Face Challenges Confidently

474 Benavides v. Mathis

Tuesday, September 8th, 2015

Richard F. Brown

The following is not a legal opinion.  You should consult your attorney if the case may be of significance to you.
Benavides v. Mathis, as Temporary Guardian of the Estate of Carlos Y. Benavides, Jr.   held that general rules for community and separate property and trust interpretation govern the distribution of trust income and those rules govern even if the corpus of the trust is a mineral estate.  In 1990, the Benavides Family Mineral Trust (“Benavides Trust”) was formed to hold and manage approximately 126,000 mineral acres.  Carlos Y. Benavides, Jr., was one of beneficiaries of the Benavides Trust and was married to Leticia Benavides.  Leticia claimed that 1/2 of the trust distributions were her community interest.  The issue was whether the trust distributions were community property or separate property of Carlos.
If a trust is irrevocable and the beneficiary has no present possessory right to a part of the corpus, distributions received during marriage are the beneficiary’s separate property.    The court first used basic trust construction principles to determine whether the Benavides Trust was irrevocable.  The trust document recited that “[t]his Trust is expressly irrevocable, but may be amended from time to time, except as to the duration hereof, with the written consent of three-fourths (3/4) in interest or more of all the then participating beneficiaries.”    No specific words of art must be used to create an irrevocable trust, as long as the instrument clearly reflects the settlor’s intent to make the trust irrevocable, and the express use of the word “irrevocable” is sufficient to create an irrevocable trust.    The court rejected Leticia’s argument that the right to amend the expressly irrevocable trust made the Benavides Trust revocable.
The court then considered Leticia’s argument that Carlos had a present, possessory interest in the Benavides Trust.  Her principal contention was that Carlos had a present, possessory interest in the corpus because Carlos received distributions attributable to oil, gas, bonus, and royalties, which are generally considered corpus.  The court first noted that Leticia was confusing a present, possessory right in the income with a present, possessory right in the corpus.    The general rule is that minerals are a part of the land, and therefore royalties are considered corpus.  However, whether royalties constitute the corpus of an estate or constitute income is a question that is decided on a case-by-case basis by the court referring to the trust document as a whole.  The Benavides Trust instrument’s definitions of “trust estate,” “revenue,” and “income” reflected the clear intent of the settlor that royalties and bonuses would not become a part of the trust corpus.    The document clearly directed that all of the proceeds would be treated as income to the trust, not corpus, and that income was to be distributed to the beneficiaries.  Carlos received royalties and bonuses, but that did not equate to a present possessory interest in the trust corpus.
General rules for community and separate property and trust interpretation govern the classification of the marital property interests in distribution of trust income.  Although minerals are a part of the land and royalties are generally considered corpus, the trust document will govern the characterization of the distributions as separate or community property.