In Bradley v. Shaffer, family members placed mineral interests they inherited into the trust. No. 11-15-00247-CV, 2017 Tex. App. LEXIS 11154 (Tex. App.—Eastland November 30, 2017, no pet.). The trust instrument contained a spendthrift provision precluding the beneficiaries of the trust from assigning their interests in the trust. A beneficiary of the trust executed deeds purporting to convey his share of the mineral estate to a third party. The trustees of the trust sued and obtained a summary judgment declaring the deeds to be invalid with respect to the beneficiary’s interest in the trust.

The court of appeals first addressed the general principals at issue:

A trust is a mechanism used to transfer property. “[W]hen a valid trust is created, the beneficiaries become the owners of the equitable or beneficial title to the trust property and are considered the real owners.” The trustee is merely the depository of the bare legal title. The trustee is vested with legal title and right of possession of the trust property but holds it for the benefit of the beneficiaries, who are vested with equitable title to the trust property. A trust beneficiary who has capacity to transfer property has the power to transfer his equitable interest, unless restricted by the terms of the trust.

“[A] spendthrift trust is one in which the beneficiary is prohibited from anticipating or assigning his interest in or income from the trust estate.” “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.” The Texas Trust Code also specifically protects the right of a trust settlor to include a spendthrift provision in a trust. Section 112.035(a) provides that “[a] settlor may provide in the terms of the trust that the interest of a beneficiary in the income or in the principal or in both may not be voluntarily or involuntarily transferred before payment or delivery of the interest to the beneficiary by the trustee.” Thus, assignments of beneficial interests in trusts are invalid when they are subject to a spendthrift provision in the trust.

Id. (internal citation omitted).

The language of the trust’s spendthrift provision provided that “[n]o . . . beneficiary of this Trust shall have any right or power to anticipate, pledge, assign, sell, transfer, alienate or encumber his or her interest in the Trust in any way.” Id. The court determined that the express terms of the trust precluded the beneficiary from assigning his beneficial interest in the trust, and his conveyances were invalid at the time they occurred. The court then stated that the “more pressing question is whether or not Darell’s invalid conveyances became valid later.”

The beneficiary asserted that the trust violated the rule against perpetuities. Section 112.036 of the Texas Trust Code provides that “[a trust] interest is not good unless it must vest, if at all, not later than 21 years after some life in being at the time of the creation of the interest, plus a period of gestation.” Id. (citing Tex. Prop. Code § 112.036). In applying the rule, the court looks at the conveyance instrument as of the date it is executed, and it is void if by any possible contingency the grant or devise could violate the rule. The court noted that it should construe a trust to be valid where possible.

The beneficiary argued that the trust violated the rule because, at the time the trust instrument was executed, it could have extended beyond a life in being plus twenty-one years if it were extended. The court noted that “[t]his argument focuses on the duration of the trust rather than the vesting of the beneficial interests in the trust.” Id. “The duration of the trust is not the relevant inquiry and it is immaterial that full possession and enjoyment of the property is postponed beyond the time period for the rule against perpetuities as long as the beneficial interests become vested within the applicable period.” Id.

The court disagreed with the beneficiary’s argument that the trust delayed the vesting of the beneficiaries’ interests until some point in the future. The court noted that the trust immediately vested the settlors/initial beneficiaries’ interests in the trust at the time the trust came into existence. The trust specified the respective ownership interests of the settlors/initial beneficiaries in the mineral estate at the outset. Furthermore, the trust granted the trustees with broad powers, including the power to sell the mineral estate or lease it for exploration, that could be exercised at the outset. “The fact that the trustees were authorized to sell trust property at any time indicates that the beneficiaries’ interests vested immediately.” The court noted that this is not a case where a transfer has been made to trustees to hold property out of commerce for a class of beneficiaries, the membership of which will not be known for a period of time in excess of the rule. “To the contrary, the beneficiaries of the trust ‘had the fixed right of future enjoyment upon the termination of the trust.’” Id.

