Caseflicks

Texas Court of Appeals, 11th District (Eastland) • 2017

Terry W. BRADLEY, Appellant v. Darlene SHAFFER, Individually, and Verlon Reid, Noleta Rice, and S. Clinton Nix, Co-Trustees of the W.S. Shaffer Family Trust, Appellees

535 S.W.3d 242

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Takeaway

In short, this case confirms that the rule against perpetuities polices when interests vest, not how long a trust lasts, and that a beneficiary's transfer barred by a valid spendthrift clause is void and cannot be revived through after-acquired title.

Background

W.S. and E.S. Shaffer owned mineral interests under roughly 1,765 acres in Taylor County. After their deaths, their interests passed through testamentary trusts and, in 1993, the beneficiaries transferred those interests into the W.S. Shaffer Family Trust. The trust gave specified beneficial shares to the original beneficiaries and provided that, when an original beneficiary died, that person's interest would pass immediately to his or her children. It also gave the trustees broad authority over the mineral estate and included a spendthrift clause barring beneficiaries from assigning, selling, transferring, or encumbering their interests in the trust.

Clarence Shaffer held a one-quarter beneficial interest. When he died in 1999, that interest passed under the trust to his children, Darell and Darlene. Darell later conveyed the surface estate to Terry Bradley by warranty deed in 2004 and executed a mineral deed to Bradley in 2006. The mineral deed expressly purported to convey Darell's beneficial interest in the trust, including any interest he might later acquire.

The trust was initially set to last twenty years from its latest execution date, June 23, 1993, but permitted continuation by unanimous agreement of all beneficiaries. Before the original term expired, the trustees and Darlene sued Bradley for a declaration that Darell's deeds were invalid as to the minerals held in trust. In 2013, the beneficiaries unanimously executed an agreement extending the trust for another twenty years.

The trial court granted partial summary judgment for the trustees and Darlene, then severed their claims and entered a final judgment declaring both of Darell's deeds void as to the mineral interests. Bradley appealed, arguing that the extension provision violated the rule against perpetuities, that he acquired title through after-acquired title when the trust supposedly ended, and that the late-produced extension agreement could not support summary judgment.

Issues

Issue #1

Whether the trust's extension provision violated the rule against perpetuities by permitting the trust to continue beyond a life in being plus twenty-one years.

Holding

No. The rule against perpetuities concerns the time for vesting of beneficial interests, not the duration of a trust, and the interests here vested within the permitted period.

Reasoning

The court treated interpretation of the unambiguous trust instrument as a question of law and sought to effectuate the settlors' intent. Under Texas law, the rule against perpetuities invalidates an interest only when it might not vest within a life in being plus twenty-one years. It does not prohibit a trust merely because possession, enjoyment, or the trust's duration may extend longer than that period.

The original beneficiaries' respective interests vested when the trust was created in 1993. The instrument identified their ownership shares from the outset, and the trustees had immediate, broad authority to sell or lease the mineral estate. Those features showed that the property was not removed from commerce pending identification of a future class of beneficiaries.

The provision directing that an original beneficiary's interest pass to that beneficiary's children at death also did not create an impermissibly remote interest. Darell and Darlene took as substitutional takers of Clarence's already vested beneficial interest when Clarence died. Because their interests passed at the death of an original beneficiary who was alive when the trust was formed, they necessarily vested within the perpetuities period.

The 2013 extension changed only how long the trust would operate; it did not postpone vesting of any beneficial interest. Accordingly, neither the extension clause nor the extension agreement violated the rule against perpetuities.

Issue #2

Whether Bradley acquired Darell's mineral interest through the doctrine of after-acquired title after the trust's original twenty-year term expired.

Holding

No. Darell's attempted conveyances were void under the spendthrift provision, and after-acquired title does not validate a void conveyance.

Reasoning

A trust beneficiary ordinarily has equitable title and may transfer that interest unless the trust instrument restricts transfer. Here, however, the spendthrift provision expressly prohibited any beneficiary from anticipating, assigning, selling, transferring, alienating, or encumbering an interest in the trust. Texas law enforces such provisions as an exercise of the settlor's right to control the gift.

Darell's deeds to Bradley purported to transfer Darell's beneficial interest in the trust and therefore violated the express spendthrift restriction when made. The attempted transfers were void, rather than merely ineffective until Darell later acquired a transferable interest.

Bradley's after-acquired-title theory also depended on his unsuccessful claim that the trust terminated in 2013 under the rule against perpetuities. In any event, the doctrine ordinarily carries later-acquired title to a grantee when a grantor has made an effective warrantied conveyance; it does not apply to a conveyance that was void from its inception because it contravened a spendthrift trust.

Issue #3

Whether the extension agreement could be disregarded because the trustees produced it late in the summary-judgment proceedings.

Holding

No. Bradley supplied no authority for excluding the agreement based on its timing, and the timing did not undermine the validity of the summary judgment.

Reasoning

The trustees' central position was that Darell's purported mineral conveyances were invalid when executed because the spendthrift provision made them void. That position did not depend on proving that the trust remained in existence after June 23, 2013.

The trust's continued existence became material only after Bradley asserted that the trust had ended and that he consequently obtained title through Darell. The trustees then produced the beneficiaries' unanimous extension agreement in response to that assertion. Bradley cited no legal authority establishing that the agreement could not be considered merely because it was produced later in the litigation.

Because the extension was valid and the deeds were independently void under the spendthrift clause, the trial court properly granted summary judgment declaring the deeds invalid as to the trust's mineral interests.