Fisher v. Fisher CA4/1 ( 2022 )

Filed 9/8/22 Fisher v. Fisher CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
TODD A. FISHER, D078019
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2017-
KENT N. FISHER et al., 00011505-PR-TR-CTL)
Defendants and Respondents;
CRONAN FORREST FISHER et al.,
Defendants and Appellants.
APPEAL from orders of the Superior Court of San Diego County, Julia
Craig Kelety, Judge. Affirmed.
Mazzarella & Mazzarella, Mark C. Mazzarella and E. Todd Trumper
for Plaintiff and Appellant.
Beamer, Lauth, Steinley & Bond and Stephen A. Bond for Defendants
and Appellants.
Van Dyke & Associates, Richard S. Van Dyke and Vincent J. Russo for
Defendants and Respondents.
Leonard Fisher drafted his trust so that, when viewed in isolation, it
would leave the bulk of his estate in unequal portions to his four sons, with
certain funds going to education and medical sub-trusts for his grandchildren
and heirs. But Leonard coordinated the drafting of his trust with the
drafting of his ex-wife Gale’s trust. Although her trust, when viewed in
isolation, would also leave their sons unequal portions, the two trusts when
viewed together would collectively leave the sons roughly equal gifts.
Leonard’s and Gale’s trusts were revocable and not legally binding on each
other.
When Leonard died before Gale in 2014, his trust was missing
significant anticipated assets, making it impossible to administer as written.
Accordingly, one son, Kent, brought a petition in 2017 seeking instructions to
liquidate its assets and use the proceeds to fund the sub-trusts and then
divide the remaining funds equally among the four sons. Another son, Todd,
then brought a petition seeking to delay administration of Leonard’s estate
until after Gale died so that their trusts could be administered together and
the sons would receive roughly equal portions collectively from their parents’
trusts (rather than equally from Leonard’s estate). Todd also argued Kent’s
petition was an untimely trust contest because it was not brought within 120
days of notice of Leonard’s death. (Prob. Code, § 16061.8.)1 The guardian ad
litem for Leonard’s grandchildren, who are beneficiaries under the education
and medical sub-trusts, sided with Kent and favored the immediate
distribution of trust assets and funding of the sub-trusts.
Following a bench trial in 2020, the probate court rejected Todd’s
untimeliness challenge, finding Kent’s petition was not a trust contest, but
rather, sought instructions on how to administer Leonard’s trust. The court
granted Kent’s petition in part and ordered the trustee to liquidate the trust’s
assets and distribute the proceeds equally among the four sons. The court
1 Further undesignated statutory references are to the Probate Code.
2
concluded that because the trust contained fewer assets than Leonard had
anticipated, the specific gifts to the sons’ portions would take priority over
the general gifts to the sub-trusts such that the latter would abate and go
unfunded.
Todd appeals, contending the probate court erred in finding Kent’s
petition was not an untimely trust contest, and exceeded its authority in
liquidating and evenly distributing Leonard’s trust assets. Neither
contention has merit. As we will explain, the probate court and all parties
agreed that unknown and unanticipated circumstances rendered Leonard’s
trust impossible to administer as written. Under the circumstances, the
probate court properly found Kent’s petition was not a contest, and the court
acted within its authority in modifying the trust as it did.
The guardian ad litem, attorney Stephen Bond, also appeals. He
maintains the probate court erred by classifying the sons’ portions as specific
gifts entitled to statutory priority over the general gifts to the sub-trusts,
rather than as residuary gifts subordinate to the sub-trusts. We disagree.
The probate court property classified Leonard’s gifts to the sons’ portions as
specific gifts because they gave specific property to specific people. (§ 21117,
subd. (a).) The court also properly applied the statutory order of abating gifts
(§ 21402), which was not overcome by any clear contrary intent of Leonard
(§ 21400).
Accordingly, we affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
Leonard Fisher (Leonard) and Gale Fisher Ostlind (Gale) were married
and had four sons together: Brittin, Todd, Kent, and Wade (who apparently
died after trial). Kent has one child; Brittin has three children; and Todd and
3
Wade have no children. Leonard and Gale divorced sometime before April
2014.
In April 2014, Leonard and Gale consulted the same attorney, Paul
McEwan, to update their respective estate plans.
A. Leonard’s Trust
On April 16, 2014 Leonard executed the Leonard F. Fisher Declaration
of Trust dated February 20, 2014 (Leonard’s Trust). Schedule A listed the
trust’s initial assets, which consisted of three pieces of real property,
“[v]arious bank accounts,” and a “United B Fund Account.” 2 Schedule B set
forth how those assets were to be distributed upon Leonard’s death.
1. Education Sub-trust
Paragraph 1 of Schedule B provided for the establishment and partial
funding of a sub-trust “for the educational benefit” of Leonard’s
grandchildren (the Education Sub-trust). This paragraph directed the
trustee to “set aside assets with a total value of . . . $300,000,” to be derived
from a “one-third (1/3) interest in [a $900,000] Promissory Note to be created”
in connection with the division of Leonard’s remaining estate among his sons.
Paragraph 1 further stated that “[i]t is anticipated that an additional . . .
$250,000 from the estate of [Gale] will be added to this trust at the time of
her demise.”
2. Medical Sub-trust
Paragraph 2 of Schedule B provided for the establishment and funding
of a sub-trust “for the catastrophic medical care and health needs” of all of
Leonard’s issue. This paragraph directed the trustee to “set aside the sum
of . . . $550,000,” to be derived from $250,000 from the United B Fund and
2 The appellate record contains a handwritten spreadsheet that appears
to show the estimated value of each item in Leonard’s and Gale’s respective
estates at the time their trusts were prepared (the Spreadsheet).
4
$300,000 from the $900,000 promissory note to be created in connection with
the division of Leonard’s remaining estate among his sons.
3. The Four Portions
Paragraph 3 of Schedule B directed that, “[a]fter the [Education and
Medical Sub-trusts] have been established, . . . the Trustee shall divide the
remaining assets to be disposed of under . . . Schedule ‘B’ into four . . .
separate portions.”3 Paragraph 3 continues, “Each of the four . . . separate
portions shall contain the assets specified below.”
The four portions are summarized as follows:
Portion 1:
• 100% interest in a duplex on Island Ct.;
• $50,000 in cash; and
• 50% interest in the United B Fund.4
Portion 2:
• 50% interest in Leonard’s bank accounts;5 and
• One-third interest in the $900,000 promissory note payable by
the recipient of Portion 4.
3 Paragraph 3 of Schedule B states in part: “After the trust specified in
paragraphs 1. and 2. above have been established, and after the payments of
any federal estate taxes and other costs incurred in the settlement of the
estate of the Trustor have been made, the Trustee shall divide the remaining
assets to be disposed of under this Schedule ‘B’ into four (4) separate portions
using values as of the date of the demise of the Trustor, after deducting any
federal estate tax and other costs incurred in the settlement of the estate of
the Trustor, and after establishing a reserve cash account in an amount to be
determined by the Successor Trustee to cover any expenses of the estate that
might occur after the establishment of the four (4) separate portions.”
4 According to the Spreadsheet, the United B Fund had an estimated
value of $500,000.
5 According to the Spreadsheet, Leonard had about $200,000 in his bank
accounts.
5
Portion 3:
• 100% interest in real property on Coast Blvd.; and
• 100% interest in a duplex on Isthmus Court.
Portion 4:
• 50% interest in Leonard’s bank accounts; and
• 100% liability on a new $900,000 promissory note payable by
the recipient of Portion 4 in equal parts to the Education Sub-
trust, the Medical Sub-trust, and the recipient of Portion 2.
