Funsten v. Wells Fargo Bank ( 2016 )

Filed 8/1/16; part. pub. order 8/25/16 (see end of opn.)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FOUR
PETER L. FUNSTEN,
Plaintiff and Appellant, A140941
v. (San Mateo County
WELLS FARGO BANK, N.A. et al., as Super. Ct. No. PRO 123635)
Executors,
Defendants and Respondents.
Estate of ROBERT FOLGER MILLER,
Deceased.
A141853
GEORGE R. BIANCHI et al., as
Executors, (San Mateo County
Super. Ct. No. PRO 123216)
Petitioners and Appellants,
v.
PETER L. FUNSTEN,
Objector and Appellant.
I.
INTRODUCTION
These consolidated appeals arise out of disputes regarding the administration of
the Miller Family Trust I (Trust I), which was created by Robert and Maryon Miller in
1
1991.1 Trust I became irrevocable when Maryon passed away in 1994. Robert died
many years later in early 2013.
In August 2013, Peter Funsten, who is Maryon’s son, filed a “safe harbor”
application under former section 21320 of the Probate Code,2 requesting a judicial
determination that he would not violate a “no-contest” clause in the Trust I instrument by
filing a petition to establish that he is the sole successor trustee of Trust I,
notwithstanding the fact that Robert designated an additional co-successor trustee after
Maryon passed away. The executors of Robert’s probate estate, George R. Bianchi and
Wells Fargo Bank (Executors), opposed Peter’s safe harbor application. In December
2013, the probate court denied Peter’s application, concluding his proposed petition
would violate the no-contest clause. Peter filed a timely appeal from that order.
In January 2014, Executors filed a petition for a determination that Peter violated
no-contest clauses in Trust I and in Robert’s will by filing creditor’s claims against
Robert’s probate estate to recover damages for the allegedly improper removal of trust
assets. In May 2014, the trial court entered a judgment which found that Peter’s conduct
constituted a contest of Robert’s will, but it did not constitutes a contest under the terms
of the no-contest clause in Trust I. Both Peter and Executors timely appealed the
judgment.
We conclude that Peter was not entitled to a ruling on the merits of his safe harbor
application because that statutory procedure has not been available since former section
21320 was repealed in January 2010. Therefore, we affirm the December 2013 order, but
only after striking the probate court’s finding that Peter’s proposed petition constitutes a
contest of Trust I.
1
The appellate record shows that there is also a Miller Family Trust II (Trust II),
although that instrument is not at issue in these appeals. For clarity and consistency, we
will use first names to refer to Robert, Maryon and all of their relatives. No disrespect is
intended.
2
Subsequent statutory references are to the Probate Code, unless otherwise stated.
2
We further conclude that the probate court correctly found that Peter did not
violate the no-contest clause in Trust I by filing creditor’s claims against Robert’s probate
estate, but that the court erred by finding that such conduct constituted a contest of
Robert’s will. Peter is not a beneficiary of Robert’s will, and thus he could not have
violated the no-contest clause in that instrument as a matter of law. Therefore, we
reverse the May 2014 judgment and remand this case with directions for the court to
enter a new judgment consistent with this decision.
II.
OVERVIEW OF LAW
To put the facts of this case in proper perspective, we begin with an overview of
California law governing the enforcement of no-contest clauses.
“An in terrorem or no contest clause in a will or trust instrument creates a
condition upon gifts and dispositions provided therein. [Citation.] In essence, a no
contest clause conditions a beneficiary’s right to take the share provided to that
beneficiary under such an instrument upon the beneficiary’s agreement to acquiesce to
the terms of the instrument. [Citation.]” (Burch v. George (1994) 7 Cal.4th 246, 254.)
California has long followed the common law rule that no-contest clauses are
generally enforceable, but strictly construed and subject to several public policy
exceptions. (Donkin v. Donkin (2013) 58 Cal.4th 412, 422 (Donkin).) This rule attempts
to reconcile competing policies of (1) “honoring the intent of the donor and discouraging
litigation by persons whose expectations are frustrated by the donative scheme of the
instrument,” on the one hand, and (2) “avoiding forfeitures and promoting full access of
the courts to all relevant information concerning the validity and effect of a will, trust, or
other instrument” on the other. (Ibid.)
In 1989, legislation was enacted to codify partially this common law. (Donkin,
supra, 58 Cal.4th at p. 423.) The 1989 legislation recognized the general enforceability
of no-contest clauses, subject to several express limitations. (Ibid.) “The 1989
legislation also established the safe harbor declaratory relief procedure as a method of
determining whether a particular motion, petition or other act by a beneficiary would be a
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contest within the terms of the particular no contest clause. [Citation.] When the Probate
Code was repealed and reenacted in 1990, the substance of the 1989 no contest clause
provisions was continued, although [the original safe harbor statute] became former
section 21320, which was limited to instruments that were or had become irrevocable.
[Citation.]” (Id. at p. 423, fn. 6.)
In the decades that followed, the Legislature periodically amended the 1990
legislation to comport with and clarify the law as it was developing in the courts.
(Donkin, supra, 58 Cal.4th at pp. 423-425.) For example, in 2000, the Legislature set
outer limitations on the enforceability of no-contest clauses in former section 21305.
Subdivision (a) of former section 21305 listed actions that did not constitute “a contest
unless expressly identified in the no contest clause as a violation of the clause.”
Subdivision (b) listed actions that did not “violate a no contest clause as a matter of
public policy” “[n]otwithstanding anything to the contrary” in the underlying instrument.
Such actions included, for example: “(6) A petition challenging the exercise of a
fiduciary power.” (Former § 21305, subd. (b)(6).)
Unfortunately though, as the no-contest law evolved, “[t]he complexity of the
statutory scheme actually promoted further uncertainty as to the scope of application of a
no contest clause, which in turn led to widespread use of the safe harbor declaratory relief
procedure. The frequent use of the safe harbor procedure added an additional layer of
litigation to probate matters, which undermined the goal of a no contest clause in
reducing litigation by beneficiaries. [Citation.]” (Donkin, supra, 58 Cal.4th at p. 424.)
In 2008, the Legislature repealed the 1990 legislation and replaced it “with a new
set of statutes governing no contest clauses.” (Donkin, supra, 58 Cal.4th at p. 426; see
§§ 21310-21315.) The new scheme abandons the former approach of using an “ ‘open-
ended definition of [a] “contest,” combined with a complex and lengthy set of
exceptions,’ ” and instead limits the enforcement of no-contest clauses “ ‘to an express
and exclusive list of contest types.’ ” (Donkin, supra, 58 Cal.4th at p. 426.) That list is
set forth in section 21311, subdivision (a), which states: “A no contest clause shall only
be enforced against the following types of contests: [¶] (1) A direct contest that is
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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.” The new
law also “discontinued the safe harbor declaratory relief procedure of former section
21320. [Citation.]” (Donkin, supra, 58 Cal.4th at pp. 426-427.)
The 2008 legislation went into effect on January 1, 2009, and became operative on
January 1, 2010. (Donkin, supra, 58 Cal.4th at p. 426; see §§ 21310-21315.) The
Legislature limited application of the current law to “any instrument, whenever executed,
that became irrevocable on or after January 1, 2001.” (§ 21315.)
III.
STATEMENT OF FACTS
A. Trust I
1. Trust Assets and Administration During the Lifetime of the Trustors
On October 4, 1991, Maryon and Robert executed Trust I as a revocable trust,
naming Robert as trustee and Peter as successor trustee. Assets of Trust I, all of which
were deemed to be community property, consisted of property described in an attached
“Schedule A,” together with any later added property. Two categories of assets were
listed on Schedule A: (1) a parcel of real property located in the Town of Hillsborough
which the parties refer to herein as Robin Road; and (2) all furniture and furnishings in
the Trustors’ home on Robin Road.
During their joint lifetimes, the Trustors had full access to trust income and
principal. “Immediately upon the death of either of the Trustors,” the trust fund was to be
divided into three subtrusts, designated Trust A, Trust B and Trust C. Trust A was to
consist of the survivor’s interest in the trust assets, while Trust B and Trust C were to
hold some combination of the deceased trustor’s interest in the assets. Under
5
Article VIII, Trust I was to become irrevocable after the death of either trustor, with one
possible exception pertaining to Trust A that we discuss below.
