Gaynor v. Jones CA4/1 ( 2022 )

Filed 9/6/22 Gaynor v. Jones CA4/1
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
DOROTHY W. GAYNOR et al., D078893
Plaintiffs and Appellants,
v. (Super. Ct. No. PN16579)
MARILYNN JONES,
Defendant and Respondent;
CITY NATIONAL BANK, as Trustee,
etc.,
Real Party in Interest and
Respondent.
APPEAL from an order of the Superior Court of San Diego County,
Julia C. Kelety, Judge. Affirmed.
Witham Mahoney & Abbott, Daniel W. Abbott and Michael A Leone for
Plaintiffs and Appellants.
Beamer, Lauth, Steinley & Bond, Stephen A. Bond for Defendant and
Respondent.
No appearance for Respondent. Real Party in Interest, Albence &
Associates, David Scott Pawlowski.
Plaintiffs and appellants Dorothy W. Gaynor,1 Michelle E. Gaynor,
Michael D. Gaynor, and Max Gaynor (collectively, appellants), appeal an
order denying their first amended petition for an order construing the terms
of a trust and instructing the trustee regarding allocation of the trust income.
The trust provided that upon the trustor’s death, the trust estate would be
divided into three equal shares, one for each of the trustor’s three children.
The trust further instructed how those shares would be subdivided into
subshares among the issue of each of the three children. The dispute in this
case concerns what happens with a subshare belonging to one of the trustor’s
children’s issue (the trustor’s grandchild or great-grandchild, etc.) who dies
without issue of their own. Appellants contend that the subshare should be
subdivided, by right of representation, among the issue of the trustor’s child
from whom the deceased beneficiary descended such that the deceased
beneficiary’s subshare would remain in the family branch of that trustor’s
child, thus maintaining an equal one-third division of the trust estate within
that branch of the family. Defendant and respondent Marilynn Jones, one of
Edwin’s grandchildren belonging to the most populous family branch,
contends that the deceased beneficiary’s subshare should be subdivided
among the trustor’s three children, by right of representation, i.e., it would be
distributed among the trustor’s three children’s family branches, thus
altering the equal one-third division of the trust estate among the three
branches.
1 Because this matter involves many family members with the same last
name, we refer to them initially by their first and last names, and thereafter
by first names only.
2
Based on the language of the trust, we agree with respondent. We
therefore affirm the trial court’s order denying appellants’ petition.
FACTUAL AND PROCEDURAL BACKGROUND
A. Relevant Versions of the Trust
1. Original Trust
The trust at issue is the Bulen Trust, created by the trustor Edwin
Bulen in 1968. The original version of the trust provided that upon Edwin’s
death, after annual payments to his wife, the trustee shall pay the net income
of the trust estate “to the children of the Trustor or to their issue upon the
principle of representation, until the Trust Estate is distributed as set forth
below.” The trust then provided that upon the later of the death of Edwin’s
last surviving child or the death or remarriage of Edwin’s wife, “the Trustee
shall distribute the Trust Estate in equal shares to the grandchildren of the
Trustor, then living.” The trust would terminate 21 years after the death of
Edwin’s last child or grandchild who was living at the time of Edwin’s death,
at which time “[a]ll principal and undistributed income of any trust so
terminated shall be distributed to the then living grandchildren of the
Trustor as set forth herein.”
2. Second Amendment
The second amendment of the trust was a complete restatement. The
second amendment provided that upon Edwin’s death, after paying Edwin’s
debts, expenses and taxes arising from his death, a fixed amount to a school
district, and annual payments to Edwin’s wife, the trust was to be distributed
as follows:
“2.6 The Trustee shall thereupon divide the remaining
trust estate into as many equal shares as will allow the
Trustee to set apart one such share for each then living
child of the Trustor and one such share for the collective
then living issue of each such child of the Trustor who shall
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have previously died. Each share set apart for the
collective living issue of a previously deceased child of the
Trustor shall be further divided and set apart into
subshares for such deceased child’s issue, by right of
representation.”
The trust provision at issue is paragraph 2.7 of the second amendment,
which remained unchanged through subsequent amendments:
“2.7 In addition, unless the death of one of the persons
designated in Paragraph 2.6 or in this Paragraph 2.7 is the
terminating event for all trusts established by this
Declaration of Trust, the Trustee shall, upon the death of
each of said persons and upon the subsequent deaths of
each of their issue (for whose benefit subshares are hereby
set apart), subdivide and further subdivide said shares and
subshares into as many subshares as will allow the Trustee
upon the death of each of such persons and each of their
issue to set apart the same into subshares for the benefit of
his or her then living issue, by right of representation, or in
default of issue into subshares for the benefit of the
Trustor’s then living issue, by right of representation.”
