Paulos v. Paulos CA2/2 ( 2024 )

Filed 10/24/24 Paulos v. Paulos CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
NICHOLAS PAULOS, et al., B331229
Plaintiffs and (Los Angeles County
Respondents, Super. Ct. No.
22STPB03448)
v.
ALEXANDER ANTHONY
PAULOS, as Trustee, etc.,
Defendant and Appellant.
APPEAL from orders of the Superior Court of Los Angeles
County, Daniel Juárez, Judge. Affirmed.
Sheppard, Mullin, Richter & Hampton, Adam F. Streisand,
Golnaz Yazdchi, Valerie E. Alter and Tomasene A. Knight for
Defendant and Appellant.
Sacks, Glazier, Franklin & Lodise, Margaret G. Lodise and
Antonieta Pimienta Lefebvre for Plaintiff and Respondent
Nicholas Paulos.
The Rubin Law Firm and Brett M. Rubin for Plaintiff and
Respondent Thomas Paulos.
******
After a wealthy family’s patriarch died and the named
trustee had yet to distribute the trust after two years, the trial
court granted the requests of two beneficiaries to name them as
trustees over interim trusts covering their anticipated shares of
the trust’s assets pending final distribution of the estate. The
named trustee challenges this order. We reject this challenge
and affirm.
FACTS AND PROCEDURAL BACKGROUND
I. The Family
During his lifetime, Fred Paulos (Fred) had seven children
with three wives.1 Three of those children are Alexander,
Nicholas and Thomas.2
1 One of those children was the child of Fred’s first wife and
another man, but Fred treated her as one of his natural children.
2 Because these individuals share the same last name, we
will use first names for clarity’s sake. We mean no disrespect.
2
Fred and his third wife, Lulah Lipop Paulos, who goes by
the name “Poppy” and is the mother of Alexander and Nicholas,
had entered into a prenuptial agreement back in 1977.
II. The Operative Trust
On January 16, 2003, Fred created a living trust to govern
his assets. The operative version of this trust is the Third
Amendment to and Complete Restatement of Declaration of
Trust of the Fred Paulos Living Trust, signed May 11, 2018 (the
trust). In general terms and as pertinent here, the trust provides
for the disposition of Fred’s assets upon his death as follows:
First, Poppy is to receive (1) all “Tangible Personal Property,” (2)
$50,000 cash, pursuant to the prenuptial agreement, (3) a parcel
of real property located on Lexington Avenue in Los Angeles, and
(4) Fred’s community property interest in four parcels of real
property located in Beverly Hills or West Hollywood. Second,
Fred’s seven children are to receive equal shares of the trust’s
remaining assets (that is, the assets remaining after the
distribution of Poppy’s share and the payment of any debts,
expenses, and taxes owed by the trust); each share is to be
“distributed outright and free of trust.” However, if any of these
children predeceases Fred, the trust authorizes the creation of a
“separate trust” for any “descendant of [that] deceased child” of
Fred. The distribution of the trust’s assets upon Fred’s death is
to be overseen by two successor trustees—namely, Fred’s son
Alexander and a family friend who happens to be a judge on the
Los Angeles Superior Court.
III. Fred’s Death
Fred died on December 12, 2020. At that time, the trust’s
assets exceeded $50 million in value, most of which was tied up
in 11 parcels of real property.
3
Consistent with the trust’s terms, Alexander and the judge
were named as successor trustees of the trust.
IV. Nicholas’s and Thomas’s Petitions
When the successor co-trustees had yet to distribute the
trust’s assets nearly 18 months after Fred’s death, Nicholas and
Thomas (the brothers) filed verified petitions asking the probate
court for orders (1) requiring the co-trustees to perform an
accounting of the trust’s assets; (2) creating separate trusts for
the brothers covering their anticipated shares of the trust’s
assets, declaring the brothers to “serve as sole Trustee” of their
respective separate trusts, and ordering the co-trustees to
“immediately turn over the assets vested in [each brother], as
successor trustee of his share of the Trust without further
compensation paid to the Co-Trustees”; and (3) compelling
distribution of the trust’s assets.
