Donkin v. Donkin

Filed 12/26/13
IN THE SUPREME COURT OF CALIFORNIA
ANNEMARIE DONKIN et al., )
)
Plaintiffs and Respondents, )
) S202210
v. )
) Ct.App. 2/1 B228704
RODNEY E. DONKIN, JR., et al., as )
Trustees, etc., )
) Los Angeles County
Defendants and Appellants. ) Super. Ct. No. BP109463
____________________________________)
Rodney E. Donkin and Mary E. Donkin, a married couple, executed a
revocable trust in 1988 (the Family Trust) as part of their estate planning, naming
their four children as equal primary beneficiaries after they both had died.1
Rodney died in 2002. Shortly before her death in 2005, Mary executed a second
amendment to the Family Trust instrument (hereafter the Trust‟s Second
1 When we subsequently refer to the Donkins, we mean both Mary E. Donkin
and Rodney E. Donkin. When we refer to one of them individually, we will use
only the first name for clarity and convenience. After one of the Donkins‟ four
children, Craig K. M. Donkin, predeceased the Donkins, the Donkins executed a
first amendment to the Family Trust instrument to name their remaining three
children, Rodney E. Donkin, Jr., Annemarie Donkin, and Lisa Donkin Kim as the
primary beneficiaries. We will sometimes refer to these Donkin children by their
first names, again for clarity and convenience. The Donkins‟ first amendment to
the Family Trust instrument also changed the first-named successor trustees from
all four of the Donkins‟ children to Rodney Jr. and his wife, Vicki Donkin
(hereafter the successor trustees).
1
Amendment) altering the provisions governing the allocation of the Family Trust‟s
assets after her death. Both the Trust‟s Second Amendment and the original
Family Trust instrument contain a “no contest” clause. In 2009, Annemarie and
Lisa (hereafter the beneficiaries) filed a “safe harbor” proceeding in the probate
court seeking a determination that the petition they proposed to file, challenging
the conduct of the successor trustees under the asserted authority of the Trust‟s
Second Amendment, would not trigger the no contest clauses of the amended
Family Trust instrument.
We consider in this case whether the no contest clause law that became
operative on January 1, 2010, while the beneficiaries‟ safe harbor application was
still pending (Prob. Code, § 21310 et seq.; hereafter the current law) or the no
contest clause law operative at the time of the filing of their safe harbor
application (Prob. Code, former § 21300 et seq., repealed by Stats. 2008, ch. 174,
§ 1, p. 567; hereafter the former law) applies to the beneficiaries‟ proposed
petition and whether under the applicable law the beneficiaries may pursue their
proposed claims without risk of being disinherited.2
We conclude that safe harbor proceedings filed before 2010 are not affected
by the repeal of former section 21320, which previously authorized safe harbor
applications, and therefore, the probate court did not err in ruling on the
beneficiaries‟ application. As to the substantive question of whether the
beneficiaries‟ proposed claims trigger the no contest clauses, we conclude that the
current law is applicable because the amended Family Trust instrument became
irrevocable after January 1, 2001. (§ 21315, subd. (a).) We further conclude that
2 All further statutory references are to the Probate Code unless otherwise
indicated.
2
under the current law, the no contest clauses in the amended Family Trust
instrument are unenforceable against the beneficiaries‟ proposed petition. We
recognize that a party may be able to qualify for a fairness exception (§ 3, subd.
(h)) to the presumptive applicability of the current law to instruments that became
irrevocable after January 1, 2001, if application of the former law would compel a
different conclusion as to enforceability of a no contest clause and it is established
that the trustor(s) of the trust instrument drafted the no contest clause in reliance
on the former law. Here, however, the successor trustees are not able to claim
such a fairness exception, because application of the former law would yield the
same conclusion regarding the unenforceability of the no contest clauses. We
reverse the judgment of the Court of Appeal, which determined that certain of the
beneficiaries‟ claims constituted a contest violating the no contest clauses of the
amended Family Trust instrument under the former law.
I. THE DONKINS’ ESTATE PLAN
Federal law allows the property of a deceased spouse to be passed to the
surviving spouse without payment of federal estate tax through the allowance of a
“marital deduction.” (Int.Rev. Code, § 2056.) The value of the estate of the
surviving spouse is increased by such a passage of assets and it may be enlarged to
the point where it will exceed the federal unified tax credit allowable to the estate
when the surviving spouse dies. (Id., § 2010; see 2 Drafting Cal. Revocable Trusts
(Cont.Ed.Bar 4th ed. 2003) Bypass and Disclaimer Trusts, § 14.1, pp. 14-2 to 14-3
(rev. 9/13).) A common method of addressing such a situation, having the purpose
of minimizing the estate taxes owed, is to provide for the transfer to the surviving
spouse of only as much of the deceased spouse‟s property as necessary to reduce
the deceased spouse‟s estate tax to zero with use of the applicable federal estate
tax exemption. The property remaining in the deceased spouse‟s estate is placed
in a bypass trust, which makes those assets available for the surviving spouse‟s use
3
but does not give the surviving spouse rights to the property in the bypass trust
that would cause any of the undistributed trust property to be included in the
taxable estate of the surviving spouse upon his or her death. (Int.Rev. Code,
§ 2041; 1 Drafting Cal. Revocable Trusts, supra, Marital Deduction Formulas and
Funding, § 11.1B, pp. 11-4 to 11-5 (rev. 9/13); 2 Drafting Cal. Revocable Trusts,
supra, Bypass and Disclaimer Trusts, § 14.1, at pp. 14-2 to 14-3 (rev. 9/13).)