Paragraph 2.10 of the second amendment provided that the trust would
terminate on the 21st anniversary of the death of the final survivor of Edwin,
Edwin’s wife, Edwin’s children, and Edwin’s issue living at the time of
Edwin’s death. At termination, “the principal of the trusts shall be
distributed to the persons then entitled to the income therefrom, if then
living, or if any such person is then deceased to his or her issue, by right of
representation, or in default of issue, to the Trustor’s then living issue, by
right of representation, or in default of then living issue of the Trustor to said
School District to be added to said Fund.”
The second amendment defined the term “issue” to refer to “lineal
descendants of all degrees of consanguinity of the person or persons to whom
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reference is made, and shall include adopted persons, provided they are
legally adopted before attaining the age of ten years.”
3. Third and Fourth Amendments
The third amendment changed the successor trustee from Edwin’s
three children William H. Bulen, James A. Bulen, and Mary C. Wilmot, to his
three children as well as his wife and his attorney John Wilson Brown (Mr.
Brown).
The fourth amendment established that the successor trustees would
be Edwin’s son William, then Edwin’s accountant, then San Diego Trust &
Savings Bank.
4. Fifth Amendment
The fifth amendment changed paragraph 2.6 to read as follows:
“2.6 Subject to the provisions of 2.42 hereinabove, the
Trustee shall thereupon divide the remaining trust estate,
or all thereof if the Trustor’s wife fails to survive him, into
as many equal shares as will allow the Trustee to set apart
one such share for each then living child of the Trustor and
one such share for the collective then living issue of each
such child of the Trustor who shall have previously died.
Each share set apart for the collective living issue of a
previously deceased child of the Trustor shall be further
divided and set apart into subshares for such deceased
child’s issue, by right of representation.”
5. Sixth Amendment
The sixth and final amendment established that Edwin would be the
trustee, but his son William would be special trustee with respect to the
trust’s interest in the Escondido Village Mall. Upon Edwin’s inability to
serve as trustee, William would also cease to act as special trustee. The
2 Paragraph 2.4 referred to paying Edwin’s debts, and expenses and
taxes arising from his death.
5
successor trustees would be Edwin’s son William, then Edwin’s accountant,
then San Diego Trust & Savings Bank.
B. The Family Tree
At the time Edwin restated the trust by the second amendment in
1975, Edwin’s three children were still living. William had two children and
one grandchild; James had five children and two grandchildren; and Mary
had three children and no grandchildren.
At the time Edwin executed the sixth and final amendment in 1976,
only James’s family had increased in size; James had seven children and
seven grandchildren.
As far as we are able to ascertain from the record on appeal, the
current makeup of the family, not reflecting those individuals who are
deceased, is as follows:
(1) William has two children, Richard K. Bulen and Neal B. Bulen.
Richard has one son, Christopher Bulen. Neal has no children.
(2) James has seven children, Ann E. DeChairo-Marino, James Steven
Bulen (James S.), Phillip William Bulen, James Arthur Bulen, Jr. (James
Jr.), Jessica Noelle Bulen, E.H. Bulen, and respondent Marilynn Jones.
James has seven grandchildren.3
(3) Mary has three children, Dorothy, James Wilmot (James W.), and
Catherine Wilmot. Dorothy has three children, Michelle, Max, and Michael.
Neither James W. nor Catherine has children.
C. Previous Distributions of Shares and Subshares
Edwin died in 1983, at which time the trust became irrevocable. Each
of Edwin’s three children was alive at the time of Edwin’s death and each was
3 It is unclear which of James children have children. This information
is not relevant or necessary for our analysis.
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entitled to an equal one-third share of the trust estate pursuant to paragraph
2.6. However, both William and James disclaimed their interests in the trust
and their shares passed to their children.
Pursuant to paragraph 2.6, James’s share was subdivided into
subshares for each of his living issue, by right of representation. Thus, Ann,
James S., Phillip, James Jr., Jessica, E.H., and Marilynn each received equal
one-seventh subshares of James’s one-third share of the trust estate.
William’s share was subdivided into subshares for each of his living
issue, by right of representation. Thus, Richard and Neil each received equal
one-half subshares of William’s one-third share of the trust estate.
Mary received her one-third share of the trust estate.
Richard died in 1997, at which time his only living issue, Christopher,
received Richard’s subshare.