Alexander—as the sole remaining successor trustee3—
opposed the petitions despite admitting the long delay in
administering the trust.
The probate court convened a hearing on April 10, 2023.
Although this hearing occurred over two years after Fred’s death,
Alexander had yet to distribute the trust’s assets. At that
hearing, he conceded that the brothers would “be able to serve as
trustees of their own trust[s],” but asked the court not to appoint
them as successor trustees until all of the siblings “work[ed]
through issues of creating liquidity” in the trust’s assets.
The probate court issued an oral ruling (1) ordering an
accounting due in late June 2023, (2) denying outright
3 Nicholas and Thomas had also petitioned to remove the
sitting judge as a co-trustee, and he later resigned due to this
pending litigation before the court of which he was a member.
4
distribution of the trust’s assets, and (3) naming Nicholas and
Thomas as “successor trustees for their share.”
V. Post-Order Challenges
After the probate court’s oral ruling and prior to its
issuance of a written order, Alexander filed a post-ruling
“opposition” as to each brother’s petition. He argued for the first
time that the probate court lacked the authority to name
Nicholas and Thomas as successor trustees of their shares of the
trust during the pendency of the trust’s protracted
administration. In support of his opposition, Alexander
submitted a declaration from the attorney who drafted the trust;
the attorney declared that the probate court’s order was
“unintelligible” because both the attorney and Fred intended that
Fred’s children each receive their distributions “outright” rather
than in trusts.
The probate court thereafter issued written orders that
ordered Alexander “to turn over to [Nicholas and Thomas], as
successor trustee of [his respective] share, all of the assets of [his]
share, as [each brother] is now over 40 years old.”4
VI. New Trial Motions
Alexander thereafter filed two motions for new trial, one for
each brother-specific order. After a full round of briefing,
Alexander withdrew his motion as to Nicholas, and the probate
court denied the motion as to Thomas. In the order regarding the
motion as to Thomas, the court ruled that (1) a new trial motion
was procedurally improper because the “matter is far from
completed,” and (2) Alexander’s challenges lacked merit because
4 The order originally issued for Nicholas omitted this
language, and was corrected nunc pro tunc after extensive
briefing by the parties.
5
the court’s creation of interim trusts for the brothers was
“consistent with the terms of the trust” and because Alexander
“fail[ed] to identify a term that prohibits the creation and funding
of separate trusts with distributed assets.”
VII. Appeal
Alexander filed a timely notice of appeal from the orders
appointing Nicholas and Thomas as successor trustees of their
respective separate trusts. (Prob. Code, §§ 17200, subd. (b)(1),
1304, subd. (a)).5
DISCUSSION
Alexander argues that the probate court issued invalid
orders because the trust requires its assets to be distributed to
Fred’s children “outright and free of trust,” such that the orders
directing Alexander to “turn over” Nicholas’s and Thomas’s
shares of the assets “in trust” is unauthorized. Nicholas and
Thomas respond that (1) the probate court did not distribute the
assets but instead created separate interim trusts for each to
control during the remaining time it takes Alexander to
distribute the trust’s assets, and (2) the trust authorizes the
creation of such interim, separate trusts. Because these
arguments are effectively ships passing in the night, this appeal
presents two questions: First, what do the probate court’s orders
do? And second, are those orders authorized by the terms of the
trust? Because these questions require us to examine the
language of the court’s orders as well as the language of the trust,
they present questions of law we review de novo. (Johnson v.
Greenelsh (2009) 47 Cal.4th 598, 604.) We accordingly focus on
the propriety of the probate court’s ruling rather than the
5 All further statutory references are to the Probate Code
unless otherwise indicated.
6
correctness of its reasoning. (Tsasu LLC v. U.S. Bank Trust, N.A.
(2021) 62 Cal.App.5th 704, 715.)
