Lucas v. Lilienthal CA1/2 ( 2015 )

Filed 3/27/15 Lucas v. Lilienthal CA1/2
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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
FIRST APPELLATE DISTRICT
DIVISION TWO
THOMAS A. LUCAS AS TRUSTEE, etc.
Plaintiff and Respondent,
A139925
v.
PETER LILIENTHAL, (San Francisco County
Super. Ct. No. PTR11295184)
Defendant and Appellant.
A long married couple executed their estate plan in 1984, a plan that, assuming
they survived their parents, would ultimately benefit their two adult sons, James and
Peter. The surviving wife died in 2008, the upshot of which was the distribution of the
$900,000-plus in assets that had been held in her trust, to be distributed 50 percent
outright to Peter and 50 percent in trust for James. A licensed professional fiduciary
became the successor independent trustee of that trust for James, and filed a petition
seeking to confirm the discretionary standard under which he was to distribute funds to
James. Peter filed opposition. The petition was heard by an experienced probate court
judge who issued her statement of decision confirming that the trustee was appropriately
exercising his discretion—that the trust did not require him to consider resources outside
of the trust before making distributions. Peter appeals. We affirm.
BACKGROUND
The Parties
Robert P. Lilienthal (Robert) was a fourth generation Californian, and a longtime
San Francisco community leader. He was married to Frances Newman Lilienthal
1
(Frances) for some 60 years, and they had two children, James, born in 1941, and Peter,
born in 1946. Robert died in 1998, at age 84. Frances died in 2008, triggering the
termination of their estate plan—and ultimately giving rise to the issue here.
The Plan and the Distributions
In 1984, Robert and Frances established their estate plan, prepared by attorney
Alvin Pelavin, a member of Pelavin, Norberg, Harlick & Beck. The plan consisted of
mirror-image wills which created a testamentary trust and some other trusts for the
survivor. Mr. Pelavin left his firm to join Cooper, White & Cooper, and took the estate
planning file with him. Peter Muhs, an attorney at the Cooper firm, later became the
Lilienthals’ estate planning attorney.
The estate plan was apparently revised from time to time, the last time in 1996.
The will signed by Robert that year is not in the record, but what is in the record is the
“Decree of Final Distribution on Waiver of Account and Allowing Compensation” in the
Estate of Robert P. Lilienthal, San Francisco Superior Court Case No. 269944, filed
March 4, 1999 (Decree of Final Distribution). The Decree of Final Distribution
described that Robert’s will left his estate in two shares: one for his surviving spouse,
Frances, and the other for the benefit of Frances during her lifetime and then for the
benefit of his two sons, Peter and James.
The Decree of Final Distribution ordered outright distribution to Frances of
$264,820 in cash and $1,058,644 in securities. It also directed distribution of a 36.878
percent interest in the Lilienthal residence (the residence) to Frances as trustee of a trust
(the Exemption Trust).1
As noted, Frances died in 2008. After her death, the residence was sold. James
and Peter, as trustees of Frances’s living trust, sold the 63.122 percent interest not held in
the Exemption Trust and received $1,830,422.78 in sales proceeds. Those proceeds,
1
This trust is referred to as the Exemption Trust, based on the federal estate tax
exemption. In 1998, the year of Robert’s death, the federal estate tax exemption amount
was $625,000 (Int.Rev. Code, § 2010), and it appears that 36.878 percent shares of the
residence was worth $625,000.
2
together with Frances’s other assets, were distributed outright to James and Peter through
Frances’s living trust. The record does not reflect the total amount distributed to Peter
and James beyond the $1,830,422.78 from the sale of the residence. What we do know is
that the parties’ briefs refer to both Peter and James as “multi-millionaires,” a description
neither brother disputes.
Upon the death of Frances, the Exemption Trust was to be divided into two equal
shares, one share to be distributed outright, and free of further trust, to Peter, the other
share to be held in a trust for the benefit of James (the James Trust).2 Peter, the
then-trustee of the Exemption Trust, sold the 36.878 percent interest in the residence, and
the Exemption Trust received $1,069,394.69 in sales proceeds. Peter distributed his
$469,349.32 share to himself on February 19, 2012. He did not immediately distribute
James’s share, however, perhaps because there was no trustee to whom to distribute it.