Thus, “the undistributed assets of the decedent‟s estate . . . „bypass‟ the survivor‟s
estate.” (2 Drafting Cal. Revocable Trusts, supra, Bypass and Disclaimer Trusts,
§ 14.1, at pp. 14-2 to 14-3 (rev. 9/13).) “To avoid federal estate tax inclusion in
the surviving spouse‟s estate, the bypass trust must be irrevocable and
unamendable on and after the first spouse‟s death.” (2 Drafting Cal. Revocable
Trusts, supra, Revocation and Amendment, § 20.6, p. 20-14 (rev. 9/13), italics
added.)
In August 1988, the Donkins executed the original Family Trust instrument,
along with their individual wills. The Family Trust was formed to hold title to the
couple‟s real and personal property for their benefit during their lives and
ultimately after their deaths to provide for the transfer of their assets to their
beneficiaries. The Family Trust was a revocable “grantor” trust (Int.Rev. Code,
§ 676) for as long as the Donkins were both living.
On the death of the first spouse, the Family Trust instrument requires the
trustee to divide the trust estate into two shares — a survivor‟s share that is
designated “Survivor‟s Trust A” and a decedent‟s share that is designated
“Decedent‟s Marital Share.” Survivor‟s Trust A consists of the surviving spouse‟s
separate property and his or her one-half interest in the community property. It
remains revocable during the life of the surviving spouse, and becomes irrevocable
upon the surviving spouse‟s death. Decedent‟s Marital Share consists of the
decedent spouse‟s separate property and his or her interest in the community
4
property. It is to be divided into two shares: Decedent‟s Trust B and Decedent‟s
Trust C. The Family Trust instrument states that upon creation these subtrusts
“are irrevocable.” The Family Trust instrument specifies that Decedent‟s Trust B
is to contain property with a value equal to the largest amount possible that will
not result in a federal estate tax being imposed on the estate of the deceased
spouse. (Int.Rev. Code, § 2010.) Decedent‟s Trust C is a marital deduction trust,
which is to contain essentially the residue of the deceased spouse‟s estate not
allocated to Decedent‟s Trust B. (See, generally, id., § 2056.)
The Family Trust instrument provides that the surviving spouse is entitled
to all of the income of the Survivor‟s Trust A, and as much principal as requested.
The surviving spouse retains the right to change the beneficiaries of the Survivor‟s
Trust A. In addition, the surviving spouse is entitled to all of the income of the
Decedent‟s Trusts B and C, and as much of the principal of either trust as the
trustee deems necessary for the surviving spouse‟s medical care, education and
comfortable maintenance. The surviving spouse has a noncumulative power to
withdraw $5,000 or 5 percent of the aggregate value of the principal of the
Decedent‟s Trusts B and C annually, and a testamentary power of appointment
over the assets of Decedent‟s Trust C, the marital deduction trust. Consistent with
the requirements of a bypass trust, nothing in the Family Trust instrument
authorizes the surviving spouse to revoke or amend the provisions of Decedent‟s
Trust B.3
Upon the death of the surviving spouse, the Family Trust instrument,
originally and as amended by the Donkins in 2002, provides for the payment of
3 Indeed, the Family Trust instrument and the Donkins‟ wills, as executed in
1988, make a number of references to federal estate tax provisions, demonstrating
the Donkins‟ clear intent to establish an estate plan that minimizes estate taxes.
5
the debts and obligations of the trust estate and the distribution of any special
bequests. It contains provisions governing “support and education” needs,
“extraordinary distribution,” and “handicapped beneficiaries.” As relevant here, it
then directs the trustee to allocate and divide the remaining assets of all three trusts
into separate shares so as to provide one share for each of the surviving designated
primary beneficiaries and one share for each deceased primary beneficiary leaving
surviving issue. After allocating and dividing the residual of the trust estate into
shares, the trustee is directed to distribute the allocated shares “outright as soon as
is practicable.”
In 2005, after the death of Rodney and shortly before her death, Mary
executed the Trust‟s Second Amendment. The Trust‟s Second Amendment
substituted a new paragraph regarding the allocation of the trust assets after her
death as the surviving spouse. Instead of directing an immediate allocation and
division of the assets into separate shares for the beneficiaries, the new paragraph
grants the successor trustees “complete discretion” after the death of Mary to
retain the assets of the Family Trust intact and to continue to manage the property
for the equal benefit of the primary beneficiaries. The new paragraph also grants
the successor trustees discretion to liquidate assets, and if they choose to do so,
directs them to allocate and divide the liquidated assets into separate trust shares
for the beneficiaries. The new paragraph provides that the successor trustees, in
their sole discretion, may continue to manage and invest such liquidated assets.
The new paragraph grants the successor trustees sole discretion over distribution
of income and principal from the trust shares to the beneficiaries. The Trust‟s
Second Amendment otherwise confirms and republishes the remainder of the
provisions of the trust, including the paragraph in the Family Trust instrument that
required the trustee, “after allocating and dividing the residual of the Trust Estate
6
into shares,” to “distribute the shares allocated to Primary Beneficiaries outright as
soon as is practicable.”
The Family Trust instrument, as confirmed and republished, contains a no
contest clause. The Trust‟s Second Amendment added a further no contest clause.