William’s son Neal died in 1998, with no issue. The dispute in this case
concerns the proper distribution of Neal’s subshare. To resolve the dispute,
we must interpret paragraph 2.7 of the trust, as applied to the circumstance
where a beneficiary dies without issue. Neal’s subshare was ultimately
subdivided among Edwin’s then living issue, by right of representation—i.e.
to Edwin’s three children’s family branches. Thus, Mary received one-third of
Neal’s subshare, each of James’s children received an equal one-seventh
share of one-third of Neil’s subshare, and William’s only living issue,
Christopher, received one-third of Neal’s subshare.
Mary died in 2013, at which time her share was subdivided into equal
subshares for each of her children, James W., Catherine, and Dorothy.
D. Trial Court Proceedings
Appellants filed a petition on December 2, 2019, seeking an order
construing the trust terms pertaining to the allocation of subshares upon the
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death of a beneficiary without living issue. Appellants filed a second
amended petition on July 24, 2020, seeking an order (1) construing the trust
terms for allocation of subshares upon the death of a beneficiary without
living issue, and (2) instructing the trustee regarding allocation of income.
Appellants alleged that paragraph 2.7 should be construed as providing
that when a beneficiary dies without living issue, that beneficiary’s subshare
is to be subdivided, by right of representation, among the remaining issue of
Edwin’s child from whom the deceased beneficiary descended. For example,
Mary’s child James W. has no children. If James W. were to die with no
children, appellants alleged that his subshare should be subdivided only
among Mary’s living issue, by right of representation. Thus, Catherine and
Dorothy would both receive an equal one-half of James’s subshare. If, on the
other hand, a beneficiary were to die with living issue, that beneficiary’s
subshare would be subdivided among the deceased beneficiary’s living issue,
by right of representation. For example, when Dorothy dies, her subshare
would be subdivided into equal one-third subshares for Michelle, Max, and
Michael.
Respondent agreed that when a beneficiary dies with issue, that
beneficiary’s subshare is to be subdivided into subshares for that beneficiary’s
living issue, by right of representation. However, she disagreed as to how a
beneficiary’s subshare is to be distributed if the beneficiary dies without
living issue. Respondent maintained that when a beneficiary dies without
issue, that beneficiary’s subshare is to be subdivided among all of Edwin’s
living issue, by right of representation. For example, when Neal died, his
subshare was subdivided into three subshares that were allocated to Edwin’s
living issue, by right of representation: (1) one to Mary; (2) one among
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James’s seven children; and (3) one to Christopher, who was William’s only
living issue.
Appellants contended that paragraph 2.7 of the trust required that the
subshare of a deceased beneficiary revert to all of Edwin’s living issue, by
right of representation, only if the deceased beneficiary were the last living
issue of Edwin’s child from whom the deceased beneficiary descended. For
example, Christopher has no issue and is the last remaining living issue of
William. If Christopher were to die without issue, his subshare would be
subdivided among Edwin’s living issue, by right of representation.
Focusing on paragraph 2.6, appellants contended that the “dominant
purpose” of the trust was to divide the trust estate into equal shares set apart
for each of Edwin’s three children, to ensure equality among the three family
branches regardless of the disparity as to the number of issue within each
child’s family branch. Appellants further argued that this dominant purpose
must be given effect as long as a family branch exists. According to
appellants, respondent’s interpretation of the trust would dispense with the
equal share structure, in violation of the dominant purpose of the trust. To
support their position, appellants submitted a letter that William wrote to
James in December 2001 purporting to explain Edwin’s intent to create equal
shares set apart for each of Edwin’s three children. In his letter, William
stated “[e]vidently you do not remember the way our dad set up his trust. He
originally set it up so the grandchildren inherited equally. I pointed out that
each family should inherit equally and he changed it.” Appellants
emphasized that Edwin and William had a particularly close relationship, as
shown by the trust amendments appointing William as the trustee.
Respondent argued that the terms of the trust had previously been
examined and applied in accordance with respondent’s interpretation of the
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disputed provision. When Richard died, his subshare was distributed to his
issue, Christopher. When Neal died without issue, his subshare was
subdivided and distributed to all of Edwin’s living issue, by right of
representation, and not solely to the living issue of William. Respondent
argued that the language of paragraph 2.7 requires that when a beneficiary
dies without issue, that beneficiary’s subshare must be distributed, by right
of representation, among all of Edwin’s living issue. Respondent
acknowledged that the second amendment required “an initial allocation in
equal shares among the three families of the children of [Edwin],” but argued
that “there is no sound basis in law or fact for extrapolating from that initial
division of the Trust estate a ‘dominant’ purpose to hold those equal shares
for so long as there are descendants of a child in existence.” According to
respondent, the second amendment “does not retain equal shares among the
three families over time.”
