In re Townley Bypass Unified Credit Trust, 252 S.W.3d 715 (Tex. App.—Texarkana 2008, pet. denied).


Spendthrift Provision


Settlor’s will created a trust for Wife with the remainder to his two sons upon her death. Before Wife died, one of the son’s died. When Wife died, the issue arose as to whether the predeceased son’s share would pass to his successors in interest or to Settlor’s heirs via intestacy. The trust did not expressly require a son to survive to receive his interest and the trust contained a standard spendthrift provision.

Both the trial and appellate courts held that the deceased son’s interest passed to his successors in interest. The court began its analysis by examining the remainder interest granted to each son by their father’s will. Because the interest was in ascertainable persons and there was no condition precedent other than the termination of the prior estate (Wife’s death ending her life estate), then the remainder was vested.

The court next determined as a matter of first impression in Texas that the spendthrift clause did not prevent the predeceased son’s vested remainder interest from passing under his will despite the existence of a spendthrift provision restricting the transfer of the son’s interest prior to his receiving the property. The court was impressed with the reasoning of Restatement (Third) of Trusts § 58, reporter’s notes, cmt. g (2003), which provides that “[a] continuing income or remainder interest in the trust, despite the spendthrift provision, is transferable by will or intestacy.” Townley, at 720. The court stressed that a spendthrift provision is designed “to protect the beneficiary from his or her own folly, a purpose that cannot be promoted after the beneficiary’s death.” Townley, at 721.

Moral: A trust should expressly state the disposition of trust property if a remainder beneficiary predeceases the life beneficiaries.