During his or her lifetime, the survivor trustor was entitled to the entire net income
of all three subtrusts, as well as “such sums out of the principal as the Trustee deem[ed]
reasonably necessary for the Survivor’s proper support . . . .”
2. Distribution of Trust A (Survivor Trust)
The distribution of the Trust A fund after the death of the survivor depended on
whether Maryon or Robert died first. Article III, paragraph 4 provided that if Maryon
was the survivor trustor, she would retain the right to revoke Trust A and to make any
future provision for the distribution of the Trust A fund, but if the survivor was Robert,
then “Trust A shall be irrevocable and no person shall have the power to alter amend,
modify or revoke the same.”
If Robert was the survivor trustor, the trust instrument gave him a limited power of
appointment with respect to Trust A assets which was conferred by the following
language in paragraph 6 of Article III:
“Upon the death of the Survivor, if the Trustor husband is the Survivor, Trust A
shall terminate and the Trustee shall distribute and deliver the balance of Trust A then
remaining (including both principal and any accrued or undistributed income) to such one
or more natural persons from the class composed of the Trustor wife’s son, PETER L.
FUNSTEN, and the issue of PETER L. FUNSTEN living at the time of the death of the
Survivor, and on such terms and conditions, either outright or in trust, as the Survivor
appoints by his last valid will (whether admitted to probate or not) specifically referring
to and exercising this limited power of appointment, whether such will is executed before
or after the death of the first of the Trustors to die; provided, however, that the Trustee
shall first pay out of the principal of Trust A any estate or inheritance tax attributable to
Trust A by reason of the Survivor’s death.”
Article III, paragraph 6 further provided that if Robert failed to “effectively
exercise” or only partially exercised his limited power of appointment, “any portion of
Trust A not effectively appointed by the Survivor shall be distributed in accordance with
6
the provisions of Subparagraphs 8.1, 8.3 and 8.4 of this Article.” As discussed below,
those provisions pertain to the distribution of assets from Trust C.
3. Distribution of Trusts B and C (Decedent Trust)
The disposition of the assets from Trusts B and C, which consisted of the decedent
trustor’s interest in the Trust I assets, did not depend on which trustor was the first to die.
In either case, after the death of the survivor, the two subtrusts were to be combined into
Trust C and the resulting fund was to be distributed in accordance with the provisions of
Article III, paragraph 8. Under those provisions, the deceased trustor’s interest in
(1) Robin Road was to be distributed to Peter (subparagraph 8.1); (2) the furniture and
furnishings on the downstairs level of Robin Road was to be distributed to Peter
(subparagraph 8.1); (3) the furniture and furnishings on the upstairs level of Robin Road
was to be distributed to Maryon’s daughter, Susan Meade Kennedy (Meade)
(subparagraph 8.3); and (4) the balance of any funds was to be divided equally between
Peter and Meade (subparagraph 8.4).3
4. The No-Contest Clause
Article X, paragraph 3 of the trust agreement stated, in pertinent part: “In the
event that any beneficiary of this trust, singularly or in conjunction with any other person
or persons, shall contest or in any manner attempt to defeat the validity of this trust or of
the last will of either of the Trustors or shall undertake any legal proceeding that is
designed to thwart the Trustors’ wishes as expressed herein or to seek to obtain an
adjudication in any proceeding in any court that this trust or any of its provisions or that
such will or any of its provisions are void or seek otherwise to void, nullify or set aside
this trust or any of its provisions or such will or any of its provisions, then the right of
that person to take any interest given to him by this trust shall be void and this trust shall
be administered as if that person had died without surviving issue before both of the
Trustors.”
3
Subparagraph 8.2 of Article III provided for a cash payment from the Trust C
fund to Maryon’s son Reed Funsten, if he was then living. The record contains very little
information about Reed, who plays no role in the current appeals.
7
5. The First Amendment
On January 12, 1994, Maryon passed away. She was survived by Robert, who
became the survivor trustor of Trust I and continued to act as its trustee.
On May 22, 1996, Robert executed a “First Amendment to Trust Agreement” (the
First Amendment). The First Amendment added paragraphs to the trust instrument which
designate an additional successor trustee of Trust A. While the original provisions of the
Trust I agreement designated Peter as the successor trustee, and Peter’s wife as an
alternate successor trustee, the First Amendment provided that if Robert for any reason
ceased to act as the trustee of Trust A, then Peter and his sister Meade would be
cotrustees of Trust A.
B. Robert’s Will
On April 21, 2006, Robert executed the “Will of Robert Folger Miller.” In that
instrument, Robert nominated Executors as the executors of his probate estate, exercised
his limited power of appointment, and made other directives. But, Robert did not use his
will to make any gift from his probate estate.
1. Exercise of Limited Power of Appointment
In Article III of his will, Robert exercised his limited power of appointment under
Trust I by directing that, upon his death, the Trust A fund was to be distributed and
delivered in trust to the trustees of a new trust. In Article III, paragraph 1, Robert
designated Peter and Meade as cotrustees “to act together” to administer the new trust in
accordance with paragraph 2, which stated:
“Upon my death, simultaneously with the distribution of the assets of Trust A
under [Trust I] (including both principal and any accrued or undistributed income) to the
Trustee[s] named in paragraph 1 of this Article, Trust A shall terminate and the
Trustee[s] shall distribute and deliver the trust fund as then constituted to the
beneficiaries named and in accordance with the provisions of subparagraphs 8.1 (as
modified hereinbelow), 8.3 and 8.4 of Article III of the said Trust Agreement establishing
[Trust I] . . . . With respect to the provisions of subparagraph 8.1 of Article III of the said
Trust Agreement establishing [Trust I], I intend that the gift of the furniture and
8
furnishings which were located on the downstairs level of my residence at [Robin Road],
as of the date of the death of [Maryon], or the sale proceeds therefrom, be completely and
fully satisfied by the distribution to [Peter] of the remaining items of such furniture and
furnishings located on the downstairs level of my said residence at 101 Robin Road at my
date of death together with the pecuniary gift to [Peter] under the provisions of . . . THE
ROBERT FOLGER MILLER TRUST . . . .”
The validity and actual effect of Robert’s limited appointment are not issues
presented by these appeals. Nevertheless, it is useful to clarify here what Robert
attempted to accomplish. First, he used his power to identify Meade as an additional
trustee of the Trust A fund, notwithstanding that Peter was the only successor trustee
named in Trust I. Second, Robert used his appointment power to direct a distribution of
the Trust A fund to the beneficiaries named in paragraph 8 of Article III of Trust I rather
than to one or more of the members of the class of Trust A beneficiaries set forth in
paragraph 4 of Article III of Trust I. Third, Robert used his appointment power to amend
Article III, subparagraph 8.1 of the Trust I instrument, notwithstanding the fact that
Trust I had become irrevocable upon Maryon’s death.
2. Disposition of Residue
In his will, Robert did not make a bequest or devise of any asset of his probate
estate. Instead he directed that the residue of his estate was to be added to the trust fund
of his personal trust, “THE ROBERT FOLGER MILLER TRUST” (hereafter the RFM
Trust), and was to be distributed pursuant to the terms of that instrument.
3. No-Contest Clause
The no-contest clause, the longest part of Robert’s will, began with this paragraph:
“In the event that any beneficiary under this will . . . singularly or in conjunction with any
other person or persons, contests or in any manner attempts to defeat the validity of [the
RFM] Trust, this will or [Trust I] (as modified under the terms of this will or [the RFM]
Trust) or undertakes any legal proceeding that is designed to thwart my wishes as
expressed herein or in [the RFM] Trust or to seek to obtain an adjudication in any
proceeding in any court that this will or any of its provisions or that [the RFM] Trust or
9
any of its provisions are void or seek otherwise to void, nullify or set aside this will or
any of its provisions or [the RFM] Trust or any of its provisions, then the right of that
person to take any interest given to him by this will shall be void and this will shall be
administered as if that person had predeceased me without surviving issue.”
The no-contest clause set forth a nonexclusive list of 18 possible actions that a will
beneficiary might take which were “deemed” to be a violation of the no-contest clause,
the third of which was described as follows: “3. Filing of any creditor’s claim against
my probate estate or against the trust fund of my [RFM] Trust (without regard to the
validity of such claim), or prosecuting an action based upon such claim; acting in any
adverse manner to a fiduciary in any action or proceeding to determine the character, title
or ownership of trust property or property of my probate estate.”
