Kranther v. Covey CA2/4 ( 2013 )

Filed 4/23/13 Kranther v. Covey CA2/4
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
MICHAEL KRANTHER, B240631
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. SP007979)
v.
NANCY S. COVEY et al.,
Defendants and Appellants.
APPEAL from an order of the Superior Court of Los Angeles County, Joseph
Biderman, Judge. Affirmed.
The Law Office of John Derrick and John Derrick for Defendants and Appellants.
Law Offices of Andrea Lynn Rice and Andrea Lynn Rice for Plaintiff and
Respondent.
Appellants Nancy S. Covey and Sally Larimore, successor trustees of the
Marguerite Elizabeth Kelly 1999 Revocable Trust (trust), appeal a March 23, 2012 order
granting the petition of respondent Michael Kranther for reformation of the trust. We
find no abuse of discretion, and thus we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
I. The Kelly Trust
Kelly created the trust on February 7, 1999. She executed a seventh and final
amendment (seventh amendment) to the trust on December 22, 2008. As relevant to the
present appeal, the seventh amendment provided as follows:
“D. The residue of the Trust shall be distributed, free of trust (unless otherwise
stated), as follows (the trust’s original thirty (30) day condition of survivorship is now
forty-five (45) days, as appears below):
“1. Russell Richardson shall receive a 20% share of the residue of the
Trust. If he does not survive settlor by forty-five (45) days, such share shall go to Sharon
Richardson. If she does not survive settlor by forty-five (45) days, such share will go to
Jesse E. Richardson or to his issue by right of representation.
“2. Jesse E. Richardson shall receive a 5% share of the residue of the
Trust. If he does not survive settlor by forty-five (45) days, such share shall go to Robert
Richardson.
“3. Kevin Rhodes shall receive a 5% share of the residue of the Trust. If
he does not survive settlor by forty-five (45) days, his share will go to Christianne
Rhodes. If she does not survive settlor by forty-five (45) days, said share will go to
Delaney Rhodes and Regan Rhodes, in equal shares, or to the survivor.
“4. Kelly Rhodes shall receive a 5% share of the residue of the trust. If
she does not survive Settlor by forty-five (45) days, this gift will lapse [and] pass with the
residue of the trust.
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“5. Marsha Bryson fka Marsha Jean Sirianni shall receive a 30% share
of the residue of the Trust. If she does not survive Settlor by forty-five (45) days, having
died without issue, her share shall be distributed free of trust as follows:
“A one-half share to her husband, James Bryson, if, at the time of Marsha’s
death, they are living together as husband and wife. If they are not, then said one-half
share shall be distributed, in equal shares, to the National Muscular Dystrophy
Association . . . and to St. Jude Children’s Research Hospital . . . .
“A one-half share to the National Muscular Dystrophy Association . . . .”
“. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“E. If any beneficiary of the residue of the settlor’s trust fails to survive
distribution of his/her share, the percentage of the residue that said beneficiary was to
have received will be added to the other residuary beneficiaries’ shares of the trust’s
residue in proportion to the then percentages applicable to all beneficiaries entitled to the
residue at that time. This gift will therefore pass to the other beneficiaries of the residue
of the trust in proportion to their other interests in the residue according to Probate Code
section 21111(b).”
Prior to signing the seventh amendment, Kelly had a recorded conversation with
her attorney, Bennett Kerns (Kerns). In relevant part, that conversation (as transcribed)
was as follows:
“Kerns: Okay. Now you have already just signed the trust amendment and I
notarized it. Have you signed my notary book? Is that correct?
“Kelly: That is true.
“Kerns: And did you read the trust amendment before you signed it?
“Kelly: I certainly did.
“Kerns: With your one good eye?
“Kelly: It was my one good eye.
“Kerns: And did you use a giant magnifying glass?
“Kelly: Yes.
“Kerns: You just showed it to me.
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“Kelly: Right.
“Kerns: Now, is this amendment that I have drafted accurately reflecting the
instructions you gave to us as far as the changes you wanted to make?
