In Ackers v. Comerica Bank and Trust, the Texas Eleventh Court of Appeals addressed whether it could determine beneficiaries of a class gift in a testamentary trust, concluding that the contingent nature of the gift and existence of a spendthrift provision made this particular case not yet ripe.
The Facts of Ackers v. Comerica Bank and Trust
Larry Ackers is the beneficiary of a testamentary trust created by his father Dale Acker’s will. The will was admitted to probate after Dale’s death. The will left ½ of Dale’s residuary estate to his son Gary, outright, and the other ½ was placed into a trust for Larry.
The testamentary trust provided that Larry was to receive the income from the corpus of the trust during his lifetime. At Larry’s death, the trust terminates, and the trustee is directed to distribute the corpus of the trust to Larry’s “then-living descendants.”
The term “descendants” was not defined in the will. Larry had three biological children – Kimberly, Melissa, and Pepper. Larry relinquished his parental rights to both Kimberly and Melissa, and both Kimberly and Melissa were adopted by other families. Kimberly died in 2013, and was survived by two children, James and Brittany. Larry never relinquished his parental rights to Pepper.
Larry filed a petition for declaratory relief against Comerica, the current trustee of the trust, requesting that the court construe the term “then-living descendants,” and to determine whether James and Brittany were excluded from that definition and therefore not beneficiaries of the Texas testamentary trust. Comerica filed a motion for summary judgment, alleging that the case was not ripe for review. The Texas trial court granted the motion for summary judgment, and Larry appealed.
Ripeness Required For Subject-Matter Jurisdiction Under Texas Law
In order for a court to have subject-matter jurisdiction, the plaintiff must have standing to sue, and the plaintiff’s claim must be ripe. Ripeness examines when an action may be brought, while standing focuses on who may bring an action.
Ripeness “emphasizes the need for a concrete injury for a justiciable claim to be presented.” If the plaintiff’s claimed injury is based on “hypothetical facts, or upon events that have not yet come to pass,” then the case is not ripe, and the court lacks subject-matter jurisdiction.
Texas Uniform Declaratory Judgments Act
Larry’s action sought a declaratory judgment construing the term “then-living descendants.”
The Uniform Declaratory Judgments Act (UDJA) states that “[a] person interested as or through an executor . . . may have a declaration of rights or legal relations in respect to [a] trust or estate . . . to ascertain any class of creditors, devisees, legatees, heirs, next of kin, or others.”
However, a plaintiff bringing suit under the UDJA must still properly invoke the trial court’s subject-matter jurisdiction. The UDJA does not permit courts to render advisory opinions, and does not authorize a court to decide a case in which the issues are hypothetical or contingent—the dispute must still involve an actual controversy.
When Is Class Membership To Receive A Class Gift Ripe For Determination?
Larry acknowledged that the gift to his descendants is a class gift and that his descendants are contingent, non-vested beneficiaries.
Yet, Larry argued that the case was ripe for determination because (1) the trust’s undefined term “descendants” must exclude Brittany and James under Texas law and (2) Comerica wrongfully represented to Brittany and James that they would be considered beneficiaries, which created a “foreseeable conflict” with the interests of Pepper and Melissa. Larry framed the issue as the current exclusion of descendants, not the future inclusion of descendants. Thus, he contended that his death was not a prerequisite to determining who should be excluded as his descendants at his death.
The Texas Supreme Court addressed a similar class gift in Wilkes v. Wilkes, 488 S.W. 2d 398 (Tex. 1972), wherein the court quoted a Kentucky case for the following proposition:
No one can know, until these two life tenants are dead, just who will compose the benefited class. Until that time comes, the interest of these remaindermen in this property is merely a contingent interest.
Where, under the provisions of a will, a gift to a class is postponed until after the termination of a preceding estate, as a rule, those members of the class, and those only, take who are in existence when such preceding estate terminates, and the time for distribution comes. The number of pieces into which the pie shall be cut and the parties to whom they shall be passed is determined by those of the class present when the time for cutting comes.
Under Wilkes, the time to determine Larry’s descendants who will be beneficiaries of the corpus of the Texas trust is to be determined at Larry’s death and not before. Until Larry’s death, the interests of his descendants are only contingent interests. As such, the interests of Larry’s potential descendants are not ripe for determination because they are based upon an event that “[has] not yet come to pass.” Accordingly, the court lacked subject-matter jurisdiction to consider Larry’s requested relief.
Assignment Of Beneficial Interest In Trust Invalid When Subject To a Spendthrift Provision
Larry also argued to the Texas court that the current determination of who would be excluded as his descendants would permit him to enter into an agreement with the “true non-vested contingent beneficiaries” so that they could agree “to end the trust and distribute its assets before Appellant’s death.” The Texas appellate court made quick work of this argument, citing the trust’s spendthrift provision and stating:
[A] spendthrift trust is one in which the beneficiary is prohibited from anticipating or assigning his interest in or income from the trust estate.” Long v. Long, 252 S.W.2d 235, 246 (Tex. App.—Texarkana 1952, writ ref’d n.r.e.) (quoting Cronquist v. Utah State Agric. Coll., 201 P.2d 280, 282 (Utah 1949)); see Bradley v. Shaffer, 535 S.W.3d 242, 248 (Tex. App.—Eastland 2017, no pet.). “Texas courts have long upheld and enforced spendthrift provisions, justifying this restraint on alienation not out of consideration for the beneficiary, but rather for the right of the donor creating the trust to control his gift.” Burns v. Miller, Hiersche, Martens & Hayward, P.C., 948 S.W.2d 317, 321 (Tex. App.—Dallas 1997, writ denied); see Bradley, 535 S.W.3d at 248. Thus, the assignment of a beneficial interest in a trust is invalid when that beneficial interest is subject to a spendthrift provision. Bradley, 535 S.W.3d at 248 (citing Faulkner v. Bost, 137 S.W.3d 254, 260 (Tex. App.—Tyler 2004, no pet.)).
Therefore, any agreement that Larry might make with his potential non-excluded descendants would violate the trust’s spendthrift provision. Any potential agreement that would be invalid is not a basis to create a justiciable controversy.