The first no contest clause in the Family Trust instrument states as follows:
“The Settlors [the Donkins] desire that this Trust, the Trust Estate and the Trust
Administrators and beneficiaries shall not be involved in time consuming and
costly litigation concerning the function of this Trust and disbursement of the
assets. Furthermore, the Settlors have taken great care to designate, through the
provisions of this Trust, how they want the Trust Estate distributed. Therefore, if
a beneficiary, or a representative of a beneficiary, or one claiming a beneficial
interest in the Trust Estate, should legally challenge this Trust, its provisions, or
asset distributions, then all asset distributions to said challenging beneficiary shall
be retained in Trust and distributed to the remaining beneficiaries herein named, as
if said challenging beneficiary and his or her issue had predeceased the
distribution of the Trust Estate.”
The no contest clause added by the Trust‟s Second Amendment provides:
“If any beneficiary in any manner, directly or indirectly, contests or attacks this
instrument or any of its provisions, any share or interest in the trust given to that
contesting beneficiary under this instrument is revoked and shall be disposed of in
the same manner provided herein as if that contesting beneficiary had predeceased
the settlor.”
II. PROCEEDINGS IN THE PROBATE COURT AND COURT OF APPEAL
In 2008, the beneficiaries filed an application in the probate court under the
safe harbor provision of former section 21320 to determine whether the petition
7
they proposed to file would trigger the no contest clause in either the Family Trust
instrument or the Trust‟s Second Amendment.4 Their petition would seek to
compel a proper accounting from the successor trustees, to fix the compensation of
the successor trustees and surcharge them for any excess fees, to remove the
successor trustees from office for misfeasance, and to compel the distribution of
the assets of Decedent‟s Trusts B and C on the ground that the Family Trust
instrument required such assets to be distributed upon the death of Mary in 2005.
After a dispute arose over whether the beneficiaries were required to arbitrate their
claims pursuant to an arbitration clause in the Family Trust instrument, the
beneficiaries withdrew their safe harbor application.
In 2009, the beneficiaries renewed their safe harbor application, alleging
that their proposed action was not a contest within the meaning of either of the no
contest clauses contained in the amended Family Trust instrument. They included
a request that the court, upon determining their claims do not constitute a violation
of the no contest provisions, order that the disputes be submitted to arbitration.
The probate court denied without prejudice the request for an order submitting the
matter to arbitration, leaving pending the beneficiaries‟ safe harbor application.
4 Former section 21320, subdivision (a), provided: “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.” (As amended by Stats. 2002, ch. 150, § 3, p. 758, repealed by
Stats. 2008, ch. 174, § 1, p. 567, eff. Jan. 1, 2009, operative Jan. 1, 2010.) Former
“[s]ection 21320 has been referred to as a „safe harbor‟ provision,” meaning that a
beneficiary may “obtain a ruling on the applicability of no contest clause issues
without running the risk of disinheritance.” (Estate of Ferber (1998) 66
Cal. App. 4th 244, 248, fn. 4.)
8
In early 2010, the successor trustees filed their response to the safe harbor
application, noting that the former provisions of the Probate Code governing no
contest clauses had been repealed and replaced with a new statutory scheme,
operative January 1, 2010. Because the new statutory scheme eliminated the safe
harbor process, the successor trustees argued that the beneficiaries‟ safe harbor
application was subject to demurrer. Nevertheless, the successor trustees
requested that the court apply the former safe harbor provisions, pursuant to
section 3, subdivision (h),5 because the beneficiaries‟ pleadings had been filed
under the former law. Under the former law, the successor trustees argued, the
court should determine that the beneficiaries‟ proposed claims violate the no
contest clauses. The beneficiaries responded, reiterating their request that the
court find their proposed petition did not constitute a contest.
The probate court authorized the successor trustees to file a petition for
instructions further explaining their position regarding the applicability of the new
law to the beneficiaries‟ safe harbor application. The successor trustees filed a
petition arguing that the court should apply the former law and determine that the
claims raised by the beneficiaries in their safe harbor application and proposed
petition would violate the trust‟s no contest clauses. The successor trustees also
5 Section 3 provides general transitional provisions for the applicability of
the Probate Code and any changes to the code. (§ 3, subd. (b).) Subdivision (h) of
section 3 provides an exception to the general rules that are otherwise stated in the
section. Subdivision (h) states: “If a party shows, and the court determines, that
application of a particular provision of the new law or of the old law in the manner
required by this section or by the new law would substantially interfere with the
effective conduct of the proceedings or the rights of the parties or other interested
persons in connection with an event that occurred or circumstance that existed
before the operative date, the court may, notwithstanding this section or the new
law, apply either the new law or the old law to the extent reasonably necessary to
mitigate the substantial interference.”
9
argued that the beneficiaries‟ petition to compel arbitration of their claims itself
violated the no contest clauses. At the same time, the successor trustees contended
that the Family Trust instrument obligated the beneficiaries to arbitrate any
disputes that could be legally raised, and that by filing the safe harbor application
instead of arbitrating, the beneficiaries had triggered the no contest clauses. The
successor trustees contended that once the no contest clauses were triggered, the
beneficiaries were no longer beneficiaries and had no standing to contest the
trustees‟ actions, and their safe harbor application should be dismissed with
prejudice. The beneficiaries replied that their actions were consistent with the
provisions of the amended Family Trust instrument and that the court had
discretion to apply the former law and rule that the claims identified in their safe
harbor application did not violate the no contest clauses.