“Kelly: Absolutely. It’s absolutely correct.
“[Tape off.]
“Kelly: That’s also true.
“Kerns: We just had a brief discussion. The tape is back on. I noted that Marsha,
who was given 20 percent of the trust residue under the fifth amendment, is now being
given 30 percent. Is that correct?
“Kelly: Yes, that’s right.
“Kerns: And Russell is continuing to get 20 percent of the [unintelligible]?
“Kelly: That’s right.
“Kerns: Okay. Then you reduced some of the percentages of the residue that
were going to other relatives. Is that correct?
“Kelly: That’s true.
“Kerns: Okay.
“Kelly: . . . And I inserted a new name.
“Kerns: You added a new name indeed.
“Kelly: Right.
“Kerns: But to make sure, I can say that it took many minutes for you to read the
amendment. But did you read all the pages that I gave you?
“Kelly: I did.
“Kerns: Okay.
“Kelly: All 3 I think it was.
“Kerns: Okay . . . small print. I charge by the word.
“Kelly: (Laughs.) Go home. (Laughs.)
“Kerns: Okay. Well then, are you satisfied that the amendment then reflects what
your wishes are?
“Kelly: Yes. Exactly.”
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II. Petition for Reformation of Trust
Kelly died on April 25, 2009. Upon her death, Kelly’s daughter, Marsha Bryson,
became the successor trustee.
On July 3, 2009, Bryson executed a will and trust known as the Marsha J. Bryson
Living Trust. Among Bryson’s listed assets were her expected distribution from her
mother’s trust.
Bryson died on July 25, 2009, just three months after her mother’s death. Upon
Bryson’s death, Nancy S. Covey and Sally Larimore (trustees) became the successor
cotrustees to Kelly’s trust, and Kranther was nominated as executor of Bryson’s estate
and the successor trustee to her trust.
On October 28, 2009, Kranther filed a petition to reform Kelly’s trust. The
petition asserted that Kelly intended each of the beneficiaries named in her trust to
receive a specified share of the trust estate if he or she survived Kelly by 45 days. This
intent was reflected in paragraph 1.D. of the seventh amendment. Paragraph 1.E. of the
seventh amendment, however, required a beneficiary not only to survive Kelly by 45
days, but also to survive distribution of the estate. The petition asserted that paragraph
1.E. had been included as a result of a scrivener’s error, and it asked the court to reform
the seventh amendment to accurately reflect Kelly’s intent. The petition asserted that
Bryson’s estate had standing to bring the petition because although Bryson survived
Kelly by more than 45 days, she did not survive the distribution of Kelly’s estate.
Trustees filed an objection to the petition on December 2, 2009.
III. Trial and Decision
A. Trial
Margot Erni testified at trial that she is a legal assistant to Bennett Kerns. She said
that Kelly called Kerns’s office and told Erni that she wanted to make some changes to
the percentages beneficiaries of her trust would receive. Erni jotted down the
beneficiaries’ names and percentages of the trust that Kelly wished them to receive and
5
gave her notes to Kerns. Kerns asked Erni to draft the seventh amendment, which she
did; Kerns made further changes to the draft after she gave it to him. Kelly never told
Erni why she wished to change her trust and she never told Erni she wanted to require
beneficiaries to survive distribution of the trust.
Kerns testified that he initially prepared trust documents for Kelly in 1999. He
prepared seven amendments to the trust over the following nine years, each of which
changed the percentages to be distributed to the beneficiaries. When Kelly signed the
seventh amendment, she was suffering from Parkinson’s disease, had lost vision in one
eye, and told Kerns she was losing vision in her other eye. Kerns did not believe her
mental acuity had deteriorated, however, and he had no doubt that Kelly had testamentary
capacity.
Kerns spent about an hour with Kelly before she signed the seventh amendment.
During that hour, she read the documents he gave her, but “I do not know if she read the
entire document or understood it.”