Respondent contended that the plain meaning of the words in
paragraph 2.7 are not sufficiently ambiguous to support resorting to extrinsic
evidence to explain the trustor’s intent. Nonetheless, respondent argued that
a February 4, 1997 letter written by Edwin’s attorney, Mr. Brown, who
drafted the trust instruments, was more persuasive than William’s letter,
with respect to Edwin’s intent. In his letter to the trustees, the Mr. Brown
wrote:
“Under paragraph 2.7 of the Second Amendment, upon the
death of any one of the initial trust beneficiaries, the
Trustee is directed to subdivide his or her trust into
subshares for the benefit of that deceased’s [sic] initial
beneficiary’s issue, by right of representation, or if that
beneficiary leaves no issue, then it is to be set apart instead
for the benefit of Edwin S. Bulen’s then living issue, by
right of representation.”
10
In a subsequent letter dated July 18, 1997, following the death of
Richard, Mr. Brown referred to his February 4, 1997 letter stating:
“The succession of interests of beneficiaries upon their
death is covered on page 4 of that letter by way of reference
to paragraph 2.7 of the Second Amendment. As to current
trust beneficiaries who leave no issue, the shares are
reallocated among Ed Bulen’s then living issue, by right of
representation.”
Respondent argued that Mr. Brown was best acquainted with Edwin’s
intent because he prepared the trust instruments, maintained a client
relationship with Edwin for nine years after execution of the second
amendment, and counseled the trustees as to the administration of the trust
for 21 years after Edwin’s death.
Respondent also argued that appellants’ proposed redistribution of
Neal’s share to William’s family branch, rather than among Edwin’s issue by
right of representation, which is what was done when Neal died in 1998, is an
action to remedy an alleged breach of the terms of the trust, and is barred by
the three-year statute of limitations under Probate Code section 16460.
The trial court denied appellants’ petition, disagreeing with their
contention that the dominant purpose of the trust was to create three equal
shares for Edwin’s three children’s families. Instead, the court concluded
that dominant purpose of the trust appeared to be that the trust go on for as
long as possible. The court did not believe that Edwin intended to effectively
create three trusts going forward and did not read the trust as setting forth
appellants’ proposed dominant purpose “in any clear manner.” Looking to
the text of paragraph 2.7, the court extrapolated the question of what
happens to a beneficiary’s share when they die and found that the trust
instructs that if a beneficiary dies without issue, his or her share is to be
subdivided among Edwin’s then living issue. The court considered all
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extrinsic evidence and ordered that “each piece of evidence offered is given
it’s appropriate weight,” but did not specify whether, or how, any item of
evidence had impacted the court’s ruling.
DISCUSSION
Appellants argue that Edwin’s intent was for equal shares of the trust
estate to be set apart for each of his three children’s family branches until
such time as a child no longer has living issue within his or her branch.
Specifically, appellants contend that the language in paragraph 2.6 shows
that the trust’s “dominant purpose” was to divide Edwin’s estate equally
among his three children and to maintain this equal division for as long as
each family branch exists. Appellants further contend that paragraph 2.7,
which establishes the procedure for redistribution of shares and subshares,
must be interpreted in a manner that maintains the three separate, equal
shares as established in paragraph 2.6.
Respondent contends that when a beneficiary dies without issue, that
deceased beneficiary’s subshare is to be distributed among all of Edwin’s
living issue, by right of representation, which would alter the equal shares
initially set apart for Edwin’s three children’s family branches. Respondent
also argues that appellants’ petition is barred by the statute of limitations.
Based on the language of the trust, we agree with respondent’s
interpretation. We therefore affirm the trial court’s order denying appellants’
first amended petition seeking to enforce their interpretation of the trust.
Because we affirm the trial court’s order denying appellants’ first amended
petition on the merits, we need not reach respondent’s statute of limitations
arguments.
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A. Applicable Law
In construing trust instruments, as in the construction and
interpretation of all documents, the duty of the court is to first ascertain and
then, if possible, give effect to the intent of the maker. (In re Estate of Gump
(1940) 16 Cal.2d 535, 548 (Gump).) “The intention of the transferor as
expressed in the instrument controls the legal effect of the dispositions made
in the instrument.” (Prob. Code, § 21102, subd. (a).) “The words of an
instrument are to receive an interpretation that will give every expression
some effect, rather than one that will render any of the expressions
inoperative. . . .” (Prob. Code, § 21120.) “All parts of an instrument are to be
construed in relation to each other and so as, if possible, to form a consistent
whole. If the meaning of any part of an instrument is ambiguous or doubtful,
it may be explained by any reference to or recital of that part in another part
of the instrument.” (Prob. Code, § 21121.) “The words of an instrument are
to be given their ordinary and grammatical meaning unless the intention to
use them in another sense is clear and their intended meaning can be
ascertained.” (Prob. Code, § 21122.)