The no-contest clause closed with this additional provision: “Notwithstanding the
provisions of California Probate Code Section 21300 et seq., or any successor statute
thereto, it is my express intent that the foregoing no contest provision shall be construed
in such manner as to give it its broadest and most expansive application. I acknowledge
that under California Probate Code Section 21305(b), as amended from time to time,
certain pleadings or actions are considered actions that are not in violation of a no contest
clause as a matter of public policy, and to the extent any part of the foregoing no contest
clause is considered such a proceeding, it is my intent further that such pleadings or
actions be deemed by a court of competent jurisdiction to be a violation of the foregoing
no contest clause if the court determines such pleadings or actions to be frivolous or
unsuccessful. . . .”
C. Robert’s Trust
As noted, Robert directed that the residue of his probate estate was to be
distributed to the RFM Trust. In October 2007, Robert executed a final amendment and
restatement of the trust agreement for the RFM Trust. According to that restated
agreement, all assets of the RFM Trust were Robert’s separate property. Robert named
himself as trustee and Executors as his successor trustees. Beneficiaries of the RFM
Trust included Robert’s children, Therese and Paul, as well as Peter, Meade and others.
10
Robert’s trust left Peter a cash gift of $150,000, which was conditioned on Peter
accepting that gift along with any furniture from the Robin Road house that was
distributed to him from Trust I as “full and complete satisfaction” of the gift of the
furniture and furnishings from the downstairs level of Robin Road that was devised to
Peter by Robert and Maryon in Trust I. Paragraph 3.3(c) of the RFM Trust agreement
stated that if Peter were to make a claim against Trust I, the RFM Trust, or Robert’s
probate estate with respect to any furniture from Robin Road that was not available for
distribution after Robert’s death, then Robert’s pecuniary gift to Peter “shall lapse and not
be effective.”
The RFM Trust agreement also contained a no-contest clause which provided for
the invalidation of any gifts to any beneficiary who contested or attempted to defeat the
validity of any provision of the RFM Trust, Robert’s will, or Trust I as modified by
Robert.
D. Peter’s Safe Harbor Application
Robert died on February 14, 2013. In May 2013, Robert’s 2006 will was admitted
to probate without objection, and Executors were appointed, also without objection.
On August 16, 2013, Peter filed an application in probate court, seeking an order
that he would not violate the no-contest clause in Trust I by filing a petition for a judicial
determination that he is the sole acting trustee of Trust I. Peter made his application
pursuant to former section 21320.4 He alleged that he was entitled to a safe harbor
4
Former section 21320 states: “(a) If an instrument containing a no contest
clause is or has become irrevocable, a beneficiary may apply to the court for a
determination of whether a particular motion, petition, or other act by the beneficiary, . . .
would be a contest within the terms of the no contest clause. [¶] (b) A no contest clause
is not enforceable against a beneficiary to the extent an application under subdivision (a)
is limited to the procedure and purpose described in subdivision (a). [¶] (c) A
determination under this section of whether a proposed motion, petition, or other act by
the beneficiary violates a no contest clause may not be made if a determination of the
merits of the motion, petition, or other act by the beneficiary is required. [¶] (d) A
determination of whether Section 21306 or 21307 would apply in a particular case may
not be made under this section.”
11
determination notwithstanding that former section 21320 was repealed in 2010 because
Trust I became irrevocable in 1994 and the “current Probate Code only applies to
instruments that became irrevocable after January 1, 2001.” (Citing § 21315.)
The petition that Peter proposed to file alleged the following material facts: When
Maryon died, the assets of Trust I included Robin Road, all of its furniture and
furnishings, and cash and securities in accounts at Merrill Lynch and Dean Witter.
Robert violated the trust agreement by withdrawing more than $5 million from Trust A,
and Peter intended to file an action against Robert’s estate to “redress” that breach of
trust. Peter is the “duly appointed and acting Successor Trustee of Trust A within the
Trust I trust agreement.” Robert’s attempts to amend the trust and to exercise his special
power of appointment to add Meade as a cotrustee had no legal effect, but were efforts by
Robert to prevent Peter from pursuing breach of trust claims against Robert’s estate.
With his prayer for relief, Peter intended to seek judicial declarations that he is the sole
successor trustee of Trust A, and that Robert’s First Amendment and exercise of his
power of appointment were invalid. Peter also intended to request an order that if Meade
was validly appointed, she be removed as successor trustee of Trust A.5
Executors opposed Peter’s application, arguing that the relief requested in the
proposed petition violated Trust I’s no-contest clause, which explicitly prohibited a
challenge of Robert’s will.
At an October 8, 2013, hearing, the Honorable Steven L. Dylina advised the
parties that the court had independently discovered that Peter had filed creditor’s claims
against Robert’s probate estate while his safe harbor application was pending. The court
provided a “sua sponte” advisory opinion that filing the creditor’s claims likely violated
the no-contest clause in Trust I. After further discussion, the court decided not to rule
formally on that matter because it was not raised in the safe harbor application or any
other pending petition, but the court opined that the creditors’ claims raised a significant
5
Peter inadvertently filed his petition at the same time he filed his safe harbor
application. The probate court granted Peter relief from that filing mistake. This ruling
is not an issue on appeal.
12
issue for a future petition. The parties then proffered opposing views on the substantive
issue whether filing Peter’s proposed petition would violate the Trust I no-contest clause.
At the conclusion of the hearing, the court found that Peter’s proposed petition would
constitute a direct attack and a contest of Trust I.
On December 6, 2013, the court file a final order denying Peter’s application
under former section 21320 for a determination that his proposed petition would not
constitute a contest of Trust I. The order incorporated the following finding: “[U]nder
the broadly written no contest clause in the Miller Family Trust I dated October 4, 1991,
the underlying Petition for Court Determination that Peter L. Funsten is Sole Acting
Trustee of the Miller Family Trust I is a direct attack to the trust even under the prior no
contest law applicable in 1994.” (Italics omitted.)
E. Peter’s Creditor’s Claims
As the probate court observed, Peter filed two creditor’s claims against Robert’s
probate estate while his safe harbor application was pending. Those claims sought
damages resulting from actions Robert allegedly took after Maryon’s death in violation of
his fiduciary duties as trustee of Trust I.
Peter’s first claim sought damages for the withdrawal of all funds from two
investment accounts that allegedly were assets of Trust I. In support of this claim, Peter
outlined the following facts: In May 1993, Robert opened an investment account at Dean
Witter Reynolds in his capacity as trustee of Trust I which was funded with stocks valued
at more than $337,500. In June 1993, Robert opened another trust account at Merrill
Lynch, Pierce, Fenner & Smith Inc., which was funded with cash and stock valued at
more than $700,000. At the time of Maryon’s death, the Merrill Lynch account
contained approximately $2,898,697 in assets, and the Dean Witter account contained
approximately $2,612,787.93 in assets. Thereafter, “despite the fact that Trust I became
irrevocable after the death of his wife, Robert, having no authority whatsoever to do so,
withdrew all of the assets from the Dean Witter Account on or about July 1994 and
converted them for his own use.” Also, Robert allegedly “withdrew all of the assets from
the Merrill Lynch Account in or about October 1994 and converted them for his own
13
use.” Thus, Peter alleged, “as a result of his actions, Robert breached his fiduciary duty
as trustee of Trust I.”
Peter’s second creditor’s claim sought damages for the loss of furniture and
furnishings that were located on the lower level of Robin Road at the time of Maryon’s
death. Peter alleged that “Robert did not sell any of the downstairs level furniture and
furnishings. Rather, during his lifetime, and without any authority, Robert gave away
many of the downstairs level furniture and furnishings such that many valuable items are
missing or have not been returned to Trust I.” Peter further alleged on information and
belief that “Robert converted the furniture and furnishings for his own use and breached
his fiduciary duty as trustee of Trust I.”
On December 17, 2013, Executors rejected both of Peter’s claims “Entirely.”
Executors did not state any ground or provide any explanation for rejecting these claims.
F. The Executors’ Petition
In January 2014, Executors filed a petition for an order that Peter had violated the
no-contest clauses in Trust I and in Robert’s will by filing the creditor’s claims against
Robert’s probate estate. Executors argued that the provision in Robert’s will which
provides that the filing of a creditor’s claim constitutes a contest is an enforceable no-
contest clause under section 21311 of the current law. Furthermore, Executors’ reasoned,
Peter’s decision to contest Robert’s will was an express violation of the no-contest clause
in Trust I.
