Special Proceedings

Trustee
Rule 98 of the
Rules of Court

Members:
Campos, Christopher
Cardona, Geraldine May
Ciano, Charity

Submitted to:
ATTY. RUTH BAWAYAN
 INTRODUCTION

What is Trust?
A trust is a relationship whereby property is held by one party for the benefit of another. It is
created by a settlor, who transfers property to a trustee. The trustee holds that property for the
trust's beneficiaries. Trusts exist mainly in common law jurisdictions and similar systems
existed since Roman times.1
Concept of a Trust
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 of the benefit of the latter.
The person in whom confidence is reposed as regards property for the benefit of another is
known as the trustee.2
Difference between a TRUSTEE, EXECUTOR and an ADMINISTRATOR
A Trustee is the person in charge of the assets held in a trust, and is normally named as
trustee in the trust. If the trust is a living trust, probate will be avoided for the assets held in the
trust, and court supervision is usually not necessary. In such a case, the Trustee may perform
many of the same tasks that the Executor would otherwise handle, except without the burden of
probate. If the trust is created in the deceased persons Will, it is a testamentary trust and it will
be subject to the supervision of the Probate Court. In either case, the Trustee is responsible for
managing and distributing the trust assets to or for the benefit of the beneficiaries of the trust in
accordance with the terms of the trust.3
An Executor is a person named expressly by the deceased person in his will to administer,
settle and liquidate his estate.
While an Administrator is a person appointed by the intestate court to administer the estate of
a deceased person who: a) dies without leaving a will; or b) did not name any executor even if
there was a will; or c) if there be one named, he is incompetent, refuses the trust of fails to give
a bond, or that the will was subsequently declared null and void.4

1 Accessed at wikipedia.org/wiki/Trust_law on 20 February 2017

2 Dean Gemy Lito L. Festin. 2016. Special Proceedings (A Foresight to the Bar Exam & the Practice of Law), p. 177. on 20
February 2017
3 Eric N. Holk. 2012. EXECUTORS & TRUSTEES: WHAT YOU OUGHT TO KNOW. Accessed at trusts-etc.com/execs_ttees.html on

20 February 2017
4 Dean Gemy Lito L. Festin. 2016. Special Proceedings (A Foresight to the Bar Exam & the Practice of Law), p. 177. on 20

February 2017
NATURE OF THE SPECIAL
PROCEEDINGS

Applicability of Rule 98 to Trusts

Rule 98 only applies to express trust, one which is created by a will or written instrument.As you
know, express trust is one created by the direct and positive acts of the parties, in writing, deed
or will, or by the words evidencing an intention to create a trust.5 Consequently, there must be
an existence of a contract or a written instrument of trust for Rule 98 to be pertinent.
When a Trustee Necessary
Under Section 2 and 3 of Rule 98 of the Rules of Court, a trustee is necessary:
a) To carry into effect a will where the testator omitted appointing a trustee in the
Philippines;
b) To carry into effect other written instruments where the trustee declines, resigns, dies
or is removed before the accomplishment of trust.
What is a Bond?
A bond under Sec. 5, Rule 98, is something the trustee must file before entering on the duties
of his trust. A Trustee shall file with the Clerk of Court having jurisdiction of the trust, a bond in
the amount fixed by the judge of the said court, payable to the government of the Philippines
and it must be sufficient and available.
Purpose of the Bond
Under the same section, the Trustee needs to file a bond for the purpose of protecting the rights
of any party in interest and in order to qualify him to administer the trust.
However, 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 or when all persons beneficially
interested in the trust, being of full age, request the exemption. Such exemption may be
canceled by the court at any time, and the trustee required to forthwith file a bond.
Effect of Failure to File a Bond
If the trustee fails to furnish a bond as required by the court, he fails to qualify as such.
Nonetheless the trust is not defeated by such a failure to give bond.6
Manner of Executing the Trust
In the execution of trusts, the trustee is bound to comply strictly with the directions contained in
the trust instrument defining the extent and limits of his authority, and the nature of his power