James’s Petition
The estate plan required that the James Trust have both a family trustee and an
independent trustee, and in the event of a vacancy in the latter office, the family trustee
was empowered to appoint the independent trustee. The office of independent trustee
was vacant by reason of the declinations of Walter S. Newman and John Newman to
serve as independent trustee; and Peter and his wife Sara Moniot declined to serve as
family trustee. Therefore, under the terms of the Decree of Final Distribution, the next
successor family trustee was James.
On July 12, 2012, James filed a petition styled to “Confirm Current Vacancy in the
Office of Independent Trustee, to Confirm Petitioner as Family Trustee, and to Appoint
Professional Fiduciary Thomas Lucas to Serve as Independent Trustee.” The petition
went on to request five items, including that the court “instruct Peter . . . as Successor
Trustee of the Testamentary Exemption Trust to fund the” James Trust.
2
We refer to this trust as the “James Trust,” the shorthand term used by the
probate court and in Lucas’s respondent’s brief.
3
On September 5, Peter filed a response with several exhibits, including a letter
from his counsel that, as his response put it, indicates “there is no dispute” between
James and Peter “concerning the relief requested in the Petition.” But on September 11,
Peter filed a supplemental response, which led to a reply from James, which reply
confirmed that among the requested items in James’s petition was the request that Peter
“fund the [James Trust].”
The petition came on for hearing on October 1, 2012 before the Honorable Peter
Busch. On October 3, Judge Busch signed an order appointing Thomas Lucas as the
Independent Trustee of the James Trust. Meanwhile, the court mini-minutes of October 1
indicate that Peter had distributed to Lucas $350,000 on October 1, 2012. Peter thereafter
distributed $77,673.11 in January 2013, for a total of $427,673.11.3
That, then, is the setting as of early 2013: two brothers, James, aged 72, single
and never married, and Peter, aged 67, married with one daughter; both, according to
uncontradicted descriptions in the record, “multimillionaires”; and, whatever their
relationship while their parents were alive, now apparently disagreeing about many
things. Put otherwise, while the relationship between the brothers before Frances died is
unknown from this record, there were certainly some issues between them after her
death.4
3
The difference in the distribution amounts—$469,342 to Peter in February 2012
and the total of $427,673 to the James Trust in the two payments—resulted from the
probate court allowing one-half of Peter’s attorney’s fees and 100 percent of Peter’s
trustees fees to be paid from the James Trust.
4
Peter’s opening brief contains a section entitled “Background and Necessary
Context,” included within which are references to various petitions made, and
correspondence written, before the petition giving rise to the issue here. Lucas’s
respondent’s brief calls Peter’s mention of all this inappropriate. We need not comment
on this one way or the other, except to note that it reflects the apparent tension, if not
acrimony, between the brothers.
4
Lucas’s Petition
On January 29, 2013, Lucas filed a petition for interpretation of trust. The petition
was brief, less than seven pages long, and signed under penalty of perjury. The petition
repeated the pertinent terms of the pertinent trust, and then set forth Lucas’s interpretation
of the trust and why the petition was being filed, as follows: “It is the Trustee’s
interpretation of the Trust that he has the sole discretion to pay or apply for the benefit of
James as much of the income and principal of the Trust for his care, maintenance, support
and education. James has expressed interest in traveling to study abroad and the Trustee
believes under the terms and the intent of the settlor this is appropriate. Further it is the
Trustee’s interpretation that he does not need to give consideration to all other income
and resources available to James beyond confirming that James has sufficient other
resources, apart from the Trust, to meet his on-going support needs. In other words, that
the Petitioner has the discretion to use the Trust for James’s education and other needs
provided that James has sufficient other resources outside of the Trust to meet his support
needs for the balance of his life. Petitioner is seeking a determination of this Court that
his interpretation of the Trust is accurate.”