Kerns testified that he does not typically put a “divestor” clause such as paragraph
1.E. in his estate planning documents. He put such a clause in the seventh amendment
because “I made a mistake.” He never discussed paragraph 1.E. with Kelly, and Kelly
never asked him to provide for a divesting of a gift to a residuary beneficiary. Indeed,
Kelly “wasn’t involved at all in the language of paragraph 1-E.” Kerns said he put the
paragraph in to prevent a gift from lapsing, but said the paragraph was superfluous. He
explained: “I just wanted to amplify in more formal language what I think the law
already provided. If I may put it this way, I was being a little fancy. I had stumbled
across the language and I thought I would put it in just to duplicate what I thought the
effect of the language would have been anyway.”
Michael Kranther testified that he and Bryson had been romantically involved in
the past and remained friends afterwards. He was the successor trustee of her trust and
the executor of her estate. Kerns originally represented Kranther as a successor trustee of
Bryson’s trust, but he no longer represented Kranther in any capacity. Bryson’s trust was
basically insolvent.
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B. Order
The court issued an order reforming the trust on March 1, 2012. It explained its
order as follows:
“The Petition is granted. The Court orders paragraph 1(E) stricken from [the]
Seventh Amendment to the Marguerite Elizabeth Kelly 1999 Revocable Trust U/D/T
February 19, 1999. All other provisions of the Seventh Amendment remain in full force
and effect.
“The Court received no evidence that Marguerite Elizabeth Kelly (‘Kelly’)
intended to include paragraph 1(E) and materially change her Trust to require a
beneficiary to survive distribution of the Trust.
“Margot Erni testified about a telephonic conversation she had with Kelly prior to
attorney Bennett Kerns (‘Kerns’) drafting the Seventh Amendment. That conversation
only mentioned Kelly’s desire to change percentage distributions to the beneficiaries, not
a new requirement that a beneficiary survive the distribution in order to receive their
share. Kerns met with Kelly after he had two telephone conversations regarding the
proposed modifications. According to Kerns, there was no mention by Kelly of a desire
to add the language of paragraph 1(E) to the Trust prior to their meeting. The Court finds
that both Kerns and particularly Erni were credible witnesses.
“The Court heard a recording (Exh. 12) of Kelly stating that she had read,
understood and was in agreement with all of the terms of the Seventh Amendment. The
material changes to the Trust included differences in the percentage allocations to
beneficiaries—something that Kelly had done six prior times—as well as the addition of
the language of paragraph 1(E). Although Kelly firmly stated that she agreed with all of
the provisions of the Seventh Amendment and while there is no challenge to her capacity,
the Court finds that Kelly did not agree to paragraph 1(E).
“Petitioner seeks to discount Kerns’ testimony as he may have had a conflict in his
representation of Kelly, Margaret Bryson (‘Bryson’), and Petitioner Kranther. However,
while the Court excluded testimony regarding Kerns’ fee arrangement with Bryson’s
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Trust and Kranther, the Court is unable to conclude that Kerns would use any potential
remuneration to testify falsely or with omission of material facts. Even if the Court were
to disregard Kerns’ testimony altogether, the inclusion of paragraphs 1[(D)] and 1(E)
makes no sense. If Kelly had wanted to limit distributions only to beneficiaries who
survive their own distribution, there would have been no need to include
paragraph 1[(D)].
“Kerns’ testimony that he had added paragraph 1(E) to take care of the possibility
of lapsed gifts was nonsensical. All potentially lapsed gifts were covered elsewhere in
paragraph 1. Nonetheless, petitioner’s argument that Kelly’s intention (never stated to
anyone) was to prevent Bryson’s husband from receiving Bryson’s beneficiary interest is
interesting speculation but without evidentiary support. However, Bryson herself took
steps prior to her own death to prevent her husband from receiving such interest in any
event.
