Smith v. Wilmington Trust CA/5 ( 2014 )

Filed 1/28/14 Smith v. Wilmington Trust CA/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
CANDACE CALDWELL SMITH, as B248042
Trustee, etc., (Los Angeles County
Super. Ct. No. BP065024)
Plaintiff and Respondent,
v.
WILMINGTON TRUST, etc.,
Defendant and Appellant;
WILLIAM CALDWELL et al.,
Respondents.
APPEAL from an order of the Superior Court of Los Angeles County, Michael I.
Levanas, Judge. Affirmed.
Mitchell Silberberg & Knupp, Allan B. Cutrow and Nahla B. Rajan for Defendant
and Appellant.
Glaser Weil Fink Jacobs Howard Avchen & Shapiro, Barry E. Fink and Joel N.
Klevens; and Bird, Marella, Boxer, Wolpert, Nessim, Drooks & Lincenberg and Dorothy
Wolpert for Plaintiff and Respondent Candace Caldwell Smith.
Finestone & Richter, William Finestone, Eric F. Edmunds, Jr., and Stacey N.
Knox for Respondents William Caldwell V., Blake Caldwell and Tyler Caldwell.
I. INTRODUCTION
Plaintiff, Wilmington Trust, N.A., appeals from an order granting summary
adjudication in favor of defendants, William M. Caldwell V, Blake Caldwell and Tyler
Caldwell. On September 6, 2011, plaintiff was appointed administrator with will
annexed of the estate of William M. Caldwell IV (“William IV”1). Defendants are the
living descendants of William IV. On May 31, 2012, defendants moved for summary
adjudication. Defendants argued William IV’s share of the Caldwell Living Trust (“the
trust”) belongs to his subtrust, not his probate estate. On January 31, 2013, the probate
court granted defendants’ motion. Plaintiff argues the probate court erred. Plaintiff
asserts William IV had exercised his right to remove assets from the trust, which thereby
belong to his estate. We affirm the order.
II. BACKGROUND
A. Summary Adjudication Motion, Opposition And Reply
Defendants are beneficiaries of the trust. Defendants are the natural born sons of
William IV. On January 13, 2012, plaintiff petitioned for instructions regarding
involvement in a dispute with the trust. Plaintiff asserted William IV’s wife believed her
husband had exercised his power to withdraw his interest in the trust.
On May 31, 2012, defendants moved for summary adjudication pursuant to Code
of Civil Procedure section 437c. Defendants argued the assets from the trust for the
benefit of William IV should be distributed to his subtrust. Defendants asserted
William IV’s assets were never withdrawn from the subtrust. Defendants also argued
William IV never exercised his appointment power over his assets from the subtrust. On
1
Because a number of the litigants share a common surname, we will refer to
them by their first names, after initially introducing them by their full names. Of course,
no disrespect is intended.
2
October 18, 2012, plaintiff filed its opposition. Plaintiff argued William IV’s subtrust
came into existence upon William M. Caldwell III’s (“William III”) death. William III
was the settlor of the trust. Plaintiff asserted William IV had exercised his power to
withdraw assets. Plaintiff concedes William IV did not exercise any appointment power.
On October 26, 2012, defendants filed their reply. Defendants argued no withdrawal
occurred because William IV’s subtrust did not have any assets to withdraw.
B. Undisputed Facts
1. Formation of the trust and pertinent provisions
William III established the trust on August 17, 1988. The trust was amended and
restated on July 21, 2000. The trust contains real estate, stock, money and personal
property. The trust became irrevocable on September 24, 2000, when William III died.
The trust sets forth the division of the remaining balance of the estate after
William III’s death: “Within a reasonable time after my death . . . the Trustee shall
divide the entire remaining balance of the trust estate into shares for my descendants who
survive me, according to the principle of representation. A child of mine shall be deemed
to have predeceased me if such child fails to survive me by 90 days.” The trust provides
three subtrusts for William III’s children: William IV; Craig E. Caldwell, Sr., (“Craig,
Sr.); and Candace Caldwell Smith. The trust estate was distributed to William III’s
children in the form of subtrusts, not outright. Each of William III’s children received a
lifetime power of withdrawal from, and testamentary power of appointment over, their
respective subtrust. William IV did not exercise his power of appointment.