I. The Probate Court Created Separate, Interim Trusts
The parties proffer two different readings of the probate
court’s orders: Alexander insists that the orders require him to
distribute the trust’s assets to Nicholas and Thomas “in trust,”
while the brothers maintain that the orders merely create a
separate trust covering each brother’s share of the trust’s assets
during the interim period until the trust is distributed, names
them as the successor trustee of each respective separate trust,
and orders Alexander to “turn over” the pertinent share of trust
assets to those separate trusts.
We conclude that the brothers’ reading of the probate
court’s orders is the better reading, and do so for two reasons.
First, it is the reading most consistent with the context of the
litigation. Each brother petitioned for, as pertinent here, two
orders—namely, (1) an order creating a separate trust over their
own share of the trust’s assets and naming them as the successor
trustee of that trust, and (2) an order compelling final
distribution of the trust’s assets. The probate court only granted
the first order when it named each brother a “successor trustee[]
for [his] share.” Further, “distribution” is defined by probate law
generally and by the trust in this case as what happens after the
payment of Poppy’s share, trust debts and expenses, and trust
taxes (e.g., Estate of Ziegler (2010) 187 Cal.App.4th 1357, 1365
[“‘Distribution,’ when used as a term of art in probate law, means
‘the process of dividing an estate after realizing its movable
assets and paying out of them its debts and other claims against
the estate’”]; cf. ibid. [using different definition of “distribution”
for statute of limitations purposes under Code of Civil Procedure
7
section 366.3]), yet it appears that at least some of these other
expenses (namely, certain taxes) were pending payment while the
brothers’ petitions were litigated; thus, timing-wise, the court’s
orders were not orders distributing the trust’s assets. Second, the
court’s orders at a minimum could reasonably be read to create
interim separate trusts, such that any ambiguity should be
resolved in favor of that reading because that reading, as
discussed below, would render the court’s orders valid. (In re
Marriage of Falcone & Fyke (2012) 203 Cal.App.4th 964, 989
[when a court order “is susceptible ‘to two interpretations, the
[appellate] court should give the construction that will make the
[writing] lawful, operative, definite, reasonable and capable of
being carried into effect . . .’”].)
In response, Alexander asserts that the probate court’s
written orders require him to “turn over” assets and that “[t]his
language, by definition, constitutes a distribution order.” He is
wrong. A separate trust has to be funded, so the court’s directive
for Alexander to “turn over . . . all of the assets of [each brother’s]
share” is incidental to the creation of each separate trust. For
the reasons set forth above, the broader context of the court’s
orders indicates that the court was merely funding each brother’s
separate trust. Although the probate court’s order denying the
new trial motion refers to Alexander’s failure to “identify a term
that prohibits the creation and funding of separate trusts with
distributed assets” (rather than “assets to be distributed”) (italics
added), this linguistic choice—even if we deem it a misstep—does
not undermine the contextual evidence we otherwise find
persuasive.6
6 In light of our reading of the probate court’s orders, we
have no occasion to address Alexander’s arguments that the trust
8
II. The Trust Authorizes a Probate Court to Create a
Separate Interim Trust
Probate courts are authorized to issue orders resolving
petitions as long as those orders are consistent with the language
of a trust and consistent with the Probate Code. (§ 17206; see
also Christie v. Kimball (2012) 202 Cal.App.4th 1407, 1413;
Schwartz v. Labow (2008) 164 Cal.App.4th 417, 427.) In
construing a trust, we are guided by the testator’s intent (§
21102, subd. (a); Crook v. Contreras (2002) 95 Cal.App.4th 1194,
1206), which is derived most directly from the language of the
trust document itself (Städel Art Museum v. Mulvihill (2023) 96
Cal.App.5th 283, 293).
A. Analysis
The probate court’s orders creating interim separate trusts
funded by the trust assets to which Nicholas and Thomas would
be entitled shares upon distribution—during the pendency of the
protracted administration of the trust—was authorized by the
trust itself. Paragraph 5.1.26 of the trust grants “[t]he Trustee”
the “discretionary authority to . . . separate a single trust into one
or more separate trusts” after considering a variety of factors,
including “efficiencies of administration, generation-skipping and
other transfer tax considerations, income tax factors affecting the
various trusts and their beneficiaries, present and future
financial and other objectives of the trusts and beneficiaries, the
need or desirability of having the same or different Trustees for
various trusts or shares, and any other considerations the
does not authorize an order effectuating a distribution into
separate trusts.