The trust also contained a remainder provision whereby an initial beneficiary’s vested interest passed to his surviving issue at his death. This remainder provision does not violate the rule against perpetuities because the surviving issue becomes “substitutional takers” of their parent’s vested beneficial interest at their parent’s death. Furthermore, since their beneficial interests in the trust passed to them at the death of an initial beneficiary, their beneficial interests in the trust vested within twenty-one years of a life in being. The court concluded: “Accordingly, this trust did not violate the rule against perpetuities. Furthermore, the extension of the trust only affected the trust’s duration and not the vesting of an interest in the trust.” Id. The court affirmed the trial court’s determination that the mineral interests remained in the trust and that the purported conveyance was void.

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Photo of David Fowler Johnson David Fowler Johnson

[email protected]
817.420.8223

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 The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary…

[email protected]
817.420.8223

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 The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary field in Texas. Read More

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 action, RICO actions, usury, various tort causes of action, breach of fiduciary duty claims, and preference and other related claims raised by receivers.

David also has experience in estate and trust disputes including will contests, mental competency issues, undue influence, trust modification/clarification, breach of fiduciary duty and related claims, and accountings. David’s recent trial experience includes:

  • Representing a bank in federal class action suit where trust beneficiaries challenged whether the bank was the authorized trustee of over 220 trusts;
  • Representing a bank in state court regarding claims that it mismanaged oil and gas assets;
  • Representing a bank who filed suit in probate court to modify three trusts to remove a charitable beneficiary that had substantially changed operations;
  • Represented an individual executor of an estate against claims raised by a beneficiary for breach of fiduciary duty and an accounting; and
  • Represented an individual trustee against claims raised by a beneficiary for breach of fiduciary duty, mental competence of the settlor, and undue influence.

David is one of twenty attorneys in the state (of the 84,000 licensed) that has the triple Board Certification in Civil Trial Law, Civil Appellate and Personal Injury Trial Law by the Texas Board of Legal Specialization.

Additionally, David is a member of the Civil Trial Law Commission of the Texas Board of Legal Specialization. This commission writes and grades the exam for new applicants for civil trial law certification.

David maintains an active appellate practice, which includes:

  • Appeals from final judgments after pre-trial orders such as summary judgments or after jury trials;
  • Interlocutory appeals dealing with temporary injunctions, arbitration, special appearances, sealing the record, and receiverships;
  • Original proceedings such as seeking and defending against mandamus relief; and
  • Seeking emergency relief staying trial court’s orders pending appeal or mandamus.

For example, David was the lead appellate lawyer in the Texas Supreme Court in In re Weekley Homes, LP, 295 S.W.3d 309 (Tex. 2009). The Court issued a ground-breaking opinion in favor of David’s client regarding the standards that a trial court should follow in ordering the production of computers in discovery.

David previously taught Appellate Advocacy at Texas Wesleyan University School of Law located in Fort Worth. David is licensed and has practiced in the U.S. Supreme Court; the Fifth, Seventh, and Eleventh Federal Circuits; the Federal District Courts for the Northern, Eastern, and Western Districts of Texas; the Texas Supreme Court and various Texas intermediate appellate courts. David also served as an adjunct professor at Baylor University Law School, where he taught products liability and portions of health law. He has authored many legal articles and spoken at numerous legal education courses on both trial and appellate issues. His articles have been cited as authority by the Texas Supreme Court (twice) and the Texas Courts of Appeals located in Waco, Texarkana, Beaumont, Tyler and Houston (Fourteenth District), and a federal district court in Pennsylvania. David’s articles also have been cited by McDonald and Carlson in their Texas Civil Practice treatise, William v. Dorsaneo in the Texas Litigation Guide, and various authors in the Baylor Law ReviewSt. Mary’s Law JournalSouth Texas Law Review and Tennessee Law Review.

Representative Experience

  • Civil Litigation and Appellate Law