Article VII of the trust encompasses the provisions concerning William IV’s
subtrust. Article VII, paragraph A of the trust provides, “A trust for BILL, IV shall be
established by the Trustee at such time as the Trustee first receives any distribution of
assets allocated to BILL, IV.” Article VII, paragraph D of the trust governs the power to
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withdraw trust principal: “At any time or times during BILL, IV’s lifetime, BILL, IV
shall have the power to withdraw all of any part of the principal of the trust for any
purpose. Such power of withdrawal shall be exercisable only by a written instrument
signed by BILL, IV and delivered to the then acting Trustee of the trust.”
In the event William IV died, the trust describes the distribution of assets in article
VII, paragraph F: “Within a reasonable time after BILL, IV’s death, the Trustee first
shall pay or make provisions for the payment of all estate, inheritance, or other death
taxes attributable to the assets of BILL, IV’s trust and payable as a result of BILL, IV’s
death. Next, the Trustee shall distribute the entire remaining balance of the trust estate in
such manner as BILL, IV has appointed effectively. Finally, the Trustee shall divide any
portion of the remaining balance of the trust estate over which BILL, IV has not
exercised such power of appointment effectively into shares for BILL, IV’s then living
descendants, according to the principle of representation.” The trust defines
“descendants” as follows, “As used in this instrument, the
term[] . . . ‘descendants’ . . . shall be interpreted as provided by California law, except
that the parent-child relationship shall not include persons adopted after attaining
majority.” William IV’s living descendants are defendants. William IV died on
December 13, 2010.
2. Craig, Sr., and son’s lawsuits
On November 28, 2000, Craig, Sr., challenged the distribution of the trust, arguing
that a writing amended the trust to provide him with a greater share. Following a six-day
trial, the probate court denied Craig, Sr.’s petition. We affirmed the probate court’s order
denying Craig, Sr.’s petition. (Caldwell v. Ross (Jun. 14, 2005, B179385) [nonpub.
opn.].)
Pursuant to a no contest provision in the trust, the trustee at the time, Retired
Judge Edward M. Ross, moved for judgment on the pleadings to disinherit Craig, Sr. On
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December 14, 2005, the probate court granted the motion. We affirmed the probate
court’s order. (Caldwell v. Ross (Dec. 20, 2006, B189273) [nonpub. opn.].)
On July 7, 2006, the probate court ordered the trustee to distribute Craig, Sr.’s
forfeited share of the trust to William IV and Ms. Smith, each a one-half interest. Craig,
Sr., appealed the order. We affirmed the order under review. (Caldwell v. Ross (Nov.
26, 2007, B197707) [nonpub. opn.].) Judge Ross did not allocate any trust property for
distribution to the subtrusts. On January 20, 2009, Judge Ross resigned as trustee. The
court appointed as successor trustees William IV and Ms. Smith.
Craig Caldwell, Jr., (“Craig, Jr.”) later pursued his own lawsuits challenging
Craig, Sr.’s disinheritance with respect to his descendants. On September 14, 2007,
Craig., Jr., appealed an order denying his motion to vacate the probate court’s July 7,
2006 order. (Ross v. Caldwell (B202368, May 28, 2008) [nonpub. opn.].) We dismissed
the appeal for lack of standing. (Ibid.) On March 10, 2010, Craig, Jr., petitioned to set
aside void orders and determine construction of the trust. The probate court denied
Craig, Jr.’s petition. We affirmed the probate court’s order. (Caldwell v. Caldwell (Sept.
19, 2011, B228395) [nonpub. opn.].) The decision became final on November 21, 2011.
During the entirety of both Craig, Sr. and Craig, Jr.’s lawsuits, up to this appeal, the trust
held all properties in the trust’s name and possession. The trust, not the subtrusts, filed
income tax returns and paid taxes related to income generated by the trust.
3. Candace and William IV’s agreement and joint petition
On September 16, 2008, William IV and Ms. Smith entered into an agreement
regarding distribution of the trust once they became co-trustees. William IV and
Ms. Smith agreed to the following, “Notwithstanding anything contained in the Caldwell
Living Trust to the contrary, each of the parties shall be deemed to have exercised his or
her power of appointment, appointing the assets of his or her subtrust to himself or
herself, as the case may be, outright and free of trust. Bill [IV] and Candace, as Co-
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Trustees of the Caldwell Living Trust, shall distribute the Caldwell Living Trust, outright
and free of trust, so that each party receive[s] assets equal in value to fifty percent of the
value of the balance of the Caldwell Living Trust . . . .”