“Objector seeks to have the Court speculate that Kelly had an undisclosed
conversation with Kerns in which she told him to draft language requiring a beneficiary
to survive distribution in order to receive it, while retaining language requiring 45 day
survivorship, in order to prevent Bryson’s husband from receiving any of the Bryson
distribution if Bryson survived beyond 45 days but not as long as the ultimate
distribution. This is a tortured and awkward argument.
“Kelly amended her Trust seven times. On each occasion, she sought to change
the beneficiary percentages. The Court finds that Kelly’s intention with the seventh
amendment was the same as on the prior six amendments, merely to change the
beneficiary percentages. Kern[’]s error was just that—his own very sloppy mistake.
“The Petition is Granted.”
On March 23, 2012, the court ordered that “the Petition is granted. Paragraph 1(E)
is stricken from the Seventh Amendment to the Marguerite Elizabeth Kelly 1999
Revocable Trust U/D/T February 19, 1999. All other provisions of the Seventh
Amendment remain in full force and effect.” Notice of entry of the order was served on
March 30, 2012. Trustees timely appealed.
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DISCUSSION
Trustees concede that a court may reform a trust instrument if it is ambiguous or to
give effect to the settlor’s intentions. They contend, however, that (1) the seventh
amendment was not ambiguous, and (2) the evidence does not support the trial court’s
conclusion that Kelly did not intend to require a beneficiary to survive distribution in
order to inherit. We consider these issues below.
I. The Seventh Amendment Is Facially Ambiguous
Trustees contend that paragraph 1.E. is clear on its face and does not conflict with
any other provision, including paragraph 1.D. For the following reasons, we do not
agree.
A. Applicable Law
“‘“‘The interpretation of a written instrument, including a . . . declaration of trust,
presents a question of law unless interpretation turns on the competence or credibility of
extrinsic evidence or a conflict therein. Accordingly, a reviewing court is not bound by
the lower court’s interpretation but must independently construe the instrument at issue.
[Citations.]’ [Citations.]” (Scharlin v. Superior Court (1992) 9 Cal.App.4th 162, 168.)
“In construing a trust instrument, the intent of the trustor prevails and it must be
ascertained from the whole of the trust instrument, not just separate parts of it.
[Citation.]” (Ibid.)
“‘In interpreting a document such as 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 testator or trustor whose language it is interpreting, in order to determine whether the
terms of the document are clear and definite, or ambiguous in some respect. (Estate of
Russell (1968) 69 Cal.2d 200, 208-210.) Thus, extrinsic evidence as to the circumstances
9
under which a written instrument was made is admissible to interpret the instrument,
although not to give it a meaning to which it is not reasonably susceptible. (Id. at p. 211.)
On review of the trial court’s interpretation of a document, the appellate court’s proper
function is to give effect to the intention of the maker of the document. (Id. at p. 213.)
“. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“An ambiguity in a written instrument exists when, in light of the circumstances
surrounding the execution of the instrument, ‘“the written language is fairly susceptible
of two or more constructions.” [Citations.]’ (Estate of Russell[, supra,] 69 Cal.2d [at p.]
211.)
“Where a trust instrument contains some expression of the trustor’s intention, but
as a result of a drafting error that expression is made ambiguous, a trial court may admit
and consider extrinsic evidence, including the drafter’s testimony, to resolve the
ambiguity and give effect to the trustor’s intention as expressed in the trust instrument.
(Lissauer v. Union Bank & Trust Co. (1941) 45 Cal.App.2d 468, 472-473 . . . .)” (Ike v.
Doolittle (1998) 61 Cal.App.4th 51, 73-74 (Ike).)
B. Analysis
Trustees contend that paragraph 1.E. is not ambiguous because “it is capable of
only one interpretation — namely that if a beneficiary fails to live to see the distribution
of the trust assets, then that beneficiary’s share goes back to the residue to be shared
among the other named beneficiaries.” They also contend that paragraphs 1.D. and 1.E.
are not in conflict because they “serve distinct, not contradictory, purposes. Paragraph
1-D deals with the designation of contingent beneficiaries during the 45-day period after
the settlor’s death should a primary beneficiary die. Paragraph 1-E, on the other hand, is
a catch-all residuary clause to prevent gifts from lapsing should an originally designated
beneficiary fail to survive his or her final distribution.”
