Does the California Probate Court Have Broad Equitable Powers?

The recent case of Bruno v. Hopkins clarified that the California Probate Court is required to decide cases by the statutes in the Probate Code, but the Court also has broad equitable powers.

Appellant Lynne Francis Bruno filed suit against her mother, Mildred Francis, individually and as trustee of a family trust,as well as two of her sisters, respondents Jane Francis Hopkins and Gwen Francis (collectively Respondents), alleging that they forged trust instruments purporting to divide her parents’ estate upon the death of her father.

Following a court trial, the trial court entered judgment in favor of Respondents after determining the trust instruments were not forgeries.

On Respondents’ motion for attorneys’ fees, the trial court ordered Lynne to pay over $829,000, finding there was no merit to the position Lynne pursued at the trial, and that Lynne acted without basis in filing any of her claims. In addition, the court ordered Lynne to pay over $96,000 in costs.

On appeal, Lynne contended the trial court issued the attorneys’ fees order in error, alleging the trial court lacked jurisdiction to grant a fee award against her because she did not own any actual interest in the trust assets.

She further contended that because she had a reasonable and good faith belief in the merits of her claim, there was insufficient evidence to support the issuance of the fee award. Asserting that the record did not support a finding that she pursued her claims in bad faith, Lynne also claimed that the trial court erred when it granted an award of costs to Respondents.

Finding no error, the appellate court affirmed the judgment.

The trial court held a 13-day court trial on the bifurcated issue of whether the trust instrument at issue was invalid as a forgery. After the trial court found that the trust instrument had not been forged, it heard Respondents’ motion for attorneys’ fees, and considered the memorandum of costs offered by Respondents, as well as Lynne’s motion to strike or tax costs.

In ordering Lynne to pay fees and costs, the trial court indicated it considered the evidence from the trial proceedings in addition to the parties’ pleadings.

While staying at her parents’ home, Lynne alleged that she found one of her father’s estate planning documents in an unlocked metal box in the kitchen. She “perused” the document, but did not recall the title of the document, the number of pages, or whether she saw James’s signature on the document. Lynne testified that she saw her mother’s and sisters’ names, and noted that the document indicated the four children would receive equal shares of their father’s estate.

James passed away in 2006. Following the funeral, the family returned to Mildred’s home and gathered on the patio. At some point, Lynne retreated to a bedroom. When Gail went to check on her, Lynne was angry, and stated that her husband would hire an attorney if Lynne did not get her fair share.

Upon James’s death in 2006, Mildred became the sole trustee of the Trust. Mildred waited until 2015 to authorize Jane to prepare the notification required when a revocable trust becomes irrevocable by the death of one or more settlors of the trust under Probate Code section 16061.7.

When a revocable trust becomes irrevocable by the death of one or more settlors of the trust, the trustee is required to serve notice of the settlor’s death on each heir of the deceased settlor not later than 60 days after the settlor’s death.

Asserting that the provision of the Trust limiting Lynne’s potential receipt of assets to $200,000 was inconsistent with her relationship with James and the estate planning instrument Lynne alleged she saw shortly before James’s death, she contended that the copies of the Trust and James’s will provided to her were forgeries.

In seeking to remove Mildred as trustee, Lynne alleged Mildred breached numerous fiduciary duties by failing to timely serve the section 16061.7 notification, failing to provide a complete copy of the Trust upon Lynne’s request, and by forging and producing forged copies of the Trust instrument and James’s Will.

The court issued a statement of decision finding that Lynne did not meet her burden of proof and that she should take nothing by way of her petition.

The trial court indicated that it did not find Lynne to be credible or her contentions to be true, noting that Lynne could not recall details about the document she allegedly saw dividing her parents’ assets equally amongst the children.

The fact that James had gifted stock to Jane and Gwen during his lifetime without making similar gifts to his other children undermined Lynne’s claim that James would have equally divided his estate amongst his four daughters.

The court determined Mildred was the most credible and honest witness, who provided a reasonable and credible explanation of why she and James planned their estate as they did, and whose testimony that the Trust documents were the true original documents that James drafted was honest.

The court determined Jane, her husband, and Gwen, were also credible witnesses. Based on their testimony, the trial court found it unrealistic to think Mildred would betray James’s wishes, and noted Lynne had not produced credible evidence of nefarious intent on Jane or Gwen’s part.

Following the entry of judgment, Respondents filed a motion for attorneys’ fees in which Mildred asked for $331,274, and Jane and Gwen asked for $497,762.50. Asserting that Lynne had filed her petition to remove Mildred as trustee in bad faith, Respondents brought the motion under the court’s broad equitable powers, as well as Probate Code.

Following a hearing at which the attorneys presented argument, the trial court granted Respondents’ request for attorneys’ fees. and found that there was no merit in the position that Petitioner pursued throughout the trial. She acted without basis in filing any of her claims, and there was no support for her claims that the trust declarations had been forged, aged or substituted.

Rather, the court determined Lynne’s litigation was a personal attack on her mother and her sisters by filing her lawsuit because she thought she should receive more of her parents’ estate upon her mother’s passing.

While the trial court did not specifically address Probate Code section 15642(d) or Code of Civil Procedure, section 2033.420, the court stated it found merit to the position stated in the moving papers, and therefore granted Respondents’ attorneys’ fees motion.

Lynne argued the trial court erred when it ordered her to pay attorneys’ fees in excess of the value of her potential share in the Trust assets. She contended the trial court’s jurisdiction was limited to the property of the Trust estate, such that she could not be personally liable for any amount of attorneys’ fees over and above her interest in the Trust.

Lynne further asserted the trial court erred when it found that she instigated the litigation in bad faith, or that she otherwise lacked reasonable grounds to believe she would prevail on her claim that respondents forged the Trust documents.

Respondents set forth three grounds for their request for attorneys’ fees, specifically, the court’s “broad” equitable powers, Probate Code section 15642(d), and Code of Civil Procedure, section 2033.420.

While the court based its fee award on its equitable powers, it also indicated that it finds merit to the position stated in Respondents’ moving papers and, therefore, granted the request.

As Respondents briefed all three theories authorizing the attorneys’ fees request and Lynne addressed all three in her response, if any of these support the court’s jurisdiction to make the award, the order will be affirmed, assuming it met any other legal requirements imposed by the statute or as prerequisites to the exercise of equitable power.

The trial court’s equitable powers could not justify the attorneys’ fees award.

As a general matter, probate proceedings are statutory in nature, such that the trial court has no other powers than those given by statute and such incidental powers as pertain to it and enabling the court to exercise the jurisdiction conferred upon it, and can only determine those questions or matters arising in the estate which it is authorized to do.

However, the court has broad equitable powers to protect the trust estate. Courts having jurisdiction over trust administration have the power to allocate the burden of certain trust expenses to the income or principal account.

Sometimes this authority is stated in statutory form, but it exists as part of the inherent jurisdiction of equity to enforce trusts, secure impartial treatment among the beneficiaries, and to carry out the express or implied intent of the settlor.

Where the expense of litigation is caused by the unsuccessful attempt of one of the beneficiaries to obtain a greater share of the trust property, the expense may properly be chargeable to that beneficiary’s share.

The trial court’s equitable power over trusts gives the court authority to charge attorney fees and costs against a beneficiary’s share of the trust estate if the beneficiary instigated an unfounded proceeding against the trust in bad faith.

However, the trial court exceeded its equitable powers when it imposed personal liability for attorneys’ fees and costs on a beneficiary over and above the funds available from the beneficiaries share of the trust proceeds.

Therefore, the trial court had no equitable jurisdiction to award attorneys’ fees in excess of Lynne’s share of the trust assets.

The trial court lacked authority under equity to impose attorneys’ fees and costs. Section 15642 authorizes the removal of a trustee upon the petition of a settlor, cotrustee, or beneficiary, where the trustee has committed a breach of a trust, among other specified grounds.

If the court finds that the petition for removal of the trustee was filed in bad faith and that removal would be contrary to the settlor’s intent, the court may order that the person or persons seeking the removal of the trustee bear all or any part of the costs of the proceeding, including reasonable attorney’s fees.

On its face, the ordinary meaning of the phrase all or any part of the costs of the proceeding, including reasonable attorney’s fees suggests that the Legislature intended to authorize attorneys’ fees without limiting the amount to the moving party’s interest in the trust at issue. The only limitation expressly set forth in section 15642(d) is that the attorneys’ fees be reasonable.

For the reasons stated above, under section 15642(d), the trial court had jurisdiction to impose personal liability on Lynne for attorneys’ fees and costs incurred by Respondents, such that it was authorized to order Lynne to pay an amount in excess of her potential interest in the Trust, assuming the other requirements of the statute were met.

To award attorneys’ fees to Respondents under section 15642(d), the trial court was required to determine that Lynne filed the petition for removal of Mildred in bad faith, and that Mildred’s removal as trustee would be contrary to James’s intent.

Lynne did not argue on appeal that the trial court lacked substantial evidence to find that removal of Mildred as trustee would be contrary to James’s intent. Therefore, the appellate court's evaluation rested on whether there was substantial evidence to support a finding of bad faith.

Although the trial court based its analysis of Lynne’s intent on her claims of forgery, Lynne alleged the trial court could have granted the petition based on her other contentions, specifically, that Mildred failed to serve notice as required by section 16061.7 and failed to provide information about the Trust on Lynne’s request.

Lynne argued that substantial evidence supported these claims, which she set forth in her request to remove Mildred as the trustee of the Trust. She thus contended that she brought her petition in good faith and the trial court erred in awarding fees and costs under section 15642(d).

The sole issue heard at the court trial was whether the Trust instruments had been forged, which is one of the grounds Lynne set forth as a breach of fiduciary duty justifying the removal of Mildred as trustee. There is no indication in the record that the trial court considered Lynne’s remaining challenges when it entered judgment in Respondents’ favor, or that Lynne objected to the entry of judgment on the grounds that the trial court had not considered all of the causes of action raised in her amended complaint.

Section 15642(d) does not define bad faith. In a different case, the court offered the following definition: Bad faith involves a subjective determination of the contesting party’s state of mind—specifically, whether he or she acted with an improper purpose. A subjective state of mind will rarely be susceptible of direct proof; usually the trial court will be required to infer it from circumstantial evidence.

While the trial court did not explicitly find that Lynne brought the forgery claim in bad faith, an implied finding can be inferred from the trial court’s statement of decision following the trial, as well as its statements made on the record at the hearing on the attorneys’ fees motion in which it determined Respondents were more credible than Lynne.

The trial court sits as trier of fact, and it is called upon to determine that a witness is to be believed or not believed. This is the nature of fact finding. The trier of fact is the sole judge of the credibility and weight of the evidence.

In that role, the judge may reject any evidence as unworthy of credence, even uncontradicted testimony.

The trier of fact may disregard all of the testimony of a party, whether contradicted or uncontradicted, if it determines that he testified falsely as to some matters covered by his testimony.

Lynne argued that the trial court abused its discretion by ordering her to pay Respondents’ costs based on its finding that she prosecuted an unmeritorious action. Lynne contends the record on appeal compelled the conclusion that she brought and maintained a well-founded forgery action in good faith because she was entitled, as a matter of law, to rely upon her experts’ opinions.

As explained above, those contentions were without merit.

LESSONS:

1.         Credibility of witnesses is often key to prevailing in a lawsuit.

2.         The trier of fact may disregard all of the testimony of a party, whether contradicted or uncontradicted, if it determines that he/she testified falsely as to some matters covered by the testimony.

3.         As a general matter, probate proceedings are statutory in nature, such that the trial court has no other powers than those given by statute.

4.         However, the court has broad equitable powers to protect the trust estate, and courts having jurisdiction over trust administration have the power to allocate the burden of certain trust expenses to the income or principal account.

5.         Family relationships can be irrelevant when money is in dispute.

Who are "Interested Persons" Authorized in California Probate Actions?