Prior to the resolution of Craig, Jr.’s lawsuit, Ms. Smith and William IV filed a
joint petition with the probate court on September 2, 2010, concerning distribution of the
trust. The trustees alleged, “In accordance with the provisions of the Caldwell Living
Trust, each of Bill [William IV] and Candace has exercised the lifetime power of
withdrawal given to them under Section D of Article VII and Section D of Article IX of
the Trust, respectively, and elected to withdraw all of the assets of their respective
subtrusts.” Following the distribution of other assets, the trustees requested, “The
remaining balance of the trust estate, including the Remaining Reserve, shall be
distributed to Bill [William IV] and Candace, in equal shares, in accordance with the
provisions of the Caldwell Living Trust.” There was no decree of distribution of any
assets to their respective subtrusts.
D. Hearing And Probate Court Order
On December 26, 2012, the hearing on the summary adjudication motion was
held. On January 31, 2013, the probate court issued its statement of decision, granting
defendants’ summary adjudication motion. The probate court found the moving party
had met its initial burden of production under the terms of the trust. (Code
Civ.Proc.,§ 437c, subd. (p); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal. 4th 826, 848-
852.) The probate court concluded the subtrusts were not in existence because no
property had been allocated or distributed from the trust. The probate court found
plaintiff’s argument concerning a vested interest was irrelevant. On February 22, 2013,
plaintiff filed a mandate petition. (Wilmington Trust, N.A. v. The Superior Court of Los
Angeles County (B247031, Apr. 4, 2013) [nonpub. opn.].) We denied the writ petition
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because the probate court’s order was appealable. (Ibid.) On April 5, 2013, plaintiff
filed its notice of appeal.
III. DISCUSSION
A. Overview
Our Supreme Court has held: “The interpretation of a will or trust instrument
presents a question of law unless interpretation turns on the credibility of extrinsic
evidence or a conflict therein. [Citations.]” (Burch v. George (1994) 7 Cal. 4th 246, 254;
see Tunstall v. Wells (2006) 144 Cal. App. 4th 554, 561 [same]; see Prob. Code2 § 21102,
subd. (a) [“The intention of the transferor as expressed in the instrument controls the
legal effect of the dispositions made in the instrument.”].) Under section 21122, “The
words of an instrument are to be given their ordinary and grammatical meaning unless the
intention to use them in another sense is clear and their intended meaning can be
ascertained.” Our Supreme Court has held: “Extrinsic evidence is ‘admissible to
interpret the instrument, but not to give it a meaning to which it is not reasonably
susceptible’ [citations], and it is the instrument itself that must be given effect.
[Citations.] It is therefore solely a judicial function to interpret a written instrument
unless the interpretation turns upon the credibility of extrinsic evidence.” (Parsons v.
Bristol Development Co. (1965) 62 Cal. 2d 861, 865; Gardenhire v. Superior Court
(2005) 127 Cal. App. 4th 882, 888.) The Court of Appeal has held, “[W]here the evidence
is undisputed and the parties draw conflicting inferences, [the appellate court] will
independently draw inferences . . . .” (City of El Cajon v. El Cajon Police Officers’ Assn.
2
Except as noted, all statutory references are to the Probate Code.
7
(1996) 49 Cal. App. 4th 64, 71, citing Parsons v. Bristol Development Co., supra, 62
Cal.2d at p. 866, fn. 2.)
The summary adjudication order was appealable because it decided internal trust
matters, including establishing a right to distribution of its assets. (Code Civ. Proc.,
§ 904.1, subd. (a)(10); §§ 1304, subd. (a), 17200, subds. (a)-(b)(2).) We review questions
of law and orders granting summary adjudication de novo. (County of San Diego v. Ace
Property & Casualty Ins. Co. (2005) 37 Cal. 4th 406, 414; Aguilar v. Atlantic Richfield
Co., supra, 25 Cal.4th at p. 860.) Plaintiff contends: William IV’s subtrust was funded
prior to his death; William IV was not required to survive until his subtrust was funded;
defendants stipulated that William IV’s interest in the trust was vested; and William IV
exercised his power of withdrawal. We disagree.