“If the language of the instrument clearly sets forth the intent, the
court does not consider extrinsic evidence; it only looks to extrinsic evidence
in the event of an ambiguity.” (Trolan v. Trolan (2019) 31 Cal.App.5th 939,
949.) “The court can also consider extrinsic evidence regarding the
circumstances under which the trust was made, in order to interpret the
trust instrument, but not to give it a meaning to which it is not reasonably
susceptible. [Citation.] However, if the court can ascertain the testator’s
intent from the words actually used in the instrument, the inquiry ends.”
(Ibid.)
13
“The interpretation of a will or trust instrument presents a question of
law unless interpretation turns on the credibility of extrinsic evidence or a
conflict therein.” (Burch v. George (1994) 7 Cal.4th 246, 254.) Because our
resolution of this matter does not turn on a conflict in or credibility of
extrinsic evidence, we apply the de novo standard of review.
B. Analysis
The language of the trust is unambiguous and clearly sets forth the
Edwin’s intent. There is thus no need to resort to extrinsic evidence in
interpreting the trust. We therefore do not address the parties’ arguments
regarding William’s December 2001 letter, offered by appellants, or Mr.
Brown’s February 4, 1997 and July 18, 1007 letters, offered by respondent.
Appellants urge that the dominant purpose of the trust as expressed in
paragraph 2.6 “was to divide Edwin’s estate equally between the three (3)
family branches represented by each of his children, until such time as one of
his children’s family branches ceased to exist for want of issue.” Appellants
contend that this dominant purpose is demonstrated by Edwin’s restatement
in the second amendment, which provided that upon his death, the trust
assets were to be distributed in equal shares to his three children.
Appellants note that, at the time of the second amendment, there was a
substantial disparity as to the number of issue within each child’s family
branch. Appellants argue that Edwin was aware that this would result in his
children’s issue receiving unequal subshares, but he nonetheless chose to
provide for the division of his estate into thirds—one third for each of his
three children’s family branches.
Quoting Estate of Goyette (2004) 123 Cal.App.4th 67, 73 (Goyette),
appellants argue that “ ‘ “[o]nce the testamentary scheme or general intention
[of a trust] instrument is discovered, the meaning of particular words and
14
phrases is to be subordinated to this scheme, plan or dominant purpose.” ’ ”
In Goyette, the court was called upon to interpret the testator’s intent with
respect to the meaning of the term “my money.” (Id. at p. 68.) The appellant
argued that “money” as used in the will included only cash and bank
accounts, but did not include investments. (Id. at p. 71.) The Court of Appeal
disagreed. (Ibid.) In reaching this conclusion, the court began by noting that
the term “money,” standing alone, is ambiguous. (Ibid.) “Given the inherent
ambiguity of the term ‘money,’ ” the court turned to other rules of
interpretation, including the principle on which appellants in this case rely—
that the meaning of particular words and phrases is to be subordinated to the
scheme, plan, or dominant purpose of the trust. (Id. at p. 73.)
The court in Goyette ascertained from the face of the will a general
scheme to benefit two beneficiaries because the will named those two
beneficiaries only and singled them out to receive all of the testator’s real
property and “money.” (Goyette, supra, 123 Cal.App.4th at p. 73.) The court
concluded that, in line with this general scheme, it made sense that the
testator’s use of the term “my money” included all of his financial assets,
including cash and bank accounts, as well as treasury bills, a money market
account, and savings bonds. (Id. at p. 73.) The court reasoned that if “my
money” were limited to the testator’s cash and bank accounts, then almost
half of his estate would pass through intestacy, which is contrary to the
strongly favored policy that wills be construed in a manner that avoids
intestacy. (Id. at p. 74.) “Given the ambiguity in the term ‘my money,’ the
readily apparent scheme in the will to benefit [the only two beneficiaries
named in the will], and the preference against estate passing through
intestacy whenever possible,” the court concluded that the term “my money”
included all of the testator’s assets. (Id. at pp. 74-75.)
