Texas Trust Action Addresses Standing, In Terrorem Clauses, And Basic Trust Interpretation

In Younger v. Younger, the Texas Court of Appeals, Seventh District, Amarillo, considered an appeal in a trust action raising a host of issues including trust interpretation, standing, and in terrorem clauses.

The Facts of Younger v. Younger

Ellis and Ruth had three sons – Gary, Glenn, and Allan.  Ellis’s October 20, 2014 Will refers to “The Younger Living Trust,” executed the same day as the will. The Trust was to be funded by the assets of his probate estate on his death.  One son, Gary, was disinherited from receiving any property in both the will and the trust.

Also on October 20, 2014, Ellis and Ruth deeded 34.91 acres of real property in Guadalupe County to “Ruth L Younger and Glenn Ellis Younger, Trustees, or Successors in Trust under the Younger Living Trust.”   The tract of land that is the subject of this dispute (“Parcel Two”) was included in the property.

The Younger Living Trust

The Younger Living Trust states the intention to include the real, personal, tangible, and intangible property owned by Ellis and Ruth, subject to certain exceptions.

The Trust also provided that when a transfer was made of a Grantor’s community property, the Trust directed it was to “retain its character as community property during our lives, to the same extent as if it had not been transferred to our trust.”

Any of a Grantor’s separate property was to remain “separate” in the Trust.

Ellis Dies And Ruth Tries To Amend The Trust To Disinherit Allan

Ellis died in December 2014. In August 2017, Ruth sought to amend the Younger Living Trust to disinherit another son, Allan.

Ruth also sought to amend the Trust to eliminate Allan as having the right to receive a portion of the real property transferred to the Trust by Ruth and Ellis.

Litigation Regarding The Younger Living Trust

A Texas trust action began regarding the alleged rights to the property transferred by Ellis shortly before Ruth first sought to amend the Younger Living Trust.  Ultimately, the district court considered requests for declaratory judgment by both sides.  The district court found:

  • The October 20, 2014 Younger Living Trust document is unambiguous;
  • Ellis’s October 20, 2014 Last Will and Testament is unambiguous;
  • With some exceptions, all of Ruth’s and Ellis’s property (including the Guadalupe County real property) was transferred to the Younger Living Trust.
  • The Trust was never amended prior to Ellis’s death on December 11, 2014.
  • Upon Ellis’s death, the Trust became irrevocable as it pertains to the administration and distribution of Ellis’s property.
  • With regard to personal property, the Trust specifies that Ellis Younger’s “tangible personal property” is to be allocated to the Survivor’s Trust. However, there is no corresponding provision regarding allocation of real estate or other assets.
  • The Trust’s only reference to distribution of real property is found in Article Eight, which allocates “Real Property Parcel Two and 50% of all other assets” to Allan.

 

The court held that Ellis’s testamentary instruments were unambiguous and ordered that Allan held a present fee interest in Ellis’s share of “Parcel Two” (the property that is the subject of this appeal) plus one-half of Ellis’s share of other property.

On appeal Glenn asserted that the trust’s unambiguous terms permitted Ruth to divest Allan by amending the trust.  Alternatively, Glenn argued that Ruth had the right to possess the real property during her lifetime (life estate), and that Allan should not have been awarded a present interest in the property.

Allan contended that the trust directs that Ellis’s intentions became irrevocable when he died (meaning Ruth could not amend them) and that Allan held a present fee interest in Ellis’s share of the property.

Do You Have To Legally Possess An Interest In Trust Property To Bring A Trust Action In Texas?

No, possessing an actual interest in the trust property is not a prerequisite to bringing a trust action under Texas law.  Here, Glenn argued that because Allan does not legally possess an interest in Trust property, he lacked standing to pursue an action.

“Any interested person may bring a suit to construe a trust instrument, determine the applicable law, ascertain beneficiaries, and determine questions arising in the administration or distribution of a trust.” Tex. Prop. Code §§ 115.001, 115.011(a).

Texas Property Code § 111.004(7) defines an interested person as a “trustee, beneficiary, or any other person having an interest in or a claim against the trust.”  Status as an interested person “must be determined according to the particular purposes of and matter involved in any proceeding.”

The Texas appeals court quickly disposed of Glenn’s standing argument as a bar to the trust action, stating:

The entire legal dispute before the district court examined what right, if any, that Allan holds in any Trust property and whether Ruth can retroactively amend the Trust to “disinherit” Allan from Ellis’s property interests.  It therefore strains logic to believe that Allan lacks the power to seek an answer to these questions in litigation, particularly given that Glenn and Ruth seek answers to these identical interests in the hope of divesting Allan. Glenn’s complaint about Allan’s purported lack of standing is overruled.