In his opposition, Peter argued that this case is governed by the former no-contest
law because section 21315 dictates that current law only applies to instruments that
became irrevocable after January 1, 2001, and Trust I became irrevocable in 1994.
Furthermore, according to Peter, under the former law any attempt to disinherit a
beneficiary for alleging a breach of fiduciary duty by the trustee is void as against public
policy.
On February 19, 2014, a hearing on Executors’ petition was held before the
Honorable George A. Miram. The court took the matter under submission, and, on
March 13, 2014, it filed a 13-page order pursuant to which it granted in part and denied in
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part Executors’ petition for a declaration that Peter violated the no-contest clauses in
Trust I and in Robert’s will.
The court applied the current law to determine whether Peter’s actions constituted
a contest of Robert’s will with the effect of voiding any interest that Peter acquired under
that will. The court found that under section 21311, subdivision (a)(2), the will’s no-
contest clause created a valid forced election, pursuant to which Peter was required to
choose between accepting what was bequeathed to him under the will or pursuing his
creditor’s claims, and by filing his claims Peter elected the latter course of action and
forfeited his interests under the will. In reaching this conclusion, the court also found
that, to the extent the current law continues to recognize a public policy exception for
claims against a fiduciary, that exception would not apply to Robert’s will because
Robert was never a fiduciary of his own probate estate.
The court reached a different conclusion regarding the impact of the creditor’s
claims on Peter’s status as a beneficiary of Trust I. The court found that the “plain
wording of the no contest clause in Trust I . . . would appear to include the contest of
[Robert’s] will as a contest of Trust I for purposes of the no contest clause.” However,
the court also found that the trust’s no-contest clause was not enforceable against Peter
under the circumstances presented here. Applying the former law (because the trust
became irrevocable prior to 2001), the court found that former section 21305 codified a
common law policy which protects beneficiaries from disinheritance for challenging the
actions of a fiduciary. The court concluded that this policy protected Peter from being
disqualified as a beneficiary of Trust I based on the filing of creditor’s claims which
alleged a breach of fiduciary duty by the trustee of Trust I.
In accordance with the findings summarized above, the March 2014 order ends
with this conclusion: “[T]his court finds that while [Peter] has engaged in conduct that
constitutes a contest under the terms of the no contest clause in [Robert’s] will, Peter . . .
has not engaged in conduct that constitutes a contest under the terms of the no contest
clause in Trust I.” The probate court incorporated its March 2014 order into a final
judgment which was filed on May 9, 2014.
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IV.
DISCUSSION
A. Standard of Review
These consolidated cases present three rulings for our review: the denial of
Peter’s safe harbor application; the finding that Peter’s creditor’s claims violate the no-
contest clause in Robert’s will; and the finding that Peter’s creditor’s claims do not
violate the no-contest clause in Trust I.
The parties agree our standard of review is de novo. “ ‘The standard of review
where the applicability of a no contest clause is at issue and there are no disputed facts is
de novo.’ [Citation.]” (Bradley v. Gilbert (2009) 172 Cal.App.4th 1058, 1068.)
Furthermore, the interpretation of a statute is also a question of law subject to
independent review on appeal. (Ibid.; Jenkins v. Teegarden (2014) 230 Cal.App.4th
1128, 1138.)
B. Peter Was Not Entitled to a Safe Harbor Ruling
In his first appeal, Peter contends that the denial of his safe harbor application
must be reversed because the former law applies to the no-contest clause in the Trust I
instrument, and the probate court committed legal error by concluding that Peter’s
proposed petition constituted a contest of the trust under the former law. We do not reach
the merits of this claim because we conclude that Peter was not entitled to a safe harbor
ruling under the circumstances presented here.
As noted above, Peter’s August 2013 safe harbor application was filed under
former section 21320, a statute that was repealed on January 1, 2010, and was not
replaced with a new law authorizing a safe harbor procedure. Thus, the threshold
question is whether this former statute was available to Peter in this case. Executors raise
this issue in their respondents’ brief. In reply, Peter argues that the former safe harbor
statute is available to obtain an advisory opinion on any issue arising under the former
no-contest law. We disagree.
Our starting point is section 3, the general statute governing the “applicability of
changes to the Probate Code.” (Rice v. Clark (2002) 28 Cal.4th 89, 99.) Section 3,
16
subdivision (c) states: “Subject to the limitations provided in this section, a new law
applies on the operative date to all matters governed by the new law, regardless of
whether an event occurred or circumstance existed before, on, or after the operative date,
including, but not limited to, creation of a fiduciary relationship, death of a person,
commencement of a proceeding, making of an order, or taking of an action.” “The
manifest purpose” of section 3 is “to make legislative improvements in probate law
applicable on their operative date whenever possible . . . .” (Rice v. Clark, supra, 28
Cal.4th at p. 99.)
As noted in our overview of the law, an important improvement in probate law
accomplished by the 2008 legislation was the reduction in litigation by beneficiaries that
resulted from the elimination of the safe harbor procedure. (Donkin, supra, 58 Cal.4th at
pp. 424-426.) Thus, interpreting the current law to eliminate the right to file a safe harbor
application after the operative date of the current law would advance the legislative
purpose of section 3. However, as the statutory language of section 3 reflects, the general
rule in favor of retroactive application of a Probate Code statute is subject to exceptions,
and Peter contends two of these exceptions are applicable here.
Section 3, subdivision (b) states that “[t]his section governs the application of a
new law except to the extent otherwise expressly provided in the new law.” Here, the
new no-contest law includes section 21315, which expressly provides that “[t]his part
applies to any instrument, whenever executed, that became irrevocable on or after
January 1, 2001,” but that it “does not apply to an instrument that became irrevocable
before January 1, 2001.” Thus, notwithstanding section 3, subdivision (c), the current no-
contest law applies only to instruments that became irrevocable after January 2001, and
the former law on this subject applies to instruments that became irrevocable before that
date.
However, Peter erroneously assumes that section 21315 also establishes that the
safe harbor procedure is still available to beneficiaries who seek rulings regarding the
enforceability of no-contest clauses under the former law. Section 21315 addresses the
question of what law applies to an instrument. Peter’s safe harbor application is not an
17
instrument, but a pleading (i.e., a procedural device) that he filed under a statute that had
already been repealed. Because Peter’s application is not an instrument, section 21315 is
inapposite.
Peter also attempts to invoke section 3, subdivision (g), which states: “If the new
law does not apply to a matter that occurred before the operative date, the old law
continues to govern the matter notwithstanding its amendment or repeal by the new law.”
By its clear terms, section 3, subdivision (g) applies to “a matter” if (1) the new law does
not apply to that matter, and (2) that matter “occurred” before the operative date of the
new law. A safe harbor application satisfies the first prong of this exception because the
new no-contest law does not apply to safe harbor applications. However, Peter’s safe
harbor application did not “occur” before the operative date of the new law; Peter filed
his application more than three years after the operative date of the current no-contest
law. Thus, section 3, subdivision (g) did not authorize the probate court to reach the
merits of Peter’s safe harbor application in this case.
Donkin, supra, 58 Cal.4th 412 is instructive. That case involved a family trust
established by husband and wife in 1988. (Id. at p. 415.) Husband died first. Shortly
before wife’s death in 2005, she executed a trust amendment which changed the
allocation of trust assets after her death. Both the trust instrument and its amendment
contained no-contest clauses. (Id. at p. 418.) In 2009, beneficiaries filed an application
under former section 21320, for a safe harbor ruling regarding the effect of a proposed
petition to compel the immediate distribution of trust assets pursuant to the allocation set
forth in the original trust instrument. (Id. at pp. 419-420.) When the new no-contest law
became operative in January 2010, the safe harbor application was still pending. (Ibid.)
The probate court and Court of Appeal addressed the merits of the application, accepting
the parties’ theory that a safe harbor ruling was available because the former law applied
to the trust instrument. (Id. at p. 421.) However, when the Supreme Court granted
review, it implicitly rejected that theory.