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We decline to subordinate the words of the trust to appellants’ proposed
dominant purpose, for a number of reasons. First, unlike in Goyette,
appellants have not identified any term in the trust, or in paragraph 2.7 in
particular, that is ambiguous. While paragraph 2.7 could be clearer, we find
no ambiguity in the terms of the trust. Second, there is nothing in the trust
that constitutes a clear expression of an intent on Edwin’s part that each of
his three children’s family branches maintain equal shares of his estate until
one of his children has no remaining issue within his or her family branch.
We will not interpret the terms of the trust in a manner to enforce a
purported intent or “dominant purpose” that is not ascertainable from the
face of the trust. (Gump, supra, 16 Cal.2d at p. 548 [the first step in
construing a trust instrument is to ascertain the trustor’s intent].) While we
agree that paragraph 2.6 clearly establishes Edwin’s intent that upon his
death, his estate be divided into equal shares for his three children or, if a
child were deceased, the collective living issue of that child, there is no clear
expression in the trust—in paragraph 2.6 or elsewhere—that Edwin intended
to preserve this equal division until such time as a family branch ceased to
exist.
This conclusion is substantiated by the fact that the only interpretation
that would preserve the equal division for as long as each family branch
exists, would also result an outcome much less likely to have been intended
by Edwin. Specifically, pursuant to the language of paragraph 2.7, as we will
explain, if we were to interpret the trust such that when a beneficiary dies
with no issue, his or her subshare is subdivided only among the issue of
Edwin’s child from whom the deceased beneficiary descended, thereby
keeping that subshare within that family branch and maintaining the equal
division among Edwin’s three children, that would also mean that when a
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beneficiary dies with his or her own issue, his or her subshare would similarly
be subdivided to all of the issue of Edwin’s child from whom the deceased
beneficiary descended, rather than among only the deceased beneficiary’s
own issue.
Paragraph 2.7 provides:
“In addition, unless the death of one of the persons
designated in Paragraph 2.6 or in this Paragraph 2.7 is the
terminating event for all trusts established by this
Declaration of Trust, the Trustee shall, upon the death of
each of said persons and upon the subsequent deaths of
each of their issue (for whose benefit subshares are hereby
set apart), subdivide and further subdivide said shares and
subshares into as many subshares as will allow the Trustee
upon the death of each of such persons and each of their
issue to set apart the same into subshares for the benefit of
his or her then living issue, by right of representation,
or in default of issue into subshares for the benefit of the
Trustor’s then living issue, by right of representation.”
(Italics and bold added.)
“Issue,” as defined in the second amendment, refers to “lineal
descendants of all degrees of consanguinity of the person or persons to whom
reference is made, and shall include adopted persons, provided they are
legally adopted before attaining the age of ten years.”
When a trust calls for property to be distributed “by right of
representation,” Probate Code section 246 provides that the property “shall
be divided into as many equal shares as there are living children of the
designated ancestor, if any, and deceased children who leave issue then
living. Each living child of the designated ancestor is allocated one share,
and the share of each deceased child who leaves issue then living is divided in
the same manner.”
17
The two references in paragraph 2.7 to distribution to “living issue, by
right of representation” contemplates two different scenarios: (1) setting
apart subshares for the benefit of his or her then living issue, by right of
representation (when “his or her then living issue” exist); and (2) in default of
issue, setting apart subshares for the benefit of the Trustor’s then living
issue, by right of representation (when there is no “his or her then living
issue” in existence). Thus, the two scenarios implicate two “designated
ancestors” whose shares will be distributed by right of representation.
Appellants argue that the second reference in paragraph 2.7 to
distribution to “living issue, by right of representation” (the second scenario)
identifies “the Trustor”—i.e., Edwin—as the designated ancestor. We agree.
The second scenario instructs that a subshare shall be set apart for the
benefit of “the Trustor’s then living issue, by right of representation.” (Italics
added.) Appellants contend that this scenario is triggered only if the
designated ancestor implicated by the first reference to distribution to “living
issue, by right of representation,” dies without living issue. Again, we agree.
The second scenario is triggered “in default of issue,” referring to the
designated ancestor implicated in the first reference to “living issue, by right
of representation.” (Italics added.) Thus, when determining what triggers
the second scenario, i.e., when a deceased beneficiary’s subshare will be
distributed among all of Edwin’s issue, the question is to whom “his or her”
refers.
Appellants argue that the designated ancestor in the first reference to
distribution to “living issue, by right of representation,” (the first scenario) is
each of Edwin’s three children. That is, “his or her” must refer to Edwin’s
three children. We disagree and instead conclude that “his or her” refers to
whomever died. We explain our reasoning by first demonstrating the flaw in
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appellants’ proposed interpretation. We then demonstrate that the language
of the trust supports our interpretation.