We do not agree with trustees that paragraphs 1.D. and 1.E. are not in conflict.
Under paragraph 1.D., Bryson was entitled to a share of the residue of her mother’s estate
if she survived her mother by 45 days. Under paragraph 1.E., however, even if Bryson
10
survived her mother by 45 days, she would not be entitled to a share of her estate unless
she also survived the distribution of the estate. Thus, in the circumstances presented
here, where Bryson survived her mother by 45 days but did not survive final distribution
of her estate, paragraphs 1.D. and 1.E. require inconsistent outcomes: Paragraph 1.D.
requires distributing Bryson’s 30 percent share to her estate, while paragraph 1.E.
requires distributing it to Kelly’s other named beneficiaries.1 We therefore conclude that
the seventh amendment is ambiguous on its face.
II. The Trial Court Did Not Abuse Its Discretion by Reforming the Seventh
Amendment to Eliminate Paragraph 1.E.
Trustees concede that a court may reform a trust instrument to give effect to the
settlor’s intentions. They contend, however, that the record did not support the trial
court’s conclusion that Kelly intended her beneficiaries, including Bryson, to receive a
distribution from her trust so long as they survived her by 45 days. We do not agree.
A. Standard of Review
Because reformation of a trust invokes a trial court’s equity powers, we review an
order of reformation for abuse of discretion. (E.g., City of Barstow v. Mojave Water
Agency (2000) 23 Cal.4th 1224, 1256.)2
1
Paragraphs 1.D. and 1.E. would also have required different outcomes if Bryson
had failed to survive her mother by 45 days. Under those circumstances, paragraph 1.D.
would require distributing Bryson’s share either to her husband (if they were still living
together as husband and wife upon Bryson’s death) or to charity, while paragraph 1.E.
would require returning Bryson’s share to the trust’s residue for distribution to the other
residuary beneficiaries.
2
“‘Equity or chancery law has its origin in the necessity for exceptions to the
application of rules of law in those cases where the law, by reason of its universality,
would create injustice in the affairs of men.’ (Estate of Lankershim (1936) 6 Cal.2d 568,
572-573 [although rule of law prohibited lawyer, as executor of estate, from recovering
legal fees for services on behalf of estate, equitable principles called for departure from
that rule].) The object of equity is to do right and justice. It ‘does not wait upon
11
“‘The abuse of discretion standard is not a unified standard; the deference it calls
for varies according to the aspect of a trial court’s ruling under review. The trial court’s
findings of fact are reviewed for substantial evidence, its conclusions of law are reviewed
de novo, and its application of the law to the facts is reversible only if arbitrary and
capricious.’ (Haraguchi v. Superior Court (2008) 43 Cal.4th 706, 711-712, fns.
omitted.)” (In re Marriage of Walker (2012) 203 Cal.App.4th 137, 146.)
In reviewing the trial court’s findings of fact for substantial evidence, “[i]t is not
our task to weigh conflicts and disputes in the evidence; that is the province of the trier of
fact. Our authority begins and ends with a determination as to whether, on the entire
record, there is any substantial evidence, contradicted or uncontradicted, in support of the
judgment.” (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 630-631.) This is
true even where, as here, much of the evidence is undisputed or uncontradicted: “[I]f two
or more different inferences can reasonably be drawn from the evidence this court is
without power to substitute its own inferences or deductions for those of the trier of fact,
which must resolve such conflicting inferences in the absence of a rule of law specifying
the inference to be drawn. We must accept as true all evidence and all reasonable
inferences from the evidence tending to establish the correctness of the trial court’s
precedent which exactly squares with the facts in controversy, but will assert itself in
those situations where right and justice would be defeated but for its intervention. “It has
always been the pride of courts of equity that they will so mold and adjust their decrees
as to award substantial justice according to the requirements of the varying complications
that may be presented to them for adjudication.” [Citation.]’ (Times-Mirror Co. v.