Before reaching the merits of the case, the Donkin court addressed the preliminary
question whether the trial court erred “as a procedural matter” by ruling on the safe
18
harbor application after the operative date of the 2008 legislation. (Donkin, supra, 58
Cal.4th at p. 427.) To answer that question, the court applied section 3. It considered the
general rule that “ ‘a new law applies on the operative date to all matters governed by the
new law,’ ” and it also observed that under section 3, subdivision (d), even when a
petition is filed before the operative date of a new law, “ ‘any subsequent proceedings
taken after the operative date concerning the petition . . . is governed by the new law and
not by the old law.’ ” (Donkin, at p. 427, original italics.) However, these rules did not
answer the question before the court because a safe harbor application is a “matter” that
is not governed by the new law and because the new law does not provide that an already
pending safe harbor application would be subject to dismissal after the operative date of
the new law. (Ibid.)
Ultimately, the Donkin court found its answer in section 3, subdivision (g) which,
as discussed above, authorizes application of a repealed statute “ ‘[i]f the new law does
not apply to a matter that occurred before the operative date.’ ” Since the Donkin
beneficiaries filed their application before the operative date of the new legislation that
repealed the safe harbor statute, the court found that “the cause was properly before the
probate court” under section 3, subdivision (g). (Donkin, supra, 58 Cal.4th at p. 427.)
The Donkin court went on to conduct a separate inquiry to determine what
substantive no-contest law applied to the trust instrument in that case. (Donkin, supra, 58
Cal.4th at p. 428.) To answer that question, the court applied section 21315, which, as
discussed above, limits the retroactive application of the current no-contest law to
instruments that became irrevocable on or after January 1, 2001. (Donkin, at p. 432.)
Under that statute, the court found that the current law presumptively applied because the
trust instrument became irrevocable after January 1, 2001. (Ibid.)
Donkin confirms our conclusion that the propriety of a safe harbor application is a
procedural issue which must be resolved independently of the question regarding what
substantive law governs the enforceability of the underlying no-contest clause. Indeed, in
Donkin, the trust beneficiaries were entitled to a safe harbor ruling under section 3,
subdivision (g) notwithstanding the fact that the current no-contest law applied to the
19
trust instrument at issue in that case. In this case, unlike Donkin, Peter’s safe harbor
application was not filed before the operative date of the new law. Thus, neither the
section 3, subdivision (g) exception nor any other rule we have found authorized Peter to
file his application under a statute that no longer exists.
Under these circumstances, the trial court erred by reaching the merits of Peter’s
safe harbor application. Instead, the application should have been dismissed or denied
outright.
C. Peter’s Actions Did Not Constitute a Contest of Robert’s Will
Peter’s second appeal is from the part of the May 2014 judgment which holds that
he violated the no-contest clause in Robert’s will. As discussed, the trial court found that
the current probate law applies to the no-contest clause in Robert’s will and, under that
law, Peter violated an enforceable provision of the no-contest clause which characterizes
the filing of a creditor’s claim as a contest of the will.
1. Governing Law and Issues on Appeal
Robert’s will became irrevocable when he died on February 14, 2013. Thus, the
parties agree that the enforceability of the no-contest clause in that instrument is
governed by the current law. (§ 21315.)6 However, the parties offer very different
theories about how current law should be applied to the no-contest clause in Robert’s
will.
We find in unnecessary to resolve most of these disagreements because we
conclude that Peter was not a beneficiary of Robert’s will. Regardless how the no-
contest clause is interpreted and enforced, Peter could not have violated that clause
because he is not a will beneficiary. (§ 21310, subd. (c) [“ ‘No contest clause’ means a
6
Section 21315 creates a presumption regarding the applicability of the current
law to instruments that became irrevocable after January 1, 2001, which is subject to a
“fairness” exception codified in section 3, subdivision (h). (Donkin, supra, 58 Cal.4th at
pp. 432-433.) That exception applies when “a party can show that a different result
would obtain under the former law on which the transferor relied when executing the
estate plan.” (Id. at p. 433.) Here, neither party invokes this fairness exception.
20
provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary
for filing a pleading in any court.”].)
Although the parties appear to underestimate the significance of this issue, they
both address it. Peter contends that he is not a beneficiary of Robert’s will because that
instrument did not confer any gift on him that he could be forced to forfeit by electing to
pursue a contest.7 Executors respond that Peter is a beneficiary of Robert’s will because
Robert used that instrument to (1) make Peter a monetary gift of $150,000; and
(2) exercise his limited power of appointment under Trust I to make Peter a beneficiary
of the Trust A fund. We will separately consider Executors’ two theories, neither of
which establishes that Peter is a beneficiary of Robert’s will.
2. Robert Did Not Give Peter a Monetary Gift in His Will
As reflected in our factual summary, the RFM trust created a conditional monetary
gift to Peter in the amount of $150,000. The RFM Trust is not a component of Robert’s
will. That trust is governed by its own trust agreement with its own no-contest clause.
Thus, Robert’s monetary gift makes Peter a beneficiary of the RFM Trust, not of Robert’s
will.
Executors posit that Robert’s $150,000 gift makes Peter a beneficiary of Robert’s
will because the will itself contains an expression of Robert’s “intent” that Peter’s interest
in the Robin Road downstairs furniture and furnishings would be “completely and fully
satisfied” by the remaining items of such furniture and furnishings that were distributed
to him from the Trust I estate along with the gift of $150,000 from the RFM Trust. But
Executors provide no explanation as to how Robert’s decision to express this desire in his
will alters the legal nature of the monetary gift from the RFM Trust. The relevant and
undisputable fact is that Robert did not make Peter any monetary gift from his will.
7
Peter contends that he is aggrieved by this part of the judgment even though he
has nothing to lose under the will because Executors intend to use the judicial finding that
Peter violated the will’s no-contest clause to “effectively” disinherit him from receiving
the Trust A fund. Executors do not dispute that this is their plan.
21
Executors contend that “[b]ecause [Trust I], the RFM Trust, and the Will are parts
of an integrated estate plan, the gift of $150,000 under the RFM Trust was equally a gift
under the Will.” This contention fails for at least two reasons.
First, the record does not support the characterization of these three instruments as
a single integrated estate plan. Trust I was a joint estate plan created by Robert and
Maryon to provide for the disposition of certain community property assets, primarily the
Robin Road home and its contents. The joint intent expressed in that instrument was that,
after the death of both Trustors, Peter and/or his issue would take that home and the
downstairs furniture and furnishings, and that Meade would take half or perhaps all of the
upstairs furniture or furnishings. To effectuate that joint plan, the couple agreed to limit
Robert’s power as the potential Survivor Trustor by making the trust irrevocable upon
Maryon’s death and by giving Robert only a special appointment power over the Trust A
fund, which limited the pool of potential appointees to Peter and his issue.
Unlike Trust I, the RFM Trust and Robert’s will were part of Robert’s separate
and fundamentally different estate plan. Regardless of whether Robert’s separate plan
can be reconciled with the joint plan he agreed to in the Trust I instrument, Robert was
not effectuating the joint intention of the trustors of Trust I by exercising his limited
power of appointment to distribute any part of the Trust A fund to anyone other than
Peter or his issue.
Second, Executors fail to support their legal conclusion that “the gift of $150,000
under the RFM Trust was equally a gift under the Will.” Their apparent theory is that the
provision in the will providing for the pouring over of the residue of Robert’s estate into
the RFM Trust created an integrated estate plan pursuant to which the $150,000 gift made
Peter a devisee under the will as well as the trust. This unsupported theory is inconsistent
with section 34, which states: “(a) ‘Devisee’ means any person designated in a will to
receive a devise. [¶] (b) In the case of a devise to an existing trust or trustee, or to a
trustee on trust described by will, the trust or trustee is the devisee and the beneficiaries
are not devisees.” Under this provision, Robert devised the residue of his probate estate
to the trustees of the RFM trust, not to the ultimate beneficiaries of that trust.
22
3. Robert’s Exercise of His Limited Power of Appointment Did Not
Make Peter a Beneficiary of Robert’s Will
Executors contend that Robert named Peter as a beneficiary of his will by using
that instrument to exercise his limited power of appointment to designate Peter as a
beneficiary of the Trust A fund.
a. Legal Principles
“A power of appointment is a power given by the donor of property to the donee,
which enables the donee to designate the persons (appointees) who are to take the
property at some future time. [Citations.]” (12 Witkin, Summary of Cal. Law (10th ed.
2005) Real Property, § 145, p. 202.)8 “A power of appointment can be created only by a
donor having the capacity to transfer the interest in property to which the power relates.”
(§ 620.) The donee is the “person to whom the power of appointment is given or in
whose favor a power of appointment is reserved” according to the terms of the instrument
in which the power is created. (§ 610.)