B. William IV’s Sub-Trust Was Not Established
Defendants, the living descendants of William IV, argue his subtrust was not
established prior to his death. Defendants produced evidence indicating no distribution
of property from the trust to William IV’s subtrust has occurred. The trust continues
paying the taxes for the trust property. The trust maintains title and possession over the
trust’s properties. Neither Judge Ross, William IV nor Ms. Smith have distributed any
assets to the subtrusts. Defendants met their initial production burden of demonstrating
William IV did not exercise his power to withdraw assets from his subtrust.
Plaintiff does not dispute the material facts, only their characterization. Plaintiff
argues William IV’s power to withdraw existed when William III died. The trust states,
“A trust for BILL, IV shall be established by the Trustee at such time as the Trustee first
receives any distribution of assets allocated to BILL, IV.” William IV’s subtrust is
established, or brought into existence, when the trustee receives any distribution of assets
allocated to William IV.
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Plaintiff argues William IV’s subtrust became established as soon as he received
any interest in the property, including a future interest. Plaintiff relies on the following
language in Estate of Sigourney (2001) 93 Cal. App. 4th 593, 603: “The concept of
property in California is extremely broad. ‘“The term ‘property’ is sufficiently
comprehensive to include every species of estate, real and personal, and everything which
one person can own and transfer to another. It extends to every species of right and
interest capable of being enjoyed as such upon which it is practicable to place a money
value.”’ [Citations.]” (See Yuba River Power Co. v. Nevada Irr. Dist. (1929) 207 Cal.
521, 523.)
Plaintiff argues it is irrelevant whether specific assets from the trust were legally
transferred to William IV’s subtrust. However, the provisions of the trust require a
distribution of assets from the trust for the subtrust to exist. “Distribution of assets” here
would ordinarily mean passing of property held by the trust to the trustee for William IV.
Plaintiff contends the transferred property included William IV’s interest in the property.
Plaintiff’s argument does not reconcile with the express trust language. William IV’s
potential interest in his allocated property is not a trust asset for purposes of distribution.
Black’s Law Dictionary (9th ed. 2009), at page 134, column 1, defines “assets” as, “All
the property of a person ([especially] a bankrupt or deceased person) available for paying
debts or for distribution.” (See In re Estate of Kemp (Ohio App. 2010) 937 N.E.2d 1102,
1104.) Whether William IV had property because of his trust interest is not relevant for
establishing his subtrust. The assets necessary to establish William IV’s subtrust were
William III’s property. As noted, there has been no distribution of assets. Thus, the
subtrust was not established at the time of William III’s death.
Alternatively, plaintiff contends William IV’s subtrust was funded on January 30,
2008. On that date, the probate court’s order that the trustee distribute the trust assets to
William IV and Ms. Smith became final. Plaintiff refers to the order issued July 7, 2006,
in which the probate court ordered distribution of Craig, Sr.’s forfeited share to
William IV and Ms. Smith. As noted, Craig, Sr., appealed the July 7, 2006 order. We
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affirmed the order, and our decision became final on January 30, 2008. (Caldwell v. Ross
(Nov. 26, 2007, B197707) [nonpub. order].) Plaintiff’s argument is unpersuasive. As
noted, no actual distribution of trust assets has occurred. The July 7, 2006 order
addressed the sole issue of what should be done with Craig, Sr.’s share. Our opinion did
not order the distribution of trust assets to William IV or Ms. Smith.
Plaintiff argues the trust provided William IV with the power to withdraw assets
that he could, and did, use during his lifetime. Plaintiff cites to the September 16, 2008
agreement between Ms. Smith and William IV and their joint petition filed September 2,
2010. Though the September 16, 2008 agreement referred to a power of appointment,
plaintiff argues William IV and Ms. Smith actually meant power of withdrawal.
Plaintiff’s argument is without merit. As noted, William IV’s withdrawal power is found
at Article VII, paragraph D of the trust. William IV’s withdrawal power was directly
related to the existence of the subtrust. Article VII of the trust is entitled “WILLIAM M.