After a hearing on the matter, the probate court concluded, without making
a specific finding whether the former or the current no contest clause law applied,
that the matters raised in the beneficiaries‟ proposed petition did not constitute a
contest under the terms of the no contest clauses of the subject trust.
The successor trustees appealed, arguing, among other things, that the
language used in the Trust‟s Second Amendment reflected a clear intent by Mary
to change the distribution plan for all of the assets owned by the trust at the time of
her death, including the assets in the Decedent‟s Marital Share trusts, by giving the
successor trustees broad discretionary power over the disposition of the entire trust
estate. The successor trustees contended, therefore, that the beneficiaries‟ demand
for a distribution of the assets in the decedent‟s trusts on the ground that such
trusts were irrevocable and unaffected by the Trust‟s Second Amendment
constituted a challenge to and an attack on the validity of the Trust‟s Second
Amendment, triggering the no contest clauses. In addition to opposing these
10
claims, the beneficiaries argued that the successor trustees lacked standing to
appeal.
The Court of Appeal affirmed in part and reversed in part. It concluded that
both the beneficiaries and the successor trustees had standing and affirmed the
probate court‟s order to the extent it impliedly determined that the former no
contest law applied. The Court of Appeal otherwise reversed the judgment,
concluding that “as a matter of law, the beneficiaries‟ challenges to Mary‟s ability
to amend the Trust with the [Trust‟s] Second Amendment, the Trustees‟ failure to
make distributions, and Mary‟s failure to create the subtrusts required by the Trust
would, if pursued, constitute a contest under the no contest clause because these
challenges attack the distributive scheme of the Trust by requiring the Trustees to
exercise their discretion when they are not required to do so by the [Trust‟s]
Second Amendment. The beneficiaries‟ contention that the [Trust‟s] Second
Amendment does not apply to the Trust because the surviving settlor (Mary)
lacked . . . the power to amend the Trust also constitutes a challenge to the
distributive scheme of the Settlors.”
We granted the beneficiaries‟ petition for review.
III. BACKGROUND REGARDING THE ENFORCEABILITY OF
NO CONTEST CLAUSES
Before we consider the issues on which we granted review, we find it
helpful to review generally the development of California law regarding no contest
clauses.
An in terrorem or no contest clause in a trust instrument “essentially acts as
a disinheritance device, i.e., if a beneficiary contests or seeks to impair or
invalidate the trust instrument or its provisions, the beneficiary will be disinherited
and thus may not take the gift or devise provided under the instrument.” (Burch v.
George (1994) 7 Cal. 4th 246, 265 (Burch).) No contest clauses, whether in wills
11
or trusts, have long been held valid in California. (Id., at p. 254; In re Estate of
Kitchen (1923) 192 Cal. 384, 389; In re Estate of Hite (1909) 155 Cal. 436, 439-
441.) Such clauses promote the public policies of honoring the intent of the donor
and discouraging litigation by persons whose expectations are frustrated by the
donative scheme of the instrument. (Burch, supra, at p. 254.)
In tension with these public policy interests are the policy interests of
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.
(See Selvin, Comment: Terror in Probate (1964) 16 Stan. L.Rev. 355, 366-368.)
In light of these opposing interests, the common law in California recognized the
enforceability of no contest clauses, albeit strictly construed, “so long as the
condition was not prohibited by some law or opposed to public policy.” (In re
Estate of Kitchen, supra, 192 Cal. at p. 388.)
In1989, the California Law Revision Commission (the Commission)
studied the policies involved in enforcement of no contest clauses and concluded
the balance between the conflicting policies established by existing California case
law was “basically sound.” (Recommendation Relating to No Contest Clauses
(Jan. 1989) 20 Cal. Law Revision Com. Rep. (1990) pp. 11-12.) The Commission
recommended the partial codification of California‟s common law rules regarding
the enforcement of no contest clauses with the addition of a number of changes
thought to improve the existing law. (Id., at pp. 12-14.)
Acting on such recommendations, the Legislature enacted in 1989 a series
of statutes governing no contest clauses, which continued to generally recognize
no contest clauses as enforceable, but incorporated several express limitations
based on principles of existing law. (Former §§ 21303, 21306 & 21307; Stats.
1989, ch. 544, § 19, pp. 1825-1826; see Estate of Bergland (1919) 180 Cal. 629,
636-637; Estate of Lewy (1974) 39 Cal. App. 3d 729, 734; former § 6112, subd. (d),
12
Stats. 1988, ch. 1199, § 75, pp. 3919-3920.) The adopted statutory limitations
were, however, “not intended as a complete listing of acts that may be held exempt
from enforcement of a no contest clause.” (Recommendation Relating to No
Contest Clauses, supra, 20 Cal. Law Revision Com. Rep. (1990) p. 19; see Cal.
Law Revision Com. com., reprinted at 54A West‟s Ann. Prob. Code (1991 ed.)
foll. former §§ 21306, 21307, pp. 314-315, 316.) The statutes were intended as
only a partial codification of the common law. (Former § 21301, Stats. 1989,
ch. 544, § 19, p. 1825.)6
Over the next decade, the Legislature continued to amend the statutes
regarding the enforcement of no contest clauses, specifically identifying various
types of claims for which a safe harbor proceeding was expressly available and
further identifying specific types of actions against which a no contest clause was
not enforceable as a matter of public policy. (See Stats. 1994, ch. 40, § 3, p. 379
[amending former § 21320 regarding safe harbor proceedings]; Stats. 1995,
ch. 730, § 11, p. 5480 [expanding the express scope of former § 21306]; Stats.