9
Trustee may deem appropriate to those decisions.”7 What is
more, paragraph 2.3 provides that “if after [Fred’s] death a
separate trust is established under this instrument for the
primary benefit of any descendant of [Fred], then upon attaining
the age of forty (40) years, each descendant shall serve as sole
Trustee of his or her trust.” Together, these provisions authorize
the trustee—and, by extension, the probate court when presented
with a petition seeking to invoke these provisions—the power to
(1) create a separate trust for “any descendant” of Fred’s prior to
distribution of the estate (since any distribution must be “free of
trust”), and (2) name that descendant as the sole trustee of that
separate trust if the descendant is over the age of 40 (as both
Nicholas and Thomas are). Along similar lines, the Probate Code
nowhere prohibits the creation of an interim, separate trust
pending distribution of a trust; indeed, section 17206 expressly
contemplates the “appointment of a temporary trustee to
administer the trust in whole or in part.” (Italics added.)
7 For the first time at oral argument, Alexander asserted
that the trustee’s authority as stated in paragraph 5.1.26 applies
only to separate trusts subject to “generation skipping transfer
taxes.” To be sure, paragraph 5.1.26 deals in part with
“generation-skipping . . . characteristics.” But that paragraph
goes on to state that “[t]he Trustee shall also have” the
discretionary authority we quoted in the text above. Further, as
noted in the text, the paragraph makes the generation-skipping
tax implications one factor among many to consider in deciding
whether to create separate trusts, which is contrary to the notion
that the power to create separate trusts is only about generation-
skipping concerns.
10
B. Alexander’s counter-arguments
Alexander offers what boils down to six arguments as to
why the probate court was not authorized to create separate,
interim trusts for Nicholas and Thomas.
First, Alexander asserts that the trust’s plain language
does not authorize such orders because (1) paragraph 4.7
authorizes the creation of a “separate trust” only “for a
descendant of a deceased child”; (2) paragraph 4.7 is more specific
than paragraphs 5.1.26 and 2.3 (which, as noted above, empower
the probate court to create separate trusts and to name the
beneficiary as the sole trustee if the trustee is at least 40 years
old); and (3) the more specific provision controls over the more
general provision (see Lopez v. Sony Electronics, Inc. (2018) 5
Cal.5th 627, 634-635), such that we are wrong to rely on
paragraphs 5.1.26 and 2.3 as authorization for the probate court’s
orders. Alexander further notes that the drafting attorney of the
trust declared that the trust has “no provision for either [brother]
to become trustee of his own trust.”
We reject Alexander’s reading of the trust. Paragraph 4.7
by its terms deals with distribution of the trust’s assets (and
limits the use of separate trusts as a mechanism for distribution
to the descendants of any of Fred’s deceased children); it
accordingly does not apply in the pre-distribution context.
Paragraphs 5.1.26 and 2.3, by contrast, grant the trustee the
power to create subtrusts—and to make beneficiaries 40 or older
the sole trustee—at any time: Paragraph 5.1.26 contains no time
limitation whatsoever, and paragraph 2.3 explicitly refers to the
creation of a separate trust for “any descendant” while paragraph
5.9.10 defines “descendant” as reaching “a person’s children,”
which would include Fred’s own children (because, after all, “‘any’
11
means ‘any’” (Santa Clarita Organization for Planning & the
Environment v. Abercrombie (2015) 240 Cal.App.4th 300, 312)).
Accordingly, the maxim that the specific trumps the general—
and hence that paragraph 4.7 limits paragraphs 5.1.26 and 2.3—
does not apply in the pre-distribution context at issue here
(because there is no head-to-head conflict to resolve). Because
the plain text of the trust is clear, Alexander’s proffered extrinsic
evidence is irrelevant because it cannot be used to contravene the
trust’s text. (E.g., Trolan v. Trolan (2019) 31 Cal.App.5th 939,
949; see generally § 21102, subd. (c) [“extrinsic evidence”
permissible “to the extent otherwise authorized by law”].)