It is undisputed that these portions, in isolation, were unequal in value
when Leonard prepared his trust. According to the Spreadsheet, Portion 1
was worth $587,300; Portion 2 was worth $400,000; Portion 3 was worth
$1,659,000; and Portion 4 was worth negative $800,000.
Paragraph 4 of Schedule B specified that each of the four sons was to
receive one of the four specified portions.6 Paragraph 5 provided that the
assignment of portions to sons was to be determined by drawing numbered
straws, unless straws had already been drawn under Gale’s trust, in which
case the portion numbers assigned by that drawing would similarly apply to
the numbered portions in Leonard’s Trust.
B. Gale’s Trust
Two days after Leonard executed his trust, Gale executed “Amendment
No. 2 to the Gale B. Fisher Ostlind Trust [formerly known as the Gale B.
Fisher Trust] dated April 17, 1997” (Gale’s Trust).
As with Leonard’s Trust, Schedule A to Gale’s Trust set forth the
trust’s initial assets, which included two residences, two commercial
properties, a farm in Illinois, unimproved real property in Oregon and
Nevada, “[v]arious cash accounts,” and “[v]arious securities accounts.” Also
6 Paragraph 4 limited Brittin’s access to his share of trust assets if his
unsecured debts exceeded a certain threshold.
6
as with Leonard’s Trust, Schedule B to Gale’s Trust set forth how those
assets were to be distributed upon Gale’s death.
Paragraph 1 directed the trustee to “distribute securities with a value
of . . . $250,000” to the Education Sub-trust established under Leonard’s
Trust.
Paragraph 2 mirrored the provision in Schedule B to Leonard’s Trust
providing for the division of remaining assets into four separate portions.
The four portions are summarized as follows:
Portion 1:
• 100% interest in a residence on Harbor View Drive;
• 100% interest in a residence in Indian Wells;
• 100% interest in the Illinois farm;
• 10% interest in Gale’s securities accounts; and
• 100% interest in the Oregon and Nevada properties.
Portion 2:
• 100% interest in commercial real property on Lincoln Avenue
in San Rafael.
Portion 3:
• 100% interest in Gale’s cash accounts; and
• 90% interest in Gale’s securities accounts.
Portion 4:
• 100% interest in commercial real property on 4th Ave. in San
Rafael.
It is undisputed that these portions, in isolation, were unequal in value
when Gale prepared her trust. According to the Spreadsheet, the estimated
value of Portion 1 was $1,655,000; Portion 2 was $1,900,000; Portion 3 was
$550,000; and Portion 4 was $3,100,000.
Schedule B to Gale’s Trust also mirrored the provisions in Schedule B
to Leonard’s Trust with respect to designating their four sons as beneficiaries
7
and assigning them portions by drawing straws (unless straws had already
been drawn under Leonard’s Trust, in which case the portion numbers
assigned by that drawing would similarly apply to the numbered portions in
Gale’s Trust).
Although unequal when considered separately, the corresponding
portions in Schedule B to Leonard’s and Gale’s respective trusts were roughly
equal when combined. Thus, per the Spreadsheet, the estimated value of the
combined Portion 1’s was $2,242,300; Portion 2’s was $2,300,000; Portion 3’s
was $2,209,000; and Portion 4’s was $2,300,000.
C. Leonard’s Death, Drawing Straws and the Competing Petitions
On June 13, 2014, about two months after he executed his trust,
Leonard died. Todd began serving as successor trustee of Leonard’s Trust,
and served interested parties with a notice under section 16061.7 that the
trust had become irrevocable.
In July 2014, Leonard’s sons drew straws, which resulted in the
following portion assignments: Kent was assigned Portion 1; Wade was
assigned Portion 2; Todd was assigned Portion 3; and Brittin was assigned
Portion 4.
1. Kent’s Petition
More than three years after Leonard’s death, in September 2017, Kent
filed a petition to (1) remove Todd as trustee; and (2) obtain “instructions to
[the] trustee re[garding] proposed distributions and funding of sub-trusts.”
Only the latter aspect is at issue in this appeal.
In his petition, Kent “request[ed] that the Court modify or terminate
[Leonard’s] Trust” because its “terms . . . as written are impossible to
8
administer.”7 Kent alleged the trust had become impossible to administer
because the anticipated funding sources for the Education and Medical Sub-
trusts were unavailable. Specifically, each sub-trust was to receive $300,000
from the $900,000 promissory note to be created by the recipient of Portion 4.
However, because the recipient of Portion 4 would receive from Leonard’s
estate only an $800,000 liability, Kent alleged “it is highly probable that the
son receiving Portion 4 will disclaim the ‘gift’ of the Promissory Note liability
or disclaim the entire gift encompassed within Portion 4.”
Additionally, although the Medical Sub-trust was to be funded with an
additional $250,000 from Leonard’s United B Fund, Kent alleged “the United
B Fund Account was not a Trust asset at the time of death, so it likewise
cannot be used to fund the Medical . . . Sub-trust.”
Kent alleged that, without the promissory note and United B Fund, the
assets in Leonard’s Trust at the time of death consisted of about $167,000 in
cash accounts and three real properties valued at about $3.5 million. 8 Given
that the trust’s assets were “substantially different” than Leonard
anticipated, Kent alleged the trust “is clearly a defective Trust that should be
modified by the Court under Probate Code section 15409.”
As for how to modify the trust, Kent alleged Leonard “intended to
equally benefit his children after the distribution of [Leonard’s] Trust assets
and after the death of and distribution of assets from . . . Gale.” But Kent
7 Kent alleged he had requested that Todd, as trustee, file a petition for
instructions. Todd did not do so.
8 Kent’s estimate of the property values as of Leonard’s death is
consistent with the estimated values of those properties on the Spreadsheet
as of the time Leonard’s Trust was prepared. Kent’s estimate, however, does
not reflect that the Spreadsheet indicates the three properties had mortgage
debt totaling $1,553,700, leaving equity of $1,946,300.
9
advised that Gale had “already changed her Trust assets by deeding one of
her Portion 1 assets [assigned to Kent by virtue of drawing straws under
Leonard’s Trust] valued at $1.6 million to Wade,” which not only undermined
Leonard’s intent but would also “presum[ably]” render Gale’s trust
administration “similarly defective.” “Because [Leonard]’s intent was to
benefit his sons equally after the death of both Leonard and Gale, and
[because] the terms of the Trust cannot be administered as intended,” Kent
requested that the court “instruct the Trustee to sell the real properties and
us[e] the sales proceeds” to fund the Education and Medical Sub-trusts, with
the “remaining Trust assets [to] be distributed equally between the four
sons.”
Todd, as trustee, objected to Kent’s petition as it related to removing
and replacing Todd. As relevant here, Todd elaborated on what became of
Leonard’s United B Fund. Todd explained “it was discovered [after Leonard’s
death] that the United B Fund named Leonard’s four sons as beneficiaries
instead of the Trust, resulting in direct distribution of the fund to his sons
with each of them receiving $165,000 . . . .” Todd acknowledged that
“[b]ecause the United B Fund was not distributed to the Trust, the
distribution plan in the Trust became impossible to carry out as written . . . .”
2. Todd’s Petition
In March 2018, about six months after Kent filed his petition, Todd (in
his capacity as trustee) also filed a “petition for instructions re[garding]
distribution of trust assets or for modification of trust.”
Todd reiterated that, by virtue of the United B Fund not being included
as a trust asset, “part of the distribution plan in the Trust became impossible
to carry out as written.” Todd also acknowledged it was unlikely the
recipient of Portion 4 would undertake the liability of a $900,000 promissory
10
note until after Gale died, at which time a commercial real property in San
Rafael would be distributed to the Portion 4 recipient. Thus, Todd concluded
the sub-trusts and a portion of Portion 1 “cannot be funded as required.”