Superior Court (1935) 3 Cal.2d 309, 331.) ‘The powers of a court of equity, dealing with
the subject-matters within its jurisdiction, are not cribbed or confined by the rigid rules of
law. From the very nature of equity, a wide play is left to the conscience of the
chancellor in formulating his decrees . . . . It is of the very essence of equity that its
powers should be so broad as to be capable of dealing with novel conditions. [Citation.]’
(Bechtel v. Wier (1907) 152 Cal. 443, 446.) Equity acts ‘“in order to meet the
requirements of every case, and to satisfy the needs of a progressive social condition, in
which new primary rights and duties are constantly arising, and new kinds of wrongs are
constantly committed.” [Citation.]’ (Wuest v. Wuest (1942) 53 Cal.App.2d 339, 346.)”
(Hirshfield v. Schwartz (2001) 91 Cal.App.4th 749, 770-771.)
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findings and decision, resolving every conflict in favor of the judgment. [Citations.]”
(Ibid.)3
B. Trial Court’s Equitable Authority to Reform a Trust
California courts have long had the equitable power to modify the terms of a trust
where modification is necessary to preserve the trust or serve the original intentions of
the trustor. (Ike, supra, 61 Cal.App.4th at p. 79.) “‘If, due to a mistake, the trust does not
contain the terms that were intended by the settlor, the settlor or other interested party
may maintain a suit in equity to have the instrument reformed so that it will contain the
terms that were actually agreed upon or that reflect the testator’s actual intent. The more
common type of . . . error, which may be made by the settlor or the scrivener, is a drafting
error that is referred to as a mistake in expression.’ (Radford et al., The Law of Trusts
and Trustees (3d ed. 2006) § 991, pp. 130-132, italics added, fns. omitted, followed in
Bilafer v. Bilafer (2008) 161 Cal.App.4th 363, 370; see 161 Cal.App.4th at pp. 368-369.)
[¶] ‘Equity may intervene to correct a mistake in a trust whether it is an inter vivos trust
or a testamentary trust, and may reform an inter vivos trust even after the settlor is
dead.’” (Giammarrusco v. Simon (2009) 171 Cal.App.4th 1586, 1603.)4
3
As trustees correctly point out, a different rule appears to apply in cases involving
interpretation of written instruments. “[W]hen there is no conflict in extrinsic evidence,
the [appellate] court is not bound by inferences drawn from that evidence by the trial
court. [Citations.]” (Newman v. Wells Fargo Bank (1996) 14 Cal.4th 126, 134.) That
rule does not apply to the present issue, however, because the trial court exercised its
equitable power to reform a trust, rather than its legal power to interpret the trust
document.
4
In 1986, the Legislature substantially revised the Probate Code and codified the
common law equitable power of trial courts to modify the terms of a trust instrument
where such modification is necessary to serve the original intentions of the trustors. (Ike,
supra, 61 Cal.App.4th at p. 83.) Though this revision was intended to impose
“‘comprehensive’ rules for modifying trusts (Recommendation Proposing the Trust Law
(Dec. 1985) 18 Cal. Law Revision Com. Rep. (1986) pp. 511, 573 (Trust
Recommendation)), the sections enacted do not expressly provide that they are the
exclusive means to do so. Thus, ‘the broader equitable power of trial courts to modify or
13
The court applied these principles to reform a trust in Ike, supra, 61 Cal.App.4th
51. There, trustors Virgil and Jeannette Ike married at ages 65 and 75, respectively. Both
had been previously married; Virgil had two children by a prior marriage. (Id. at p. 58.)
After their marriage, the Ikes created a revocable inter vivos trust, funded with separate
and community property, which provided that the property would retain its separate or
community character. The same day they executed the trust, however, the Ikes also
executed a property agreement that appeared to indicate they had agreed to transmute all
separate property into community property. (Id. at pp. 59-60.)