Second, Alexander argues for the first time at oral
argument that paragraph 5.9 bars the trial court’s creation of
separate interim trusts. We disagree. That paragraph provides
that “[t]he Trustee . . . may maintain and administer the assets of
[separate] trusts [created under the Trust] as a unit until such
time as the Trustee is required to make distribution.” (Italics
added.) That the trustee may manage separate trusts as a unit
does not negate the authority conferred by paragraph 5.1.26 to
create those separate trusts and appoint a “different . . . trustee”
for them.
Third, Alexander contends that the trust only defines the
duties and rights of the trustee of a separate trust in paragraphs
4.7.1 through 4.7.5, which pertain solely to separate trusts
created for descendants of Fred’s deceased children at the time of
distribution. Because “no similar language” exists to define the
powers and duties of a trustee of an interim, pre-distribution
separate trust, Alexander continues, the probate court here has
essentially created a trustee lacking any defined rights or duties.
We reject this contention because it ignores paragraph 2.7, which
12
expressly provides that “Except as otherwise provided in this
instrument, all successor Trustees shall be vested with all the
title, rights, powers, discretions, privileges, duties and obligations
of the initial Trustee.” (Italics added.) Because an interim
trustee of a separate trust is a successor trustee, because
paragraph 2.7 assigns to “all successor Trustees” the rights and
duties of the initial trustee, and because “all means all” (Rubin v.
Western Mutual Ins. Co. (1999) 71 Cal.App.4th 1539, 1547), the
rights and duties of interim successor trustees like Nicholas and
Thomas are not undefined.
Fourth, Alexander argues that the probate court’s creation
of interim, separate trusts will, in the words of the trust’s
drafting attorney, create “chaos” because (1) it might lead to
mixed messages should Alexander and the trustees of the
separate interim trusts have to speak with the IRS about any
asset subject to a separate trust; (2) it might lead to a shortage of
corpus to pay the trust’s debts and expenses; and (3) Alexander
otherwise needs to have constant access to all assets in the trust
in order to administer the trust. All of these concerns could be
dealt with by a carefully crafted order addressing these
contingencies and issues. But Alexander decided to concede the
validity of separate trusts until after the probate court issued its
oral ruling and, even then, never proposed any crafting of the
orders to address the concerns he now presses; Alexander’s
tactical call does not render the orders unfair or absurd.
(California National Bank v. Woodbridge Plaza LLC (2008) 164
Cal.App.4th 137, 143 [“Construction cannot lead to unfair or
absurd results but must be reasonable and fair”].)
Fifth, Alexander argues that paragraph 5.5.1—a provision
that allows for a distribution to a child’s preexisting trust—does
13
not justify the probate court’s orders. This provision is irrelevant
because it deals with distribution.
Sixth and lastly, Alexander complains that the probate
court’s orders effectively force him to treat Nicholas and Thomas
more favorably than Fred’s other children, in violation of the
mandate that trustees treat all beneficiaries equally. (See Hearst
v. Ganzi (2006) 145 Cal.App.4th 1195, 1208 [“‘Trustees owe a
duty to all trust beneficiaries, and must treat all equally’”].) We
reject this complaint. The trust obligates the trustee to ensure
that all beneficiaries’ shares “have equivalent or proportionate
fair market value”; the trust does not obligate a trustee—or the
court—to treat all beneficiaries identically during the years-long
interim period, at least if their shares are ultimately equal once
the trust is finally distributed. The Probate Code also requires
beneficiaries to “deal . . . with” beneficiaries “impartially” (§
16003), but this general mandate does not prohibit a court’s order
allowing beneficiaries to manage their respective shares in a long
interregnum period between the trustor’s death and distribution
of the trust’s assets.
DISPOSITION
The orders are affirmed. The brothers are entitled to their
costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
______________________, J.
HOFFSTADT
14
We concur:
_________________________, P. J.
LUI
_________________________, J.
CHAVEZ
15