5
Dean Gemy Lito L. Festin. 2016. Special Proceedings (A Foresight to the Bar Exam & the Practice of Law), p. 177.
on 20 February 2017
6Oscar M. Herrera. 2005. Special Proceedings and Special Rules Implementing the Family Courts Act of 1997. p453. Accessed on
20 February 2017
and duties. He must carry into effect the trusts so far as they are valid and consistent with the
rules of law, unless exempted from literal performance by the consent of all persons interested,
and by the sanction of the court.
Duties of Trustee vis-a-vis Executor or Administrator
A trustee, like an executor or administrator, holds an office of trust, particularly when the trustee
acts as such under judicial authority The duties of executors or administrators are however,
fixed and/or limited by law whereas those of the trustee of an express trust are, usually
governed by the intention of the trustor or the parties, if established by contract. Besides, the
duties of trustees may cover a wider range than those of executors or administrators of the
estate of deceased persons.7
Filing Inventory
The trustee should 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. When however, 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 altered accordingly.8
Faithful Discharge of the Trust
It is within the power and duty of a trustee who has accepted an active trust to collect, take
possession of, and keep in his custody the trust property and assets, and to hold, manage, and
apply the same to effect the purposes and objects of the trust and to make payments and
distribution to beneficiaries in accordance with the terms of the trust. The trustee is chargeable
with the value of assets lost though a failure in his duty to get them into his possession.
In the performance of this duty of taking and collecting the estate, the trustee must act with
reasonable diligence; unnecessary and unreasonable delay in securing possession of the trust
property is at his personal risk. The duty to take, collect, hold and manage the trust estate in
accordance with the terms of the trust extends to income and increment of the estate. The
trustee must enforce and collect chooses in action, debts, and demands belonging to the estate,
except where such collection and enforcement will result in a loss to the estate.9
Accounting by Trustee
Where a trust relation exists between parties, the cestui que trust is entitled to a complete
accounting from the trustee, in which all data in the trustee's accounts, which it is his duty to
keep, should be furnished.6 The trustee is bound to put his que trust in possession of the full
and true state of his affairs before any settlement will bind. 10
Liability of Trustee for Trust Funds

7 Araneta v. Perez, G.R. Nos. L-16185-86, May 31,1962, 5 SCRA 333.

8 Section 6, Rule 98, Rules of Court
9 Oscar M. Herrera. 2005. Special Proceedings and Special Rules Implementing the Family Courts Act of 1997. p453. Accessed on

20 February 2017
10 Ibid. p456.
One who, having in his possession trust funds, deposits them in his personal account in a bank,
and mixes them with his own funds, does not thereby assume an obligation different from that
under which he would have lain if such deposit had not been made; nor does he thereby
become liable to repay the money at all hazards; and where such funds are taken from the bank
by furze mayor (force major), he is relieved from responsibility in relation thereto.11
Nature of Possession by Trustee
For the purpose of prescription, the possession of the property by the trustee is not an adverse
possession, but only a possession in the name and in behalf of the owner of the same. If the
trustee has not repudiated the trust nor claimed any right to the property entrusted to him, his
possession of said property is not for himself but for the owner and cannot be a ground for
prescription, nor can the trustee's heirs make use of this possession to establish the prescription
which they alleged. In such case, the period of prescription in favor of the heirs of the trustee
should be computed from the date of the trustee's death.12
A trustee in other words, may acquire the trust estate by prescription provided there is a
repudiation of the trust, such repudiation being open, clear and unequivocal, known to the cestui
que trust.13
Breach of Trust by Trustee
Every violation by a trustee of a duty which equity imposes on him, whether willful and
fraudulent or done through negligence or arising through mere oversight or forgetfulness is a
breach of trust.14

11 Roman Catholic Bishop of Jaro v. de la Pena, 26 Phil 712

12 Tolentino v. Vitug, 39 Phil 126; Palma v. Cristobal, 77 Phill. 712
13 Salinas v. Tuazon, 55 Phil. 729
14 Oscar M. Herrera. 2005. Special Proceedings and Special Rules Implementing the Family Courts Act of 1997. p453. Accessed

on 20 February 2017
 PROCEDURE OF THE SPECIAL

PROCEEDINGS

A WRIITEN
INSTRUMENT PETITION/ ORDER
APPLICATION Giving HEARING
in the Regional notice to
JUDGMENT
Trial Court all
TRUSTEE
where the persons as
appointed abroad
Property is to the
must file his
located date, time
application with
and place
Phil. RTC. If he
of hearing
refuses or APPROVING DENYING
neglects to do so, application of Trustee named
the Court shall Trustee named in in Will; Applicant
declare the Will; unnamed Trustee
Trustee as applicant; Trustee appointed
vacated and many appointed abroad abroad.
appoint a new
Trustee

Appointed
APPEAL
Trustee to file
his BOND

File PETITION ORDER

GROUNDS for: HEARING
With Regional Notice of
Removal: (I DIRT U) Trial Court Hearing
Termination of Trust:
AFRO MALE

JUDGMENT
Appointment and Powers of Trustees under Will

Where the 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 (RTC) 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 (Sec.2, Rule98)

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 (RTC) 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
(Sec.3, Rule 98)

TRUST is a fiduciary relationship concerning property which obliges the person holding
it to deal with the property to benefit of another. The person holding, in view of his
equitable title, is allowed to exercise certain powers belonging to the owner of the legal
title

Characteristic

Fiduciary relationship;
Created by law or agreement;
Legal Title is held by one, and the equitable or beneficial title to the property
which is held by another.

NOTE: The trustor of settler may at the same time be the beneficiary.