Lucas’s petition then set forth what he perceived to be some applicable legal
principles and his perception of his role under the trust, went on to refer to an
“indicat[ion]” of Peter’s interpretation based on a pleading filed by Peter, and in its
penultimate paragraph “invites both Peter and James to provide further information that
may evidence their father’s intent.” Lucas’s petition ended with this request:
“WHEREFORE, the Petitioner requests an Order of this Court that he as trustee
of the Trust f/b/o James Lilienthal does not need to take into account James Lilienthal’s
other income and resources when making a determination to pay as much of the income
and principal from the Trust for James’s care, maintenance, support and education
provided that James’s assets exclusive of the Trust appear to be sufficient in the
Petitioner’s judgment to meet James’s support needs for the balance of his life; and
granting such other relief as the Court considers proper under the circumstances.”
5
On May 2, Peter filed his response to the petition, a response that was three times
as long as the petition, the substance of which will be discussed below in connection with
the issue to which it pertains. The response was accompanied by a six-page declaration
of Attorney Muhs, which attached, and purported to authenticate, four exhibits totaling
some 62 pages. However inappropriately, Mr. Muhs’s declaration did not just recite
facts, but attempted to urge and argue positions. (See In re Marriage of Heggie (2002)
99 Cal. App. 4th 28, 30, fn. 3 [“The proper place for argument is in points and authorities,
not declarations.”].) His declaration also attached what he called a “rough draft” of a
1984 instrument, as well as two pages of notes Mr. Muhs made in a 1990 meeting. (See
Hayman v. Block (1986) 176 Cal. App. 3d 629, 638–639.) Peter’s response also requested
attorney fees.
Peter’s response generated Lucas’s supplement to his petition, filed on May 15
and a supplement of “Beneficiary James Lilienthal,” filed on May 21.
Not to be outdone, on May 22, Peter filed his supplement to response which,
among other things, asserted that professional fiduciary Lucas “has not been candid with
the Court.” The next day Peter filed his second supplement to response. Peter’s
supplement also requested a statement of decision, which went on to request the
statement address six “controverted issues.”
All told, the papers before the probate court on Lucas’s seven-page petition totaled
over 120 pages.
The petition came on for hearing on May 28, before the Honorable Mary Wiss, an
experienced probate court judge. Judge Wiss heard extensive argument, in the course of
which she engaged counsel with pointed questions. Following that, Judge Wiss took the
matter under submission
On June 26, Judge Wiss issued her proposed statement of decision, which found
that “James’s one-half of [the Exemption Trust] is for his use. Nothing in the documents
presented to the Court hints at a hidden intent by Robert that James’s trust is required to
be preserved for James’s heirs or for Peter or Peter’s issue. Rather, in the sole discretion
of the successor trustee, the funds may be used for James’s benefit. Nothing in the trust
6
documents requires the successor trustee to consider other assets or resources. No
evidence has been presented which persuades the Court that Robert intended that James’s
Trust be used only after exhaustion of his other resources.”
And Judge Wiss concluded: “Any decision by the successor trustee to expend
income or principal or the amount of such expenditure is in the sole and absolute
discretion of the successor trustee. The successor trustee need not take into account
James’s other income and resources when making a determination to pay as much of the
income and principal from the Trust for James’s care, maintenance, support and
education, when James’s assets, exclusive of the Trust, appear to be sufficient in
successor trustee’s judgment to meet James’s support needs for the balance of his life.”
And: “Respondent’s claim for attorney fees is denied.”
On July 11, Peter submitted objections to the proposed statement of decision. He
listed 12 specific objections, most of which were merely rearguments of various of
Peter’s arguments that Judge Wiss had rejected.
On August 5, Judge Wiss filed her final statement of decision. It was a
comprehensive, thoughtful, 11-page statement that explained in detail the bases for her
conclusion, which concluded with this “Order”: “The successor trustee has the sole and
absolute discretion to expend income or principal from James’s trust for James’s care,
maintenance, support, and education, and need not take into account James’s other
income or resources. In exercising his discretion, the successor trustee may consider
whether James’s assets, exclusive of the trust, appear to be sufficient in successor
trustee’s judgment to meet James’s support needs for the balance of his life.”
Peter filed a timely notice of appeal. (See Prob. Code, § 1304, subd. (a) [any final
order under Probate Code section 17200 appealable].)