Under the circumstances, Todd argued the court had statutory and
equitable authority to modify the trust to implement Leonard’s intent. To
achieve this, Todd proposed (among other things) delaying funding the sub-
trusts and creating the $900,000 promissory note until after Gale’s death and
distribution of her estate in accordance with her trust.
Kent objected to Todd’s petition. Kent noted that he “and Todd (and
presumably the other two brothers) agree on one thing, namely that it is
impossible to administer and distribute [Leonard’s] Trust in accordance with
its provisions . . . .” But Kent objected that Todd’s proposed modifications
were “self-serving, indefinite and very likely unworkable.” Kent cited the fact
Gale was not legally obligated to coordinate her trust with Leonard’s and, in
fact, had already acted inconsistently with a coordinated distribution by
giving Wade a piece of real property that her trust specified was to go to
Portion 1, which was assigned to Kent by drawing straws under Leonard’s
Trust.
Bond, the guardian ad litem, also filed a report in response to Todd’s
Petition. Bond opined “Leonard’s Trust is plagued by three false
assumptions:” (1) that the United B Fund would be a trust asset, (2) the
“assumption that a source for payment of a $900,000 note would be provided
by Gale’s Trust”; and (3) the “larger assumption that the two trusts . . . would
continue to act together as a cohesive plan, which assumption was
“undermined by the fact that apparently Gale has already modified the
distribution of her trust through a substantial lifetime gift that is
inconsistent with the plan the two trustors appear to have had in 2014.”
11
Bond opposed Todd’s request to delay funding the sub-trusts (of which Bond’s
wards were beneficiaries) and “any coordination with Gale’s Trust.” Instead,
he proposed “moving forward to complete the administration of Leonard’s
Trust, on its own terms.” Bond stated he “would interpret Leonard’s Trust
consistent with Kent’s Petition . . . .”
3. Todd’s Individual Filings
After a May 2019 evidentiary hearing, the probate court suspended
Todd as trustee and appointed a professional fiduciary to act as trustee.
Todd thereafter filed several documents in his individual capacity.
First, Todd filed a joinder in the earlier petition and objection he had
filed as trustee.
Second, he filed a proposed petition in intervention seeking similar
relief as in his original petition as trustee. Additionally, he sought a judicial
declaration that Kent’s petition constituted a “contest” to Leonard’s Trust
that (a) violated a no contest clause in the trust such that Kent’s interest
under the trust should be “revoked,” and (b) was “barred by the statute of
limitations” because it was filed more than 120 days after service of
appropriate notice of Leonard’s death and the trust thus becoming
irrevocable. Todd continued to recognize that “part of the distribution plan in
[Leonard’s] Trust became impossible to carry out as written since the
[United] B Funds are now unavailable to fund the Medical Sub-Trust and
Portion 1,” which “was and is an unforeseen circumstance related to
administration of [Leonard’s Trust].” He further continued to acknowledge
that “the Court in this case has [statutory and equitable] authority to modify
the terms of Leonard’s Trust in order to carry out the purpose that Leonard
intended.”
12
Third, Todd filed a petition in his individual capacity seeking (1) to
remove the professional fiduciary as trustee and to restore Todd to that role;
(2) an “order for distribution that comports with the intent of” Leonard’s
Trust; and (3) a declaration that Kent’s Petition constitutes a contest that
“has not been filed timely.”9 Todd continued to allege that “the Court in this
case has [statutory and equitable] authority to modify the terms of Leonard’s
Trust in order to carry out . . . Leonard’s intent.”
Kent objected to Todd’s petition. Kent reiterated that he “and Todd
(and presumably the other two brothers) agree . . . that it is impossible to
administer and distribute” Leonard’s Trust as written, but they “vastly”
disagree “as to how best to give effect to Leonard’s testamentary intentions.”
Kent argued his petition “is not a contest or attack on the Trust. Instead,
just as Todd has done with his current petition, Kent has sought an
instruction to the trustee . . . to resolve the disputes that have arisen over the
interpretation and administration of the Trust due to the impossibility of
carrying out the terms of the Trust as drafted.”
Bond filed a report “favor[ing] the denial of Todd’s Petition.” Based
again on the “false assumptions” underlying Leonard’s Trust, Bond urged the
court to order the immediate funding of the Education and Medical Sub-
trusts with other trust assets, and then to distribute the remainder of
Leonard’s Trust assets in equal shares to the four sons. Bond disagreed with
Todd that Kent’s petition constituted a “contest” because it did “not seek to
invalidate any term of Leonard’s Trust,” but rather, “it seeks only to identify,
and offer potential remedies for, problems arising in the construction and
administration of Leonard’s Trust, as written.”
9 The appellate record does not make clear the relationship between
Todd’s proposed petition in intervention and his later petition.
13
D. Trial
The probate court set Kent’s petition and Todd’s original petition (plus
the statute-of-limitations issue raised in his later filings) for trial to be held
in August 2020. No witnesses testified at the trial; instead, the court
reviewed the parties’ petitions, trial briefs, and exhibits (primarily trust
documents).10
The court began by announcing its tentative ruling was not to fund the
Education or Medical Sub-trusts, and to sell the trust’s remaining assets and
distribute the proceeds equally among Leonard’s four sons. The court
reasoned that because Leonard’s Trust had insufficient assets to satisfy all of
its intended gifts, the gifts would “abate” in the order specified in section
21402. As relevant here, “residuary gifts” abate before “general gifts,” which
abate before “specific gifts.” (§ 21402, subd. (a)(4), (6).) The court found the
Education and Medical Sub-trusts were general pecuniary gifts, and that the
four portions were specific gifts because they assigned specific real properties,
bank accounts, or promissory note proceeds to specific people. The court
noted it was “tempting to call the portions residuary gifts” because Leonard’s
Trust stated they were to be given “after” the sub-trusts were established.
But the court found this “timing is just incidental,” and the specific character
of the portions prevailed. Applying the statutory order of abatement, the
court tentatively ruled the sub-trusts (as general gifts) would abate before
the four portions (as specific gifts).
10 Brittin and Wade appeared at trial but did not actively participate.
Wade stated he was “just trying to stay out of the case” and “ha[s] no feelings
on it at this point.” Brittin stated that his “big issue” was disputing Todd’s
claim that “Leonard never wanted the kids to sell the property.”
14
The court noted there was also an “ademption issue” because neither
the United B Fund nor the proceeds of the $900,000 promissory note were
part of the estate, “so those assets would adeem and wouldn’t be considered.”
Setting aside Leonard’s “pretty large misapprehension” about his trust
being administered with Gale’s, the court found that “the evidence before the
court . . . in the trust is that he [was] doing his best, although not in a
particularly effective manner, to come up with a way that all four kids would
come out . . . pretty equal.” To achieve that end, the court tentatively found it
was in the best interest of the estate that the “specific gifts . . . be liquidated
so that they can be distributed equally.”
After hearing extensive argument on behalf of Kent, Todd, and Bond,
the court confirmed its tentative ruling and stated it would issue a written
order.
Todd’s counsel then raised the statute of limitations issue, which the
court had not yet addressed. The court rejected the claim, explaining (in
part) Kent’s petition “wasn’t a challenge to the trust[,] [i]t was the request
that the court interpret the trust.” (Italics added.) The court added, “to have
a contest, you have to have an absence of probable cause,” and “there is
plenty of probable cause to be trying to modify this trust.”
E. The Appealed-From Orders
On August 4, 2020, the court issued two virtually identical minute
orders—one denying Todd’s petition, the other granting Kent’s petition in
part. The orders confirmed the court’s finding that the gifts to the sub-trusts
were general gifts; the bulk of the gifts to the four portions were specific, not
residuary, gifts;11 and, thus, the gifts to the sub-trusts abate.
