The vast majority of trust litigation is settled by way of an agreement between the interested parties. In Neal v. George E. Neal Jr. Irrevocable Trust, the Texas Fifth District Court of Appeals affirmed an agreed judgment that determined the remainder beneficiaries of a trust, reminding all parties to make absolutely sure that they are prepared to honor the agreements they enter in any Texas trust dispute.
The facts of this Texas trust dispute are more captivating than the ultimate outcome, which was based on the straightforward laws of contract interpretation.
The Facts of Neal v. The George E. Neal, Jr. Irrevocable Trust
Brucilla Neal created a revocable living trust in 1991. The trust provided that upon Brucilla’s death, 45% of the residual trust estate would go to her daughter, Karen Pugh; 45% would go to her son, George E. Neal, Jr.; and 10% would go to her nephew, Homer Brown, III.
The Faulkner Provision
The Trust also provided that “[u]nder no circumstances shall the Trustee distribute any of the trust estate to Pamela Gay Faulkner.”
Further, the trust provided:
[I]f GEORGE E. NEAL, JR. is involved or has any relationship with Ms. Faulkner, no funds from the trust estate shall be distributed to him, but they shall remain in trust until such time as this relationship is terminated. The Trustee shall have full discretion to determine if the relationship exists and/or when it is terminated. If Mr. Neal challenges this determination, he shall lose all of his interest in the trust estate. Furthermore, if Mr. Neal should predecease [Brucilla] or challenge the determination described above, his share of the trust estate shall be given to his sons . . . provided they can be located within one year of [Brucilla’s] death; if not, then the property shall be given to KAREN S. PUGH.
The Trust Amendments
Brucilla amended the trust two times before she died. The 2007 amendment provided that instead of Karen and George receiving 45% each outright, that amount would be placed into separate trusts for their benefit.
In the 2008 amendment Brucilla changed the Faulkner provision to say that if George either predeceased Brucilla or challenged the trustee’s determination regarding his relationship with Faulkner, George’s share of the trust would go to Karen. Also, if any portion of George’s trust remained at his death, instead of going to his descendants, it would go into a trust for Karen for her life, and then to Karen’s descendants.
The Trust Litigation and Settlement
Brucilla died in January 2009. Karen died later that year. Brown (Brucilla’s nephew) took over as trustee for Brucilla’s trust and the trust created for George.
A dispute arose between Brown and George regarding distributions. George sought to invalidate the 2008 amendment.
The parties settled after mediation. The settlement agreement stated that “George confirms the second amendment to the trust and his lifetime beneficial interest with remainder in Karen’s children.” The trial court entered an agreed final judgment consistent with the settlement agreement which:
- Removed all provisions concerning Faulkner
- Kept the 3.03(b) provision stating that “[i]f Mr. Neal should predecease [Brucilla] or challenge the determination described above, his share of the trust estate shall be given to KAREN S. PUGH, or to her living descendants per stirpes.” The “determination described above,” which previously included the trustee’s determination as to George’s relationship vel non with Ms. Faulkner, now only referred to the split of specific property between George and Karen.
- Neither altered nor removed the trust’s subsections 3.03(d)(ii), (iii), or (iv), which dictated how the remainder of George’s trust would pass to Karen for life and her descendants upon her death.
The agreed judgment also stated the reality, given Karen’s death: “George Whisler and Melanie Pugh are the only children of Karen S. Pugh, and are the only remainder beneficiaries of the George E. Neal, Jr. Trust.”
Declaratory Judgment Action Regarding Remainder Beneficiary of George’s Trust
George died in 2017. George’s widow tried to obtain the trust funds for George’s estate (instead of complying with the agreement that the funds would go Karen’s descendants). After the trustee informed her it intended to distribute those funds to Whisler and Melanie, Janis filed the declaratory judgment action underlying this appeal. The parties filed competing dispositive motions, and the trial court entered a judgment confirming Whisler and Melanie as the sole remainder beneficiaries of George’s trust.
Agreed Judgments In Texas Trust Disputes Are Interpreted Like Contracts
The Texas appellate court made quick work of the dispute over the beneficiaries of the Texas trust:
We review de novo a declaratory judgment entered upon competing dispositive motions based on undisputed facts. See Wausau Underwriters Ins. Co. v. Wedel, 557 S.W.3d 554, 557 (Tex. 2018); Huffhines v. State Farm Lloyds, 167 S.W.3d 493, 496 (Tex. App.—Houston [14th Dist.] 2005, no pet.). We interpret an agreed judgment like a contract between the parties, seeking to harmonize and give effect to all its provisions so that none are rendered meaningless. See Mann v. Propst, No. 05-19-00432-CV, 2020 WL 1472212, at *6 (Tex. App.—Dallas Mar. 26, 2020, no pet.) (mem. op.). George’s estate contends (a) the agreed judgment makes Whisler’s and Melanie’s remainder interests contingent on George either predeceasing Brucilla or challenging the trustee’s determination concerning his relationship with Faulkner and (b) because neither occurred, Whisler and Melanie were divested of their remainder interests. His interpretation relies on an incorrect premise he assumes as true in his statement of facts: that the agreed judgment removed subsections 3.03(d)(ii), (iii), and (iv) from the second amendment, describing how any corpus of his trust remaining at his death shall be distributed to Karen “in trust for her life” and disposed per her will or per stirpes upon her death. It ignores the parties’ compromise settlement agreement and the agreed judgment based thereon, both of which clearly state that they agreed to amend subsection 3.03(d)(i), dealing with George’s life estate, not to remove subsections 3.03(d)(ii), (iii), or (iv). It also ignores that the agreed judgment removed all reference to Pamela Faulkner from section 3.03(b). The agreed judgment unambiguously states that Whisler and Melanie “are the only remainder beneficiaries of the George E. Neal, Jr. Trust.” Upon George’s death, his life interest went to Whisler and Melanie, “the only remainder beneficiaries” of his trust. We affirm.
When You Settle A Texas Trust Dispute, Make Sure You Can Accept The Outcome
The parties here expressly and unambiguously agreed in the settlement agreement that the provision for how the remainder of George’s trust would pass (to Karen for life and her descendants upon her death) was not changed.
The agreed judgment in the Texas trust dispute stated: “George Whisler and Melanie Pugh are the only children of Karen S. Pugh, and are the only remainder beneficiaries of the George E. Neal, Jr. Trust.”
After George’s death, his widow was not happy with the agreed upon judgment, since the remaining trust assets were going to Karen’s children, despite the fact that this is exactly what the parties agreed to in the agreed judgment. It is important in any trust or probate or trust litigation to think about the ultimate disposition of the assets, and to make sure the outcome is one you are prepared to accept. Buyer’s remorse years after the fact and after a judgment is entered confirming the agreed upon outcome will not operate to change the terms of an unambiguous agreement in a Texas trust dispute.