CALDWELL, IV TRUST.” The next paragraph provides, “After my [William III] death,
the WILLIAM M. CALDWELL, IV TRUST shall be held, administered, and distributed
as set forth below.” As noted, the William IV subtrust is established at such time as the
trustee receives a distribution of assets.
Section 21121 provides, “All parts of an instrument are to be construed in relation
to each other and so as, if possible, to form a consistent whole.” (See Newman v. Wells
Fargo Bank (1996) 14 Cal. 4th 126, 154.) William IV’s withdrawal power was a part of
the trust section concerning his subtrust. The most reasonable interpretation of the trust
language is William IV’s withdrawal power over his subtrust exists only when his
subtrust is first established. As noted, no asset distribution has occurred to establish his
subtrust. Accordingly, his subtrust does not yet exist. William IV had no withdrawal
power until his subtrust was established. Whether William IV intended to withdraw from
his subtrust does not demonstrate he did use his withdrawal power during his lifetime.
He could not exercise a power he did not yet have.
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Defendants met their burden of production in favor of summary adjudication.
(Code Civ. Proc., § 437c, subd. (p)(2); Aguilar v. Atlantic Richfield Co., supra, 25
Cal.4th at p. 849.) Plaintiff did not raise a triable issue of material fact. As a matter of
law, William IV did not exercise his withdrawal power over any property in his subtrust.
William IV’s subtrust is not yet established. The probate court did not err by granting
defendants’ summary adjudication motion.
IV. DISPOSITION
The probate court’s order is affirmed. Defendants, William M. Caldwell V, Blake
Caldwell and Tyler Caldwell, are awarded their appeal costs from plaintiff, Wilmington
Trust, N.A.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
TURNER, P. J.
I concur:
KRIEGLER, J.
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Rothschild, J., dissenting:
On July 7, 2006, the superior court ordered the distribution of Craig Sr.’s forfeited
one-third share of the trust assets to William IV and Ms. Smith. Our decision affirming
that order became final on January 30, 2008. On September 16, 2008, William IV and
Ms. Smith executed a written agreement providing that they were withdrawing all of the
assets of their subtrusts. William IV died on December 13, 2010.
In my view, the order concerning distribution of Craig Sr.’s forfeited share to
William IV and Ms. Smith was sufficient to create the subtrusts, regardless of whether
the trustee failed to comply with the order before William IV died. In Estate of Newman
(1964) 230 Cal. App. 2d 158, the testator directed that upon the death of his wife, certain
shares of his estate were to be distributed to certain beneficiaries unless they were “‘not
living at the time of said distribution.’” (See id. at pp. 161-163.) One of the beneficiaries
died after the wife died but before any assets were actually distributed. (Id. at p. 161.)
The trial court ruled, and the Court of Appeal affirmed, that the deceased beneficiary’s
share should pass to his estate rather than being divided among the surviving
beneficiaries. The court reasoned that the “‘date of distribution’” was the date of the
wife’s death, “not the date when, all of the sundry mechanical problems involved in the
transfer of record title having been accomplished, physical delivery of the trust assets
could be accomplished. Instruments of conveyance must be drawn, executed and
recorded, stock certificates must be endorsed, delivered to corporate transfer agents and
registrars, and returned, checks must be drawn and receipts prepared. If the death of a
remainderman in the midst of this process were to divest his interest, the process might
well become incredibly repetitious. While a testator or trustor may legally direct such
result, it should not be assumed that he so intended except in the light of the most explicit
and positive language; no such language faces us here.” (Id. at pp. 164-165.)
Here, the trust instrument expressly tied the creation of William IV’s subtrust to
the “distribution of assets allocated to BILL, IV.” The superior court’s order of July 7,
2006, directed such a distribution and became final on January 8, 2008, well ahead of
William IV’s express written withdrawal of his assets from the subtrust. I conclude that
Estate of Newman is not materially distinguishable and that the trustee’s failure to
comply with the distribution order before William IV died should not be allowed to
defeat the express written intent of both William III and William IV. I would accordingly
reverse the order of the superior court in the case now before us, and I therefore
respectfully dissent.
ROTHSCHILD, J.*
*
Associate Justice of the Court of Appeal, Second Appellate District, Division One,
assigned by the Chief Justice pursuant to article VI, section 6 of the California
Constitution.
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