11 The court found the gift of $50,000 cash to Portion 1 was a general gift.
15
“As to the interpretation of how the specific assets should be
distributed in light of the myriad problems with the estate plan,” the court
stated it was “guided by the Trustor’s intent as set forth in the Trust,” as
informed by “consider[ation] of all parts of the Trust in relation to each other
to form a consistent whole.” In discerning Leonard’s intent, the court stated
it was “mindful of certain facts that were not known to [him] in coming up
with his estate plan, i.e., (1) that certain assets named in the portions would
be unavailable; (2) that his ex-wife’s estate planning decisions were subject to
change after his death and could not legally be used to affect his estate plan,
and (3) that real property would have to be sold to make distribution
equitable among the beneficiaries of his specific gifts.” Based on these
principles, the court found that, although Leonard “had various goals, some
of which were unattainable,” his “overarching goal was to create a plan that
treated his sons equitably, but he erred in thinking that he could incorporate
his ex-wife’s assets as crucial parts of the plan.”
Accordingly, “the court conclude[d] that (1) the subtrusts should not be
funded; and (2) the net Trust estate shall be distributed as residue, in equal
shares to the four children of the Trustor.” To achieve this, the court directed
the trustee to “sell all Trust real property forthwith.”
Todd and Bond appeal from both orders.
DISCUSSION
II. TODD’S APPEAL
A. Kent’s Petition Was Not an Untimely Trust Contest
Todd contends the probate court erred by denying his request for a
judicial declaration that Kent’s petition was untimely under section 16061.8
because it was not filed within 120 days of the trustee’s notice. Todd argues
the court “applied the wrong standard by inserting a ‘probable cause’ element
16
into the” determination of whether Kent’s petition constituted a “contest” for
purposes of section 16061.8. Todd maintains probable cause is irrelevant to
that determination and is relevant only when a beneficiary is defending
against a petition to disinherit that beneficiary for violating a no contest
clause. (See § 21311, subd. (a)(1) [providing that a “no contest clause shall
only be enforced against” a “direct contest that is brought without probable
cause,” italics added; § 21310, subd. (a) [defining “ ‘Contest’ ”].)
We need not resolve the issue of first impression of whether section
21310’s definition of contest applies to section 16061.8 because, as we will
explain, although the probate court referenced probable cause in its ruling,
the ruling did not rest on that rationale. Instead, the probate court found
more generally that Kent’s petition was not a contest because he was merely
seeking instruction from the court on how to interpret a trust that all the
parties acknowledged had become impossible to administer as written. On
the record before us, we reach the same conclusion.
1. Background
Leonard’s Trust contains a no contest clause that purports to disinherit
“any beneficiary” who “should in any manner, directly or indirectly, contest or
attack th[e] Trust or any of its provisions.”
Todd sought a judicial declaration that Kent’s petition constituted a
contest to Leonard’s Trust that was both time-barred and resulted in a
forfeiture of Kent’s right to receive anything under the trust.
At trial, the probate court denied Todd’s requested relief with the
following explanation:
“I know you made this pitch for that, and I reject that
suggestion. Since the first day this case has been before
the Court, we have been trying to figure out what this trust
means. To have a contest, you have to have an absence of
probable cause. Believe me, there is plenty of probable
17
cause to be trying to modify this trust. This is the trust—
everybody saying to the court, help us figure it out. And,
obviously, there is plenty of probable cause for that. It
wasn’t a challenge to the trust. It was the request that the
court interpret the trust. So we are not implicating the no
contest clause and we are not implicating the statute of
limitations.” (Italics added.)
2. Legal Principles
(a) Statute of Limitations
“A trustee must serve a notification to the beneficiaries and heirs when
a revocable trust becomes irrevocable after the settlor of the trust dies.
(§ 16061.7, subd. (a)(1).)” (Bridgeman v. Allen (2013) 219 Cal.App.4th 288,
293 (Bridgman).)
“Section 16061.8 sets forth the applicable statute of limitations for
petitions that contest a trust.” (Bridgman, supra, 219 Cal.App.4th at p. 293.)
This statute provides in part: “No person upon whom the notification by the
trustee is served . . . may bring an action to contest the trust more than 120
days from the date the notification by the trustee is served upon him or
her . . . .” (§ 16061.8.) The relevant portion of the Probate Code does not
define what it means for “an action to contest a trust.” (§ 16061.8, italics
added.)
The courts, however, have stated that in “determining whether [a
petition] constitutes an action to contest [a] trust within the purview of
section 16061.8, we look to the substance of that petition and its ‘practical
effect.’ We are not bound by its label.” (Estate of Stoker (2011) 193
Cal.App.4th 236, 241 (Stoker).) “[A]n action challenging the validity of [a]
trust” (ibid.) or seeking to “thwart or nullify or unravel the testator’s express
wishes” may be considered a contest (Estate of Davies (2005) 127 Cal.App.4th
1164, 1175; see Stoker, at p. 240 [finding that a petition to probate a will was
18
a trust contest where the will was executed after the trust at issue and would
have completely revoked and replaced the trust]; Giammarrusco v. Simon
(2009) 171 Cal.App.4th 1586, 1601 (Giammarrusco)).
But a petition that does not question the validity of a trust, but rather,
seeks only to determine and implement the trustor’s express wishes—such as
a petition asking the court to construe an ambiguous passage within the
trust—is not a contest. (Giammarrusco, supra, 171 Cal.App.4th at p. 1602;
see Estate of Black (1984) 160 Cal.App.3d 582, 588 [“Numerous cases hold
that . . . a petition seeking construction or interpretation of a will is [not] a
‘contest,’ although such proceedings might result in invalidation of certain of
the will’s provisions.”].)
“ ‘[T]he answer cannot be sought in a vacuum.’ ” (Burch v. George
(1994) 7 Cal.4th 246, 254 (Burch).) Rather, it will depend “upon the
individual circumstances of the case and the language of the particular
instrument.” (Dae v. Traver (2021) 69 Cal.App.5th 447, 461 (Dae)).
(b) Probable Cause
Historically, a no contest clause could be enforced against either a
direct or indirect contest to a will or trust. (See Donkin v. Donkin (2013) 58
Cal.4th 412, 422-423 (Donkin).) “A ‘direct contest’ was defined as a pleading
in a court proceeding that alleged ‘the invalidity of an instrument or one or
more of its terms’ based on 10 specified grounds, including . . . revocation,
lack of capacity, fraud, undue influence, lack of due execution, and forgery.”
(Id. at p. 423.) “An ‘ “[i]ndirect contest” ’ was defined as a pleading ‘that
indirectly challenges the validity of an instrument or one or more of its terms
based on any other ground not contained in [the statutory list of direct
contests].’ ” (Ibid.)
19
After the law governing no contest clauses had become increasingly
complex over several decades, the Legislature simplified the regulatory
regime effective January 1, 2010 so that, now, “a no contest clause will only
be enforced against a pleading that challenges certain property transfers, a
creditor’s claim, or ‘[a] direct contest that is brought without probable cause.’ ”
(Urick v. Urick (2017) 15 Cal.App.5th 1182, 1193, quoting § 21311, subd.
(a)(1), italics added;12 see Key v. Tyler (2019) 34 Cal.App.5th 505, 516 (Key);
Donkin, supra, 58 Cal.4th at pp. 425-426.) The new legislation “preclude[s]
the enforcement of no contest clauses against an ‘indirect’ contest.” (Key, at
p. 516; Donkin, at p. 424; see Giammarrusco, supra, 171 Cal.App.4th at
p. 1615.)
New section 21310 provides: “As used in this part: [¶] (a) “ ‘Contest’”
means a pleading filed with the court by a beneficiary that would result in a
penalty under a no contest clause, if the no contest clause is enforced.”