In the recent appeal of Colvis v. Binswanger, Garaventa Enterprises, Inc. (Company) appealed from the probate court’s order finding the Company lacked standing to participate in proceedings on a trust petition filed by respondents Linda Garaventa Colvis and Joseph Garaventa (Petitioners), because the Company was not a beneficiary or a trustee.

The appellate court disagreed, and found, as a matter of statutory interpretation, that the California Probate Code authorizes “interested persons” to respond or object at or before a hearing in a trust proceeding.

During their lifetimes, Silvio Garaventa, Sr., and Mary Garaventa established the Garaventa Family Marital Trust (Trust).

Silvio, Sr., died in 1998 and Mary died in 2015. One of their five children, Louisa, is the trustee under the terms of the Trust. The other children are Silvio, Jr., Marie, Joseph, and Linda.

The Trust is a 70 percent shareholder of the Company. Each of the siblings own an equal share of the remaining 30 percent of the Company.

A Company shareholder agreement provides that any shareholder owning more than 50 percent of the company can take various actions in their “sole discretion,” including borrowing money, lending money, and transferring assets.

The Trust provides that the balance of its estate, after expenses and specific distributions, shall be distributed equally to five subtrusts benefiting, respectively, each of the five siblings and their families.

Among the Trust’s liabilities are outstanding loans made to the Trust by the Company. Since Mary’s death, disputes have arisen among the siblings over management of the Company and administration of the Trust.

In 2022, Linda and Joseph filed a petition (Petition) to instruct Louisa, as trustee, to take specified actions, including directing the Company to borrow substantial sums of money to pay estate taxes owed by the Trust.

In advance of a status hearing, the Company filed a status report responding to the Petition.

Petitioners objected to the Company’s filing on the ground the Company lacked standing. The court subsequently issued an order finding that because the Company was neither a trustee nor a beneficiary of the Trust, it lacked standing to participate in proceedings on the Petition.

The parties disputed whether, under the statutory scheme, “interested persons” can respond to petitions in trust proceedings, or whether only trustees and beneficiaries can do so. 

The Company points to section 1043(a), which provides, “An interested person may appear and make a response or objection in writing at or before the hearing.”

“Interested person” is defined to include persons “having a property right in or claim against a trust estate . . . which may be affected by the proceeding.”

“Person’ means an individual, corporation, government or governmental subdivision or agency, business trust, estate, trust, partnership, limited liability company, association, or other entity.

Petitioners point to section 17200(a), which provides, with exceptions not relevant here, “a trustee or beneficiary of a trust may petition the court under this chapter concerning the internal affairs of the trust or to determine the existence of the trust.”

While this provision governs who may file a petition, it does not prescribe a procedure different from section 1043 as to who may respond or object to such a petition.

The Legislature may reasonably have discerned a distinction between the ability to initiate judicial proceedings and the ability to respond to pending proceedings. Indeed, the statutory scheme demonstrates the Legislature expressly contemplated persons other than trustees and beneficiaries could be impacted by trust proceedings, even though such proceedings can only be initiated by trustees or beneficiaries.

Section 17203(b), provides notice of a hearing on a trust petition shall be served “on any person, other than a trustee or beneficiary, whose right, title, or interest would be affected by the petition.”

It was not necessary to decide whether, as the Company argued, such persons are always “interested persons” within the meaning of section 48, or whether the right to receive notice necessarily includes the right to object or respond.

Notice of the proceeding would be of little value if all the recipient could do is passively observe. The purpose of notice is to provide an interested person an opportunity to protect its interest by participating.

It is sufficient that the Legislature acknowledged persons other than trustees and beneficiaries could have rights or interests impacted by a trust petition and were thus entitled to notice, even though they cannot bring such petitions in the first instance.

Petitions may be filed by “any interested person” where trust property “is claimed to belong to another.

The appellate court concluded that sections 48 and 1043 apply to hearings on petitions in trust proceedings, and allow interested persons to respond or object to such petitions.

The parties also disputed whether the Company is an “interested person” for purposes of proceedings on the Petition.

The probate court has flexibility in determining whether to permit a party to participate as an interested party. Section 48 permits the court to designate as an interested person anyone having an interest in an estate which may be affected by a probate proceeding, and may determine the sufficiency of that party’s interest for qualify as an interested person entitled to participate for purposes of one proceeding but not for another.

Standing for purposes of the Probate Code is a fluid concept dependent on the nature of the proceeding before the trial court and the parties’ relationship to the proceeding, as well as to the trust (or estate).

A probate court’s ruling on whether a person has standing under section 48 is reviewed for abuse of discretion.

LESSONS:

1.         The value of a trust is the California Probate Code provides a statutory process to resolve disputes regarding the trust.

2.         The Probate Code authorizes “interested persons” to respond or object at or before a         hearing in a trust proceeding.

3.         “Interested person” is defined to include persons having a property right in or claim          against a trust estate which may be affected by the proceeding.

4.         “Person" means an individual, corporation, government or governmental subdivision or    agency, business trust, estate, trust, partnership, limited liability company, association, or      other entity.

5.         Section 17203(b), provides notice of a hearing on a trust petition shall be served “on any person, other than a trustee or beneficiary, whose right, title, or interest would be affected        by the petition.” 

Estate Plan Requires Consideration of Separate and Community Property Assets

The recent case of Wilkin v. Nelson reviewed an estate plan with respect to California's Family Code concerning separate and community property.

William and Hanako Nelson were married in 1981. In 2000, Hanako executed a trust leaving a separate property rental home to Gary and Jay Wilkin, her adult sons from a prior marriage.

At that time, Hanako also executed a pour-over will granting the residue of her estate to the trustee for administration after her death. Hanako did not advise William of her estate plan, but he later discovered she had placed her rental home into a trust for the benefit of her sons.

Hanako died in 2016. Gary, who became the successor trustee, filed a probate petition requesting that Hanako’s separate and community property assets be transferred to her trust. He claimed the pour-over will required that all of her real and personal property be declared trust assets.

William filed a petition seeking reformation of the pour- over will to confirm Hanako’s intent to transfer only the residue of her separate property estate into the trust. He cited the decision Estate of Duke which held that an unambiguous will may be reformed to conform to the testator’s intent if clear and convincing evidence establishes that the will contains a mistake in the testator’s expression of intent at the time the will was drafted, and also establishes the testator’s actual specific intent at the time the will was drafted.

Following a three-day evidentiary hearing, the probate court found that clear and convincing evidence supported equitable reformation of the will to provide for testamentary control and disposition of Hanako’s separate property only.

The paramount consideration in construing a will is to determine the subjective intent of the testator.  The modern trend is toward favoring the decedent’s intent over formalities.

A specific devise is a transfer of specifically identifiable property (Probate Code
§ 21117(a)), while a general devise is a transfer from the general assets of the transferor that does not give specific property. (Probate Code § 21117(b))

There was substantial evidence of Hanako’s actual and specific intent at the time the trust and will were drafted.

It was undisputed she wanted a trust to gift her separate property rental home, i.e., the Goleta property, to her two sons, and that she also expressed some general desire to have a will to control the disposition of her separate property. The will as drafted contained a mistake in the expression of that intent.

The drafting attorney’s testimony, although not conclusive, is entitled to much weight.  McKee testified it is fair to state that Hanako’s trust is a separate property trust. The instrument provides that the property transferred is the settlor’s separate property and shall be known as the ‘separate trust estate.

During his deposition, McKee confirmed the trust did not include any community assets. He also acknowledged that he and Hanako did not discuss the pour-over will or her community property assets during their phone call.

Once the testamentary scheme or general intention of a trust or will is discovered, the meaning of particular words and phrases is to be subordinated to this scheme, plan or dominant purpose.

In the absence of any evidence showing Hanako’s intent to include community property assets in her estate plan, it was reasonable for the probate court to interpret the evidence of her intent as it did.

Where, as here, there is a mistake in expression of the testator’s actual and specific intent at the time the will was drafted, the will should be reformed to express that actual intent.

Preference is to be given to an interpretation of an instrument that will prevent intestacy (Probate Code § 21120), but no policy underlying the statute of wills supports a rule that would ignore the testator’s intent and unjustly enrich those who would inherit as a result of a mistake.

Given the probate court’s finding that Hanako intended at the time the trust and pour-over will were drafted to provide for testamentary control and disposition of only her separate property, the decision to reform the pour-over will to conform to that actual and specific intent was well within the court’s discretion.

LESSONS:

1.         Married couples should always consider the status of assets as community or separate property at the creation of the estate plan.

2.         An unambiguous will may be reformed to conform to the testator’s intent if clear and convincing evidence establishes that the will contains a mistake in the testator’s expression of intent at the time the will was drafted, and also establishes the testator’s actual specific intent at the time the will was drafted.

Can a Trust Own Real Property?

The recent case of Boshernitsan v. Bach provided the answer to this question, and highlights an important rule in determining who is a landlord and owner of real property, the trust or the trustees of the trust.

Rimma Boshernitsan and Mark Vinokur (appellants) brought an unlawful detainer action against respondents Belvia Bach and four of her children (the tenants) in August 2019.

Appellants sought to evict the tenants under a provision of San Francisco’s rent control ordinance that allows a “landlord” to evict renters from a unit to make the unit available for a close relative of the landlord (the family move-in provision).

A rule of the San Francisco Rent Stabilization and Arbitration Board (Board) defines “landlord” for purposes of the family move-in provision as “a natural person, or group of natural persons, . . . who in good faith hold a recorded fee interest in the property.”

The tenants demurred to the complaint, arguing that their landlord is not such a natural person or group of natural persons because title to the apartment building is held by appellants’ revocable living trust.

The trial court accepted this argument, sustained the demurrer without leave to amend, and entered judgment for the tenants in December 2019.

In sustaining the demurrer, the trial court correctly ruled that a trust is not a “natural person."

But it was mistaken in assuming that appellants’ trust was the landlord. As a matter of law, only trustees—not trusts—can hold legal title to property.

Natural persons who are acting as trustees of a revocable living trust and are also the trust’s settlors and beneficiaries qualify as a “landlord” under the family move-in provision.

Accordingly, appellants were not barred from seeking to evict the tenants under that provision, and the judgment was reversed and the action remand for further proceedings.

Appellants own a two-unit building in San Francisco. They live in one unit, and the tenants rent the other. In mid-2018, appellants transferred title of the building to the Vinokur and Boshernitsan Living Trust Dated April 30, 2018 (the trust).

About a year later, they served the tenants with a notice of termination of tenancy, claiming an intent to move Vinokur’s mother into the tenants’ unit under the authority of the family move-in provision.

After the tenants declined to vacate the premises, appellants brought the unlawful detainer action against them. The complaint alleged that appellants hold 100% of the interest in the property and the title as trustees of the trust.

The tenants demurred, arguing that (1) the eviction was not being sought by a “landlord”, and (2) the notice of termination added requirements more onerous in various respects than those of the Rent Ordinance.

In response, appellants argued that they as trustees, not the trust itself, held title to the property. Thus, although admitting that a trust is not a natural person, they argued that they, a group of natural persons, were the landlord, not the trust.

The trial court sustained the demurrer without leave to amend and entered judgment in the tenants’ favor.

The court’s written order recited, The property is owned by a trust and not a "natural person." For purposes of the Rent Ordinance, a landlord is a "natural person" or "a group of natural persons." The drafters of the Rent Ordinance limited the definition of the landlord as stated above and excluded non-natural persons thereby.

Both below and on appeal, the tenants framed the primary issue as whether the term “landlord” includes a revocable trust established by natural persons who are both settlors and trustees of the trust.

The court of appeal agreed with appellants, however, that title to the building is held by them, not the trust.

Accordingly, the relevant question was whether appellants in their capacity as trustees qualify as a landlord for purposes of the family move-in provision, and the court of appeal concluded that they did.

 The settlor of a revocable living trust is the person creating the trust.