2000, ch. 17, §§ 5-7, pp. 73-75 [adding former § 21305, subd. (a)-(c) to reduce the
actions that would be considered a contest and to specify eight public policy
exceptions to enforcement of a no contest clause, including several actions relating
6 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 contest within the terms of the particular no
contest clause. (Former § 21305, Stats. 1989, ch. 544, § 19, p. 1825.) When the
Probate Code was repealed and reenacted in 1990, the substance of the 1989 no
contest clause provisions was continued, although section 21305 became former
section 21320, which was limited to instruments that were or had become
irrevocable. (Stats. 1990, ch. 79, § 14, pp. 463, 972.17.)
13
to fiduciaries; amending former § 21320, subd. (a) regarding safe harbor
proceedings].)
In 2002, the Legislature for the first time distinguished “direct contests”
and “indirect contests.” A “direct contest” was defined as a pleading in a court
proceeding that alleged “the invalidity of an instrument or one or more of its
terms” based on 10 specified grounds, including, inter alia, revocation, lack of
capacity, fraud, undue influence, lack of due execution, and forgery. (Former
§ 21300, subd. (b), Stats. 2002, ch. 150, § 1, p. 757.) An “ „[i]ndirect contest‟ ”
was defined as a pleading “that indirectly challenges the validity of an instrument
or one or more of its terms based on any other ground not contained in [the
statutory list of direct contests].” (Former § 21300, subd. (c).) Reading the former
statute and the applicable common law together, we described an indirect contest
as “one that attacks the validity of an instrument by seeking relief inconsistent
with its terms.” (Johnson v. Greenelsh (2009) 47 Cal. 4th 598, 605.)
In 2002, the Legislature also added four further matters that would not
violate a no contest clause as a matter of law. (Former § 21305, subds. (b)(9)-
(12), (d), Stats. 2002, ch. 150, § 2, pp. 757-758.)7 In addition, the Legislature
expressly authorized the safe harbor procedure for a pleading that alleged a public
policy exemption from the operation of a no contest clause. (Former § 21320,
subd. (a), Stats. 2002, ch. 150, § 3, p. 758.) The 2002 amendments were again in
significant part intended as clarification of the law as it had continued to be
developed in the courts. (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d
7 The 2002 legislation specified that three of the then 12 listed public policy
exemptions would not apply if the challenge was found to be a direct contest.
(Former § 21305, subd. (e) [referencing subd. (b)(6), (9) & (11)].)
14
reading analysis of Sen. Bill No. 1878 (2001-2002 Reg. Sess.) as amended June
17, 2002.)
The effort by the Legislature to clarify the law was not, however, entirely
successful. The 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. (Revision of No Contest Clause Statute (Jan. 2008) 37 Cal. Law
Revision Com. Rep. 359, 381 (Revision Report).) In 2005, the Legislature asked
the Commission to once again study the advantages and disadvantages of
enforcing a no contest clause in a will, trust, or other estate planning instrument.
(Sen. Conc. Res. No. 42, Stats. 2005 (2005-2006 Reg. Sess.) res. ch. 122, p. 6159.)
In 2008, the Commission issued a report recommending retention, but with
significant revision, of the no contest clause statutes. (Revision Rep., supra, 37
Cal. Law Revision Com. Rep. at pp. 391-399.)8 According to the Commission, no
contest clauses are still supported by a number of important public policy interests,
including respecting a transferor‟s ability to control the use and disposition of his
or her own property and to avoid the cost, delay, public exposure, and additional
discord between beneficiaries involved in litigation over the transferor‟s estate
plan. (Revision Rep., at pp. 364-366.) When the proper disposition of a
transferor‟s property is complicated by difficult property characterization issues, a
8 “Explanatory comments by a law revision commission are persuasive
evidence of the intent of the Legislature in subsequently enacting its
recommendations into law.” (Brian W. v. Superior Court (1978) 20 Cal. 3d 618,
623.)
15
no contest clause may also appropriately operate as a “forced election” in order to
avoid ownership disputes.9 (Id., at pp. 367-368.)
The Commission acknowledged, however, that other public policy concerns
“can trump a transferor‟s intention to create a no contest clause.” (Revision Rep.,
supra, 37 Cal. Law Revision Com. Rep. at p. 369.) It noted that as a matter of
general public policy, “a person should have access to the courts to remedy a
wrong or protect important rights.” (Ibid.) The Commission stated that a no
contest clause should be applied conservatively to avoid a forfeiture that is not
intended by the transferor. (Id., at pp. 369-370.) The Commission agreed that
judicial proceedings may be necessary to determine a transferor‟s intentions. (Id.,
at pp. 370-372.) And it emphasized that important public policy interests support
judicial supervision of an executor, trustee, or other fiduciary. (Id., at p. 372.)
9 The Commission gave the following example of a beneficial use of a forced
election: “A decedent is survived by his wife of many years. It was a second
marriage for both spouses, each of whom had significant separate property assets
of their own. Over the years of their marriage it became increasingly difficult to
characterize ownership of their assets as separate or community property . . . .
