    • If the testator expressly requested it.

    • If all beneficiaries of legal age agree to the exemption.

  • The court may cancel the exemption at any time and require the trustee to file a bond immediately.



Section 6. Conditions included in bond. — 

The following conditions shall be deemed to be part of the bond whether written therein or not;


(a) That the trustee will make and return to the court, at such time as it may order, a true inventory of all the real and personal estate belonging to him as trustee, which at the time of the making of such inventory shall have come to his possession or knowledge;


(b) That he will manage and dispose of all such estate, and faithfully discharge his trust in relation thereto, according to law and the will of the testator or the provisions of the instrument or order under which he is appointed;


(c) That he will render upon oath at least once a year until his trust is fulfilled, unless he is excused therefrom in any year by the court, a true account of the property in his hands and the management and disposition thereof, and will render such other accounts as the court may order;


(d) That at the expiration of his trust he will settle his account in court and pay over and deliver all the estate remaining in his hands, or due from him on such settlement, to the person or persons entitled to thereto.


But when the trustee is appointed as a successor to a prior trustee, the court may dispense with the making and return of an inventory, if one has already been filed, and in such case the condition of the bond shall be deemed to be altered accordingly.


Conditions of the bond 

  • The trustee must file a bond in an amount fixed by the court payable to the Government of the Philippines. 

  • Failure to do so shall be considered as declining or resigning the trust. 

  • The bond shall include the following conditions on the trustee:

    1. Make and return to the court a true inventory of all real and personal estate that at the time of the inventory shall have come to his possession or knowledge;

    2. Manage and dispose of all such estate according to law and the will of the testator or provisions of the instrument or order under which he was appointed; 

    3. Render a true account of the property in his hands; and 

    4. At the expiration of the trust, settle his accounts in court and pay over and deliver all the estate remaining in his hands, or due from him on such settlement, to the person or persons entitled thereto.



Section 7. Appraisal. Compensation of trustee. — 

When an inventory is required to be returned by a trustee, the estate and effects belonging to the trust shall be appraised and the court may order one or more inheritance tax appraisers to assist in the appraisement. The compensation of the trustee shall be fixed by the court, if it be not determined in the instrument creating the trust.


Appraisal and Compensation of Trustee

  • If an inventory is required, the estate and effects of the trust must be appraised.

  • The court may appoint inheritance tax appraisers to assist in the appraisal process.

  • Trustee’s compensation:

    • Determined by the trust instrument, if stated.

    • If not specified, the court will fix the compensation.



Section 8. Removal or resignation of trustee. — 

The proper Court of First Instance may, upon petition of the parties beneficially interested and after due notice to the trustee and hearing, remove a trustee if such removal appears essential in the interest of the petitioner. The court may also, after due notice to all persons interested, remove a trustee who is insane or otherwise incapable of discharging his trust or evidently unsuitable therefor. A trustee, whether appointed by the court or under a written instrument, may resign his trust if it appears to the court proper to allow such resignation.


Grounds for removal 

  • The court may remove a trustee on the following grounds:

    1. The removal appears essential in the interest of the petitioners; 

    2. The trustee is insane; or 

    3. The trustee is otherwise incapable of discharging the trust or is evidently unsuitable to act as one. 

  • A trustee, whether appointed by the court or under a written instrument, may resign his trust if it appears to the court proper to allow such resignation. 



Section 9. Proceedings for sale or encumbrance of trust estate. — 

When the sale or encumbrance of any real or personal estate held in trust is necessary or expedient, the court having jurisdiction of the trust may, on petition and after due notice and hearing, order such sale or encumbrance to be made, and the re-investment and application of the proceeds thereof in such manner as will best effect the objects of the trust. The petition, notice, hearing, order of sale or encumbrance, and record of proceedings, shall conform as nearly as may be to the provisions concerning the sale or imcumbrance by guardians of the property of minors or other wards.


Extent of authority of trustee

  • The powers of a trustee appointed by a Philippine court cannot extend beyond the confines of the territory of the Republic of the Philippines. 

    • This is based on the principle that his authority cannot extend beyond the jurisdiction of the country under whose courts he was appointed. 

  • Also, in the execution of trusts, the trustee is bound to comply with the directions contained in the trust instrument defning the extent and limits of his authority, and the nature of his power and duties

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