The trustee of a revocable living trust holds the property in trust for the beneficiary.

The Rent Ordinance defines “landlord” as an owner, lessor, or sublessor, who receives or is entitled to receive rent for the use and occupancy of any residential rental unit or portion thereof in the City and County of San Francisco, and the agent, representative, or successor of any of the foregoing.

Evictions under the Rent Ordinance further provides that for purposes of an eviction under the Rent Ordinance, the term "landlord" shall mean a natural person, or group of natural persons . . . who in good faith hold a recorded fee interest in the property.

Appellants argued that they, not the trust, held title to the building. They pointed out that revocable trusts have no right to sue or be sued, and they assert that the trust is inseparable from them as the settlors and trustees.

The court of appeal agreed that appellants as trustees “hold a recorded fee interest” in the building.

The recorded grant deed states that appellants “hereby grant to Mark Vinokur and Rimma Boshernitsan, Trustees, or their successors in interest, of the Vinokur and Boshernitsan Living Trust dated April 30, 2018, and any amendments thereto, their whole interest in [the building].”

Thus, the plain terms of the grant deed specified that the building’s title is held by appellants as trustees, not by the trust.

Even apart from these circumstances, the law of trusts confirms that the building’s title is held by appellants as trustees, because trusts do not themselves as entities hold title to property.

Unlike a corporation, a trust is not a legal entity.

Rather, a trust is a fiduciary relationship with respect to property.

When property is held in trust, there is always a divided ownership of property, generally with the trustee holding legal title and the beneficiary holding equitable title.

Furthermore, when settlors transfer property to a revocable living trust, there is even more reason to conclude that the property’s title is held by the trustees, not the trust.

Such property is considered the property of the settlor for the settlor’s lifetime.

 A revocable inter vivos trust is recognized as simply a probate avoidance device, and when property is held in this type of trust, the settlor and lifetime beneficiary has the equivalent of full ownership of the property.

The tenants argued that because Probate Code section 56 defines person” to include a trust and the Civil Code provides that “[a]ny person” may hold property in California (Civ. Code, § 671), trusts can own property.

The tenants failed to explain why the Probate Code’s definition of the term should be read into a Civil Code provision, particularly since the Civil Code contains its own definition of “person”—which does not mention trusts. (See Civ. Code, § 14(a) [“the word person includes a corporation as well as a natural person”.

The tenants also pointed to decisions supposedly establishing that “a trust has the capacity to own property.”  To be sure, some cases, including the two the tenants cited, have made general references to trusts “owning” property.

But those imprecise references were hardly compelling, particularly when the issue being discussed in those cases did not involve an ownership distinction between a trust and a trustee.

In Carolina Casualty, it was “undisputed” that revocable trust “owned” property, but settlor was effectively owner for purpose of insurance policy provision. 

In Piedmont Lumber, court’s statement that trust was an owner of the property based on public documents stating that trustees of trust held title.

Such comments do not overcome the bedrock principle that a trustee holds legal title to property held in trust.

Having concluded that appellants as trustees “hold a recorded fee interest” in the building, the court of appeal considered whether they are also “a group of natural persons” under that rule and thereby qualify as a “landlord”.

Although the tenants admited that appellants are natural persons, they contended that natural persons acting as trustees are not “natural persons.”

The tenants suggested that a trustee is not a “natural person” because a trustee takes only “representative actions . . . on behalf of a trust.”

But case law has recognized the distinctive status of a trustee who is, as both appellants were, also settlor and beneficiary of a revocable living trust.

In making this point, the tenants liken trusts to corporations, which also “can only act through human representatives.” Unlike trusts, however, corporations can hold title to property, and a corporate owner or corporate trustee clearly would not qualify as a “landlord”.

A corporation is not a natural person.

The unique status of a trustee who is also settlor and beneficiary of a revocable living trust puts to rest the tenants’ concerns about the ramifications of interpreting the term “landlord” to include such a trustee.

The court of appeal limited its holding to the situation in which a landlord is settlor, trustee, and beneficiary of a revocable living trust. Thus, the decision involved no risk of any exponential increase in people who could displace long-term tenants, as the qualifying “landlord” is fixed once the revocable living trust is created.

The order sustaining the tenants’ demurrer without leave to amend and the judgment of dismissal were reversed, and the matter was remanded with directions to enter a new order overruling the demurrer.

LESSONS:

1.         As a matter of law, only trustees—not trusts—can hold legal title to property.

2.         The settlor of a revocable living trust is the person creating the trust.

3.         The trustee of a revocable living trust holds the property in trust for the beneficiary.

What is the Difference Between Revocable and Irrevocable Trusts?

Whether a creditor can reach assets in a revocable trust is a common question, and the general answer is revocable trusts offer no protection from creditors.  However, if the trust is irrevocable, such protection is provided.  The reason for this different treatment is illustrated in the recent case of Dudek v. Dudek.

In Dudek, the Court of Appeal reversed the decision of the trial judge, and held that the signing of the irrevocable Trust that specified a life insurance policy was an asset of the Trust, caused the Policy to become an asset of the Trust and under the control of the specified trustee immediately upon the signing. In other words, the Policy was no longer under the control of the grantor/settlor as it had been gifted to a Trust no longer owned by the grantor/settlor.

Petitioner David Dudek appealed to recover money distributed to the respondents in accordance with the beneficiary designation of the Genworth Life Insurance Policy that covered the life of J.D. Dudek, David's brother.

According to David, in late 2009, J.D. created and executed the J.D. Dudek Life Insurance Trust, an irrevocable life insurance trust that named David as the trustee, and beneficiary of the death benefit of $1,000,000. David claimed the Policy is listed as an asset of the Trust, to be held and administered in accordance with the Trust's terms.

The Trust designates David and his sister as the residual beneficiaries of the Trust who would be entitled to the proceeds of the Policy.

J.D. prepared and submitted to the life insurance company the forms required by that company to change the ownership and beneficiary designations on the Policy in order to establish David, as trustee, as the sole owner and named beneficiary of the Policy.

David was unaware that not long after J.D. submitted the forms, the insurance company rejected the ownership and beneficiary designation forms because J.D. had altered some of his entries without initialing the changes. David was also unaware that J.D. had failed to file corrected forms with the life insurance company after he was notified of the insurance company's rejection of his submitted forms.

Further, David did not know that in 2016, J.D. submitted a new form to the life insurance company in which he purported to alter the beneficiary designation on the Policy to name the respondents as the beneficiaries of the Policy, or that the new form was accepted by the life insurance company.

After J.D. died, David submitted the Trust to the life insurance company and sought to obtain the proceeds of the policy. The life insurance company refused, and instead distributed the proceeds of the policy to the beneficiaries that it had on file, pursuant to the beneficiary designations that J.D. submitted in 2016.

David filed the Petition seeking an order directing the respondents to transfer the proceeds of the Policy to him as the trustee of the Trust.

The trial court concluded that the Trust had not been funded, and therefore, had not become a valid trust, as a result of J.D.'s failure to file documents with the life insurance company to change the ownership and beneficiary designations to correspond with the terms of the Trust document.  In other words, the trial court concluded that no trust was ever created because J.D. never effectively placed the Policy into the Trust.

The Appellate Court held the trial court erred because the Petition alleged facts that could support a finding that the execution of the Trust document created an irrevocable trust, and constituted an effective inter vivos donative transfer of the Policy to David as trustee of the Trust.  Given the irrevocable nature of the Trust and the language in the Trust document demonstrating J.D.'s intention to immediately transfer ownership of the Policy to David, upon execution of the Trust document, the Policy irrevocably became Trust property. As a result, J.D. had no ability to effectuate any further transfer of the Trust property to other parties.

The Trust stated that JD, as the Grantor, retained no right, title, or interest in any trust property. The Trust and all interests in it were irrevocable, and the Grantor had no power to alter, amend, revoke, or terminate any trust provision or interest. Schedule A of the Trust listed two assets to be held in the Trust: (1) one hundred dollars, and (2) the $1,000,000 Policy.

After the insurance company distributed the proceeds to the respondents, David sent letters to the respondents notifying them that they had received the proceeds from the Policy to which they were not legally entitled because those proceeds were the property of the Trust. David asked the respondents to deliver to him, as trustee of the Trust, the Policy's death benefits. David did not receive payment from any of the respondents.

David filed his Petition seeking:

(1) an order directing the transfer of Trust property from respondents to David, as trustee, pursuant to Probate Code section 850;

(2) an order determining the proper beneficiaries of the Trust's assets pursuant to Probate Code section 17200;

(3) a determination that the respondents had acted in bad faith in wrongfully taking, concealing, or disposing of property belonging to the Trust; and

(4) a determination that J.D. had acted in bad faith in wrongfully taking, concealing, or disposing of the property of the Trust.

Respondents argued that David's claim should have been brought against J.D., alone, and they had no liability to the Trust because they are not signatories to the Trust, were not bound by the Trust and owed no duty or obligations to the Trust.

David contended that the trial court erred in concluding that J.D. failed to complete the steps necessary to create the Trust as required by Probate Code § 15200(b).  According to David, when J.D. executed the Trust, he forfeited his interest in and control of the Trust    and its assets, so that J.D. did not have the right to change the beneficiary designation in November 2016.  Because J.D. lost the right to change the beneficiary designation, David, as trustee of the Trust, may properly pursue a claim against respondents for recovery of the Trust's assets that respondents received, but to which they were not entitled.

Under the Probate Code § 15200, a trust may be created in one of five ways:

(a) A declaration by the owner of property that the owner holds the property as trustee.
(b) A transfer of property by the owner during the owner's lifetime to another person as trustee.

(c) A transfer of property by the owner, by will or by other instrument taking effect upon the death of the owner, to another person as trustee.

(d) An exercise of a power of appointment to another person as trustee.

(e) An enforceable promise to create a trust."

The Petition alleged that J.D. sought to create the Trust pursuant to subdivision (b) of section 15200— through the transfer of property by the owner during the owner's lifetime to another person as trustee.

The essential necessary elements of a valid trust are:

(1) a trust intent (Probate Code § 15201);

(2) trust property (Probate Code § 15202);

(3) trust purpose (Probate Code § 15203); and

(4) a beneficiary (Probate Code § 15205

Except for trusts that are created by declaration or by contract, a transfer of the intended trust property is required for the creation of an express trust, whether during life or at death.  The effectiveness of a transfer for the purposes of establishing an inter vivos trust, however, is determined by the rules that govern the making of gifts. A gift is a transfer of personal property, made voluntarily, and without consideration.  A donative transfer is a gratuitous transaction. It can be inter vivos or testamentary

Three things are necessary for a valid gift:
(a) There must be an intent, on the part of a donor having capacity to contract, to make an unconditional gift.

(b) There must be an actual or symbolical delivery, such as to relinquish all control by the donor.

(c) The donee must signify acceptance, except where it may be presumed.

With respect to personal property, a donative transfer that is intended to be completed during the donor's lifetime may be completed in one of two ways: either by the actual delivery of the personal property at issue to the intended donee or through the use of a document of donative transfer.

The Petition alleged that J.D. intended to make a donative transfer of the Policy into the Trust, such that the Policy would be owned by David as Trustee, through the use of a document of donative transfer.

An inter vivos donative document may transfer any type of personal property, whether tangible or intangible, including contract rights such as those embodied in a life-insurance policy.  An inter vivos donative document is a writing signed by the donor that (a) identifies the donor and donee, (b) describes the subject matter of the gift, and (c) specifies the nature of the interest given.

The Trust document attached to the Petition appeared to meet all of the necessary

elements of a donative transfer document. Specifically, the Trust document evidenced that J.D. had the intent to effectuate an immediate, complete and irrevocable transfer of ownership of the Policy to David, as trustee.

Thus, although J.D.'s failure to complete the forms according to Genworth's requirements protected Genworth from claims made against it by individuals other than those who were identified on the forms that it had on file, the failure to properly complete the forms could not invalidate or revoke the irrevocable gift that J.D. had previously effectuated to David, as trustee of the Trust. Once J.D. made a donative transfer of the policy to David, J.D. no longer owned the Policy, even if Genworth was unaware of this.