If the designated ancestor for purpose of the first reference to
distribution to “living issue, by right of representation,” is each of Edwin’s
children, appellants would obtain the result they seek. In the second
scenario, if a beneficiary were to die with no living issue, and Edwin’s child
from whom the deceased beneficiary descended (assuming that is the
designated ancestor in the first reference to distribution to “his or her then
living issue, by right of representation,”) has no living issue, then the
deceased beneficiary’s share will be distributed among all of Edwin’s then
living issue, by right of representation. For example, if Christopher were to
die, William would have no remaining living issue, and Christopher’s
subshare would be distributed among Edwin’s then living issue, by right of
representation: (1) One-half among James’s seven children; and (2) One-half
among Mary’s three children, Catherine, James, and Dorothy.
In the first scenario, if a beneficiary were to die with no issue, but
Edwin’s child from whom the deceased beneficiary descended (assuming, as
appellants posit, that is the designated ancestor in the first reference to
distribution to “his or her then living issue, by right of representation”) has
living issue, then the deceased beneficiary’s share would be subdivided
among that child’s then living issue, by right of representation. For example,
if Catherine were to die, her subshare would be subdivided between Mary’s
then living issue by right of representation: (1) One-half to James; and (2)
One-half to Dorothy.
Thus, a deceased beneficiary’s share would be distributed among
Edwin’s then living issue, by right of representation (i.e., the second scenario
would be triggered) only if Edwin’s child from whom the deceased beneficiary
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descended (again, assuming that is the designated ancestor in the first
reference to distribution to “living issue, by right of representation”) has no
living issue. In other words, so long as Edwin’s child from whom a deceased
beneficiary descended has living issue, the deceased beneficiary’s subshare
would remain in that child’s family branch.
The flaw in interpretating paragraph 2.7 such that the designated
ancestor implicated by the first reference to distribution to “living issue, by
right of representation,” is each of Edwin’s three children is shown by
considering what would happen if a beneficiary were to die with issue of their
own. If “his or her then living issue” refers to each of Edwin’s children’s then
living issue, that would mean that when a grandchild (or great-grandchild,
etc.) dies, his/her subshare would be subdivided among all living issue of
Edwin’s child from whom the deceased grandchild descended, regardless of
whether the deceased grandchild has issue of his/her own. For example, if
Dorothy were to die, her subshare would not be subdivided into thirds for the
benefit of each of Dorothy’s own issue, Michelle, Michael, and Max. Instead,
it would be subdivided among Mary’s (Dorothy’s mother’s) then living issue,
by right of representation: (1) One-third to Catherine; (2) One-third to
James; and (3) One-third among Michelle, Michael, and Max. As another
example, if we were to interpret “his or her then living issue” to refer to each
of Edwin’s children’s then living issue, that would mean that when Richard
died in 1997, his subshare should not have been distributed to Christopher,
but instead, one-half to William’s son Neal and one-half to Richard’s son
Christopher. We cannot conclude that Edwin intended this outcome.
The more reasonable outcome occurs when paragraph 2.7 is interpreted
such that the designated ancestor in the first reference to distribution to
“living issue, by right of representation,” is the person who died. In other
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words, “his or her” refers to the person who died. Thus, in the first scenario,
if a beneficiary were to die with living issue, distribution of the deceased
beneficiary’s subshare to “his or her then living issue, by right of
representation,” would result in distribution to the deceased beneficiary’s
then living issue, by right of representation. For example, if Dorothy were to
die, her subshare would be subdivided into thirds for the benefit of her own
issue: Michelle, Michael, and Max. That is what occurred when Richard
died: his subshare was distributed to “his or her then living issue,”
Christopher. If the deceased beneficiary has no living issue (i.e., “or in
default of issue”), then the second scenario is triggered, requiring distribution
of the deceased beneficiary’s subshare among all of Edwin’s then living issue,
by right of representation.
Appellants contend that Edwin did not “authorize a reallocation of his
Estate that eliminated the three (3) equal share structure that Paragraph 2.6
established.” Paragraph 2.7, however, does just that—when a beneficiary
dies without issue. In addition to the fact that this interpretation results in a
more likely intended outcome, as discussed above, the language of the trust
supports this interpretation.