(§ 21310, subd. (a).)13 It defines a “Direct contest” as a “contest based on
certain specified grounds, such as forgery, lack of due execution or capacity,
duress, fraud, or undue influence. (§ 21310, subd. (b)(1)-(6).)
12 Section 21311, subdivision (a) states: “A no contest clause shall only be
enforced against the following types of contests: [¶] (1) A direct contest that is
brought without probable cause. [¶] (2) A pleading to challenge a transfer of
property on the grounds that it was not the transferor’s property at the time
of the transfer. A no contest clause shall only be enforced under this
paragraph if the no contest clause expressly provides for that application. [¶]
(3) The filing of a creditor’s claim or prosecution of an action based on it. A
no contest clause shall only be enforced under this paragraph if the no
contest clause expressly provides for that application.”
13 Section 21310 is in part 3 of division 11 of the Probate Code. Section
16061.8 is in part 4 of division 9 of the Probate Code.
20
(c) Standard of Review
“The applicability of a statutory standard to undisputed facts and
questions of statutory interpretation are questions of law that are reviewed
de novo.” (Estate of Wilson (2012) 211 Cal.App.4th 1284, 1290.) Similarly,
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.” (Burch, supra, 7 Cal.4th at p. 254; see Key, supra,
34 Cal.App.5th at p. 540.)
3. Analysis
Based on our de novo review, we conclude the probate court properly
found Kent’s petition was not a contest subject to 16061.8’s 120-day
limitation period.
Preliminarily, we reject the factual premise on which Todd bases his
claim that the probate court “applied the wrong standard by inserting a
‘probable cause’ element [from section 21311] into the statute of limitations
[in section 16061.8].” Although the probate court referenced probable cause
when explaining its finding that Kent’s petition did not constitute a contest
for statute of limitations purposes, the court’s ruling rests more generally on
the finding that Kent’s petition was not a contest because—in the probate
court’s words—it “wasn’t a challenge to the trust,” it was a “request that the
court interpret [a] trust” that the parties acknowledged had become
impossible to administer as written. (Italics added.)14 Based “upon the
14 Even if the probate court applied the wrong legal standard, we would
nonetheless affirm because we independently reach the same conclusion as
the probate court even without considering whether Kent had probable cause
to bring his petition. (See Blech v. Blech (2018) 25 Cal.App.5th 989, 999
(Blech) [“On appeal, we review the probate court’s ruling, not its reasons, and
affirm if the ruling is correct albeit the reasons are not; we also resolve any
ambiguities in favor of affirmance.”].)
21
individual circumstances of the case and the language of the particular
instrument” (Dae, supra, 69 Cal.App.5th at p. 461), we agree.
The probate court and the parties universally recognized Leonard’s
Trust had become impossible to administer as written because (at a
minimum) the United B Fund—on which the partial funding of the Medical
Sub-trust and Portion 1 depended—was not a trust asset as Leonard had
anticipated it would be. Indeed, Todd acknowledged in three probate court
filings that the “distribution plan” in Leonard’s Trust “became impossible to
carry out as written.” (See Donkin, supra, 58 Cal.4th at p. 434 [“even the
successor trustees’ own arguments make it plain that the issue in dispute is
the proper interpretation of ambiguous provisions of the [trust]”].) Thus, the
parties agreed the trustee needed instruction from the court on how to
overcome the trust’s funding failures.
Yet, Kent did not immediately petition the court for instructions.
Instead, he urged Todd—the trustee—to do so. It was only after Todd did not
do so that Kent eventually filed his petition.
Todd objected to Kent’s petition, but not on the ground it constituted a
contest to Leonard’s Trust.
For his part, Todd eventually filed several petitions also seeking
instructions from the court regarding distribution of estate assets. Surely,
Todd does not contend his own petitions constitute contests to Leonard’s
Trust.
It was not until Todd filed his proposed petition in intervention—about
two years after Kent filed his petition—that Todd finally characterized Kent’s
petition as a trust contest. The probate court could reasonably have inferred
Todd viewed Kent’s petition as a request for instructions until he believed he
22
could gain a litigation advantage by changing his characterization of the
petition.
Under these circumstances, Kent’s petition did not (in the language of
Leonard’s Trust) “directly or indirectly . . . contest or attack” the Trust or any
of its provisions. Rather, it sought instruction from the court on how to
administer a trust that had become impossible to administer as written. (See
Donkin, supra, 58 Cal.4th at p. 434 [“[D]isputes over the interpretation of
instruments were not ordinarily seen as violating a no contest clause.
‘Rather than thwarting the testator’s dispositive intent, the proceeding serves
to ascertain and enforce that intent,’ ” italics added]; Estate of Black, supra,
160 Cal.App.3d at p. 588 [“a petition seeking construction or interpretation of
a will is [not] a ‘contest’ ”].)
Todd maintains Kent’s petition was a contest because “Kent called the
‘terms of the Trust’ impossible . . . .” They were! And Todd repeatedly said
the same thing in his own court filings. Acknowledging this reality did not
mean Kent—or Todd—was contesting or attacking Leonard’s Trust.
Todd also argues Kent’s petition is a contest because it “specifically
asked the court to ‘terminate the Trust.’ ” (Italics added.) In a vacuum, this
sounds somewhat like a “contest” or “attack.” But context reveals the
“practical effect” (Stoker, supra, 193 Cal.App.4th at p. 241) of Kent’s petition
was to seek instruction and clarification, rather than termination.
The word “terminate” appears only three times in Kent’s petition—all
within nine lines of each other; all in the prefatory paragraphs of the section
seeking “instruction”; always as an alternative to “modify[ing]” the trust; and
nowhere in the prayer for relief. Not coincidentally, Kent’s alternative
references to modifying or terminating the trust mirror the language of
section 15409, which authorizes a court to “modify the administrative or
23
dispositive provisions of [a] trust or terminate the trust” under appropriate
circumstances. (§ 15409, subd. (a), italics added.) Thus, although the word
“terminate” appears in Kent’s petition, the practical effect of the petition was
to seek instruction or clarification on how to deal with a trust that had
become impossible to administer as written. (See Donkin, supra, 58 Cal.4th
at pp. 433-434 [“the beneficiaries’ claims, although sometimes couched in
terms suggesting they are arguing the validity of [a trust amendment], at
bottom seek an interpretation of the [trust] instrument, rather than to void
any portion of it or to set aside its distributive plan”].)
B. The Probate Court Acted Within Its Authority
Although Todd repeatedly invoked the probate court’s statutory and
equitable authority to modify Leonard’s Trust, he now contends the court
exceeded its authority in doing so.15 We disagree.
1. Legal Principles
Under section 15409, subdivision (a), a court has authority to “modify
the . . . dispositive provisions of [a] trust or terminate the trust if, owing to
circumstances not known to . . . and not anticipated by the settlor, the
continuation of the trust under its terms would defeat or substantially impair
the accomplishment of the purposes of the trust.” (See Schwan v. Permann
(2018) 28 Cal.App.5th 678, 696-697 (Schwan).)
A court also has the “equitable power . . . to modify a trust under
‘peculiar’ or ‘exceptional’ circumstances where necessary to accomplish the
purpose of the trustor(s) as expressed in the trust instrument.” (Ike v.
Doolittle (1998) 61 Cal.App.4th 51, 80 (Ike), italics omitted; see Schwan,
supra, 28 Cal.App.5th at p. 697 [“ ‘ “California courts have long had the
15 Neither Kent nor Bond have raised any estoppel or forfeiture
arguments based on Todd’s inconsistent positions.