Thus, although J.D.'s later decision to name the respondents as beneficiaries through the change of beneficiary forms provided by Genworth may have protected Genworth from claims for damages made by individuals or entities not identified on the forms on the ground that it had wrongfully distributed the proceeds, David's naming the respondents as beneficiaries on the Genworth documents did nothing to alter David's legal right to possess the Policy, and, ultimately, its proceeds, as trustee of the Trust.

Once an irrevocable trust is created and a valid transfer of property is made to the trust, the settlor no longer has any right to possess or otherwise dispose of the property placed in an irrevocable trust, such that that individual has no ability to reverse course or change his/her mind later.

David may name the respondents in his Petition, and the respondents are proper parties to the action brought pursuant to the Probate Code. If David can establish the facts alleged in the Petition, then it would be clear that J.D. created an irrevocable trust, and properly funded it, when he delivered to David the transferring document (i.e., the Trust document itself, which included the transferring language).

If the Trust was created, then David's entitlement to the proceeds of the Policy that was an asset of the Trust would be established, and he would be able to seek the court's assistance in having those proceeds conveyed to him in his capacity as trustee.

LESSONS:

1.         The effect of an irrevocable trust is different from that of a revocable trust, and the grantor/settlor should carefully consider the nature of the trust being created.

2.         After signing the living trust, it should be funded with assets by transferring the assets into the trust (e.g., deeding real property to the trustee of the Trust).

3.         If the trust is irrevocable, and the language in the trust document demonstrates the intention to immediately transfer ownership of the assets to the trustee, upon execution of the trust document, the asset may irrevocably became trust property.

4.         An irrevocable trust prevents the grantor from making any changes to the trust after it is signed, and consideration should be given to making Trust revocable so it can be amended and revoked.

How to Determine Entitlement to Distribution of Decedent's Estate?

In the recent California decision In re Estate of Robert Flores, after an heir-hunter firm informed appellant Donald Carmody he was the heir of a nephew he never knew existed, he thought it was a scam.

He assigned any rights he might have in the nephew’s estate to his brother, John Carmody, believing any such rights were worthless.

However, the estate had value. John filed a petition under Probate Code section 11700 for determination of entitlement to distribution of the nephew’s estate.

He obtained a determination that he and Donald were the nephew’s heirs, each entitled to a 50 percent share of the estate. John died before the request for a final distribution order was submitted to the court.

When the administrator of the nephew’s estate sought a final distribution order that would take into account Donald’s assignment of his rights to John, Donald objected, claiming the prior order determining entitlement to distribution was final, binding, and prohibited the court from recognizing his prior assignment of his interest to John. The trial court rejected this claim.

The appellate court concluded the trial court properly gave effect to Donald’s assignment of his interest in the estate to John. John’s rights as an assignee were not raised or litigated in the section 11700 proceeding, which was limited to a determination of heirship.

John did not forfeit or waive his rights as an assignee by failing to assert those rights in the section 11700 proceeding, or by failing to file a statement of interest.

The appellate court therefore affirmed the trial court judgment.

Robert Allen Flores (Decedent) died intestate (i.e., without a will or trust). He was not survived by a spouse, registered domestic partner, children, parents, or siblings.

In 2018, American Research Bureau, Inc. (ARB), an “heir-hunter” firm, contacted brothers John and Donald to inform them that they were Decedent’s maternal uncles.

John and Donald were therefore Decedent’s heirs, and ARB offered to work with them in seeking a portion of the estate. ARB sent Donald a copy of a 1930 federal census record reflecting that John and Donald’s father had a first wife prior to marrying their mother. ARB informed Donald that his father’s first wife was the Decedent’s grandmother.

Donald was skeptical. Neither John nor Donald ever knew that they had a half sister— Decedent’s mother. Donald told John he thought they were being “ ‘scammed.’ ”

In e-mail correspondence, ARB assured Donald that ARB was “not a scam,” and added: “If you are still not interested in receiving your portion of the estate, we can work with you so that you can assign your share to your brother if you wish.”

John told Donald that he planned to “ ‘put in’ . . . for the estate of robert flores” because he “could use some pesos.”

That month, John signed an agreement assigning to ARB one-fourth of any interest he might have in Decedent’s estate. In November 2018, ARB e-mailed Donald again to inform him that it was “moving forward in this matter on behalf of your brother John,” and asked if Donald wanted to be included in the proceeding with ARB’s assistance.

Donald reiterated that he believed ARB might be “running a scam” and that “time will tell.” However, he also had “no problem assigning [his] share of this ‘estate’ to [his] brother.”

Meanwhile, Patricia McCluskey filed a petition requesting that the probate court appoint her as administrator of Decedent’s estate. McCluskey alleged she was Decedent’s first cousin, once removed, and that she and four alleged second cousins were Decedent’s heirs-at-law and therefore entitled to the estate. McCluskey did not identify John or Donald as potential heirs.

In January 2019, John filed objections to McCluskey’s petition on the basis that he, as a maternal uncle, was more closely related to Decedent and was entitled to inherit Decedent’s estate to the exclusion of McCluskey and the alleged second cousins listed in her petition.

Around the same time, John filed a competing petition for letters of administration nominating Brenda Depew as the administrator of Decedent’s estate. His petition identified Donald as Decedent’s other living maternal uncle.

In February 2019, the court denied McCluskey’s petition and granted John’s petition. The court issued letters of administration appointing Depew as the administrator of Decedent’s estate.

In 2019, John filed a “Petition to Determine Entitlement to Estate Distribution.” He listed himself and Donald as Decedent’s sole heirs-at-law and asserted they were each entitled to half of the estate.

The petition did not reference the assignment from Donald to John or the assignment from John to ARB. No other person filed a statement of interest asserting entitlement to distribution of Decedent’s estate or objecting to John’s petition.

The court granted the petition and, in October 2019, entered an “Order Determining Entitlement to Estate Distribution.” The order found that “[a]ll notices have been duly given as required by law,” declared that John and Donald were the “heirs-at-law of the decedent,” and found each was entitled to a 50 percent interest in the estate.

John died in 2020. In his will, he named his stepdaughters Kara Masteller and Dawn Bailey as beneficiaries of his estate, and Masteller as the executor.

In April 2022, the trial court concluded the issues presented in the “heirship petition” were “to determine who the heirs of the estate were and their respective percentage of interests in the estate.”

The October 2019 order “decided which individuals were statutorily entitled to inherit from the decedent but did not decide the distribution of those interests . . . .”

The court reasoned Donald could not invoke collateral estoppel because “the issues in the heirship petition and petition for distribution are not identical and the validity of the challenged assignment was not presented to the court for determination in the heirship petition.”

The court rejected Donald’s waiver argument, noting John had not sought such relief in the prior petition and instead had only requested that the court “determine conclusively, against any claims by any other potential heirs, who was entitled to inherit the estate of a decedent who died without a will.”

The court further indicated it gave “very little weight” to Donald’s “one-sided recitation” of a phone call during which John allegedly rescinded Donald’s assignment to him, and it found John had not waived or rescinded the assignment.

Finally, the court determined Donald freely assigned his interest in the estate to John without duress. The assignment was enforceable despite the lack of consideration because Donald “believed nothing would come of ARB’s efforts and . . . valued his own interest in the estate at zero.”

Under section 11700, “[a]t any time after letters are first issued to a general personal representative and before an order for final distribution is made, the personal representative, or any person claiming to be a beneficiary or otherwise entitled to distribution of a share of the estate, may file a petition for a court determination of the persons entitled to distribution of the decedent’s estate.”

This proceeding is permissive. If no petition is filed under section 11700, the court may determine who is entitled to distribution in a final distribution order.

Notice of the proceeding must be given to each known heir and devisee whose interest would be affected by the petition, the Attorney General in some cases, the personal representative of the estate, and all persons who have requested special notice in the estate proceeding.

Section 11702 allows “[a]ny interested person” to appear and to file a written statement of the person’s interest in the estate in advance of the hearing.

If an interested person fails to timely file a written statement, the case is still at issue and may proceed. The interested person “may not participate further in the proceeding for determination of persons entitled to distribution, but the person’s interest in the estate is not otherwise affected.”

Section 11705, subdivisions (a) and (b), provide that the trial court “shall make an order that determines the persons entitled to distribution of the decedent’s estate and specifies their shares,” and “[w]hen the court order becomes final it binds and is conclusive as to the rights of all interested persons.”

While section 11700 allows any person claiming to be a beneficiary or otherwise entitled to distribution of a share of a decedent’s estate to file a petition, section 11702 concerns any other persons with an interest in the estate.

As noted above, under section 11702, any interested person may appear in a section 11700 proceeding and file a statement of interest. An interested person who fails to file a statement of interest may not participate further in the proceeding, “but the person’s interest in the estate is not otherwise affected.”

On its face, this language indicates that the failure to file a statement of interest does not amount to an automatic forfeiture of the interested person’s rights.

As a result, the effect of the proceeding on a person’s interest in the estate must depend on what is litigated and decided in the section 11700 proceeding.

In this case, the section 11700 proceeding determined only the identity of Decedent’s heirs and their respective shares of the estate. John’s interest as an assignee was contingent on Donald first being determined to be an heir of Decedent.

Even as an assignee, John was bound by the determination that Donald was Decedent’s heir and was entitled to a one-half share of the estate. John could not have subsequently argued that Donald was entitled to a greater or lesser share, for example.

Yet to conclude, as Donald contends, that John’s rights as an assignee to Donald’s share of the estate were eviscerated because he failed to file a statement of interest, we would have to ignore the express language of section 11702, subdivision (b)(2).

Indeed, Donald ignored section 11702, subdivision (b)(2) altogether. He maked no attempt to explain how his argument that John’s failure to file a statement of interest waived his assignee interest for all time can be squared with section 11702, subdivision (b)(2)’s provision that, other than preventing an interested person from participating further in the proceedings, the failure to file a statement of interest does not otherwise affect that person’s interest in the estate.

Donald’s arguments were also inconsistent with caselaw which has long drawn a distinction between heirs, devisees, and legatees, who have a direct entitlement to a share of a decedent’s estate, and persons whose only interest in the estate is derivative of the rights of an heir, devisee, or legatee.

Donald did not acknowledge the historical distinction courts have drawn between those with direct claims to an estate, such as heirs, and those with only indirect claims, such as the assignees of heirs.

Instead, he contended that because section 11700 concerns distribution, and allows for the participation of any interested person, the October 2019 order must be understood as finally adjudicating—and in this case eliminating—the rights of all other interested persons.

Yet, he failed to cite a single legal authority holding that where the claims of an heir’s assignee are not raised in a petition to determine entitlement to distribution, the court’s resulting order determining the identity or respective interests of the heirs moots, eliminates, or otherwise precludes those unadjudicated assignee claims.

Here, John’s section 11700 petition sought a determination of heirship, not his rights as an assignee. Indeed, John’s rights as an assignee could not be perfected until the probate court first determined the identity of Decedent’s heirs and their respective interests in the estate.

Under sections 11702 and 11705, the October 2019 order prevented John from challenging Donald’s entitlement to a portion of the estate as an heir, but it did not affect his contractual rights as Donald’s assignee, which were only derivative of and contingent upon Donald’s rights as an heir.

Likewise, in this case, John’s rights as an heir were different from his contractual rights as Donald’s assignee. The trial court could not order distribution consistent with the assignment until it had first determined the identity and shares of the heirs.

As explained above, under section 11702, the lack of a statement of interest did not affect John’s rights as an assignee. Donald was afforded an opportunity to contest the validity of the assignment prior to the issuance of the final distribution order. Even if the record could be construed as reflecting a bifurcation of the section 11700 proceeding, we would find any error harmless.

