Trusts regularly provide for who will succeed to trust assets at the death of the current beneficiary. What happens if the named recipient of the trust assets lives to the event giving rise to his or her interest (such as the death of the prior trust beneficiary), but dies before he or she receives all of the trust assets?
In a recent Florida case, the dispositive provision read: "Distribution to Grandson: Upon my death, the then balance of principal and accumulated income remaining in the trust fund shall be distributed to my Grandson, ROBERT R. BIZZELL, if he is living at the time of distribution. If he is not living at the time of distribution then the said trust fund shall be divided into equal shares and distributed, one share to each child who survives me and one share for each child who may then be deceased, leaving descendants then surviving, to be distributed to such descendants, per stirpes." The grandson, Robert Bizzell, survived the settler of the trust, and thus was entitled to receive the remaining trust assets at the death of the settler. However, the grandson himself passed away before all the trust assets were distributed out to him.
A dispute then arose as to who should receive the undistributed trust assets. One of the disputants was a person who would receive the grandson's assets from his estate, treating the undistributed assets as owned by him for this purpose and applying the intestacy rules (which person was Bizzell's half-sister). The other disputants were those who would have received the assets under the above clause as if the grandson had not survived the settler at all (which persons were lineal descendants of the settler). The half-sister argues that the grandson's interest vested immediately at the death of the settler, and thus his estate and his heirs under the estate were entitled to the trust assets that were due to be distributed to him when he died. The lineal descendants of the settlor instead argued that only the trust assets distributed through the date of death belonged to the grandson's estate, and no vested interest arose in the undistributed assets.
The trial court ruled in favor of the half-sister. The appeals court, in reviewing the law, noted that the law favors early vesting of estates. It further indicated that any doubt as to whether an interest is vested or contingent should be resolved in favor of vesting. Applying these rules, the appellate court upheld the trial court ruling, and held the undistributed trust assets vested at the death of the settlor with the grandson, and thus the grandson's heirs succeeded to those undistributed trust assets at his death.
The result in the case is not remarkable. However, it is always comforting to see a case confirm a common understanding of the law, especially as to an issue such as this that comes up regularly in trust drafting and administration.
Bryan v. Dethlefs, 34d DCA ,Case No. 3D06-2360.