Rather than put his beneficiaries to the expense and delay that would be required
for a thorough property characterization, the transferor uses a no contest clause to
avoid the issue. [¶] The transferor claims that all of the disputed assets are his
separate property, gives a gift to his surviving wife that is clearly greater than the
amount she would recover if she were to contest the property characterization, and
includes a no contest clause. This forces the surviving spouse to make a choice
between acquiescing in the decedent‟s estate plan and taking the amount offered
under that plan, or forfeiting that amount in order to pursue her independent rights
under community property law. [¶] If the offer made in the estate plan is fair to
the surviving spouse, she can save the estate money and time by accepting the gift
offered . . . .” (Revision Rep., supra, 37 Cal. Law Revision Com. Rep. at p. 367.)
Other situations, beside the disposition of marital property, may give rise to a
similar type of “forced election.” (Id., at p. 368.)
16
Nevertheless, in light of the identified policy interests in favor of no contest
clauses, the Commission recommended against making any fundamental
substantive change to the existing no contest clause statutes. (Revision Rep.,
supra, 37 Cal. Law Revision Com. Rep. at p. 391.) “As under existing law, a no
contest clause should be enforceable unless it conflicts with public policy.” (Ibid.)
To address the “most common and serious problem” of uncertainty in
application of the existing law (Revision Rep., supra, 37 Cal. Law Revision Com.
Rep. at p. 382), the Commission recommended a simplification of the statutes.
(Id., at p. 392.) As pertinent here, the Commission proposed to narrowly define
the types of contest subject to a no contest clause, in place of the existing “open-
ended definition of „contest,‟ combined with a complex and lengthy set of
exceptions.” (Ibid.) Under such a statutory scheme, “any pleading that is not one
of the expressly covered types would not be governed by a no contest clause”
without the need for any further analysis. (Ibid.)
According to the Commission, “[o]ne of the main benefits of limiting the
enforcement of a no contest clause to an express and exclusive list of contest types
is that the existing attempt to describe public policy exceptions can be
abandoned,” eliminating “a significant source of complexity and confusion in
existing law.” (Revision Rep., supra, 37 Cal. Law Revision Com. Rep. at p. 395.)
Although enforcement of a no contest clause against an indirect contest would be
eliminated, the Commission believed that the substantive effect of such a change
“would be relatively modest.” (Ibid.) “Existing law already exempts nearly all
types of indirect contests from the operation of a no contest clause (other than
forced elections)” and, when the existing list of public policy exceptions does not
apply, “the gap in coverage is probably inadvertent.” (Id., at p. 395 & fn. 95.)
“The policy implication of that trend is clear. A beneficiary should not be
punished for bringing an action to ensure the proper interpretation, reformation, or
17
administration of an estate plan. Such actions serve the public policy of
facilitating the fair and efficient administration of estates and help to effectuate the
transferor‟s intentions . . . . [¶] The proposed law would merely extend that
principle to its logical end . . . .” (Id., at p. 395.)
Accordingly, the Commission recommended that a no contest clause should
be enforceable only in response to three types of contests: (1) a direct contest, as
specifically defined, brought without probable cause; (2) a creditor claim; and (3)
a challenge to a transfer of property amounting to a forced election. (Revision
Rep., supra, 37 Cal. Law Revision Com. Rep. at pp. 392-394, 397.)
In response to the Commission‟s report, the Legislature repealed the
existing statutes and replaced them with a new set of statutes governing no contest
clauses, essentially as recommended by the Commission. (Stats. 2008, ch. 174,
§§ 1, 2, p. 567 [repealing former § 21300 et seq., and adding § 21310 et seq.]; Sen.
Rules Com., Floor Analysis of Sen. Bill No. 1264 (2007-2008 Reg. Sess.) as
amended June 18, 2008.) Effective on January 1, 2009, operative on January 1,
2010, and applying to instruments that became irrevocable on or after January 1,
2001, the new statutory provisions generally limit enforceability of the no contest
clause to (1) direct contests brought without probable cause; (2) challenges to the
transferor‟s ownership of property at the time of the transfer, if expressly included
in the no contest clause; and (3) creditor‟s claims and actions based on them, if
expressly included in the no contest clause. (§§ 21311, subd. (a)(1)-(3), 21315;
Stats. 2008, ch. 174, §§ 2, 3, p. 568.) The new law discontinued the safe harbor
declaratory relief procedure of former section 21320. (Stats. 2008, ch. 174, § 1,
p. 567.)
With this background in mind, we consider whether the beneficiaries may
litigate their proposed petition in this case without risk of disinheritance by
operation of the no contest clauses of the amended Family Trust instrument.
18
IV. APPLICATION OF THE LAW TO THE CLAIMS PROPOSED TO BE FILED BY THE
BENEFICIARIES IN THEIR 2009 SAFE HARBOR APPLICATION
A. The beneficiaries’ safe harbor application was not subject to
dismissal after the current law became operative.
Section 3, subdivision (c), provides that “[s]ubject 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, . . . commencement of a proceeding, . . . , or taking of an action. (Italics
added.) Subdivision (d) of section 3 further provides that “[i]f a petition, . . . is
filed before the operative date, the contents, execution, and notice thereof are
governed by the old law and not by the new law; but any subsequent proceedings
taken after the operative date concerning the petition, . . . , including an objection
or response, a hearing, an order, or other matter relating thereto is governed by
the new law and not by the old law.” (Italics added.)
The current law regarding no contest clauses became operative on January
1, 2010, while the beneficiaries‟ safe harbor application was still pending. Safe
harbor proceedings are not, however, matters “governed” by the current law,
which discontinued the use of such proceedings and provides no procedures for
those actions that may have been pending when the new law took effect.