PETER’S CONTENTIONS ON APPEAL
Peter makes three contentions on appeal, one essentially procedural and two
substantive, that Judge Wiss erred in: (1) prematurely ruling on Lucas’s petition;
(2) ruling that Lucas may make distributions without regard to James’s other assets or
income; and (3) denying Peter’s request for attorney fees.
7
DISCUSSION
The Petition Was Proper
Peter’s first argument on appeal is that the petition was premature. We easily
reject the argument.
By way of background, Peter’s response below objected to Lucas’s petition on
several grounds. As pertinent to the prematurity argument, Peter’s response—as
described in his brief here—made these objections:
“1. The petition was not ripe for a decision. It concerned possible distributions
from the trust, in unknown amounts, for ‘educational travel’ but did not present an actual
request from the beneficiary for any particular amount of distribution.
“2. It was necessary for the Court to have details concerning the amount
requested, the current assets of the trust, the current income of the trust, James’s current
and projected future expenses and the ability of his resources outside of the trust to meet
those expenses; and the impact of such expenditures on the ability of the trust to provide
support for James for the remainder of his lifetime should he ever find himself in need.”
Judge Wiss rejected the argument without discussion. We reject it as well, with
brief discussion.
Probate Code section 17200—not incidentally, a section relied upon by Lucas and
ignored in Peter’s reply brief—provides in pertinent part as follows: “(a) Except as
provided in Section 15800, 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. [¶] (b) Proceedings concerning the internal affairs of a trust include, but are not
limited to, proceedings for any of the following purposes: [¶] (1) Determining questions
of construction of a trust instrument.”
Lucas’s petition manifestly comes within this section, seeking, as it did,
“construction of a trust instrument.” (See generally Estate of Bullock (1968)
264 Cal. App. 2d 197, 200–201.) As Lucas explained, “Because James has assets of his
own outside of the Trust, a situation which his parents appear not to have anticipated, . . .
8
[Trustee] is seeking an interpretation of the trust language to guide him as to when he
may comply, rather than deny, a request.”
And Lucas sought such guidance for good reason, as he also explained: “This
Court is well aware of the lengthy and costly litigation which has already occurred in
these proceedings. Petitioner currently finds himself in the situation that, if he takes no
action, that is, makes no distributions to James, he invites litigation from James for
violating the terms of the trust. On the other hand, if he does make distributions to James
while James has other assets, the Response suggests that he should expect litigation from
Peter. If the Court provides the requested interpretation, all the parties will be aware of
the standard under which Petitioner is to exercise his discretion as trustee.”
Or, as Lucas put it at a later point, “Returning to Court for instructions for every
distribution, rather than determining an interpretation at this time, is uneconomical for
both the Trust and this Court. The Trust is relatively small, with a current fair market
value of approximately $420,000, and it has already paid significant attorneys’ fees.
Petitioner believes that both Peter and James have also personally incurred significant
attorneys’ fees in this matter, as well as suffering the emotional stress of the ongoing
litigation. Rather than filing individual petitions for each requested expenditure,
Petitioner has requested an interpretation in order to provide him with a standard for
exercising his discretion. Once provided, Petitioner can go about his duties as trustees
normally do, exercising his discretion without returning to the Court for every proposed
distribution.”
In short, Lucas sought to minimize conflict regarding the James Trust, not
encourage it, and so sought an overall interpretation of the James Trust rather than a
petition for instructions for a specific expenditure. This was proper.
Ignoring all that, Peter’s argument here asserts only this, with all italics as in
Peter’s brief:
“Scott and Ascher on Trusts § 116.8 [sic] (5th ed. 2006) states in pertinent part, as
follows:
9
“ ‘There are situations . . . in which the courts do not give instructions. The courts
do not give instructions when there is no reasonable doubt as to the trustee’s duties and
powers. The courts do not ordinarily instruct a trustee as to questions upon which the
trustee’s present conduct does not depend, such as those that have not arisen or may
never arise. The courts do not advise a trustee how to exercise a discretionary power.’
“California law is in accord. A trustee seeking attorneys’ fees for initiating
litigation has the burden of proving that the litigation was necessary for the proper
administration of the trust. (See Security-First Nat. Bank v. Tracy, 21 Cal. 2d 652
(1943).)