In sum, neither John’s petition nor any other filing in the section 11700 proceeding raised the issue of Donald’s assignment to John.

There was no request for distribution based on the assignment or challenge to the assignment. No interested party filed a statement of interest. The trial court’s October 2019 order determined heirship. John’s contractual rights as an assignee remained unaffected.

LESSONS:

1.         To avoid dying intestate, persons should have a will or even better, a living trust that specifies the beneficiaries of an estate.

2.         Donald made a bad decision without consulting an attorney or determining that ARB was a legitimate company.

3.         Donald's assignment was gratuitous on his part when he did not learn the complete information and there is no evidence that Donald would have been harmed by his suspected scam.

How Should a Revocable Trust be Amended in California?

In the recent case in Diaz v. Zuniga, the appellate court had to decide which of two provisions governs a settlor’s purported amendment of a revocable trust—Probate Code section 15402 or the terms of the trust—when the trust instrument specifies how the trust may be modified but does not state that the specified modification method is exclusive.

California courts are divided on this issue, and it is currently pending before the California Supreme Court in Balistreri v. Balistreri, King v. Lynch and Haggerty v. Thornton.

The appellate court concluded the trust terms governing amendments control and applied the reasoning of the courts in Balistreri and King.

The settlor’s purported amendment in this case did not conform to the trust terms and was held invalid.

The appellate court therefore affirmed the trial court's judgment invalidating the purported amendment.

A settlor purports to amend his revokable trust. He is both the trustor and trustee. The trust document (the Trust) provides that to amend the Trust he must send the document by certified mail to the trustee. This he did not do.

Here the appellate court decided his purported amendment did not conform to the trust terms and was invalid.

The Trust became irrevocable upon the death of the settlor, Mateo Diaz (Mateo), on May 6, 2018.

Soon after Mateo’s death, a purported trust amendment dated in 2007 was found in an envelope among papers in a container kept in Mateo’s bedroom closet. The stamped envelope was addressed to his attorney. There is no evidence in the record to indicate Mateo discussed the 2007 document with anyone or that he mailed it to his lawyer.

Article X of the Trust governs trust amendments. It states in relevant part: “The Trustor may at any time during Trustor’s lifetime amend any of the terms of this instrument by an instrument in writing signed by the Trustor and delivered by certified mail to the Trustee.”

Article IX of the Trust governs revocations and states in relevant part that “[t]his Trust may be revoked in whole or in part by the Trustor during Trustor’s lifetime.”  

Appellants Robert Diaz (Robert), Jessie Diaz, Alex Diaz, Carmen Ortega, Gloria Redondo, Linda Johnson, Annette Roberts, and Salvador Diaz (collectively appellants) are beneficiaries of the Trust.

Robert is also a co- trustee of the Trust. Respondent Marisela Zuniga (Marisela) is also a co- trustee and beneficiary of the Trust.

The 2007 document purported to alter the distribution of certain Trust assets upon Mateo’s death, substantially reallocating the value of the distributions among the various beneficiaries. The Trust assets include two real property parcels located in Montclair and Temple City.

In the original Trust declaration, the Montclair property was to be distributed equally to all of Mateo’s seven siblings; and the Temple City property was to be distributed solely to Marisela, with the exception of the sum of $100,000, which was to be distributed solely to Annette Louise Roberts Diaz.

In the 2007 document, the Montclair property was to be distributed equally to only two of Mateo’s siblings, and the Temple City property was to be distributed 10 percent to Marisela, 20 percent to Annette Louise Roberts Diaz, and 10 percent to each of Mateo’s seven siblings.

Robert and Marisela, in their respective capacities as co-trustees of the Trust, filed separate petitions requesting instructions as to whether the 2007 document should be treated as a valid Trust amendment.

The parties submitted a joint trial statement and a joint statement of stipulated facts and agreed to the admission of certain documents. The matter was tried on April 28, 2021.

The trial court issued a final statement of decision ruling that the 2007 document did not constitute a valid amendment to the Trust because Mateo did not deliver the 2007 document to himself as trustee by certified mail, as specified in Article X of the Trust.

A judgment decreeing that the 2007 document did not constitute a valid amendment to the Trust was entered, and the appeal followed.

The Probate Code governs modification and revocation of a trust.

Section 15401(a) sets forth alternative methods for revocation. Under the first method, a trust may be revoked by “compliance with any method of revocation provided in the trust instrument.”

Under the second method, a trust may be revoked in “a writing, other than a will, signed by the settlor . . . and delivered to the trustee during the lifetime of the settlor.”

The statute states, however, that if “the trust instrument explicitly makes the method of revocation provided in the trust instrument the exclusive method of revocation,” that method must be used.

For the trust revocation terms to override the statutory revocation provisions, the trust must contain “an explicit statement that the trust’s revocation method is exclusive.”

Section 15402 governs modification of a trust, and states: “Unless the trust instrument provides otherwise, if a trust is revocable by the settlor, the settlor may modify the trust by the procedure for revocation.”

Under section 15402, when “the trust instrument is silent on modification, the trust may be modified in the same manner in which it could be revoked, either statutorily or as provided in the trust instrument.”

California courts are divided as to what happens when the trust instrument specifies how the trust may be modified but does not state that the specified modification method is exclusive.

In one line of cases, courts have held that when the trust instrument “specifies how the trust is to be modified,” then “that method must be used to amend the trust.”

In contrast, the court in Haggerty and the dissent in King concluded that unless the trust terms expressly preclude the settlor from using alternative statutory methods to modify the trust instrument, the modification procedures set forth in section 15402 may be used.

The appellate court found the reasoning of the courts in Balistreri and the King majority more persuasive than that in Haggerty and the King dissent.

The plain language of section 15402 states that a settlor may modify the trust by the procedure for revocation set forth in section 15401 “[u]nless the trust instrument provides otherwise.”

That qualifying statutory language is clear and unambiguous, particularly when read together with section 15401. Unlike section 15401, section 15402 does not require the trust instrument to “explicitly” state that the method of revocation provided in the trust instrument is the “exclusive” method of modification for the trust terms to displace the statutory modification provisions.

 The trust instrument in this case distinguishes between revocation and modification. Article IX addresses revocation and includes no specific procedure for doing so. It simply states: “This Trust may be revoked in whole or in part by the Trustor during Trustor’s lifetime.”

Article X, in contrast, includes a specific procedure for trust modification. It states that the Trustor may “amend any of the terms of this instrument by an instrument in writing signed by the Trustor and delivered by certified mail to the Trustee.”

Had Mateo followed the amendment procedures set forth in Article X of the trust, his intention to modify the trust terms would not be in doubt. On the facts presented here, Mateo’s intentions are unclear.

After drafting and signing the 2007 document, Mateo may have placed the document in his closet in order to reflect on the proposed changes before finalizing them. That he did not do so by sending the document to himself by certified mail may indicate that he decided against the modifications.

Section 15402 does not apply here because Article X of the Trust provides a specific procedure for modification of the trust terms. Article X therefore displaces the alternative statutory modification procedures under sections 15401 and 15402.

A contrary result would frustrate the intent of the trustor, Mateo, who chose a specific method for amending the Trust terms.

The 2007 document did not conform to that method and did not constitute a valid amendment of the Trust. The trial court did not err in reaching this conclusion.

That Article X of the Trust uses permissive, rather than mandatory language, stating that the trustor “may” amend the Trust terms, does not make the alternative statutory procedures available.

Article X sets forth a specific method for amending the Trust terms—“by an instrument in writing signed by the Trustor and delivered by certified mail to the Trustee.” Trust amendments may be made only by this method.

Mateo’s intent as trustor is evident in Article X, which sets forth a specific method for amending the Trust terms.

LESSONS:

1.         California courts are divided as to what happens when the trust instrument specifies how the trust may be modified but does not state that the specified modification method is exclusive.

2.         The trust provisions for modification and amendment should be followed to insure the amendment is valid.

3.         The Probate Code governs modification and revocation of a trust.

Who are Intended Beneficiaries of a Trust?

This issue was the subject of the recent decision in Grossman v. Wakeman.

Attorney John Peter Wakeman, Jr. (Wakeman), and Wakeman Law Group, Inc., appealed the legal malpractice judgments entered against them following a jury trial.

The judgments were in favor of respondents Jeffrey G. Grossman (Jeffrey), Alexis Grossman (Alexis), and Nicholas Grossman (Nicholas).

The appellate court reversed the judgments.

Respondents were not appellants’ clients. Appellants’ client was Dr. A. Richard Grossman (Richard), the father of Jeffrey and Peter Grossman (Peter).

Peter is the father of Alexis and Nicholas, hereafter “the grandchildren.” During the trial, Richard was described as “a huge name in the . . . burn surgery community” who “had started the Grossman Burn Centers.”

Peter is the husband of recently convicted Rebecca Grossman for the death of two children in a traffic collision who was sentenced to 25 years to life.

Richard died in March 2014 at the age of 81. His estate was valued at $18 million.

Richard’s 2012 estate planning documents, prepared by appellants, disinherited respondents and Peter.

Richard’s entire estate was left to his fourth wife, Elizabeth Grossman (Elizabeth), even though she was independently wealthy. Richard married Elizabeth in 2000, and they remained married until his death.

Although Richard’s 2012 estate planning documents disinherited respondents, in a special verdict the jury expressly found that respondents were “the intended beneficiaries of” the documents.

The jury further found that appellants had “breach[ed] the standard of care in the preparation” of the documents and that respondents had been damaged by appellants’ negligence. The jury awarded damages totaling $9.5 million: $4.75 million to Jeffrey and $4.75 million to the grandchildren.

Appellants alleged that they “owed no duty to [respondents].” They “owed a duty only to the decedent, Richard Grossman.” Appellants contended, “[T]he absence of . . . a duty to [respondents] establishes that [they] cannot be liable to [respondents], since duty is an essential element of a malpractice claim.”

The appellate court concluded the evidence was insufficient to show that appellants owed a duty of care to respondents because there is no “clear, certain and undisputed evidence of [Richard’s] intent” to benefit respondents by leaving his estate to them.

A 2003 restatement of Richard’s revocable trust (the ARG Trust) equally divided the residue of his estate into two shares: one share for each of his two sons, Jeffrey and Peter. Elizabeth would receive only Richard’s personal property.

In September 2011 Richard met with Wakeman.

Richard told Wakeman that he wanted half of his estate to go to Jeffrey and the other half to go to the grandchildren, i.e., Peter’s children. Richard said he did not want Peter to inherit a portion of his estate because “Peter had already been well provided for and he didn't really trust Peter to take care of his own kids.”

On December 1, 2011, Wakeman met with Richard and Elizabeth. Wakeman testified that at the meeting Richard had said “he wanted to leave everything to Elizabeth and let her decide what to do with it.”

“‘All [Richard] said is, “I want it all to go to Elizabeth, and she can decide who gets what” . . . [in her] [c]omplete discretion.’” Wakeman advised Richard “‘that he was essentially disinheriting his grandchildren and his . . . son.’”

Richard told Wakeman “that Peter was likely to sue when he found out what Richard had done, so [Wakeman] advised Richard that it would be best for him to have a neurological exam to have contemporaneous documentation in his file as to his mental capacity.” Richard did so.

In a letter dated March 20, 2012, Dr. Peter Miao wrote: “[Richard] has been under my care for the past many years. He has had neurological exam recently and has had a complete neurological work up. I find him in sound mind & body and is capable of making competent financial and estate planning decisions.”

On December 21, 2011, Wakeman sent Richard estate planning documents that, according to Wakeman, carried out Richard’s instructions at the December 1, 2011 meeting. The documents included an irrevocable trust for Jeffrey and an irrevocable trust for the grandchildren. An inventory of Richard’s property shows that, at the time of his death, Brookfield Farms constituted the bulk of his estate’s value.

Wakeman also sent Richard an amendment and restatement of his revocable trust, the ARG Trust. Richard was named as the trustee of the trust, and Elizabeth was named as the successor trustee.

