First impression: Adoption doesn’t sever biological family trust beneficiary rights

Three children who were provided for under terms of a trust established for their father by their great-grandmother remain entitled to their share of proceeds despite their adoption out of the family, the Indiana Court of Appeals ruled Wednesday.

In a matter of first impression that involved interpretation of the meaning of the word “children” in the Indiana trust statutes, an appellate panel affirmed the Marion Superior Court’s grant of summary judgment for three biological children of the late David Walters. Those children born in the 1990s – Brittany M. Corder, Matthew T. O’Brien, and Molly L. O’Brien, referred to collectively by the court as “the O’Brien children” – were adopted at young ages by their stepfather after Walters and the children’s mother, Joan, divorced and she later remarried.

David Walters’ grandmother, Mildred Goodman, established a trust for him in 1991 that provided upon his death that trust property passed to “his then living children, share and share alike.” The Walters’ divorce came a year after Goodman died in 1994. Walters also remarried and had a daughter, Raquel, with his new wife.

After David Walters died in 2017, Raquel filed this lawsuit, seeking to invalidate the trust beneficiary claims of Walters’ children from his first marriage.

“On this issue of first impression, we hold that under these facts where the children were adopted out of the family after the settlor’s death, the adopted out children retained their status as beneficiaries of Mildred. We therefore affirm the trial court,” Senior Judge John Sharpnack wrote for the panel in Raquel Walters v. Brittany M. Corder, Matthew T. O’Brien, and Molly L. O’Brien, 19A-TR-1069.

Raquel argued the children’s adoption out of the family severed their status as beneficiaries. She looked for support to Indiana Code § 31-19-15-1 (2009), but the panel rejected the proposed application of that law to designations of trust beneficiaries.

The panel cited caselaw noting that the purpose of that section is to shield an adoptive family from unnecessary instability and uncertainty arising from unwanted intrusions by the child’s biological family.

“Here, the O’Brien Children are all adults, and the biological family is not trying to interfere with any aspect of the relationship between them and their adoptive family. Rather, their biological great grandmother, with whom two of the three O’Brien Children had contact and a relationship from their birth until her death, included them as beneficiaries of her trusts.” The court noted that at the time of her death, Mildred also was aware the children’s mother was pregnant with the third child.

“Although Raquel claims that a determination that the O’Brien Children are beneficiaries under the terms of Mildred’s trusts would ‘undermine the purpose of the adoption statutes,’ we disagree,” the panel held.

“The objective of Section 31-19-15-1 is not advanced by depriving the O’Brien Children of their status as beneficiaries merely because their biological father consented for them to be adopted after the death of the settlor of the trusts. The statute was designed as a shield to protect new adoptive families, not as a sword to prohibit adopted children from receiving a trust distribution, per the settlor’s wishes, from a member of the family from which the children have been adopted out. Indeed, allowing this statute to be used in such a manner would contravene one of the cardinal principles of trust law: the settlor has the right to arrange for the distribution of her estate as she sees fit.”

The panel noted that at the time Mildred established a testamentary trust for her grandson David, “the Indiana Trust Code did not define the term ‘children.’” The panel found the term embraces the first generation of offspring.

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