A power of appointment is “general” if it exercisable in favor of the donee, the
donee’s estate or his creditors. (§ 611.) All powers which are not general are “special.”
A “special” power (i.e. a limited power) “is one that permits the donee to appoint to a
class that does not include the donee, the donee’s estate, the donee’s creditors, or the
creditors of the donee’s estate. [Citations.]” (Witkin, supra, Real Property, § 149,
p. 206; see also § 611.)
Thus, the donee of a general power of appointment, who essentially retains
ownership of the subject property, may appoint the property to his estate, to be
administered and distributed according to his will. But when a donee exercises a special
power of appointment by disposing of the corpus of a trust in his will, “the persons
appointed by the donee take directly from the trustees and not through the estate of the
8
Rules governing the use of powers of appointment are partially codified in the
Power of Appointment Act. (§§ 600 et seq.) If an issue is not addressed in the statute,
then California follows the common law as developed in pertinent case decisions.
(§ 600; Estate of Rosencrans (1971) 4 Cal.3d 34, 39.)
23
donee of the power. [Citations.]” (Estate of Masson (1956) 142 Cal.App.2d 510, 512
(Masson); see also Estate of Baird (1955) 135 Cal.App.2d 333, 340-341 (Baird).)
Furthermore, “[i]f the donee of a discretionary power of appointment fails to
appoint the property, releases the entire power, or makes an ineffective appointment, in
whole or in part, the appointive property not effectively appointed passes to the person
named by the donor as taker in default or, if there is none, reverts to the donor.” (§ 672.)
Under this rule, which is a codification of the common law, “the property passes directly
from the donor to the ultimate takers.’ [Citations.]” (Sefton v. Sefton (2015) 236
Cal.App.4th 159, 173.)
b. Analysis
These principles establish that the Trust A fund was never an asset of Robert’s
probate estate. As donors, Robert and Maryon created a testamentary special power of
appointment with respect to the Trust A fund in Article III, paragraph 6 of the Trust I
instrument. Robert was the donee of that special power, and, to the extent Robert validly
exercised that appointment power, the person(s) appointed by him took directly from the
trustee of Trust I and not through Robert’s probate estate. (Masson, supra, 142
Cal.App.2d at p. 512; Baird, supra, 135 Cal.App.2d at pp. 340-341.) To the extent
Robert’s appointment was invalid or ineffectual, the Trust A fund would pass to the
persons that were named in Trust I as the takers in default. (§ 672.) However, in no
event would the Trust A fund have become an asset of Robert’s probate estate. Thus,
Robert could not have made Peter a beneficiary of his will simply by using that will to
exercise his limited power of appointment over a Trust I asset.
Executors contend that when Robert exercised his limited power of appointment,
he “direct[ed] the distribution and delivery of his survivor’s interest in the trust assets—
his own property.” Even if correct this conclusion does not advance respondent’s
position because (1) once Maryon passed away, the trust became irrevocable and
(2) Robert’s reserved power over the survivor’s trust was a limited or special power of
appointment. Thus, Robert did not have the power as either a trustor or a donee of the
Trust A fund to transfer that Trust I asset to himself or to his own probate estate.
24
Executors argue that in exercising his appointment power to direct the distribution
of assets from his survivor’s trust to Peter and Meade, Robert made a gift to Peter, i.e., “a
‘transfer of . . . property made voluntarily and without consideration’.” (Quoting 35
Cal.Jur.3d Gifts § 1 (Westlaw 2015).) However, as our summary of the pertinent law
reflects, the gift was made from the trustors of Trust I, it was not made by the donee of a
special power of appointment or from that donee’s probate estate. The fact that Robert
was one of the original donors of the Trust A fund does not alter the legal nature of the
special power of appointment that he subsequently exercised in his will. As a matter of
law, the exercise of that special appointment power was not a gift to Peter from Robert’s
probate estate.
In concluding that Peter engaged in conduct that constitutes a contest under the
no-contest clause in Robert’s will, the probate court reasoned that Robert’s will presented
Peter with “the forced election of either accepting the share of such assets bequeathed to
[Peter] under the terms of [Robert’s will] or pursing the creditor’s claims, recovering the
assets belonging to the trust, and then taking the share of such assets bequeathed to
[Peter] under the terms of Trust I.” However, the probate court did not find that Robert
actually bequeathed anything to Peter in the will, nor did it even consider that question.
Since Peter was not a beneficiary of Robert’s probate estate, he did not violate the
no-contest clause in Robert’s will as a matter of law. In light of this fact, the probate
court erred by granting the part of the Executors’ petition requesting an order that Peter
violated the no-contest clause in Robert’s will.
D. Peter’s Actions Did not Constitute a Contest of Trust I
Finally, we turn to Executors’ cross-appeal from the part of the judgment which
holds that Peter did not violate the no-contest clause in Trust I by filing creditor’s claims
against Robert’s probate estate. As discussed, the probate court found that (1) Peter took
an action which constituted a contest of Robert’s will and (2) a contest of Robert’s will
also constitutes a contest of the trust. However the court concluded that, under the
former law applicable to the Trust I instrument, the trust’s no-contest clause could not be
enforced against Peter for challenging the actions of a fiduciary.
25
1. Executors Have Standing
Preliminarily we address Peter’s contention that Executors do not have standing to
prosecute their cross-appeal because they have no interest in the administration of Trust I.
“Standing to appeal is jurisdictional [citation] and the issue of whether a party has
standing is a question of law [citation].” (People v. Hernandez (2009) 172 Cal.App.4th
715, 719.) To “have appellate standing, one must (1) be a party and (2) be aggrieved.
[Citations.]” (In re Marriage of Burwell (2013) 221 Cal.App.4th 1, 12-13; see also Code
Civ. Proc., § 902 [“Any party aggrieved may appeal in the cases prescribed in this
title.”].) Here, Peter contends that the only parties potentially aggrieved by the part of the
May 2014 judgment pertaining to Trust I are the beneficiaries or successor trustees of
Trust I, i.e., Peter or Meade. We disagree.
In Estate of Goulet (1995) 10 Cal.4th 1074, 1080, our Supreme Court held that
“[c]onsiderations of law and policy lead us to conclude a trustee must be permitted to
appeal an order determining a trust beneficiary’s proposed claim would not violate a
trust’s no contest clause.” (Fn. omitted.) The court reasoned that affording trustees
standing under these circumstances ensures that the trustor’s intent is not left undefended.
It also found that a trustee is “aggrieved” for purpose of standing because, like a personal
representative of an estate, the trustee has fiduciary duties to protect and defend the trust
corpus which are adversely affected by an order that a proposed action by a beneficiary
would not constitute a contest. (Id. at pp. 1082-1083.)
By a parity of reasoning, Executors have standing in this case because this part of
the judgment exposes Robert’s probate estate to potential liability. Executors are
aggrieved by the probate court’s finding that Peter was not disinherited from the trust
because that finding permits Peter to pursue claims against Robert’s probate estate arising
out of Robert’s administration of the trust, and thus implicates Executors’ ongoing
fiduciary duties to protect the assets of Robert’s probate estate.
Peter filed his creditor’s claims as the beneficiary of Trust I. If, as Executors
contend, Peter’s conduct did constitute a contest of the trust, then Peter would no longer
be a trust beneficiary, and would not be able to pursue his damages claims against
26
Robert’s probate estate. Thus, as the executors of the trustee’s probate estate, Executors
have standing to appeal an order that preserves Peter’s rights as a beneficiary of the trust
estate.
2. Governing Law and Issues Presented
Trust I became irrevocable on January 12, 1994, when Maryon died. Thus, the
parties agree that the enforceability of the no-contest clause is governed by the former
law. (§ 21315; Donkin, supra, 58 Cal.4th at pp. 432-433.) Once again though, they
disagree about whether the probate court correctly applied that law.
In conducting our review of this part of the judgment, we will focus our analysis
on two material findings that the probate court outlined in its March 2014 order:
(1) under the “plain wording” of Trust I, the filing of Peter’s creditor’s claims constituted
a contest of the trust; (2) under the former law, the no-contest clause in Trust I could not
be enforced against Peter for filing creditor’s claims which challenge the actions of a
fiduciary. As we will explain, we disagree with the first finding, but we agree with the
second.
3. The Creditor’s Claims Did Not Constitute a Contest
Under the former law, and today, no-contest clauses are strictly construed.