“As stated in California Trust Administration § 15.28:
“The Trust Law is not intended to change the general rule that the court will not
substitute its judgment for that of the trustee . . . . When the trustee is unsure about the
propriety of making or denying a discretionary distribution, it is appropriate to petition
the court for instructions. The petition should state all pertinent facts and may present all
points of view through declarations of the trustee or beneficiaries. This protects the
resulting court order from collateral attack for fraud or malfeasance. In contrast to most
petitions for instructions, the trustee should not state a preferred course of action in a
proposed order because this would likely violate the impartiality of the trustee. Instead,
the trustee should present both arguments as equally valid and let the court decide.”
Peter’s authorities are not persuasive. We do not understand how the musings of
two commentaries about what may “ordinarily” occur or not occur in probate court, or
what a trustee “should state” in a petition if he or she is “unsure” of something has any
application here, especially in light of the fact that an experienced probate law judge
thought Lucas’s petition appropriate. Nor do we understand how the short (one and
one-half page) decision in Security-First Nat. Bank v. Tracy, supra, 21 Cal. 2d 652,
supports Peter, especially in light of the actual holding of the Supreme Court, which was
this: “The trustee, at the time this proceeding was commenced, was faced with
conflicting demands threatening a possible double liability. It was entitled to judicial
instructions as to its duties under the trust agreement.” (Id. at p. 654.)
10
Judge Wiss’s Decision On the Petition Was Correct
Peter next contends that Judge Wiss’s conclusion as to the meaning of the James
Trust was error, a decision we review de novo. (Estate of Gross (1963) 216 Cal. App. 2d
563, 566 (Gross).)
Probate Code section 21102, subdivision (a)—another section relied on by Lucas,
another section ignored in Peter’s reply—mandates that “the intention of the transferor as
expressed in the instrument controls the legal effect of the dispositions made in the
instrument.” We thus begin with that instrument.
Section 6.3.1 of the James Trust provides as follows: “The Independent trustee
shall pay to or apply for the benefit of JAMES R. LILIENTHAL as much of the income
and principal of the trust as is necessary to provide for his and his spouse and issue’s
care, maintenance, support and education. In addition and at the request of JAMES R.
LILIENTHAL, the independent trustee in the independent trustee’s absolute discretion
may expend a portion of the principal of this trust to purchase all or make a down
payment on a residence for the use of JAMES R. LILIENTHAL and his family. Any
decision to expend income or principal or the amount of such expenditure under this
decree shall be in the sole and absolute discretion of the independent trustee, and the
family trustee, if one is serving, shall take no part in any such decision.”
As indicated from the above—and as Judge Wiss specifically noted—there is no
language in this section that the trustee must take into account other assets. Rather, it
directs the trustee to provide for James’s care, maintenance, support, and education
without qualification, and it allows, the trustee to pay or apply as much of the income and
principal of the trust in the trustee’s “sole and absolute discretion.” Put conversely,
nowhere does the trust restrict the trustee from making any distribution without taking
into account James’s other assets.
Peter claims the phrase “as is necessary” means that the trustee must take into
consideration James’s other income and resources before making any distributions from
the James Trust. Peter is mistaken.
To begin with, paragraph 6.3.1 simply does not say that.
11
Second, Peter’s contention is inconsistent with the usual understanding. As the
leading commentary notes, “When the terms of the trust require the trustee to pay to or
apply for the beneficiary so much as is necessary for maintenance or support, but fail to
provide whether the trustee is to take into account the beneficiary’s other resources, . . . .
[m]any cases, as well as the Restatement (Second) of Trusts, have concluded that the
usual inference ought to be that the settlor intended for the beneficiary to receive support,
even if the beneficiary has other resources.” (3 Scott and Asher on Trusts, supra,
§ 13.2.4, p. 828, fn. omitted, italics added.)
Third, and most significantly, the language of paragraph 6.3.1 is different from
other provisions in the estate plan, which provisions do expressly say that. For example:
The Exemption Trust provided that all income was to be paid to Frances, with the
principal to be paid for her support, maintenance, and care, “giving consideration to all
other income and resources known to the trustee then readily available for her to use for
such purposes.” (Italics added.)