Paragraph 2.7 instructs the trustee, “upon the death of each said
persons and upon the subsequent deaths of each of their issue (for whose
benefit subshares are hereby set apart), [to] subdivide and further subdivide
said shares and subshares into as many subshares as will allow the Trustee
upon the death of each of such persons and each of their issue to set apart the
same into subshares for the benefit of his or her then living issue, by right of
representation, or in the default of issue into subshares for the benefit of the
Trustor’s then living issue, by right of representation.” (Italics added.)
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“His or her” cannot refer to Edwin’s three children because paragraph
2.7 addresses the death of “such persons and each of their issue,” with “such
persons” referring to “persons designated in Paragraph 2.6 or in this
Paragraph 2.7.” Thus, paragraph 2.7 addresses the death of one of Edwin’s
children (or if a child predeceased Edwin, that child’s children) and each of
their issue (i.e., Edwin’s grandchildren, and great-grandchildren, etc.). And
when a grandchild (or great-grandchild, etc.) dies, paragraph 2.7 directs that
his or her subshare be subdivided to “his or her then living issue, by right of
representation” or if the grandchild has no living issue, to Edwin’s living
issue, by right of representation. This interpretation of the trust gives effect
to every expression rather than rendering any expression inoperative, while
preserving and implementing Edwin’s intent as clearly expressed in the
trust.
While our interpretation does alter the three equal share structure
when an beneficiary dies without issue, contrary to appellants’ contention, it
does not do so via the “changing fraction method” that the appellant sought to
implement in Ammerman v. Callender (2016) 245 Cal.App.4th 1058(Ammerman). This case and the trust at issue is distinguishable from
Ammerman.
The issue in Ammerman was how the residue of a trust was to be
divided. The trust provided that upon the trustor’s death, the trust’s
residuary estate would be divided, one-third each, to subtrusts for three
beneficiaries, Cathe, Katy, and Lucky. (Ammerman, supra, 245 Cal.App.4th
at p. 1062.) The trust also provided that upon the trustor’s death, the estate
taxes were to be charged to Cathe’s and Lucky’s trusts only, not Katy’s. (Id.
at p. 1064.) The trial court ruled that the residuary estate should be divided
based on a “changing fraction method” where “all ‘non[-]pro[-]rata charges
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against principal result in changes to the fractional interests of the residuary
beneficiaries, with later income, principal receipts and gain (or loss), whether
realized or unrealized, accruing to the residuary beneficiaries pro rata based
on the new fractional interests.’ ” (Id. at pp. 1068-1069.) Thus, when the
estate tax payments were made by Cathe and Lucky only, the three
beneficiaries’ fractional interests were to be revalued and changed from the
original one-third allocation to each beneficiary, resulting in the reduction of
Cathe’s and Lucky’s percentage interests in the trust’s residuary and
simultaneously increasing Katy’s percentage interest. (Id. at pp. 1062-1063.)
The Court of Appeal disagreed, concluding that the beneficiaries’
percentage interests in the residuary estate did not change when the estate
taxes were paid by Cathe and Lucky. (Ammerman, supra, 245 Cal.App.4th at
pp. 1062-1063.) The court reasoned “[t]he Trust plainly stated that [the
trustor] wanted the residue divided one-third each among the Beneficiaries.
Although the estate taxes were allocated to Cathe and Lucky, the Trust did
not provide this allocation would alter the one-third division or the vested
interests of the Beneficiaries in their one-third shares of the residuary
estate.” (Id. at p. 1074.) In other words, the fact that the amount of principal
in Cathe’s and Lucky’s subtrusts was less than Katy’s after payment of the
estate taxes, did not mean that Cathe’s and Lucky’s vested interests in the
trust’s residuary were less. The court emphasized, “[t]here is no language in
the Trust stating that when taxes were charged to Cathe and Lucky or non-
pro-rata distributions were made, the fractional shares of the Beneficiaries
were to change.” (Id. at p. 1088.)
Unlike in Ammerman, the language in paragraph 2.7 of the trust at
issue does direct an alteration of the three equal share structure when a
beneficiary dies without issue, as discussed above. Also as discussed above,
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we see nothing in the trust that constitutes a clear expression of an intent on
Edwin’s part, or a “dominant purpose,” that the trust be administered to
avoid altering the initial three equal share structure.
Based on the unambiguous language of the trust, we affirm the trial
court’s order denying appellants’ first amended petition seeking to enforce
their interpretation of the trust.
Because we affirm the trial court’s order denying appellants’ first
amended petition on the merits, we need not reach respondent’s statute of
limitations arguments.
DISPOSITION
The trial court’s order is affirmed. Respondent is to recover costs on
appeal.
AARON, J.
WE CONCUR:
HALLER, Acting P. J.
O’ROURKE, J.
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