The restatement provided that, upon Richard’s death, the trustee shall make a gift of $25,000 to each of three named beneficiaries. Neither respondents nor Peter would receive a gift.

The restatement continued, “[T]he Trustee shall distribute the rest, residue and remainder of the Trust Estate outright and free of trust to the Settlor's spouse, Elizabeth Rice Grossman.” Wakeman testified, “[I]f Elizabeth predeceased Richard, then [the residue] was going to go 50-50, half to Jeff’s trust and half to the grandkids’ trust.”

On appeal, Respondents argued: “It is undisputed that there is not one iota of evidence suggesting that Richard ever had a falling out with his three intended beneficiaries [Jeffrey and the grandhildren]. Indeed, . . . there is a virtually unbroken solid wall of testimony from multiple friends, colleagues, family members, and percipient witnesses that Richard truly loved these close family members and fully wanted to provide for them.”

“The massive weight of the evidence is that Richard always intended to bequeath his estate to his sole Grandchildren and his special needs son Jeffrey.”

Respondents claimed that Elizabeth “had legally forsworn” any right to Richard’s estate because “Elizabeth and Richard had signed a prenuptial agreement which provided that neither would inherit anything from the other and that all their money and assets would go to their respective heirs. Nothing in the trial record suggested that that prenuptial contract had ever been formally abrogated.”

But the 2000 prenuptial agreement permitted either party to bequeath property to the other party: “Nothing contained in this Agreement shall affect the right of either party hereto to transfer, convey, devise or bequeath any property to the other or to receive any legacy or devise or any other benefit expressly given by any will, codicil, trust or other instrument of the other executed after the date of this Agreement.”

A nonclient third party can maintain a malpractice action only if there is clear, certain and undisputed evidence of the client’s intent to benefit the third party, or to benefit the third party in the way the third party claims.

The third party must show that the client’s attorney knew or reasonably should have known of this evidence when the alleged malpractice occurred. Attorneys are not clairvoyants capable of ascertaining the unexpressed intent of their clients.

Because the evidence of Richard’s alleged intent to leave his estate to respondents instead of Elizabeth is not clear, certain, and undisputed, as a matter of law the evidence is insufficient to show that appellants owed a duty of care to respondents in preparing the 2012 restatement of the ARG Trust.

Wakeman’s testimony, together with the supporting testimony of Elizabeth, Laurel Luby, and Meredith Rattay, shows that the evidence of Richard’s alleged intent was disputed.

If Richard had intended to leave his estate to respondents, there would have been no need for him to have obtained the letter from Dr. Miao attesting to his capability of “making competent financial and estate planning decisions.”

Wakeman advised Richard to obtain the letter because Richard said he wanted to disinherit his children and grandchildren and leave his entire estate to his independently wealthy fourth wife.

The imposition of malpractice liability in these circumstances would not only be unjust, it would also place an intolerable burden on the legal profession.

LESSONS:

1.         A living trust is an essential part of any estate plan.

2.         Although not required like probating a will, a trust can be challenged in probate court.

3.         If applicable, obtain a neurological exam to have contemporaneous documentation as to the mental capacity of the Settlor/Trustor.

4.         A nonclient third party can maintain a malpractice action only if there is clear, certain and undisputed evidence of the client’s intent to benefit the third party, or to benefit the third party in the way the third party claims.

5.         The third party must show that the client’s attorney knew or reasonably should have known of this evidence when the alleged malpractice occurred. Attorneys are not clairvoyants capable of ascertaining the unexpressed intent of their clients.

6.         Filing a legal malpractice case waives the attorney-client privilege..

Can Trust Disputes be Resolved by the California Probate Court?

In the recent decision in Stadel Art Museum v. Mulvihill, Städel Art Museum (the Museum) was the sole residuary beneficiary of the Peter Boesch Revocable Trust(Boesch Trust).

The principal assets of the Boesch Trust are a 50 percent ownership interest in each of four real properties located in San Francisco (hereafter the subject properties). The other 50 percent interests are held by the Darril Hudson Revocable Trust, dated March 9, 1994 (Hudson Trust).

Thomas Mulvihill, successor trustee of both trusts, initiated the underlying action by filing a petition under section 17200 of the Probate Code seeking instructions from the probate court due to a potential conflict in administering the trusts in the best interests of the respective beneficiaries.

According to the petition, the Museum had requested that the acquisition indebtedness on the subject properties be paid off in full and that the Boesch Trust make an in-kind distribution of its interests to the Museum so that the Museum may, as a tax-exempt organization, sell the interests without suffering certain tax consequences.

The Hudson Trust beneficiaries, which did not face the same tax consequences, prefered that the trusts sell the subject properties undivided and distribute the proceeds.

After a hearing on the petition, the probate court instructed Mulvihill to immediately sell the properties and distribute the proceeds to the respective beneficiaries.

On appeal, the Museum made three contentions. First, the probate court’s interpretation of the Boesch Trust was erroneous because it improperly rewrote trust language to require the trustee to immediately sell the subject properties instead of requiring the trustee to restructure the distribution to make an in-kind distribution to minimize tax consequences.

Second, the court improperly considered the interests of the Hudson Trust beneficiaries in interpreting the Boesch Trust.

Third, the court should have removed Mulvihill as trustee and appointed an independent special trustee due to Mulvihill’s conflicted dual trusteeship.

The appellate court agreed with the Museum that in light of a trust provision granting the trustee “sole discretion” to distribute trust property in cash or in kind, the probate court erred in interpreting the trust instrument to require an immediate sale of the subject properties.

Given that Mulvihill never purported to exercise that discretion, the appellate court reversed and remanded the case with directions that, barring any conflict of interest matters that may arise on remand, Mulvihill be instructed to exercise his discretion to grant or deny the Museum’s request for an in-kind distribution of the trust’s property interests.

Generally, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent is the fair market value of the property at the date of the decedent’s death.

Accordingly, Mulvihill requested an order from the probate court instructing him as to (1) the resolution of the mortgage debt against the subject properties; (2) the manner of distribution to be made to the Museum pursuant to the terms of the Boesch Trust; and (3) an allocation of his attorney fees and costs between the two trusts.

Under section 17200, a trust beneficiary may petition the probate court regarding matters affecting “the internal affairs of the trust.”

Among other powers, the probate court has the authority to determine “questions of construction of a trust instrument” and instruct the trustee.

The primary rule in construction of trusts is the court must, if possible, ascertain and effectuate the intention of the trustor or settlor. The intention of the transferor as expressed in the trust instrument controls the legal effect of the dispositions made in the instrument.

The centerpiece of interpretation, of course, is the language contained in the trust document. One of the axioms is that words are to be taken in their ordinary and grammatical sense, unless a clear intention to the contrary can be ascertained.

Furthermore, the words of an instrument are to receive an interpretation that will give every expression some effect, rather than one that will render any of the expressions inoperative.

All parts of an instrument are to be construed in relation to each other and so as, if possible, to form a consistent whole. If the meaning of any part of an instrument is ambiguous or doubtful, it may be explained by any reference to or recital of that part in another part of the instrument.

Read together, the trust provisions permit the trustee, upon the later of Boesch’s or Hudson’s death, to exercise his discretion to make an in-kind distribution of the trust’s ownership share of the subject properties to the beneficiary in lieu of a direct sale and distribution of proceeds.

In the instant matter, the petition made it clear that Mulvihill never purported to exercise the discretion conferred upon him by the trust instrument to grant or deny the Museum’s request for an in-kind distribution of the trust’s property interests.

Under these circumstances, and in light of the interpretation of the trust instrument, the appropriate response to the petition would have been to instruct Mulvihill to exercise the discretion conferred upon him under the Boesch Trust, consistent with his overall duty to administer the trust according to its terms and applicable law.

The law is settled that a trustee has a duty to administer the trust solely in the interest of the beneficiaries.

Although this duty is frequently invoked as a protection against creating conflicts between a trustee’s fiduciary duties and personal interests, it is also understood to protect against improper influence generally.

Thus, actions by a trustee may be considered improper if they are taken either for the purpose of benefiting a third person (whether or not a party to the transaction) rather than the trust estate or for the purpose of advancing an objective other than the purposes of the trust.

A trustee may be removed in accordance with the trust instrument, by the court on its own motion, or on petition of a settlor, cotrustee, or beneficiary.

 The statutory grounds for removal of a trustee by the probate court include where the trustee fails or declines to act, and for other good cause.

The trial court’s power to remove a trustee is a power that the court should not lightly exercise, and whether or not such action should be taken rests largely in the discretion of the trial court.

Furthermore, the court will not ordinarily remove a trustee appointed by the creator of the trust, and will never remove a trustee named by the settlor for potential conflict of interest but only for demonstrated abuse of power detrimental to the trust.

LESSONS:

1.         Under section 17200, a trust beneficiary may petition the probate court regarding matters affecting “the internal affairs of the trust.”

2          Among other powers, the probate court has the authority to determine “questions of construction of a trust instrument” and instruct the trustee.

3.         The primary rule in construction of trusts is that the court must, if possible, ascertain and effectuate the intention of the trustor or settlor. The intention of the transferor as expressed in the trust instrument controls the legal effect of the dispositions made in the instrument.

4.         The law is settled that a trustee has a duty to administer the trust solely in the interest of the beneficiaries.

5.         A trustee may be removed in accordance with the trust instrument, by the court on its own motion, or on petition of a settlor, cotrustee, or beneficiary.

 6.        The statutory grounds for removal of a trustee by the probate court include where the trustee fails or declines to act, and for other good cause.

Can Extrinsic Evidence be Considered in Evaluating Probate of a Will?

This issue was addressed in the recent decision in the Estate of Berger, and suggests the value of the alternative estate plan including a revocable living trust and pour-over will.

In Berger, the appellate court recognized that the California Probate Code mandates that a document will be considered a “will” capable of being probated in court only if the document is in writing, signed (or authorized) by the testator, and signed by two people who witnessed the testator sign or acknowledge her signature.

However, the code will overlook a failure to comply with the two-witness requirement if the party seeking to probate the document as a will establishes by clear and convincing evidence (i.e., higher than more likely true than not (civil cases) and less than beyond a reasonable doubt (criminal cases)), that, at the time the testator signed the document, the testator intended the document to constitute the testator’s will.

The appeal presented two questions:

(1) In evaluating the testator’s intent, may a probate court consider extrinsic evidence of the circumstances surrounding the document’s execution if the intent expressed by the document’s terms is unambiguous, and

(2) Do the facts of tes case compel, as a matter of law, a finding by clear and convincing evidence that the drafter of the document at issue intended the document to make a revocable disposition of property that takes effect upon her death?

The appellate court concluded that the answer to both questions was “yes.”

Melanie Berger (Melanie) started dating Maria Coronado (Maria) in the spring of 2002. At that time, Maria was in the midst of a divorce and had three daughters who were then 15, 11, and 10 years old. Melanie had met the daughters a few times prior to August 2002.

In early August 2002, Maria proposed marriage to Melanie with a diamond solitaire ring and the two became engaged.

Melanie was assigned male at birth.  After living as a woman and wearing female clothing for a year as her doctor ordered, Melanie arranged to have gender reassignment surgery in late August 2002. That surgery entailed the surgical alteration of her sex organs.

After proposing to Melanie but before Melanie had her surgery, Maria traveled to Spain with her daughters to visit family. While Maria was in Spain, Melanie and Maria corresponded through email using a variety of different email accounts.

Specifically, Maria sent Melanie an email on the day she arrived in Spain.

The letter starts with the date “8-16-02”; lists Melanie’s full name, address, and social security number; and begins with the salutation “To whom it may concern.” The letter then reads as follows: “I, Melanie Perry Berger, with sound mind and excellent health, name Maria L. [Coronado], [lists Maria’s then-current address], as my sole beneficiary in the event of my death. She will take ownership of all my personal possessions and property located at [address of Melanie’s house in Pasadena].

