August 14, 2020

Volume X, Number 227

August 14, 2020

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Court Holds That A Deceased Testamentary Trust Beneficiary Can Still Be A Beneficiary

In In the Estate of Mendoza, a decedent’s son’s children filed a petition claiming their entitlement to their father’s beneficial interest in a trust created under the decedent’s will. No. 04-19-00129-CV, 2020 Tex. App. LEXIS 1845 (Tex. App.—San Antonio March 4, 2020, no pet. history). The son had predeceased the decedent. The decedent’s daughters moved for summary judgment on the sole ground that a dead person could not be a beneficiary of a trust. The trial court granted the daughters’ summary judgment motion. The son’s children appealed.

The court of appeals reversed the summary judgment, holding that the mere fact that the decedent’s son predeceased the decedent did not establish the son’s beneficial interest in the trust created under the decedent’s will lapsed as a matter of law. The daughters argued that a dead person cannot be a beneficiary of a trust and cited to Longoria v. Lasater, 292 S.W.3d 156, 167 (Tex. App.—San Antonio 2009, pet. denied) and Section 112, comment f of the Restatement (Second) of Trusts. However, the court of appeals held that the daughters ignored the difference between an inter vivos trust, which was the type of trust analyzed in Longoria, and a testamentary trust. The court cited to Section 112, comment f, of the Restatement (Second) of Trusts:

A person who has died prior to the creation of a trust cannot be a beneficiary of the trust. Thus, if property is transferred inter vivos [i.e., not by will] in trust for a named person who is dead at the time of the transfer, no trust is created… So also, if a testator devises property in trust for a person who predeceases him, the devise of the beneficial interest lapses, and the person named as trustee ordinarily holds the property upon a resulting trust for the estate of the testator. By statute, however, in many States a devise does not lapse under certain circumstances, as for example if the devisee leaves a child; and under similar circumstances a devise of the beneficial interest under a trust does not lapse.

Id. (citing Restatement (Second) of Trusts § 112 cmt. f (1959) (internal citation omitted); see also Restatement (Third) of Trusts § 44 reporter’s notes on cmt. d (2003) (citing authorities discussing the application of the lapse doctrine and anti-lapse statutes to persons taking under trusts created by a will and noting “[a] comprehensive discussion of the lapse doctrine and anti-lapse statutes is beyond the scope of this Restatement”)). Accordingly, the court of appeals concluded: “the trial court erred in granting summary judgment in favor of the Daughters based on the mere fact that Eduardo predeceased Jose because that fact alone did not establish Eduardo’s beneficial interest lapsed as a matter of law.” Id. Further, the court refused to address an argument about Texas’s anti-lapse statutes because the arguments had not properly raised below. The court reversed the summary judgment and remanded for further proceedings.

© 2020 Winstead PC.National Law Review, Volume X, Number 98

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About this Author

David Johnson Financial Litigator Winstead Law Firm

David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the Texas Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary field in Texas. 

David's financial institution experience includes (but is not limited to): breach of contract, foreclosure litigation, lender liability, receivership and injunction remedies upon default, non-recourse and other real estate lending, class...

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