Court Holds That Trust No Longer Owned Vehicle Because It Allowed Beneficiary’s Wife To Drive It

Originally published by David Fowler Johnson.

In In the Interest of H.D.V., a husband appealed from a bench trial in a divorce proceeding. No. 05-15-00421-CV, 2016 Tex. App. LEXIS 9520 (Tex. App.—Dallas August 26, 2016, no pet. history). His mother had set up a trust for him and funded it with various assets, including a vehicle. The husband was the trustee and primary beneficiary of his trust and his children were named as secondary beneficiaries. The husband allowed his wife to drive the trust’s vehicle. In the divorce proceedings, the wife sought ownership of the vehicle, and the trial court awarded it to her. The husband appealed several issues, including the award of the vehicle to the wife.

On appeal, the husband contended that the trial court erred in awarding the wife the vehicle because it was owned by the trust. The trust agreement contained a spendthrift provision prohibiting the principal or income of the trust from being “seized, attached, or in any manner taken by judicial proceedings against any beneficiary or distributed on account of the debts, assignments, sale, divorce, or encumbrance of the beneficiary or distribute.” The husband maintained that awarding the car to wife violated the terms of the trust.

The court of appeals defined spendthrift trusts as

[T]rusts with language prohibiting the voluntary or involuntary alienation of the beneficial interest. Such a trust protects the beneficiary from his creditors by expressly forbidding alienation of his interest in the trust. The corpus, the accrued income which has not been paid to the beneficiary, and any future income to be paid to a beneficiary of a spendthrift trust are not subject to the claims of the creditors of the beneficiary while those amounts are in the hands of the trustee.

Id. The court of appeals also noted that the trust agreement gave the husband as trustee the power to “sell, exchange, give options upon, partition, convey, or otherwise dispose of . . . any property that may from time to time be or become part of the Trust estate.” As the husband testified at trial that the car was in the wife’s possession, the court of appeals held that there was evidence the vehicle had been conveyed or distributed from the trust and was no longer protected by the spendthrift provision. The court of appeals concluded that the “trial court did not abuse its discretion in awarding the car, which was in Wife’s possession, to her as separate property.”

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