24
equity power to modify the terms of a trust where such modification is
necessary to preserve the trust or serve the original intentions of the
trustor . . . .” ’ ”]; Trolan v. Trolan (2019) 31 Cal.App.5th 939, 956 [“The court
can alter administrative provisions of the trust under ‘ “peculiar” or
“exceptional” circumstance[s]’ where necessary to accomplish the purpose of
the trustor.”].) A trial court’s exercise of its equitable powers is reviewed for
abuse of discretion. (City of Barstow v. Mojave Water Agency (2000) 23
Cal.4th 1224, 1256 (Barstow); In re Marriage of Shimkus (2016) 244
Cal.App.4th 1262, 1272.)
“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.” (Burch, supra, 7 Cal.4th at p. 254; see Key, supra, 34
Cal.App.5th at p. 540.) “The paramount rule in construing [a] trust is to
determine the trustor’s intent from the whole of the instrument and in
accordance with applicable law.” (Estate of O’Connor (2018) 26 Cal.App.5th
871, 878; § 21102, subd. (a); Dae, supra, 69 Cal.App.5th at p. 465 [“The intent
of the trustor controls.”].) “In interpreting . . . a trust, it is proper for the trial
court in the first instance and the appellate court on de novo review to
consider the circumstances under which the document was made so that the
court may be placed in the position of the . . . trustor whose language it is
interpreting . . . .” (Wells Fargo Bank v. Marshall (1993) 20 Cal.App.4th 447,
453 (Marshall); see Ike, supra, 61 Cal.App.4th at p. 73.)
“Particularly in the field of interpreting trusts and wills, each case
depends upon its own peculiar facts, and ‘ “precedents have comparatively
small value.” ’ ” (Marshall, supra, 20 Cal.App.4th at p. 453.)
25
2. Analysis
Although it is unclear from the appellate record whether the probate
court based its modification of Leonard’s trust on the court’s statutory or
equitable authority, we conclude the probate court acted within its authority
under either theory.
In terms of the probate court’s statutory authority, the court cited in its
minute orders “certain facts that were not known to [Leonard] in coming up
with his estate plan, i.e., (1) that certain assets named in the portions would
be unavailable; (2) that his ex-wife’s estate planning decisions were subject to
change after his death and could not legally be used to affect his estate plan;
and (3) that real property would have to be sold to make distribution
equitable among the beneficiaries of his specific gifts.” At a minimum, the
first category provided the court with statutory authority to modify Leonard’s
Trust.
Specifically, it was undisputedly a “circumstance[ ] not known to . . .
and not anticipated by [Leonard]” (see § 15409, subd. (a)) that the United B
Fund was not a trust asset and, therefore, was unavailable to partially fund
the Medical Sub-trust and Portion 1. This, alone, gave the probate court the
authority to modify the trust.
In addition, it was similarly unknown to and unanticipated by Leonard
that the recipient of Portion 4 would not undertake a $900,000 promissory
note liability. As of trial in 2020—six years after Leonard’s death—the
promissory note still did not exist, and the probate court surmised it never
would.16 Indeed, when Gale gifted Wade a property that her trust
16 The probate court stated at trial: “Leonard’s trust says, [‘]hey, there’s a
$900,000 promissory note[’] but there isn’t. There isn’t, and I don’t think
there will be, right? Is anyone planning to execute a $900,000 note in hopes
that something’s going to happen when [Gale] dies? I don't think so.”
26
designated for the portion assigned to Kent, she effectively guaranteed there
would never be an effective coordination between her and Leonard’s trusts.
Consequently, a substantial anticipated asset that was necessary to partially
fund the sub-trusts and Portion 4 was unexpectedly missing from the trust’s
assets. This further supported the probate court’s exercise of statutory
authority to modify the trust.
Todd argues that one of the supposedly unknown circumstances the
probate court cited—that Gale remained free to modify her trust after
Leonard’s death—was, in fact, known to Leonard and, thus, did not support
the court’s exercise of statutory authority under section 15409. Factually, we
agree the record reflects that Leonard was aware that Gale and he were free
to revise their revocable trusts after the other trustor’s death. Legally,
however, the probate court’s mischaracterization of this circumstance is of no
consequence because several other unknown and unanticipated
circumstances support the court’s exercise of statutory authority. (See People
v. JTH Tax, Inc. (2013) 212 Cal.App.4th 1219, 1237 [“When a trial court
states multiple grounds for its ruling,” the appellant must address each of
them “because ‘one good reason is sufficient to sustain the order from which
the appeal was taken.’ ”].)
As for the probate court’s exercise of its equitable authority to modify
Leonard’s Trust, we are persuaded by Todd’s assertion in his original petition
that, “[i]n the present case, we have an exceptional situation [because]
Leonard’s Trust and Gale’s Trust are both part of the expected distributions
to their four sons.” Thus, the probate court also had equitable authority to
modify Leonard’s Trust. (See Barstow, supra, 23 Cal.4th at p. 1256.)
At bottom, Todd’s appellate challenge relates more to how the probate
court exercised its authority than whether it had the authority in the first
27
place. Specifically, he asserts the probate court ignored that Leonard’s
intent—as evidenced by the creation of portions to be assigned by drawing
straws—was to leave unequal distributions to his sons. We disagree.
Reviewing Leonard’s Trust de novo, we reach the same conclusion as the
probate court: Leonard’s “overarching goal was to create a plan that treated
his sons equitably.”
Portion 4, alone, proves the point. No one could seriously contend
Leonard intended to leave one of his four sons only a net $800,000 liability
through a new promissory note obligation. Yet, both sub-trusts and Portion 2
depended on such a note for funding. As even Todd acknowledges, Portion 4
makes sense only when read in conjunction with Portion 4 of Gale’s Trust,
which would leave the recipient of that portion the most valuable asset in her
estate.
The straw-drawing procedure further supports the conclusion that
Leonard intended for his sons to receive roughly equal distributions.
Leonard’s Trust provided that its four portions be assigned by drawing
straws, unless “numbered straws were previously drawn under” Gale’s Trust,
in which case “the beneficiaries under [Leonard’s Trust] shall receive the
same numbered portion as the beneficiaries of [Gale’s Trust] received.”
Gale’s Trust had a similar reciprocal provision. The language and
circumstances of the reciprocal straw-drawing procedures reflect that
Leonard intended that each of his sons receive a roughly equal distribution.
(See Marshall, supra, 20 Cal.App.4th at p. 453 [an appellate court
“consider[s] the circumstances under which the document was made so that
the court may be placed in the position of the . . . trustor whose language it is
interpreting”].)
28
In sum, Leonard’s Trust reflects that, notwithstanding its own unequal
portions, Leonard’s overarching intent was for his sons to receive roughly
equal distributions from his and Gale’s estates. The “fatal, fatal flaw,” as the
probate court observed at trial, was Leonard believing he could achieve this
by coordinating with Gale’s Trust. Thus, the probate court was tasked with
the discretionary function of determining how best to implement Leonard’s
intent from his own trust assets.
We see no abuse of discretion in the probate court’s determination that
the best way to implement Leonard’s intent was to sell the trust’s assets and
distribute the proceeds equally among the four sons. Indeed, this strikes us
as the simplest and most efficient means of doing so. Todd’s challenges to the
court’s discretionary approach do not persuade us otherwise.
For example, Todd criticizes the probate court for not merely delaying
administration of Leonard’s Trust until after Gale’s death so that the trusts
could be administered in tandem. Todd maintains this approach is supported
by the fact the Education Sub-trust acknowledged it would not be fully
funded until after Gale died and her trust made a $250,000 contribution to
the sub-trust, and that the recipient of Gale’s Portion 4 could eventually use
revenue from a property in that portion to pay the promissory note to be
given in Leonard’s Portion 4. It was within the probate court’s discretion to
reject this approach for several reasons.