The trust provided that on the death of the first trustor to die, the trust would be
divided into two separate trusts—the “survivor’s trust” and the “decedent’s trust”—each
of which would hold the trustors’ separate property and his or her half of the community
property. (Ike, supra, 61 Cal.App.4th at p. 60.) Jeannette and Virgil apparently intended
that the proceeds of the survivors’ and decedents’ trusts would be distributed to their
beneficiaries upon the second spouse’s death, regardless of which spouse died first;
however, because of a drafting error, the trust’s language appeared to indicate that
Jeannette’s share of the trust estate would be distributed to her beneficiaries only if she
survived Virgil. (Id. at p. 63.)
Jeannette predeceased Virgil. After Virgil’s death, his son Mark filed a petition
for construction of the trust, contending that because Jeannette died first, none of the trust
assets should be distributed to her designated beneficiaries. Jeannette’s principal
beneficiary, Doolittle, filed his own petition, arguing that the trust contained an
ambiguity and that Jeannette and Virgil intended that, no matter who died first, the
portion of the trust estate that had consisted of Jeannette’s separate property and her share
of the community property would be distributed to her beneficiaries. (Ike, supra, 61
Cal.App.4th at p. 66.) The trial court concluded that Jeannette and Virgil believed the
reform a trust is preserved by operation of section 15002, which expressly provides:
“Except to the extent that the common law rules governing trusts are modified by statute,
the common law as to trusts is the law of this state.”’ (Ike, at p. 84.)” (Bilafer v. Bilafer,
supra, 161 Cal.App.4th at p. 368.)
14
trust would dispose of their respective separate and community property to their
designated beneficiaries, and it reformed the trust accordingly.
Mark appealed, contending that the trial court improperly rewrote the trust. (Ike,
supra, 61 Cal.App.4th at p. 79.) The Court of Appeal disagreed and affirmed. It
explained that the trial court had “ample equitable and statutory power to modify or
reform” the distributive sections of the trust consistent with the trustors’ intent. (Id. at
p. 87.) Further, it said, the court properly exercised its power to reform the trust because
“substantial extrinsic evidence, including the drafter’s testimony, established that
Jeannette and Virgil intended that upon the death of the survivor Jeannette’s separate
property and her interest in the community property would be distributed to the
beneficiaries she designated in section 2 of article nine, and Virgil’s separate property
and his interest in the community property would be distributed to the beneficiaries he
designated in section 1 of article nine.” (Ibid.) Substantial extrinsic evidence also
established that the expression of the trustors’ distributive intent “was rendered
ambiguous by the drafting attorney’s admitted multiple drafting errors,” including failing
to make the decedent’s trust irrevocable after the death of the first spouse. (Ibid.) Thus,
the court concluded, because the trial court’s findings were supported by substantial
evidence, the court properly reformed the trust. (Id. at pp. 87-88.)
C. The Trial Court Did Not Abuse Its Discretion by Reforming the Seventh
Amendment to Eliminate Paragraph 1.E.
The trial court found that when Kelly amended her trust for the seventh and last
time, she did not intend to require her beneficiaries to survive distribution in order to
receive their share of the trust proceeds. That conclusion was supported by substantial
evidence, including the following:
● The original trust documents and the first six amendments thereto provided
that the named beneficiaries would recover specific percentages of the trust residue if
they survived Kelly for a fixed number of days—30 days in the original trust document
15
and the first two amendments, and 45 days thereafter. Only the seventh amendment
included the language of paragraph 1.E.