Similarly, upon the death of Frances, the Exemption Trust was to be divided into
two equal shares, one for Peter and one for James. If Peter survived, his one-half was to
be distributed to him outright, but if he did not survive, but left a spouse, then his share
was to be held in trust for his spouse pursuant to paragraph 6.2. That paragraph provides
for use of income and principal and, as pertinent here, provides that “At such time or
times the independent trustee may pay to, or apply for the benefit of, the beneficiary or
any of them as much of the net income or principal of the trust as the independent trustee
deems advisable and proper for any of said purposes, giving such consideration as the
independent trustee deems proper to all other income and resources then readily
available to the beneficiary for use of such purposes . . . .” (§ 6.2.1, italics added.)
As indicated, paragraph 6.3 provided for the trust for James, and 6.3.1 addressed
circumstances “during the life of James . . . ,” which is what is involved here.
Paragraph 6.3.2 addressed the circumstances in the event James predeceased Frances or
died leaving a spouse and/or children. In those circumstances, “The trustee in the
trustee’s absolute discretion may use net income or principal of the trust when any
12
beneficiary is in need of funds to meet the reasonable expenses . . . . As such time or
times the trustee may pay to, or apply for the benefit of, the beneficiary as much of the
net income or principal of the trust as the trustee deems advisable and proper for any of
said purposes, giving such consideration as the trustee deems proper to all other income
and resources then readily available to the beneficiary . . . .” (Italics added.)
In sum, the provision for which Lucas sought instructions here contained no
language indicating the trustee had to take into account other assets. At least three other
trust provisions did.
The holding of our Division Three colleagues in Gross, supra, 216 Cal. App. 2d
563 is persuasive. The appeal there was by an income beneficiary of a trust, who
appealed from an order denying her petition to require the trustees to sell certain trust
property claimed by appellant to be unproductive of income. The Court of Appeal
affirmed. After quoting from various provisions in the trust—which provisions, like
those here, varied in their language—the Court of Appeal noted that “It seems apparent,
therefore, that in some instances the trustor intended to confer upon his trustees ordinary
discretion only, and in other instances he intended their discretion to be absolute.”
(Gross, supra, 216 Cal.App.2d at p. 567.) Applying that difference in language, the court
held that the trustee could refuse to do what he refused to do, analyzing the specific
language of the trust. That, of course, is precisely what Judge Wiss did here. And
properly so, especially in light of the settled rules of construction.
As noted, the transferor’s intention as expressed in the instrument controls the
disposition made by the instrument. (Prob. Code, § 21102, subd. (a); Newman v. Wells
Fargo Bank, N.A. (1996) 14 Cal. 4th 126, 134; Sefton v. Sefton (2012) 206 Cal. App. 4th
875, 884-885; Estate of Cairns (2010) 188 Cal. App. 4th 937, 947–948.) The words of the
instrument are to be interpreted in a way that can give “every expression some effect,”
rather than one that will render any expression inoperative. (Prob. Code, § 21220; Estate
of Goyette (2004) 123 Cal. App. 4th 67, 74; Estate of Simoncini (1991) 229 Cal. App. 3d
881, 889.) And all parts of the instrument are to be construed in relation to each other, to
“form a consistent whole.” (Prob. Code, § 21121; Newman v. Wells Fargo Bank, N.A.
13
supra, 14 Cal.4th at p. 134; Estate of Cairns, supra, 188 Cal.App.4th at p. 948; Estate of
Simoncini, supra, 229 Cal.App.3d at p. 889.)
Those rules demonstrate that Judge Wiss’s decision was correct. So, too, the
common understanding of the estate plan here.
Again, Scott is apt, with this observation: “Sometimes a testator leaves property
in equal shares to several relatives but provides that one share is to be held in trust and
that the trustee is to pay the income from that share to a particular relative. In such a
case, the inference may be that the testator intended to treat each of the relatives alike,
except to deny one of them the management and control of his or her share. The court
may also infer that the testator did not intend to limit the particular relative’s interest to a
life interest. Language requiring the trustee to pay the income to the beneficiary or use it
for the beneficiary’s support or authorizing the trustee to use the principal as far as
necessary for the beneficiary’s support does not necessarily rebut an inference that the
beneficiary has the entire beneficial interest.” (3 Scott and Asher on Trusts, supra,
§ 13.2.2, pp. 822-823, fn. omitted.)