Ruth’s Purported Amendment Of The Trust – Basic Trust Construction

The Texas appeals court reviewed the plain language of the trust to determine that Ruth had no power to amend the Trust “in full” to “disinherit” Allan from receiving Ellis’s property, stating:

Glenn’s proposed conclusion from section 7.02-that Ruth’s right to amend the Survivor’s Trust empowered her to amend the Trust “in full” to “disinherit” Allan from receiving Ellis’s property-ignores the remaining provisions in the Trust that limit Ruth’s unilateral ability to amend. Under section 1.04(b), for example, Ellis and Ruth were permitted to amend, restate, or revoke the Trust, in whole or part, if they acted jointly. When acting individually, however, Ruth or Ellis only retained the right to amend the Trust’s terms “as to each of our separate property.” There is no evidence that Ellis ever amended the Trust’s terms regarding distribution of his property. Consistent with the plain language of section 1.04(b), any attempt by Ruth to amend the Trust could therefore only be effective as to her separate Trust property.

In Terrorem Clauses In Texas Trusts Are Strictly Construed

In-terrorem clauses are to be strictly construed under Texas law and forfeiture should be avoided if possible.  Glenn argued that Allan “forfeited” any interest in the Trust because he opposed Ruth’s purported amendment to the Trust.  The Trust stated:

If any person attempts to contest or oppose the validity of this trust or any amendment to this trust, or commences, continues, or prosecutes any legal proceedings to set this trust aside, then that person will forfeit his or her share, cease to have any right or interest in the trust property, and will be considered to have predeceased the last of us to die for purposes of this instrument.

Glenn and Ruth invoked the validity of her purported amendment to the Survivor’s Trust as the basis for excluding Allan as a beneficiary. Allan contested Glenn’s and Ruth’s position and the circumstances that influenced that amendment. The Texas appeals court held that Allan’s acts did not clearly fall within the express terms of the clause — Allan’s position was to uphold the terms of the Trust as executed by Ellis. The court further stated:

Moreover, such proffered logic would be short-circuiting, as Appellants would be disqualified by application of the same clause. Glenn and Ruth brought a counterclaim to contest the ongoing validity of the original Trust’s terms, claiming they had been amended. Per application of section 14.03, Glenn and Ruth are persons who “attempt[] to contest or oppose the validity of this trust . . . or continue[] or commences, continues, or prosecutes any legal proceeding to set this trust aside . . . Rather than holding that all parties have forfeited their interests, we hold that the district court correctly refused to adopt the position that Glenn invites us to take.

Ambiguous Trust Document

Despite siding with Allan on the issues of standing, forfeiture, and the attempted amendment of the Trust in the trust action, the Texas Appeals Court found that the original terms of the Trust did not unambiguously give Allan a present fee interest in Parcel Two, and were susceptible to more than one reasonable interpretation, stating:

We hold that the Trust’s terms are irrevocable as they pertain to Ellis’s property and that such terms therefore determine how the property is to be distributed. However, we do not agree with the district court that the original terms unambiguously give Allan a present fee interest in Parcel Two. In review of a declaratory judgment suit, we possess the responsibility of rendering the judgment that the district court should have rendered.

We are thus faced with the interpretive conflict: Under Article Seven, the trustee appears empowered to distribute Ellis’s property to Ruth notwithstanding Allan’s interest as a remainderman. However, this would appear to conflict with section 5.02’s instructions that the Trust’s terms regarding “administration and distribution” of Ellis’s property became irrevocable when Ellis died. Did this section intend to affix the rights in each beneficiary, or does it mean the trustee’s responsibilities to make a distribution cannot change? Because we cannot determine with certainty from the face of the trust instrument whether Ellis intended to empower Ruth and/or the trustee to include his property among that which is subject to distribution under Article Seven, we hold that the existence of two reasonable interpretations prevents the instrument from being construed as a matter of law.

The Texas Appeals Court held that the district court erred in awarding Allan a present fee interested in Parcel Two — either the Trust instruments express an intent that Allan hold an irrevocable remainder interest in Parcel Two with possession to become effective at the termination of the life estate, or they intend that any remainder interest would remain subject to divestment during Ruth’s lifetime. The case was reversed and remanded for the action to continue in the Texas trial court to resolve the ambiguity in the trust.

 

 

Find Your Probate Star

Lawyer Locator Front End

San Antonio

Gilbert Vara, Jr.

Dallas

Steven S. Boss

Houston

Grace P. Shoemakers

Austin

Kyle Robbins

Williamson County

Lorenza Cigarroa

Grayson County

Jacob Pelley

Find Your Texas Probate Star

San Antonio

Gilbert Vara, Jr.

Austin

Kyle Robbins

Houston

Grace P. Shoemakers

Dallas

Steven S. Boss

Williamson County

Lorenza Cigarroa

Grayson County

Jacob Pelley