(Former § 21304; Donkin, supra, 58 Cal.4th at p. 422.) At the same time, however, the
intentions of the drafter control such that a court will not rewrite an instrument to
immunize a legal proceeding that was clearly designed to frustrate the expressed intention
of the trustor or testator. (Betts v. City National Bank (2007) 156 Cal.App.4th 222, 232
[“ ‘ “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.]”].)
In this case, the no-contest clause in the Trust I instrument characterizes the
following actions by a trust beneficiary as a contest: (1) any attempt to defeat the validity
of the trust or the last will of either Trustor; (2) any legal proceeding which is designed to
“thwart” the wishes of the Trustors as expressed in the trust instrument; (3) any court
proceeding which seeks an adjudication that any provision in the trust or either Trustor’s
27
will is void; (4) or any other attempt to void, nullify or set aside any provision of the trust
or either will.
Notably, the trust instrument uses different substantive language to describe
actions directed at the trust which constitute a contest than it uses to describe actions
taken against a will which constitute a contest. With respect to the trust itself, any action
which either seeks to invalidate a trust provision or to thwart an expressed wish of the
trustor is deemed to be a contest. By contrast, with respect to the will of either trustor,
only actions by a trust beneficiary which attempt to invalidate a provision in a will are
characterized as a contest of the trust. Thus, in analyzing whether Peter’s actions
constituted a contest of the trust, it is important to separately consider the impact of his
conduct on the trust and on the will.
Peter’s creditor’s claims sought damages for actions that Robert allegedly took in
his capacity as trustee of Trust I. They did not challenge the validity of any provision of
the trust instrument that established Trust I. Nor were they designed to thwart any wish
expressed by the Trustors in their trust agreement. Indeed, Peter’s claims (whether valid
or not) were explicitly intended to protect the trust, not to undermine it. Thus, Peter’s
conduct did not fall within provisions of the no-contest clause that sought to disinherit a
beneficiary for attempting to defeat the trust or thwart the Trustors’ wishes. (See, e.g.,
Johnson v. Greenelsh (2009) 47 Cal.4th 598, 604 [proposed petition did not constitute a
contest of the trust’s no-contest clause when the trust provisions would remain unchanged
and in full effect whether or not the petition was granted].)
Nor did Peter’s claims fall within provisions of the trust’s no-contest clause that
characterize an attempt to invalidate a trustor’s will as a contest of the trust. Peter’s
creditor’s claims had nothing to do with the validity of Robert’s will. Rather, Peter
sought damages from Robert’s probate estate for the allegedly wrongful removal of assets
from Trust I. By making those claims, Peter was not attempting to nullify, void or
invalidate any substantive provision of the will itself; the claims do not challenge
Robert’s nomination of his executors, exercise of his limited power of appointment, or
28
disposition of his assets. Thus, filing creditor’s claims against Robert’s probate estate
was not an attempt to invalidate a provision of Robert’s will.
Executors contend that Peter’s conduct did constitute a contest of the trust because
the “Trust’s no contest clause makes a contest of the Will a contest of the Trust.” This
argument begs the question of what constitutes a “contest of the Will.” The no-contest
clause in Robert’s will is much broader than the no-contest clause in the Trust I
instrument and, indeed, explicitly uses the act of filing of a creditor’s claim against
Robert’s probate estate as an example of a contest. However, the question we address in
this part of our discussion is not whether Peter’s conduct constituted a contest under the
will’s definition of a contest, but rather whether it constituted a contest under the trust’s
no-contest clause. As we have explained, the creditor’s claims did not seek to invalidate
any provision of Robert’s will, and thus did not constitute a contest of that will under the
trust instrument’s definition of a contest.
Evidently, the probate court was persuaded that filing a creditor’s claim falls
within the provision of the trust’s no contest clause because Robert’s will characterizes
the filing creditor’s claim as a contest of his will. That was error. The Trust I instrument
does not incorporate the will’s no contest clause by reference. Indeed, an attempt to
incorporate a future document into the trust would have been ineffectual. (Simon v.
Grayson (1940) 15 Cal.2d 531, 533.) Furthermore, Robert could not have used his will
to materially alter the definition of a contest that was set forth in the Trust I instrument.
As discussed above, Trust I became irrevocable when Maryon died. Thus Robert was
without capacity to retroactively expand the scope of the no-contest clause in the trust to
punish conduct that was not characterized as a contest under the language of the trust
instrument itself.
In their reply brief, Executors argue that even though the trust no-contest clause
does not expressly state that the filing of a creditor’s claim against Robert’s estate would
be a contest, Peter’s actions constituted a trust contest because his objective in filing
creditor’s claims was contrary to the trustors’ intent. According to Executors, the trust
instrument itself clearly expresses that it was the intention of Robert and Maryon to
29
condition Peter’s receipt of “their generous gift . . . on his compliance with their wishes
as expressed in . . . their wills.” But, as discussed, that is not what the trust instrument
stated. The trustors disavowed conduct that conflicted with their joint wishes as
expressed in the trust instrument, but they did not purport to invalidate a gift to a trust
beneficiary who opposed any wish that one of them might express in a future will.
In their reply brief, Executors also advocate for a broad construction of the trust
clause under which any act which can be construed as a contest of Robert’s will
automatically constitutes a contest of the trust as well. This argument fails for two
reasons. First, no-contest clauses are construed narrowly, and here the trust instrument’s
definition of a will contest was limited to actions which seek to invalidate a provision in
the final will of a trustor. Second, as discussed earlier, Peter was not a beneficiary of
Robert’s will and thus nothing he did constituted an actual contest of that will.
4. Disinheriting Peter Would Violate Public Policy
Even if filing a creditor’s claim against Robert’s probate estate could be construed
as a contest of the trust itself, such a provision in the Trust I instrument would not be
enforceable against Peter under the circumstances presented here.
Under the former law, a provision in a trust which purports to disqualify a
beneficiary for challenging a trustee’s breach of fiduciary duty was unenforceable as
against public policy. (Fazzi v. Klein (2010) 190 Cal.App.4th 1280, 1289 (Fazzi); see,
e.g., Estate of Ferber (1998) 66 Cal.App.4th 244, 253 (Ferber) [“[n]o contest clauses that
purport to insulate executors completely from vigilant beneficiaries violate” public
policy]; see also Hearst v. Ganzi (2006) 145 Cal.App.4th 1195, 1213-1214 (Hearst).)
Applying this former law here, the no-contest clause in Trust I was not enforceable to the
extent it purported to penalize Peter for pursuing a breach of fiduciary duty claim against
the trustee of Trust I.
On appeal, Executors concede that the former law did impose some limits on the
enforcement of a no-contest clause against a beneficiary for bringing a challenge to the
conduct of a fiduciary. But, under Executors’ interpretation of the former law,
disinheriting Peter from Trust I because of his creditor’s claims would not offend public
30
policy because his claims were “legally insufficient” to establish that Robert actually
breached any fiduciary duty.
As discussed in our overview of the law, prior to the enactment of the 2008
legislation, the no-contest law was in flux. During that period, some courts drew a
distinction between frivolous and nonfrivolous challenges to the acts of a fiduciary. (See,
e.g., Ferber, supra, 66 Cal.App.4th at p. 253; see also Hearst, supra, 145 Cal.App.4th at
pp. 1213-1214 [applying Ferber].) These courts reasoned that a beneficiary should not
be able to undermine the wishes of a trustor, as expressed in a no-contest clause, by
making a frivolous claim against a fiduciary. (Ibid.)
This distinction between frivolous and nonfrivolous challenges to the act of a
fiduciary was eliminated in 2000, when the Legislature enacted former section 21305.
As also noted in our overview, former section 21305, subdivision (b)(6) provided that,
“[n]otwithstanding anything to the contrary in any instrument, the following proceedings
do not violate a no contest clause as a matter of public policy: . . . A petition challenging
the exercise of a fiduciary power.”
Former section 21305 applied only to instruments that became irrevocable on or
after January 1, 2001. (Former § 21305, subd. (d); Hermanson v. Hermanson (2003) 108
Cal.App.4th 441, 445-446.) Thus, one could argue this former statute does not apply to
our analysis of Trust I because that instrument became irrevocable in 1994. We note
however, that at least one court has found that the reason the Legislature added former
section 21305, subdivision (b)(6) was because it believed that “the courts were guilty of
making overly broad applications” of no-contest clauses, and this statute would “make it
clear that ‘[a] pleading challenging the exercise of a fiduciary power’ was excluded.”