Were Lucas restricted from making distributions to James because, in fact, he has
sufficient assets to support himself, James would not be treated equally as his brother
Peter, who has received the full enjoyment of his inheritance. Conversely—and
perversely—if Lucas can only make distributions to James that are necessary because he
has exhausted his other assets, James could be encouraged to impoverish himself in order
to obtain benefit from his Trust.
The James Trust provides in paragraph 6.3.4 that if James were to die without
spouse or issue, the trust assets would go to Peter (or his issue).5 But nowhere in the
5
The significance of which did not escape comment at the hearing below,
including this colloquy:
“MR. SKOOTSKY [Counsel for Peter]: And that brings me to another issue. We
hear in the papers and we hear twice in counsel’s presentation that the reason for kind of
bypassing the normal approach that’s used in these cases is because there’s been lengthy
and costly litigation between these siblings. And so—
14
record does it appear that the estate plan intended the principal of the James Trust to be
preserved for the purpose of ensuring that a remainder existed in order to make an
additional gift to Peter (or his daughter). In fact, the evidence is to the contrary: if James
were to die with a spouse and/or issue, the principal was to remain in trust for their
benefit until his spouse dies and his youngest child reaches the age of 25, and then is
distributed outright to James’s issue.
While we agree with Judge Wiss that Mr. Muhs’s declaration should not be
considered, we do have two observations about the last paragraph of his declaration,
which said this: “During my meeting with counsel on April 27, 2013 I was asked to
comment on the fact that the provisions of James’s trust, effective during his lifetime, do
not contain a specific direction to consider the beneficiaries’ other resources before
making distributions to James, his spouse and his issue, whereas the provisions of the
James’s trust, effective following the death of James, for the benefit of his spouse and
issue do require consideration of their other resources. I don’t have a specific
“THE COURT: In that regard, why does Peter care so much about whether the
trustee approves an education expense for James?
“MR. SKOOTSKY: Your Honor, Peter Lilienthal is—his only concern here is
that the wish of his father be upheld, that the trust be administered in accordance with his
parents’ wishes, or in this case his father’s wishes. This trust—as we have pointed out,
this trust makes provision for a spouse and for issue. And apparently James Lilienthal
has been on a lengthy trip to Vietnam, and I think he’s still there. And hypothetically if
he has a girlfriend in Vietnam, and he marries her, and he’s fully able to defeat Peter
Lilienthal’s wishes, and that would be okay with Peter, but that would be inconsistent
with what the trust says and what his parents’ wishes were.
“THE COURT: Does it have anything to do with the fact that he’s the residuary
beneficiary?
“MR. SKOOTSKY: Well, Your Honor, I can only answer, I would—I don’t think
that really has anything to do with why we’re here today, I mean, what’s before the
Court. He is—it’s almost silly to describe that as an important motivation of Peter
Lilienthal. We’re told that James Lilienthal has health problems. We’re told he has
cardiovascular disease, but not such that he can’t have a long trip to Vietnam. And
probably all of us, if we were tested, would have some degree of cardiovascular disease.
So in other words, Peter has no expectation whatsoever that he’s going to survive James.
That’s not a motivating factor at all.”
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recollection as to the reason for the difference in drafting, which was part of the terms of
the 1984 Will, but as drafting attorney I don’t believe that any difference was intended, in
view of the purpose of the trust as set forth above, and in view of the fact that James’s
spouse and issue are beneficiaries both during James’s lifetime (through James) and
thereafter.”
First, Mr. Muhs is a State Bar certified estate planner, whose declaration
acknowledges that the “difference in drafting” had been part of the estate plan since
1984. We would assume that a certified estate planner knows that such “difference in
drafting” must be given effect as, for example, Gross holds. Second, if the intent of his
client(s) was as Mr. Muhs would have it, presumably such planner would have observed
the different provisions—and made the paragraphs consistent. What we do know is that
Mr. Pelavin, the attorney who drafted the provisions (later apparently copied by
Mr. Muhs) deliberately chose to use different language. The only reasonable
interpretation is that Robert intended the tests to be different.