● Kerns testified that “the 45-day survivorship period had always been
discussed by us, Betty and I, with the understanding that if a beneficiary survived the
45-day period then it would be up to the beneficiary to do what he or she wanted to do
thereafter, so that’s why it was limited to the 45 days.” He continued: “I can only go
back to the beginning of my relationship with Betty Kelly where we discussed this
concept from the beginning as to what she wanted in her trust. After the initial period of
survivorship being required — in the beginning in the trust it was 30 days, then it became
45 days — and our prior — giving you a long answer, I am sorry. But our prior
conversations had to do with the fact that Betty said the beneficiaries can do their own
estate plan at any time and provide for their own distribution thereafter.” Further, “[t]he
45-day period was intended to apply to all residuary beneficiaries. From the beginning of
my drafting documents for Betty Kelly, at least in the beginning specifically, and I think
two times thereafter in the years it happened. She said after the initial survivorship
period the beneficiary can do what the person wants to do with her or his own estate plan,
and she’ll leave it up to them to make their own decisions.”
● Margot Erni, Kern’s legal assistant, testified that she spoke to Kelly on the
telephone about the seventh amendment. Kelly said she “wanted to make some changes
in the percentage of the distribution.” Erni and Kelly did not discuss “any concept of [a]
beneficiary having to survive distribution.”
● Kerns testified that with regard to the seventh amendment, he and Kelly
discussed only “the change in percentage, the adding or deletion of names.” They “did
not discuss the language of paragraph 1-E. I recall specifically we did not discuss
divesting of any residuary . . . beneficiaries’ interest after 45 days.” He specifically
testified that Kelly never asked him to include such a clause.
● Kerns testified that he does not typically put in his estate planning
documents a clause divesting beneficiaries of their interests in a trust if they do not
survive distribution of the trust estate. He added paragraph 1.E. to the seventh
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amendment “to amplify the language in the trust document and limit it to what happens if
somebody did not survive the 45 days and there was no alternate beneficiary designated.”
He testified: “If I may put it this way, I was being a little fancy. I had stumbled across
the language and I thought I would put it in just to duplicate what I thought the effect of
the language would have been anyway.”
Taken together, the foregoing is substantial evidence that when Kelly executed the
seventh amendment, she intended her beneficiaries to receive a share of the trust proceeds
so long as they survived her by 45 days—without regard to whether they also survived
distribution. The trial court did not err in so concluding and reforming the trust
accordingly.
Trustees urge that the evidence did not support reformation of the trust because the
undisputed evidence was that Kelly was mentally competent and diligently read the
seventh amendment before she signed it. We agree that the evidence was undisputed that
Kelly read the seventh amendment and was mentally competent. We cannot agree,
however, that the trial court therefore was bound to conclude that Kelly appreciated the
legal significance of paragraph 1.E. As we have said, the issue for our review is not
whether there is some evidence supporting trustees’ theory of the case—it is, instead,
whether there was substantial evidence supporting the trial court’s conclusions. The fact
that Kelly read the trust before she signed it may be a significant piece of evidence, but it
is hardly dispositive of her intent.
Trustees also urge that the trial court committed legal error by “in effect . . .
switch[ing] the burden of proof.” They explain: “[E]ven if there had not been any
evidence that Betty had endorsed the substance of paragraph 1-E (a concession that is not
made), that would not be a basis for granting the petition. For the court to properly grant
the petition, Kranther had to have provided evidence that Betty hadn’t intended to
approve paragraph 1-E when she signed the seventh amendment; it was not for the
successor trustees to prove the opposite.” While we agree with trustees that Kranther
bore the burden of proof, we do not agree that the trial court believed to the contrary. We
also do not agree, as trustees suggest, that there was a “complete absence of . . .
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evidence” that Kelly did not intend to include paragraph 1.E. in her amended trust.
Rather, as we have said, we believe there was substantial evidence supporting the trial
court’s conclusions.
In light of the trial court’s finding, supported by substantial evidence, that Kelly
did not intend to include a paragraph divesting beneficiaries of their shares if they did not
survive distribution, the court was well within its broad equitable discretion to strike
paragraph 1.E. of the seventh amendment.
DISPOSITION
The order granting the petition for reformation of trust is affirmed. Kranther shall
recover his appellate costs.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
SUZUKAWA, J.
We concur:
WILLHITE, Acting P. J.
MANELLA, J.
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