Although the current law repealed former section 21320, which authorized safe
harbor applications (see fn. 5, ante), nothing in the current law suggests that safe
harbor applications pending when the current law became operative were subject
to dismissal. Instead, procedurally, the cause was properly before the probate
court under the rule provided by section 3, subdivision (g), which states that “[i]f
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.” (Italics added.) Therefore, the trial court did not err as a
19
procedural matter in ruling on the beneficiaries‟ pending safe harbor application
after the operative date of the current law.
B. The current law was presumptively applicable to the substantive
merits of the beneficiaries’ safe harbor application and, under such
law, the no contest clauses of the amended Family Trust
instrument are unenforceable.
We conclude, however, that concerning the substantive legal issue of
whether the no contest clauses of the Family Trust instrument are enforceable
against the beneficiaries‟ proposed claims, the current law was presumptively
applicable because the Family Trust instrument became irrevocable after January
1, 2001. (§ 21315, subdivision (a).) And under the current law, the no contest
clauses are not enforceable against the claims that the beneficiaries have sought to
raise by their proposed petition. We explain.
In proposing the current law, the Commission was plainly aware of the
issue of retroactive or prospective application of the proposed law. Its staff
expressly advised the Commission regarding the transitional issues presented by
an adoption of new no contest clause statutes. (Cal. Law Revision Com., First
Supp. to Memo. 2008-3, Revision of No Contest Clause Statute (Transitional
Issues) (Jan. 15, 2008) pp. 1-15 (First Supplement).) In particular, staff brought to
the attention of the Commission “two significant benefits to retroactive application
of the proposed law.” (Id., at p. 6.) First, the public policy interests in allowing
actions to determine or preserve the transferor‟s intentions or supervise a fiduciary
without deterrence by a no contest clause apply equally to all instruments,
whenever executed. (Ibid.) Second, retroactive application would significantly
simplify the law going forward. (Id., at pp. 6-7.) However, staff pointed out, full
retroactive application of the proposed law could, among other things, defeat a
transferor‟s expectations, which were presumably based on and relied on
application of the law in existence at the time of executing an estate plan. (Id., at
20
p. 7.) As an alternative to full retroactivity, staff suggested partial retroactivity,
which “would achieve some of the simplification benefits of retroactive
application, without creating the problems posed by full retroactivity.” (Id., at
p. 12.)
The Commission adopted its staff‟s partial retroactivity suggestion and
recommended to the Legislature a carefully designed scheme of effective and
operative dates for the proposed law. Specifically, the Commission proposed that
the new statutes should have a one-year deferred operation date in order to provide
a “grace period” for those who wished to revise their estate plans before the new
law took effect. (Revision Rep., supra, 37 Cal. Law Revision Com. Rep. at p.
398.) But, once the proposed law became operative, the Commission proposed
that “it would apply to any instrument, whenever executed, with one exception. It
would not apply to an instrument that became irrevocable before January 1, 2001.”
(Id., at pp. 398-399.) The January 1, 2001 date was chosen to “preserve existing
law as to instruments that became irrevocable before the enactment of the existing
scheme of statutory exceptions to the enforcement of a no contest clause.” (Id., at
p. 399.)10
The Commission noted that “[w]here there are differences in the effect of
the proposed law and existing Section 21305, the retroactive application of the
proposed law to January 1, 2001, would be limited by the exceptions provided in
Probate Code Section 3,” including the “general exception that allows a court to
10 In 2002, the Legislature expressly precluded retroactive application of the
statutory public policy exceptions by limiting the application of former section
21305, subdivision (b) to instruments of decedents dying post-2000 and to
documents that become irrevocable post-2000. (Former § 21305, subd. (d); Stats.
2002, ch. 150, § 2, p. 758; see First Supp., supra, at pp. 5-6.)
21
apply prior law if it determines that retroactive application of the new law would
substantially interfere with the rights of interested persons.” (Revision Rep.,
supra, 37 Cal. Law Revision Com. Rep. at p. 399; see First Supp., supra, at pp. 1-
4.) Section 3, subdivision (h), thus, would “provide[] a general fairness exception
to the retroactive application of new law.” (First Supp., supra, at p. 3.)
The Legislature adopted the recommendation of the Commission. Effective
on January 1, 2009, and operative on January 1, 2010, section 21315, subdivision
(a), provides that the current no contest clause statutes apply “to any instrument,
whenever executed, that became irrevocable on or after January 1, 2001.”
(§ 21315, subd. (a).)
As recommended by the Commission, section 21315 itself provides no
exception to the applicability of the current law to instruments that became
irrevocable on or after January 1, 2001. It appears clear from the legislative
history we have described that the Legislature fully intended the current law to be
applied to instruments drafted years before the current law‟s operative date as long
as the instrument became irrevocable on or after January 1, 2001, the date when
the former law‟s statutory scheme of exceptions to the enforceability of no contest
clauses became effective. Application of the current law to such category of
instruments was reasonable because, as explained by the Commission‟s report, the
current law would not likely change the substantive result regarding the
enforceability of a no contest clause in those instruments. (Revision Rep., supra,
37 Cal. Law Revision Com. Rep. at p. 395.)
Rodney died in 2002. Mary died in 2005. Thus, the Family Trust
instrument became irrevocable after January 1, 2001, and by the terms of section
21315, subdivision (a), the current substantive law governing no contest clauses is
applicable.