Peter relies primarily on two cases, cases his reply brief describe as “binding
Supreme Court precedent”: Estate of Ferrall (1953) 41 Cal. 2d 166 (Ferrall), and
Thomas v. Gustafson (2006) 141 Cal. App. 4th 34 (Gustafson). As Peter would have it,
“Ferrall sets forth a presumption (‘Ferrall presumption’) that the resources available to a
beneficiary outside of the trust must be taken into account by a trustee in the exercise of
the trustee’s discretionary power to make distributions.” Hardly.
As to Ferrall, it is probably enough to quote its holding as distilled by Gustafson:
“A trustee should consider a beneficiary’s other resources before making a distribution of
principal, unless the trust instrument itself shows another intent. (Estate of Ferrall
(1953) 41 Cal. 2d 166, 176–177.” (Gustafson, supra, 141 Cal.App.4th at p. 41.) Here, as
demonstrated above, the trust instrument “shows another intent.”
As to Gustafson, Judge Wiss found the case “easily distinguishable.” We cannot
improve much on her description of why, and we quote it here: “[T]he facts of Gustafson
are easily distinguishable. In Gustafson the decedent had a trust which provided that,
upon his death, the trust was divided between a survivor’s trust and a residual trust.
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Decedent had no children. His wife had one child by a prior marriage. The trial court
found that the wife’s survivor’s trust was intended to go to her daughter and the residual
was to go to the decedent’s heirs. The wife, as trustee, and subsequently her daughter as
successor trustee, used the entirety of the survivor’s trust to purchase and renovate a
building and then gifted the building to the wife and daughter as joint tenants. Once the
survivor’s trust was exhausted, the daughter looked to the residual trust to support her
mother’s care expenses. The trust document provided that the wife was entitled to
support from the income of the survivor’s trust, and then the residual trust. If the income
of the two trusts was insufficient for her support then the principal of the survivor’s trust
was to be used followed by the principal of the residual trust. The trust provided that the
trustee shall pay for the benefit of the spouse, such sums out of the principal of the trusts
“as are necessary”. The question before the trial court was whether the wife was entitled
to support from the principal of the residual trust when the building was still available to
her for her support. The trial court held that the assets of the building which should have
been in the survivor’s trust were to be used first before resorting to the principal of the
residual trust. The Court of Appeal affirmed. Peter argues that the phrase ‘as necessary’
therefore implies that in the case before us that the successor trustee must consider
James’s other assets. [¶] The same considerations are not present here.”
Denial of Attorney Fees Was Proper
Peter sought attorney fees below, which Judge Wiss denied on the basis that Peter
had vindicated no right, but instead only opposed, and unsuccessfully, Lucas’s petition
for instructions. Peter demonstrates absolutely no basis for any argument that he is
entitled to attorney fees. His claim was rightly rejected by Judge Wiss, a ruling we
affirm.
We close with the observation that Peter reminds us many times how the James
Trust is rather modestly funded, somehow lending support to his position as to the dire
consequences of Judge Wiss’s ruling. As Peter says at one point, “If the Trial Court’s
order is not reversed, the door will be wide open to distributions . . . without regard to
whether James has any actual need for such distributions. James’s personal estate under
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his control, which the Trustee believes has ‘significant assets,’ to the extent that he may
be a ‘multimillionaire,’ will be preserved at the expense of a relatively small trust, funded
in 2012 and 2013 with total assets valued at $427,623.” Coupled with this “concern” is
the theme repeated below, and here, that Peter is looking out for possible future
beneficiaries in the event James marries, as shown, for example, in the colloquy with
Judge Wiss in footnote 5
We need not get into the motivation for Peter’s vigorous resistance to Lucas’s
petition, as it is not pertinent to our decision here. What is pertinent is that Lucas is a
professional fiduciary who must conduct himself within the law, and thus will, before
making a distribution, consider what he should consider. (Probate Code § 16081.)
DISPOSITION
The order is affirmed. Lucas shall recover his costs on appeal.
_________________________
Richman, J.
We concur:
_________________________
Kline, P.J.
_________________________
Miller, J.
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