She will make the sole determinations as to what she will keep, and what personal belongings that may, or may not, be distributed to any inquiring family members. She will also receive, and have full discretion of: 1. My [Pasadena] home located at [listing address]. 2. My retirement Thrift Savings. 3. My 1984 Mercedes Benz 300 CD, license [listing number]. 4. My Washington Mutual checking account [listing number]. 5. Any and all wages paid to my account, post mortem.

It should be noted that I would prefer to have some of the above Thrift assets set aside for the education of [Maria’s] three daughters, [naming each]. This is, however, only a suggestion, and Maria . . . shall have the final decision on these matters.”

The letter closes with “Sign[ed] and dated 8-16-02 in Pasadena, California,” and beneath it, Melanie’s signature.

No one witnessed Melanie sign the letter.

On the very same day as the letter is dated, Melanie sent Maria an email informing her that Melanie “decided” to “leave the house, all the belongings, [her] record collection and [her] car” to Maria and also would “leave [her] retirement savings in [Maria’s] name to be used for the three girls[’] college education in the event of [her] death.”

Melanie explained that she would “leave these documents on [Maria’s] desk” “chair” “before [Melanie] leaves” for her gender reassignment surgery.

When Maria returned home from Spain, she found a copy of the letter on her desk chair.

Although Melanie and Maria continued dating for another six months after Melanie’s surgery and Maria’s return from Spain, the two did not discuss the letter at any point thereafter. Neither Melanie nor Maria mentioned the letter to Maria’s daughters.

Melanie did not file the paperwork to designate Maria as the beneficiary on her retirement account.

Melanie and Maria ended their romantic relationship in the spring of 2003, and ceased all contact with one another.

Melanie became somewhat of a recluse and “hardly ever left the house.”

In 2020, Melanie became increasingly religious and told neighbors that she wanted to leave her assets “to the church.” There is no evidence Melanie ever memorialized her new intention.

Melanie passed away on November 30, 2020.

As the pastor of Melanie’s church was going through Melanie’s personal effects in her home, he found the letter at the bottom of one of the drawers of Melanie’s desk. The pastor gave a copy to Melanie’s sister and called Maria to inform her of Melanie’s death.

By this point in time, Maria had lost the copy of the letter Melanie had left on her desk chair 18 years earlier.

On February 4, 2021, Maria filed a petition seeking to have the letter probated as Melanie’s will. Melanie’s sister, who was otherwise Melanie’s sole heir at law, opposed the petition.

The probate court held a two-day evidentiary hearing in 2021. Maria, Melanie’s sister and a handwriting expert testified. The court admitted the letter as well as several of the August 2002 emails between Melanie and Maria.

At the conclusion of the second day, the probate court denied Maria’s petition.

Because the letter did not comply with the general requirements for a will under the Probate Code, the court viewed its “threshold” task—before reaching any questions of fraud or undue influence—as “ascertain[ing]” “whether” Maria had proven, by clear and convincing evidence, that Melanie intended the letter to be her will. The court expressed that it “ha[d] doubts about the letter and its context,” explaining that “perhaps” Melanie meant to benefit Maria or “perhaps, she had forgotten” about the letter in the intervening years.

Maria filed a timely appeal.

In California, “[t]he right to dispose of property by will is entirely statutory.”

The Probate Code prescribes that a document is effective as a will only if it is

(1) “in writing”;

(2) “signed” (a) by the testator, (b) by someone else, but in the testator’s name, in the testator’s presence, and by the testator’s direction, or (c) by a conservator acting pursuant to a court order; and

(3) witnessed by at least two persons who (a) at the same time witnessed the testator sign the document or acknowledge her signature or the document, and (b) sign the document during the testator’s lifetime while understanding that the instrument they sign is the testator’s will.

Requiring a testator to adhere to such formalities serves three functions—namely,

(1) an evidentiary function by furnishing reliable evidence about the testator’s intent that prevents fraudulent dispositions of the testator's properties;

(2) a protective function by reducing the possibility of interference with the process of execution; and

(3) a cautionary or ritual function to help ensure that the will reflects a considered decision.

But these prescribed procedures are not without exception. Specifically, the code will overlook a testator’s noncompliance with the two-witness requirement:

(1) if the material provisions of the document are in the handwriting of the testator (in which case it is called a “holographic will”), or

(2) if the party seeking to have the probate court recognize the document as a will establishes by clear and convincing evidence that, at the time the testator signed the document, the testator intended the document to constitute the testator’s will.

These relaxed procedures are designed to give effect to a drafter’s clear intent to dispose of property through a proffered document, even when that document has procedural deficiencies or mistakes that cause it to fall short of fully complying with the Probate Code’s procedures.

In assessing whether an instrument was intended to be testamentary, the probate court is to look to (1) the words in the document itself, and (2) the “circumstances” “surrounding” its creation and execution.

When it comes to the words used, no particular words are necessary to show a testamentary intent, but words referring to the drafter’s potential death tend to indicate such an intent.

When it comes to the surrounding circumstances, courts may examine, among other things, (1) whether the document was drafted at a time when death was near (or nearer than usual) or whether other “extreme circumstances” exist, as persons drafting documents at such times are more likely to be acting with testamentary intent; and (2) whether the drafter has retained the document, as persons are more likely to retain documents that were meant to have lasting effect.

Although courts as a general matter may not resort to extrinsic evidence in interpreting the meaning of a document (including a will) when the document’s terms are unambiguous, this principle does not apply here.

That is because the probate court’s task here is not to assess the meaning of the words in a document, but instead to assess the meaning of the document itself—namely, was that document intended to be a will?

In this particular context, an unbroken line of precedent squarely establishes that extrinsic evidence is always admissible on the question of the drafter’s intent.

Taken together, the words in the letter itself and the circumstances surrounding its creation and execution compel the finding, as a matter of law, that Melanie intended her letter to have testamentary effect.

The substance of the letter names Maria as Melanie’s “sole beneficiary" in the event of her death as well as the person who has “full discretion” to dispose of all of her personal possessions and property; lists four of Melanie’s most significant assets (namely, her house, her retirement account, her car, and her checking account); and even contemplates that “inquiring family members” might seek some of her belongings, but leaves it to Maria to decide which “personal belongings” to give them.

The format of the letter also evinces a level of formality consistent with a document meant to have enduring effect:

Melanie drafted the letter on her work stationery; recited her full name, address, and social security number; addressed it “[t]o whom it may concern”;

started the letter with a recitation of her “sound mind and excellent health”; and

concluded the letter with a recitation of the date and location of signing as well as her signature.

The surrounding circumstances further conclusively confirm Melanie’s intent to make a revocable disposition of her property to take effect upon her death.”

Melanie told Maria—the “sole beneficiary” and effective executor of the will—that Melanie was executing a “will” and Melanie did so in an email sent on the very same day she created and executed the letter.

What is more, Melanie on that date was days away from having major surgery, and hence wrote the letter at a moment in time when she was more acutely facing her own mortality.

Melanie also treated the letter like a will insofar as she gave Maria (again, the sole beneficiary and executor of the will) a copy of the letter and kept the original for herself in a place where it was likely to be found—and was, indeed, found—decades later.

None of the reasons cited by the probate court or proffered by Melanie’s sister negated this conclusion.

LESSONS:

1.         A document will be considered a “will” capable of being probated in court only if the document is in writing, signed (or authorized) by the testator, and signed by two people who witnessed the testator sign or acknowledge her signature.

2.         The code will overlook a failure to comply with the two-witness requirement if the party seeking to probate the document as a will “establishes by clear and convincing evidence that, at the time the testator signed the [document], the testator intended the [document] to constitute the testator’s will.”

3.         An unbroken line of precedent squarely establishes that extrinsic evidence is always admissible on the question of the drafter’s intent.

How Should a Revocable Trust be Amended in California?

In the recent case in Diaz v. Zuniga, the appellate court had to decide which of two provisions governs a settlor’s purported amendment of a revocable trust—Probate Code section 15402 or the terms of the trust—when the trust instrument specifies how the trust may be modified but does not state that the specified modification method is exclusive.

California courts are divided on this issue, and it is currently pending before the California Supreme Court in Balistreri v. Balistreri, King v. Lynch and Haggerty v. Thornton.

The appellate court concluded the trust terms governing amendments control and applied the reasoning of the courts in Balistreri and King.

The settlor’s purported amendment in this case did not conform to the trust terms and was held invalid.

The appellate court therefore affirmed the trial court's judgment invalidating the purported amendment.

A settlor purports to amend his revokable trust. He is both the trustor and trustee. The trust document (the Trust) provides that to amend the Trust he must send the document by certified mail to the trustee. This he did not do.

Here the appellate court decided his purported amendment did not conform to the trust terms and was invalid.

The Trust became irrevocable upon the death of the settlor, Mateo Diaz (Mateo), on May 6, 2018.

Soon after Mateo’s death, a purported trust amendment dated in 2007 was found in an envelope among papers in a container kept in Mateo’s bedroom closet. The stamped envelope was addressed to his attorney. There is no evidence in the record to indicate Mateo discussed the 2007 document with anyone or that he mailed it to his lawyer.

Article X of the Trust governs trust amendments. It states in relevant part: “The Trustor may at any time during Trustor’s lifetime amend any of the terms of this instrument by an instrument in writing signed by the Trustor and delivered by certified mail to the Trustee.”

Article IX of the Trust governs revocations and states in relevant part that “[t]his Trust may be revoked in whole or in part by the Trustor during Trustor’s lifetime.”  

Appellants Robert Diaz (Robert), Jessie Diaz, Alex Diaz, Carmen Ortega, Gloria Redondo, Linda Johnson, Annette Roberts, and Salvador Diaz (collectively appellants) are beneficiaries of the Trust.

Robert is also a co- trustee of the Trust. Respondent Marisela Zuniga (Marisela) is also a co- trustee and beneficiary of the Trust.

The 2007 document purported to alter the distribution of certain Trust assets upon Mateo’s death, substantially reallocating the value of the distributions among the various beneficiaries. The Trust assets include two real property parcels located in Montclair and Temple City.

In the original Trust declaration, the Montclair property was to be distributed equally to all of Mateo’s seven siblings; and the Temple City property was to be distributed solely to Marisela, with the exception of the sum of $100,000, which was to be distributed solely to Annette Louise Roberts Diaz.

In the 2007 document, the Montclair property was to be distributed equally to only two of Mateo’s siblings, and the Temple City property was to be distributed 10 percent to Marisela, 20 percent to Annette Louise Roberts Diaz, and 10 percent to each of Mateo’s seven siblings.

Robert and Marisela, in their respective capacities as co-trustees of the Trust, filed separate petitions requesting instructions as to whether the 2007 document should be treated as a valid Trust amendment.

The parties submitted a joint trial statement and a joint statement of stipulated facts and agreed to the admission of certain documents. The matter was tried on April 28, 2021.

The trial court issued a final statement of decision ruling that the 2007 document did not constitute a valid amendment to the Trust because Mateo did not deliver the 2007 document to himself as trustee by certified mail, as specified in Article X of the Trust.

A judgment decreeing that the 2007 document did not constitute a valid amendment to the Trust was entered, and the appeal followed.

The Probate Code governs modification and revocation of a trust.

Section 15401(a) sets forth alternative methods for revocation. Under the first method, a trust may be revoked by “compliance with any method of revocation provided in the trust instrument.”

Under the second method, a trust may be revoked in “a writing, other than a will, signed by the settlor . . . and delivered to the trustee during the lifetime of the settlor.”

The statute states, however, that if “the trust instrument explicitly makes the method of revocation provided in the trust instrument the exclusive method of revocation,” that method must be used.

For the trust revocation terms to override the statutory revocation provisions, the trust must contain “an explicit statement that the trust’s revocation method is exclusive.”

