Perhaps you have seen the term in a will or trust: “per stirpes”. What does it mean, and what difference does it make? A recent Texas Court of Appeals case addresses the term — and also gives us an opportunity to tell an interesting family story.
William Lewis Moody, Jr.
For our purposes, the story starts in 1934, and involves one of Texas’ leading families of the time. William Moody, Jr., helped bail his son (William Moody, III) out of financial problems by purchasing the Rio Bonito Ranch (near Junction, Texas) from the son and placing it in a trust for the benefit of his son and family. The trust provided that William Moody, III, would receive all the income from the Ranch for life. The income would then be divided among William, III’s children (Edna, Virginia, and William IV) for as long as any of them lived. On William, IV’s death, the trust divided the ranch among William, III’s then-living descendants.
Before we describe the family tree, though, we have to pause a moment to put William Lewis Moody, Jr’s story into context. He had taken his father’s substantial estate and turned it into a financial juggernaut. William, Jr., owned and ran the City National Bank of Galveston (later renamed the Moody National Bank). He started the American National Insurance Company and ran it until his death in 1954. William, Jr., opened the National Hotel Company in 1930, and within a year had taken control of much of the Conrad Hilton hotel chain (Hilton recovered five of his hotels in 1934, and restored his empire). Moody owned and ran both of Galveston’s major newspapers.
In 1942 William, Jr. and his wife Libbie Shearn Moody, started the Moody Foundation, which continues to be vibrant and important today. As recently as 2013, the Moody Foundation donated $50 million to the University of Texas at Austin to create the Moody College of Communication.
William Lewis Moody, III
One of William Moody, Jr’s four children was William Lewis Moody, III. He worked with his father, benefited from his largesse and was on track as his father’s likely successor. Something happened in 1950, however, and (according to at least one fascinating report) the father refused to speak in the presence of the son for the remainder of the father’s life.
Control of the family businesses passed from William, Jr., to his daughter Mary Elizabeth Moody Northen, and ownership transferred to the Moody Foundation. But the Rio Bonito Ranch and that 1934 trust agreement continued to chug along.
For the rest of his life, William, III, continued to receive the income from the Rio Bonito. The ranch became a hunting lodge and destination. William, III, lived on the ranch for a number of years. After his death in 1992, the income was paid to his three children. The trust specified that it would terminate when the last of William, III’s children died; in the meantime, the three children would receive income payments. As each of William, III’s children died, his or her income share was divided among his or her issue. That, in fact, led to considerable litigation in earlier years, as at least one of William, III’s grandchildren tussled with his ex-wife over child support payments.
Does the family tree seem confusing yet? Fortunately, the Texas Court of Appeals decision includes a helpful chart. Here are the relevant family connections:
Distribution of Rio Bonito
William Lewis Moody, IV, died in 2014. The trust language directed that Rio Bonito then be distributed “in equal shares per stirpes, to the then living grandchildren of William Lewis Moody, III, and the surviving issue of his deceased grandchildren.” That set up the present litigation, and the Court of Appeals decision.
What does “per stirpes” mean? The term is Latin, meaning “by the roots.” Over centuries of legal use, it has come to mean that each branch of a family would receive its equal share, and that share would be subdivided among descendants appropriately.
There are at least two possible interpretations here. Under one, William Moody, Jr.’s trust divided into three equal shares on William, III’s death. The income from each share then flowed to Edna, Virginia and Bill (William IV), respectively. Then, when the last grandchild died, each of those three shares divided equally among the descendants of each “root.” In other words, Edna’s two children would divide one share, Virginia’s two children would divide another, and Bill’s four children would divide the last. Four of William, Jr.’s great-grandchildren would receive 1/12 each, and the other four would receive 1/6 each.
In the other interpretation, the entire trust would recombine on William, IV’s death, then divide equally among the eight great-grandchildren. That approach would treat each great-grandchild equally, rather than penalizing some for having come from the largest family.
The court case
The Texas probate court favored the second reading, but the Texas Court of Appeals disagreed. According to the appellate court, Texas law governing trusts (and wills) directs that the trust first be divided into three shares. Upon the death of the last grandchild, each share divided into smaller shares for that grandchild’s children.
One key to the Court of Appeals approach: the trust’s income divided into three equal shares before William, IV’s death. That suggested that William, Jr’s intention was to make the division at the grandchildren’s level. Archer v. Moody, December 14, 2017.
Would an Arizona court rule the same way? Perhaps, but probably not.
Arizona law defines the term “per stirpes”. It directs division into “as many equal shares as there are surviving children of the designated ancestor and deceased children who left surviving descendants.” It seems likely that the Moody trust language would cause division at the “designated ancestor” level — that is, the grandchildren of William, III.
The irony should be obvious. “Per stirpes” has evolved into a shorthand description, meant to avoid confusion and simplify documents. The Moody trust is a flamboyant illustration of how that sometimes fails to work.
Archer v. Moody actually provides several law school examination questions beyond the meaning of “per stirpes”. Some require a little speculation, but it is informed guesswork.
Why did the trust terminate at William, IV’s death? Almost certainly because of the rule against perpetuities, which has long required trusts to dissolve within about three generations. The rule against perpetuities has fallen from favor in recent years, but in 1934, when the Moody trust was written, it was an absolute barrier.
Why is William, V, included in the chart above, and in the calculations, even though he is marked as “deceased”? Because he died (without leaving any children) in 2016, two years after his father’s death. His share was fixed, even though he didn’t live long enough to receive it. That share will go to his estate.
And what about the various disputes by and among trust beneficiaries about the trust administration? The reported cases consistently favor the trustee. That would be the Moody National Bank.