First, delaying administration of Leonard’s Trust would conflict with
its directive that the specified distributions be made “[u]pon the demise of the
Trustor”—Leonard—not upon the demise of Gale. The fact that the
Education Sub-trust “anticipated that an additional . . . $250,000 . . . will be
added . . . at the time of [Gale’s] demise” shows that Leonard knew how to
express an intent that something happen upon Gale’s death rather than his.
29
(Italics added.) The fact Leonard did not draft the promissory note provision
in this way suggests he intended that it be given at his death, not Gale’s.
Second, Todd’s proposed approach is not equitable. Whereas Todd
would immediately benefit from all the gifts in his Portion 3 (consisting
entirely of two pieces of real property), Wade, Brittin, and Leonard’s
grandchildren would have to wait indefinitely to receive the full benefit of
their gifts because the $900,000 promissory note would not be undertaken, if
ever, until after Gale’s death.
Finally, and relatedly, the probate court reasonably suspected the
promissory note would never come to fruition because Gale had already gifted
Wade a property designated by her trust for Kent’s portion, thereby
disrupting the equilibrium between Leonard’s and Gale’s Trusts.
Todd also argues that selling the real properties would conflict with
Leonards’ intent that they not be sold. However, Todd cites no provision in
Leonard’s Trust indicating Leonard harbored such an intent.
Todd criticizes the probate court’s distribution for undermining
Leonard’s intent that Brittin’s interest be held in a spendthrift trust.
However, the spendthrift trust was conditioned on Brittin having a certain
threshold of debt, and Todd has not established that Brittin exceeded that
threshold in the ensuing six years since Leonard’s death.
Finally, Todd complains that the probate court’s apportionment would
allow Kent to “reap” a windfall by giving him an equal share under Leonard’s
Trust and a disproportionately larger share under Gale’s Trust. This claim is
fatally speculative because, as of the trial, Gale remained free to adjust the
distributions in her trust so that the four sons ultimately received roughly
equal distributions across her and Leonard’s trusts. Todd’s complaint also
ignores the fact Gale already gifted Wade a property originally designated by
30
her trust for the portion assigned to Kent (as determined by drawing straws
under Leonard’s Trust).
In sum, the probate court acted within its authority and discretion in
modifying Leonard’s Trust to distribute the trust assets equally among the
four sons.
III. GUARDIAN AD LITEM’S APPEAL
Guardian ad litem Bond appeals the probate court’s classification of
gifts and application of the statutory abatement priority to those
classifications. Bond agrees with the court’s classification of the gifts to the
sub-trusts as general pecuniary gifts that would abate before specific gifts.
But he disagrees with the court’s classification of the portions as specific
gifts; rather, Bond maintains they are residuary gifts that abate before
general gifts. Alternatively, Bond contends Leonard’s intent to fund the sub-
trusts trumped the statutory order of abatement. We agree with the probate
court’s classification of the gifts, and, although it is a closer call, also agree
that the statutory order of abatement applies.
We will begin by discussing the applicable legal principles because they
provide useful context for the additional factual background.
A. Legal Principles
“A revocable living trust . . . contains transfers to be effective on the
death of the settlor. Such transfers are statutorily described as at-death
transfers.” (See Blech, supra, 25 Cal.App.5th at p. 1000, quoting § 21104.)
At-death transfers fall into six gift classifications:
“(a) A specific gift is a transfer of specifically identifiable
property.
“(b) A general gift is a transfer from the general assets of the
transferor that does not give specific property.
31
“(c) A demonstrative gift is a general gift that specifies the
fund or property from which the transfer is primarily to be
made.
“(d) A general pecuniary gift is a pecuniary gift within the
meaning of Section 21118.[17]
“(e) An annuity is a general pecuniary gift that is payable
periodically.
“(f) A residuary gift is a transfer of property that remains after
all specific and general gifts have been satisfied.”
(§ 21117, subds. (a)-(f), italics added; see Blech, at p. 1000.) We review de
novo the probate court’s classification of gifts when, as here, the facts are
undisputed. (See Blech, at p. 1000.)
“Abatement” occurs when a trust has insufficient assets to satisfy all
the gifts made by the trust. (See Estate of Jenanyan (1982) 31 Cal.3d 703,
706, fn. 2; In re Buck’s Estate (1948) 32 Cal.2d 372, 376 [a gift “abates where
there is a deficiency of assets”].) Unless a trust provides otherwise
(§ 21400),18 gifts provided for in the instrument abate in the following
statutory order:
“(1) Property not disposed of by the instrument.
“(2) Residuary gifts.
17 A “ ‘pecuniary gift’ means a transfer of property made in an instrument
that either is expressly stated as a fixed dollar amount or is a dollar amount
determinable by the provisions of the instrument.” (§ 21118, subd. (b).)
18 Section 21400 states: “Notwithstanding any other provision of this
part, if the instrument provides for abatement, or if the transferor’s plan or if
the purpose of the transfer would be defeated by abatement as provided in
this part, the shares of beneficiaries abate as is necessary to effectuate the
instrument, plan, or purpose.”
32
“(3) General gifts to persons other than the transferor’s
relatives.
“(4) General gifts to the transferor’s relatives.
“(5) Specific gifts to persons other than the transferor’s
relatives.
“(6) Specific gifts to the transferor’s relatives.”
(§ 21402, subd. (a)(1)-(6); see Burkett v. Capovilla (2003) 112 Cal.App.4th
1444, 1452.) A court need not apply this statutory order of abatement if
doing so would defeat the trustor’s “plan or . . . the purpose of the transfer.”
(§ 21400.)
B. Background
At the outset of trial, the probate court announced its tentative ruling
to classify the Education and Medical Sub-trusts as general pecuniary gifts
and the portions (other than a general gift of $50,000 in cash) as specific gifts.
The court acknowledged “it’s tempting to call the portions residuary gifts,”
but found “[t]hey are specific gifts” because they “specifically identify
property that goes to specific people.” Based on these classifications, the
court tentatively ruled the sub-trusts would abate and the portions would
survive.
In discussing whether Leonard’s intent conflicted with the statutory
order of abatement, the court acknowledged “the trust language talks about”
establishing the potions “after the subtrusts have been established.”19
19 The court appears to have been referencing Paragraph 3 of Schedule B
to Leonard’s Trust, which states in part: “After the trust specified in
paragraphs 1. and 2. above [i.e., the Education and Medical Sub-trusts] have
been established, and after the payments of any federal estate taxes and
other costs incurred in the settlement of the estate of the Trustor have been
made, the Trustee shall divide the remaining assets to be disposed of under
this Schedule ‘B’ into four (4) separate portions . . . .”
33
(Italics added.) This, “in some ways,” could indicate the sub-trusts were
“intended to go in front of the other gifts.” But “in looking at the trust as a
whole” and in “considering the intent of the transferor,” the court reasoned
“the timing is just incidental” and “there is no reason . . . why the subtrust[s]
would have to be created first, that everything could happen at the same
time.”
Bond argued the portions were residuary because paragraph 3 of
Schedule B stated, “that after [the sub-trusts are] established, the trustee
shall divide the remaining assets . . . into the four separate portions.” (Italics
added.) He also noted attorney McEwan had testified in deposition that
Leonard “expressed the thought that these pecuniary gifts should be paid out
first.”