Section 15402 governs modification of a trust, and states: “Unless the trust instrument provides otherwise, if a trust is revocable by the settlor, the settlor may modify the trust by the procedure for revocation.”

Under section 15402, when “the trust instrument is silent on modification, the trust may be modified in the same manner in which it could be revoked, either statutorily or as provided in the trust instrument.”

California courts are divided as to what happens when the trust instrument specifies how the trust may be modified but does not state that the specified modification method is exclusive.

In one line of cases, courts have held that when the trust instrument “specifies how the trust is to be modified,” then “that method must be used to amend the trust.”

In contrast, the court in Haggerty and the dissent in King concluded that unless the trust terms expressly preclude the settlor from using alternative statutory methods to modify the trust instrument, the modification procedures set forth in section 15402 may be used.

The appellate court found the reasoning of the courts in Balistreri and the King majority more persuasive than that in Haggerty and the King dissent.

The plain language of section 15402 states that a settlor may modify the trust by the procedure for revocation set forth in section 15401 “[u]nless the trust instrument provides otherwise.”

That qualifying statutory language is clear and unambiguous, particularly when read together with section 15401. Unlike section 15401, section 15402 does not require the trust instrument to “explicitly” state that the method of revocation provided in the trust instrument is the “exclusive” method of modification for the trust terms to displace the statutory modification provisions.

 The trust instrument in this case distinguishes between revocation and modification. Article IX addresses revocation and includes no specific procedure for doing so. It simply states: “This Trust may be revoked in whole or in part by the Trustor during Trustor’s lifetime.”

Article X, in contrast, includes a specific procedure for trust modification. It states that the Trustor may “amend any of the terms of this instrument by an instrument in writing signed by the Trustor and delivered by certified mail to the Trustee.”

Had Mateo followed the amendment procedures set forth in Article X of the trust, his intention to modify the trust terms would not be in doubt. On the facts presented here, Mateo’s intentions are unclear.

After drafting and signing the 2007 document, Mateo may have placed the document in his closet in order to reflect on the proposed changes before finalizing them. That he did not do so by sending the document to himself by certified mail may indicate that he decided against the modifications.

Section 15402 does not apply here because Article X of the Trust provides a specific procedure for modification of the trust terms. Article X therefore displaces the alternative statutory modification procedures under sections 15401 and 15402.

A contrary result would frustrate the intent of the trustor, Mateo, who chose a specific method for amending the Trust terms.

The 2007 document did not conform to that method and did not constitute a valid amendment of the Trust. The trial court did not err in reaching this conclusion.

That Article X of the Trust uses permissive, rather than mandatory language, stating that the trustor “may” amend the Trust terms, does not make the alternative statutory procedures available.

Article X sets forth a specific method for amending the Trust terms—“by an instrument in writing signed by the Trustor and delivered by certified mail to the Trustee.” Trust amendments may be made only by this method.

Mateo’s intent as trustor is evident in Article X, which sets forth a specific method for amending the Trust terms.

LESSONS:

1.         California courts are divided as to what happens when the trust instrument specifies how the trust may be modified but does not state that the specified modification method is exclusive.

2.         The trust provisions for modification and amendment should be followed to insure the amendment is valid.

3.         The Probate Code governs modification and revocation of a trust.

What Powers Does a Trustee Have in Trust Created by Will?

This issue was the subject of the recent California appellate court decision in Estate of Barry Tarlow.

The issue on appeal was If a will creates a trust and names a trustee, does that trustee have standing to seek a court order determining their right to take charge of the trust assets?

The appellate court held that they do. 

Probate Code section 11700 provides that any person claiming to be a beneficiary or otherwise entitled to distribution of a share of the estate, may file a petition for a court determination of the persons entitled to distribution of the decedent’s estate.

As explained below, when a will creates a trust, the named trustee is the person entitled to receive the assets intended to fund the trust, and is therefore a person claiming to be entitled to distribution of a share of the estate. 

Thus, the trustee may file a petition and the court must then determine the validity of the trustee’s claim. 

Attorney Barry Tarlow executed a will in November 2005, to which he made minor modifications in 2006. He made a series of specific gifts, then left the balance of his estate (Estate) to be evenly divided between his sister, respondent Barbara Tarlow Rapposelli (Barbara), and their brother, respondent Gerald Tarlow (Gerald), “in equal shares.” 

According to the terms of the will, Gerald was to receive his share “outright and free of trust,” but Barbara’s share was to be deposited in the “Barbara Tarlow Trust” (Trust). 

The will named a trustee for the Trust, appellant David Henry Simon (Simon), who was to distribute Trust funds to Barbara as he felt necessary for her support, maintenance, health and education.

On Barbara’s death, all Trust assets would be distributed to Gerald outright; if Gerald had already died, the assets would be distributed to a donor advised fund at Fidelity Charitable Gift Fund (Fidelity Fund). 

Barry Tarlow died on April 30, 2021. The will nominated Simon as executor, but Simon declined that role at the request of Barbara and Gerald. 

This allowed Barbara and Gerald to become the executors themselves, while Simon retained his more limited role as trustee of the Trust. 

The will was admitted to probate in July 2021. Barbara’s share of the residual interest in the Estate, the portion intended to fund the Trust, was valued at more than $20 million. 

In December 2021, Barbara contracted to buy the Fidelity Fund’s remainder interest in the Trust for $100,000. The sale contract notes that because Gerald is five years younger than Barbara, the price reflects a discount based on the likelihood that Barbara would predecease Gerald and Fidelity Fund’s interest would then be extinguished. 

It also records Barbara’s intent to petition for modification of the Trust, and her intent to disclaim her interest in the Trust if that petition should prove unsuccessful. 

In January 2022, Barbara and Gerald filed an ex parte petition to be appointed as trustees of the Trust, replacing Simon, and to modify the terms of the Trust to allow Barbara to decide how the trust assets would be distributed after her death if Gerald predeceased her. 

Simon objected, and the trial court denied the petition without prejudice because the requirements for an ex parte application had not been met. 

In July 2022, Barbara and Gerald filed a petition for final distribution of the Estate and payment of attorney’s fees under section 11600.

The petition stated that Barbara had disclaimed her share of the residue of the Estate, and Gerald disclaimed his interest in the tangible personal property of the Estate, a portion of which had already been sold. 

Under the terms of the will, this meant Barbara would get Gerald’s share of the tangible personal property in the Estate, and Gerald would get Barbara’s share of everything else. 

In September 2022, Simon objected to Barbara and Gerald’s petition, arguing Barbara had not properly disclaimed her interest and authorizing the distribution would improperly deprive the Trust of funds for both Barbara and the Fidelity Fund.

In October 2022, Simon filed his own petition under section 11700, asking the court to distribute Barbara’s interest to him as trustee of the Trust, and to rescind Barbara’s purchase of the Fidelity Fund’s interest in the Trust as an illegal contract. 

Barbara and Gerald demurred to Simon’s petition on the grounds that Simon lacked standing to seek relief against Barbara. The trial court sustained Barbara and Gerald’s demurrer, with leave to amend, ruling Simon had no standing to file a petition.

Simon filed an amended petition, again asking the court to determine that Barbara had neither properly disclaimed her share of the residue of the Estate, nor properly purchased Fidelity Fund’s remainder interest in that share. Barbara and Gerald again demurred. 

The trial court sustained the demurrer, without leave to amend, finding that Simon had not changed his petition except to add further legal argument which it found unpersuasive. 



Simon timely appealed. 

Simon argued that a trial court is required to hold an evidentiary hearing on a petition filed under section 11700, so long as the petitioner pleads a relationship to the decedent and the basis for his claim. 

He also argued that as trustee of the Trust, he has standing under two separate portions of the Probate Code: section 11700 itself, as well as section 48. 

Finally, he argued that the trial court improperly assumed the validity of Barbara’s disclaimer. 

The appellate court held that the undisputed facts confer standing on Simon under section 11700. 

Probate proceedings are statutory; the language of the applicable statute defines the court’s powers and responsibilities. 

Section 11700 provides: At any time after letters are first issued to a general personal representative and before an order for final distribution is made, the personal representative, or any person claiming to be a beneficiary or otherwise entitled to distribution of a share of the estate, may file a petition for a court determination of the persons entitled to distribution of the decedent’s estate. The petition shall include a statement of the basis for the petitioner’s claim.

The “primary purpose” of this section is to establish which persons are proper heirs of an estate and therefore entitled to a distribution. 

A proceeding under this section is “permissive”; if no such petition is filed, the court may determine who is entitled to distribution in a final distribution order. 

A proceeding under section 11700 is a specialized proceeding in rem. 

It clarifies the status of the estate, determining who has valid claims to distribution of estate assets and the priority of those claims. 

It does not declare any party’s personal rights or obligations concerning any other party; it only declares their respective relationships to the estate. 

Section 11700, as case law explains, provides a means for the court to adjudicate the rights of an heir, devisee, or legatee to a share of the estate. 

An “heir” is a person “entitled to take property of the decedent by intestate succession” under the Probate Code. 

In contrast, a “devisee” is a person designated in a will” as the recipient of a “devise,” or gift of property. 

Where a will creates a trust, the trustee is a devisee under the will because they are the person designated to receive the trust property from the estate and administer it according to the terms of the bequest. 

Section 34, subdivision (b) provides that in the case of a devise to a trustee on trust described by will, the trust or trustee is the devisee and the beneficiaries are not devisees.” 

The trustee’s legal title to the trust property vests as of the date of death. 

Here, because Simon is the named trustee of the Trust, he is a devisee under the will, entitled to receive and administer the trust property from the Estate, and therefore is a person claiming to be entitled to distribution of a share of the estate under section 11700. 

Thus, Simon is one of those persons who may file a petition, under the statute. He has standing to proceed under section 11700. 

Barbara and Gerald argue that Barbara has a statutory right to disclaim the Trust, her disclaimer should be presumed valid, and Simon cannot force her to accept a gift she does not want. 

However, the presumption that disclaimers are valid is not conclusive. 

Barbara and Gerald also argue Simon only has standing if he represents the pecuniary interests of a beneficiary of the Estate. For this proposition, they rely on section 48 and case law. However, section 48 is a definitional provision that gives the meaning of the term “interested person.” 

This term does not appear in section 11700, and therefore section 48 does not apply. Likewise, none of the cases respondents cite involve section 11700.  

Simon’s standing to file a petition under section 11700 is defined by the terms of that section, not other sections. 

Finally, Barbara and Gerald argue that Simon has failed to properly plead the invalidity of Barbara’s disclaimer, and that there is no factual dispute requiring an evidentiary hearing. 

We need not discuss that argument because Simon need not plead facts concerning the disclaimer to establish his standing under section 11700. 

That section provides standing to any person claiming to be entitled to distribution of a share of the estate.

It is undisputed that Simon was named trustee of the Trust and therefore is a person with a claim to be entitled to distribution of a share of the Estate. The validity of Simon’s claim is to be determined by the proceedings on his petition. 

Barbara and Gerald cite no authority which requires Simon to preemptively plead facts invalidating Barbara’s disclaimer. 

Probate proceedings are statutory in nature, and standing is determined by the applicable statute. 

Here, the proceeding before the trial court was a petition under section 11700. That section authorizes any person who has a claim to distribution from an estate to file a petition. Simon has such a claim. Therefore, he has standing to bring the petition. 

Whether Barbara’s disclaimer invalidates Simon’s claim goes to the merits of the petition. It does not affect Simon’s standing. 

LESSONS:

1.         The trustee’s legal title to the trust property vests as of the date of death. 

2.         Probate proceedings are statutory in nature, and standing is determined by the applicable statute. 

3.         The proceeding before the trial court was a petition under Probate Code, section 11700. That section authorizes any person who has a claim to distribution from an estate to file a petition. 

4.         An “heir” is a person “entitled to take property of the decedent by intestate succession” under the Probate Code. 

5.         In contrast, a “devisee” is a person designated in a will” as the recipient of a “devise,” or gift of property.