(Bradley v. Gilbert, supra, 172 Cal.App.4th at p. 1070.)
In any event, putting aside former section 21305, subdivision (b)(6), the pertinent
case law does not support Executors’ theory that the common law policy authorizing a
beneficiary to challenge the acts of a fiduciary only applied to claims that were “legally
sufficient.”
31
In Ferber, a will beneficiary sought a safe harbor determination that a proposed
petition to remove the executor of the decedent’s estate would cause the beneficiary to be
disinherited. (66 Cal.App.4th at pp. 248-249.) After determining that the proposed
action contravened an express provision of the will’s no contest clause, the Ferber court
focused its analysis on whether the clause itself was valid and enforceable. (Id. at
pp. 250-251.) To resolve that issue, the court balanced the competing policies. On the
one hand, the court recognized, “[n]o contest clauses that purport to insulate executors
completely from vigilant beneficiaries violate the public policy behind court
supervision.” (Id. at p. 253.) Indeed, the court found, even a no contest clause that
provides for forfeiture only if the beneficiary is unsuccessful “casts much too great of a
chilling effect on beneficiaries.” (Id. at p. 254.) On the other hand, however, California
has long embraced a policy favoring the enforcement of no-contest clauses. (Ibid.) To
accommodate both sets of policies, the Ferber court held that it would enforce “no
contest clauses against beneficiaries who attempt to oust the executor with a frivolous
challenge.” (Ibid.)
Subsequent cases applied Ferber’s frivolous challenge standard when determining
whether a no-contest clause could be used to disqualify a beneficiary for challenging the
conduct of a fiduciary. (See, e.g., Fazzi, supra, 190 Cal.App.4th at p. 1289 [“ ‘no-
contest’ clauses barring removal actions are enforceable only as to frivolous attempts to
oust an executor or trustor”]; Hearst, supra, 145 Cal.App.4th at pp. 1213-1215 [applying
Ferber’s frivolous challenge test to conclude that proposed claims would constitute a will
contest].) However, none of these cases support Executors’ theory that a beneficiary
could be disinherited for challenging the actions of a fiduciary unless he overcame some
ill-defined procedural hurdle by making a showing that his challenge was “legally
supportable.”
Executors’ factual analogy to Hearst, supra, 145 Cal.App.4th 1195 is also
unsound. That case was an appeal from an order denying beneficiaries’ application for a
safe harbor determination that they would not be disinherited if they filed a proposed
petition alleging that trustees breached their fiduciary duties by favoring remainder
32
beneficiaries over income beneficiaries. In the proposed petition, the beneficiaries
alleged that conduct which was expressly authorized by the trust instrument constituted a
breach of fiduciary duty without providing any legal support for their position. Applying
the Ferber test, the Hearst court affirmed a ruling that the proposed petition would
constitute a contest because the proposed claims clearly implicated the no-contest clause
and the undisputed facts established that the trustees did not breach their fiduciary duties
as a matter of law. (Id. at p. 1214.)
In contrast to Hearst, in this second appeal we do not evaluate the legal
implications of a beneficiary’s proposed course of action. The issue here is whether the
former law protected Peter’s right to challenge the actions of a fiduciary without risking
disinheritance by filing a creditor’s claim against that fiduciary’s estate. The filing of
such a claim is a statutory prerequisite to obtaining any relief from Robert’s estate; failure
to timely comply with the claim filing requirement bars a subsequent court action.
(§§ 9000-9002; Wilkison v. Wiederkehr (2002) 101 Cal.App.4th 822, 833-834.) Thus, in
our view, the act of filing of a creditor’s claim is not susceptible to the same frivolous
challenge test established in Ferber and applied in Hearst.9
Furthermore, Peter’s claims are qualitatively different than the proposed petition
that was analyzed by the Hearst court. The Hearst petition was based on a “bare
allegation” that the trustees breached their fiduciary duties, notwithstanding that the
challenged actions were expressly authorized by the trust instrument. (Hearst, supra, 145
Cal.App.4th at pp. 1201-1202, 1211.) Here, by contrast, Peter’s claims were supported
by allegations that Robert took assets from the Trust I estate in violation of the trust
agreement and his fiduciary duty, and that he used those assets for an improper purpose,
causing measurable damage to the trust estate. Since Executors denied Peter’s claims
without explanation, the probate court was willing to assume they were valid. Although
9
In retrospect, Ferber and its progeny can be viewed as a response by the courts
to a perceived misuse of the safe harbor procedure by litigious beneficiaries. The
judgment at issue in this second appeal has nothing to do with that safe harbor procedure.
33
we need not go that far, this record does not support the conclusion that Peter’s claims
were frivolous.
Belatedly, Executors contend that Peter’s claims were indeed frivolous. First, they
argue that Robert removed funds from trust accounts because they were his separate
property, which he only mistakenly placed in the trust to begin with. To support this new
theory, Executors rely on evidence that was not before the probate court that decided this
petition. That evidence has no bearing on our review of the appealed judgment.
As for Peter’s second claim pertaining to the missing furniture from Robin Road,
Executors point out that the Trust I instrument authorized Robert to sell those assets so
long as he gave the proceeds to Peter or his issue. Executors then postulate that Peter
would have to prove that a $150,000 gift that Robert made to Peter was inadequate to
cover any missing furniture. However, Peter alleged that Robert did not sell the
furniture, but disposed of it in a way that was not authorized by the trust instrument.
Furthermore, Executors overlook the fact that the $150,000 gift was given to Peter from
the RFM trust. The RFM trust has nothing to do with the creditor’s claims that Peter
filed against Robert’s probate estate to recover damages caused by Robert’s alleged
breach of his fiduciary duties as trustee of Trust I.
For all of these reasons, we affirm the probate court’s conclusion that Peter has not
engaged in conduct that constitutes a contest under the terms of the no-contest clause in
Trust I.
V.
DISPOSITION
In the December 2014 order, the finding that Peter’s proposed petition constituted
a contest of Trust I is reversed. The order denying Peter’s safe harbor application is
otherwise affirmed.
The May 2015 judgment is reversed and this matter is remanded to the probate
court with directions to modify its findings in its March 13, 2014 order to the extent they
conflict with our conclusions above, and to enter a new judgment denying Executors’
34
petition for a determination that Peter violated the no-contest clauses in Trust I and in
Robert’s will.
The parties are to bear their own costs on appeal.
_________________________
RUVOLO, P. J.
We concur:
_________________________
REARDON, J.
_________________________
RIVERA, J.
35
Filed 8/25/16
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FOUR
PETER L. FUNSTEN,
Plaintiff and Appellant, A140941
v. (San Mateo County
WELLS FARGO BANK, N.A. et al., as Super. Ct. No. PRO 123635)
Executors,
Defendants and Respondents.
Estate of ROBERT FOLGER MILLER,
Deceased.
A141853
GEORGE R. BIANCHI et al., as
Executors, (San Mateo County
Super. Ct. No. PRO 123216)
Petitioners and Appellants,
v. ORDER CERTIFYING OPINION
PETER L. FUNSTEN, FOR PARTIAL PUBLICATION
Objector and Appellant. [NO CHANGE IN JUDGMENT]
THE COURT:
The written opinion, which was filed on August 1, 2016, was not certified for
publication in the Official Reports. After the court’s review of a request under California
Rules of Court, rule 8.1120(a), for partial publication, and good cause established under
rule 8.1105, it is hereby ordered pursuant to rule 8.1110 that the opinion should be
published in the Official Reports.
*
Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is
certified for publication with the exception of parts IV.C. and IV.D.
1
IT IS SO ORDERED.
DATED: ______________________ __________________________
RUVOLO, P. J.
2
Trial Court: San Mateo County Superior Court
Trial Judges: Hon. Steven L. Dylina
Hon. George A. Miram
Counsel for Appellant and Objector: Aaron, Riechert, Carpol & Riffle, Charles M.
Riffle, Melissa R. Karlsten, Matthew R. Owens
Farella Braun + Martel, Kelly A. Woodruff
Crist, Biorn, Shepherd & Roskoph, Kristopher
W. Biorn
Counsel for Respondents and Reed Smith, Paul D. Fogel
Petitioners:
Anderson Yazdi, Hwang, Minton + Horn,
John D. Minton, Steven D. Anderson
A140941 & A141853, Funsten v. Wells Fargo Bank
3