Bond further argued that “a very narrow interpretation” of the
statutory order of abatement “would defeat the intentions of [Leonard].” The
court responded that this was “an important consideration,” but explained
that Leonard’s intent was not clear:
“If I had a blinding clear view of what [Leonard] was trying
to do, then I would be following that without regard to the
lavish adherence to the construction rules. The problem is
here is that he seemed to want to do a lot of stuff . . . he
didn’t have the power [or] . . . the money to do. So it’s hard
for me to parse all of that out and figure out, okay, well, if
he knew that basically his plan was terrible, and there was
tons of problems, then what would he want? Would it be
more important that his four sons inherit the properties
that he had managed or would it be more important to set
up an educational trust and a medical trust and frankly
that is obscure to me. I’m not . . . quite sure what he would
have decided, and I don’t know that he formed an intent on
that because he thought . . . he had this great plan, lots of
money, lots of property, and great cooperation, and all this
stuff that he didn’t have.”
34
The probate court’s minute orders after trial mirrored the court’s
tentative ruling on classification and abatement.
C. Analysis
We independently reach the same conclusion as the probate court
regarding gift classification. Leonard’s gifts to the portions constitute specific
gifts because they transfer specific property (e.g., “A 100% interest . . . in [a]
duplex” or “A 50% interest in the bank accounts of Trustor”) to specific people
(Leonard’s sons as specified by drawing straws). (See § 21117, subd. (a) [“A
specific gift is a transfer of specifically identifiable property.”].)
The fact that Leonard’s Trust refers to the property conveyed via the
portions as “remaining assets” (italics added) does not convert them to
residuary gifts. By definition, “[a] residuary gift is a transfer of property that
remains after all specific . . . gifts have been satisfied.” (§ 21117, subd. (f).)
Because the portions convey specific property to specific people, they are
specific gifts; no residuary gift can arise until those specific gifts are satisfied.
Moreover, contextually, the “remaining assets” here were hardly a
remainder—they made up the vast majority of the trust’s assets. According
to the Spreadsheet, the equity in the real properties (about $1.9 million; see
fn. 8, ante), bank accounts ($200,000), and one-half interest in the United B
Fund ($250,000) that Leonard gifted to the portions comprised about $2.35
million—about 87 percent—of his estate’s total equity of about $2.7 million.
Bond relies on Blech, supra, 25 Cal.App.5th 989 to support the
proposition that a residuary gift’s reference to specific property does not
transform the nature of the gift from residuary to specific. In Blech, article
5.2 of the relevant trust distributed the trustor’s personal effects; article 5.3,
titled “Specific Distributions” (id. at p. 1004, fn. 36), made “specific
distributions of cash” and “specified parcel[s] of real property” to various of
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the trustor’s children; and article 5.4, titled “Division of Remaining Trust
Estate” (id. at p. 1002), distributed “the remainder of the trust estate” in
varying percentage to the trustor’s children, with one son to receive 35
percent, “provided that [his] share ‘shall include any interest that [the
trustor] . . . owns in [a particular ranch]’ ” (id. at p. 993). The probate court
found the interest in the ranch was a specific gift, but the Court of Appeal
disagreed, concluding it was a residuary gift that merely specified a potential
source of funding. (Id. at pp. 999, 1003.)
“Most importantly,” the Blech court observed that if the trustor had
intended the interest in the ranch to be a specific gift, he would have included
it in article 5.3 titled “Specific Distributions,” in which he had made several
“unconditional and specific” gifts of “certain real property” to the son and
another child. (Blech, supra, 25 Cal.App.5th at pp.1003-1004.) “Neither gift
was dependent on any other event.” (Id. at p. 1004.) “By contrast,” the Blech
court reasoned, the trust’s identification of the ranch in the residuary
distribution was merely a conditional, potential source of funding for the
son’s 35 percent interest in the trust’s residue. (Ibid. [“the gift of the
[r]anch . . . was to occur only if at the time of the distribution of the
remainder of the trust assets, those assets included the [r]anch”].) Because
article 5.4 specified only “how to fund [the son]’s percentage share of the
remainder or residue and not what specific property to give,” the Blech court
concluded it was merely “a gift of a 35 percent share of the residue . . . and
not a specific gift . . . .” (Ibid.)
Blech is readily distinguishable. “Most importantly” (Blech, supra,
25 Cal.App.5th at p. 1003), Leonard’s Trust did not make specific gifts to his
four sons in one paragraph, and then leave conditional, residuary percentages
to them in a later paragraph. Instead, the portions in Leonard’s Trust are
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more analogous to the gifts of “certain real property” in the “Specific
Distributions” article of the Blech trust. Indeed, as noted, the bulk of
Leonard’s Trust assets—including all of its real estate holdings—were
distributed in the portions. And there was nothing conditional about the
portions’ distribution of those properties—the portions conveyed “A 100%
interest” in specified real property to the assigned recipient of the portion.
(See id. at p. 1004 [“This means of expressing the desire that, if the [r]anch
were in the estate at the date of distribution, then it was to be used in
funding [the son]’s share of the residue, rendered the gift of the [r]anch an
instruction to the [t]rustee on that with which to fund the percentage gift
which [the trustor] unequivocally made to [the son] if the [r]anch were an
asset of the [t]rust at that time, rather than a mandate that [the son] was to
receive the [r]anch,” last italics added].)
We, thus, agree with the probate court that the portions constitute
specific, rather than residuary, gifts.
The closer call is whether, notwithstanding this classification,
Leonard’s intent prevails over the statutory order of abatement such that the
probate court erred by ordering abatement of the sub-trusts before the
portions. We see no error.
On this issue, Bond relies primarily on the fact the sub-trusts appear
earlier in Leonard’s Trust and the trust specifies that the trustee shall
establish the portions only “after” the sub-trusts have been established and
taxes and trust expenses have been paid. This argument has some
superficial appeal. Ultimately, however, we agree with the probate court’s
observation that there is no “blinding[ly] clear view of what [Leonard] was
trying to do” and whether he would have intended that the beneficiaries
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under the sub-trusts receive priority over the recipients of the portions once it
became evident Leonard could no longer accomplish everything he hoped to.
Again, Leonard’s Trust allocates the vast majority of equity in the trust
assets to the four sons. In contrast to the approximately $2.35 million in
equity allocated to the portions, the trust allocated only $250,000 in equity —
about 11 percent of the estate’s total equity—for the sub-trusts. Moreover,
the vast majority of funding for the sub-trusts was to come from Gale’s Trust
assets, not Leonard’s. That is, other than Leonard’s $250,000 equity
contribution, the remaining funding for the sub-trusts was to come from an
anticipated $250,000 contribution from Gale, and two $300,000 distributions
from the illusory $900,000 promissory note to be backed by the assets in
Portion 4 of Gale’s Trust.
Relatedly, although the sub-trusts appear earlier in the trust, neither
sub-trust could be fully funded without the establishment of the promissory
note in Portion 4. Thus, the timing was, at best, incidental, and, more likely,
actually required the distribution of the portions before the sub-trusts could
actually be funded.
Bond also cites the fact the estate planning attorney testified in
deposition that “one of [Leonard’s] objectives” in the trust was to fund the
sub-trusts “off the top.” It is unclear from the appellate record whether the
probate court considered this evidence or found it credible. And, in any
event, this snippet of testimony out of context sheds no light on what
Leonard’s priorities would have been had he known his trust would face the
severe funding failures it ultimately faced.
Leonard devised an elaborate and well-intentioned estate plan that
sought to provide for his sons, grandchildren, and heirs. The plan, however,
was too heavily dependent on funding contingencies that—even six years
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after his death—still had not panned out, leaving the trust unable to satisfy
all the gifts it purports to make. For the reasons just discussed, we see no
clear expression of intent from Leonard or his trust that he would have
prioritized the gifts to the sub-trusts over the gifts to the portions.
Accordingly, the probate court properly applied the statutory order of
abatement to the sub-trusts.
IV. DISPOSITION
The orders are affirmed. Kent to recover his costs on appeal.
HALLER, Acting P. J.
WE CONCUR:
O’ROURKE, J.
AARON, J.
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