Deceased trust beneficiary’s share held payable to his estate

In the case of Estate of Rozell v. Betty Rozell Revocable Trust, the Oklahoma Court of Civil Appeals reviewed the language of a revocable trust and ruled, in a divided opinion, that the share designated for a deceased beneficiary who died without children was fully vested and payable to his estate.

Background Of The Case

In 2002, the decedent's mother signed a revocable trust agreement. The trust agreement contained instructions that, upon the mother's death, the co-trustee was to divide the trust principal into seven equal shares for the benefit of her seven children, including the decedent. The trust document stated that this date shall be called the "Division Date." The co-trustee was instructed to create a separate and distinct trust with each of the seven shares. The trust also provided that, if a beneficiary was deceased at the time of distribution, their share would be distributed to their children so long as they were age 25 or older. Another clause, relating to termination of the trust, provided that the trust principal must be eventually distributed and paid outright to the beneficiaries, free and clear of the trust, within three years after the mother's death.

The mother died in December 2008. In February 2009, the decedent died, leaving a widow but no children.

Procedural History

The decedent's widow, who was appointed as the personal representative of the decedent's estate, sued the trustee to recover the decedent's share of the distribution from the trust. The trial court found in favor of the trustee, ruling that the share provided for the decedent under the trust agreement lapsed because he was not alive when the distribution was made and because he had no children. The widow filed an appeal of the decision with the Court of Civil Appeals.

The Majority Ruling By The Court of Civil Appeals

The majority in the Court of Civil Appeals reversed the trial court's decision and issued an order requiring the trial court to distribute the decedent's share of the trust to his estate. The majority stated that trusts agreements can be set up in two different ways:

The trust may postpone the vesting of a beneficiary's share until some future event has occurred, for example, survival to a designated distribution date, or

The trust may divest the share of a beneficiary if a particular future event occurs.

The Court of Civil Appeals held that the trust agreement was of the latter type, and that it was not ambiguous. Since the trust agreement required the co-trustee to establish separate and distinct trusts for the benefit of each of the seven children upon the mother's death, the decedent's share vested at that time of the Division Date.

The Dissenting Opinion

The dissenting judge disagreed, believing that the "distribution date" for the decedent's share to vest was the final distribution required to terminate the trust, which was to be made within three years after the mother's death. Since the decedent died before the final distribution date, without children, the dissenting judge believed that his share lapsed and should have been ordered distributed to the remaining living children.

Dealing with the incapacity or death of a loved one without proper estate planning can be difficult and costly. Individuals are urged to seek out an experienced, knowledgeable estate planner who can assist in avoiding probate, saving on estate taxes, and preserving and protecting assets through the preparation of a trust or other estate planning documents that are best suited for your needs and the needs of your loved ones.