Capacities of Parties

a. Trustor - must have capacity to convey property;

b. Trustee - must have capacity to hold property and enter into contracts;
c. Beneficiary must have the capacity to receive gratuitously from the trustor. If he is
incapacitated to be the trustors donee, or heir, or legatee, or devisee, HE CANNOT
BE A BENEFICIARY of a gratuitous trust.
To be effective, the trust must be accepted by the beneficiary, either:
a. Expressly; or
b. Impliedly; or
c. Presumably, if the grant of the benefit is gratuitous.

Exception: If there is strong proof that he really did not accept. A mere presumption
cannot replace a fact.

The acceptance need not follow the form of acceptance in donation of real property.
Therefore, even if a real property is a subject of a trust which is express, the
beneficiary need not accept the benefits of the trust thru a public instrument

Termination of Trust
1. Agreement mutually arrived at;
2. Fulfillment of any resolutory condition;
3. Rescission or annulment of trust
4. Order of the court

Filing of a Bond

Before entering the duties of his trust, a trustee shall file with the Clerk of 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 part 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 any 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
forthwith filing a bond.

While a trustee is not authorized to administer the trust estate until he has given the
required bond, a trust is not defeated by a failure to give bond. This bond is intended for the
benefit and protection of the beneficiary, and he alone has the right to complain, and the
trustees failure to give bond may not be made the subject of collateral attack.
A trustee who neglects to file the bond required by the rule shall be considered to have
declined or resigned.

Proceedings where Trustee is 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 (RTC) 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. (Sec. 4, Rule 98)

The foreign appointed trustee should still file a Petition with the Regional Trial Court
(RTC) of the province where the land is situated, and appoint a new trustee.
Besides, this is on the theory that the authority of a trustee does not extend beyond the
jurisdiction of the government granting the same, similar to the rule regarding guardians
and administrators.

Proceedings for Sale or Encumbrance of Trust

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 encumbrance by guardians of the
property of minors or other wards. (Sec.9, Rule 98)

The rule also makes the provisions governing the sale or encumbrance by the guardian
of the wards property applicable to the proceedings for the sale or encumbrance of the
trust estate.
The law has long been regarded as settled that it is the duty of the trustee to collect and
preserve intact the trust property, and that they have no power to change the character
of the trust property, unless it is of perishable or transitory nature, and then only to
convert it into substantial, enduring and revenue-producing investment.

If a change be deemed necessary, or for the interest of the beneficiary, the permission
or sanction of the court should be obtained.

This rule is necessary for the preservation of the fund. The temptations to tamper with
the fund by the trustee is so powerful and too numerous. [Garosche vs. Levering
Investment Co., 146 Mo. 436, 48 SW. 653;26 RCL 1283]
IMPORTANT POINTSTO CONSIDER
IN THE ACTION

Filing of Bond as a Requirement

A trustee appointed by the court is required to furnish a bond and the terms of the trust or a
statute may provide that a trustee appointed by a court shall be required to furnish a bond in
order to qualify him to administer the trust.

However, 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 or 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. (Sec. 5, Rule
98)

Effect of Failure to File Bond

If the trustee fails to furnish a bond as required by the court, he fails to qualify as such.
Nonetheless the trust is not defeated by such a failure to give bond.

Conditions of the Bond

The following conditions shall be deemed to be a 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 of 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 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.
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 (Sec.6, Rule 98)
Ground for Removal of the Trustee

A trustee may be removed if such removal appears essential in the interests of the
petitioners. He may also be removed when the trustee becomes insane or otherwise incapable
of discharging the trust or evidently unsuitable therefore.

A trustee whose acts or omissions are such as to show a want of reasonable fidelity will
be removed by the court and where trust funds are to be invested by the trustee, neglect to
invest constitutes of itself a breach of trust, and is a ground for removal.

Grounds for removal of trustee

a. Insanity
b. Resignation
c. Incapacity of discharging trust
d. Death of trustee
e. When termination appears to be essential to the interest of the beneficiaries of the
trust
f. Unsuitability

Resignation by Trustee

A trustee is at liberty to tender his resignation and apply for his release on the sole ground of
unwillingness to act further in the trust. But the acceptance of the resignation of a trustee is not
a matter of course; due regard must be had for the interest of the parties to be affected and
there must ordinarily be some ground for discharge other than the mere wish of the trustee to be
relieved.

Extent of Authority of a Trustee

A trustee appointed by the RTC shall have the same rights, powers, and duties 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.
(Sec.2,Rule 98)

Such new trustee shall have and exercise the same powers, rights, 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 alone or jointly
with the others. (Sec.3,Rule 98)

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 Republic of
the Philippines, under whose courts he was appointed.
 For the purpose of prescription, the possession of the property by the trustee is not
an adverse possession, but only a possession in the name and in behalf of the
owner of the same. If the trustee has not repudiated the trust nor claimed any right to
the property entrusted to him, his possession of said property is not for himself but
for the owner.

A trustee in other words, may acquire the trust estate by prescription provided there
is a repudiation of the trust, such repudiation being open, clear and unequivocal,
known to the cestui que trust.