22
The successor trustees argue that the no contest clauses of the amended
Family Trust instrument should be enforceable against the beneficiaries‟ claims
under the current law. We disagree.
Section 21311, subdivision (a), of the current law provides in full as
follows: “A no contest clause shall only be enforced against the following types of
contests: [¶] (1) A direct contest that is brought without probable cause. [¶] (2)
A pleading to challenge a transfer of property on the grounds that it was not the
transferor‟s property at the time of the transfer. A no contest clause shall only be
enforced under this paragraph if the no contest clause expressly provides for that
application. [¶] (3) The filing of a creditor‟s claim or prosecution of an action
based on it. A no contest clause shall only be enforced under this paragraph if the
no contest clause expressly provides for that application.” (Italics added.)
The effect of this statute is to make the trust‟s no contest clauses
unenforceable unless the beneficiaries‟ proposed action is covered by one of the
three specified categories of contest.
The successor trustees do not contend that the beneficiaries‟ proposed
petition is a “direct contest” under the current law. (§§ 21310, subds. (a) & (b),
21311, subd. (a)(1).) Nor do they contend that the beneficiaries‟ challenges assert
a creditor‟s claim under subdivision (a)(3) of section 21311. But the successor
trustees do argue that subdivision (a)(2) of section 21311, relating to forced
elections, is applicable to the beneficiaries‟ proposed petition. According to the
successor trustees, the beneficiaries‟ claims challenge a transfer of property (the
assets in Decedent‟s Trust B) within the meaning of subdivision (a)(2) and
therefore, the trust‟s no contest clauses are enforceable under the current law. To
the contrary, the no contest clauses are unenforceable under the terms of section
21311, subdivision (a)(2).
23
Legislative history makes it clear that the Legislature intended, in enacting
section 21311, subdivision (a)(2) to allow the continued enforcement of a no
contest clause in order to facilitate a forced election.
Specifically, the current law was enacted upon the recommendation of the
Commission after the Commission reflected and reported on the respective
advantages and disadvantages of enforcing a no contest clause. Among the issues
considered by the Commission was the historic use of a no contest clause to
resolve disputes over the character of the property being transferred — in essence,
the extent of the transferor‟s ownership of the property. In its 2008 report, the
Commission explained that “[i]n some cases, the proper disposition of a
transferor‟s property may be complicated by difficult property characterization
issues.” (Revision Rep., supra, 37 Cal. Law Revision Com. Rep. at p. 367.) The
Commission gave as an example a situation in which successive marriages
resulted in difficult community property characterization issues, which could be
avoided by forcing the surviving spouse to make a choice between accepting an
amount offered through the decedent‟s estate plan or pursuing his or her
independent community property claim. (Ibid.; see fn. 10, ante.) As another
example, the Commission noted that “business partners may have mingled assets
in a way that would make proper division difficult . . . .” (Revision Rep., supra,
37 Cal. Law Revision Com. Rep. at p. 368.) In such cases, the Commission
reflected, “a no contest clause and a sufficiently generous gift can resolve the
matter without litigation.” (Ibid.) The no contest clause forces the beneficiary to
make an election.11 (See generally Burch, supra, 7 Cal.4th at pp. 265-266
11 As one case described the situation: “A no contest clause may result in a
„forced election‟ where a beneficiary is obligated to choose between two
inconsistent or alternative rights or claims because the testator or trustor clearly
(Footnote continued on next page.)
24
[describing with approval the use of a forced election in the community property
context].)
The Commission acknowledged a potential for misuse of such a forced
election (Revision Rep., supra, 37 Cal. Law Revision Com. Rep. at pp. 372-374),
but it ultimately concluded, after a survey of the views of trust and estate
attorneys, probate judges, and elder law practitioners (Cal. Law Revision Com.,
Memo. 2007-7, Revision of No Contest Clause Statute: Practitioner Survey (Feb.
21, 2007) pp. 1, 4-5), that the incidences of a forced election deterring a
reasonable claim of ownership of estate assets were rare and that there was no
consensus for significant reform of the use of a no contest clause to force an
election. (Revision Rep., supra, 37 Cal. Law Revision Com. Rep. at pp. 389-390.)
The Commission proposed that the ability of a transferor to use a no contest clause
to create a forced election be continued, but recommended narrowing of the
existing statutory language, which referred to any “action or proceeding to
determine the character, title, or ownership of property” (former § 21305, subd.
(a)(2); Revision Rep., supra, 37 Cal. Law Revision Com. Rep., supra, at p. 394.)
The Commission proposed statutory language that instead allowed a no contest
clause to be enforced against: “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,”
provided “the no contest clause expressly provides for that application.” (Revision
Rep., at p. 402; see id., p. 394.) Accepting the recommendation (see Sen. Com.
(Footnote continued from previous page.)
intended that the beneficiary not enjoy both. [Citation.] Put another way, a
claimant cannot at the same time take the benefits under a testamentary instrument
and repudiate the losses; [he or] she must accept the terms in toto, or reject them in
toto.” (Colburn v. Northern Trust Co. (2007) 151 Cal. App. 4th 439, 447.)
25
on Judiciary, Analysis of Sen. Bill No. 1264 (2007-2008 Reg. Sess.) as amended
Mar. 24, 2008, pp. 9-10), the Legislature enacted the language proposed by the
Commission, in section 21311, subdivision (a)(2).
Because there is no ambiguity in the language of section 21311, subdivision
(a)(2), concerning the requirement that the no contest clause expressly provide for
its application to forced election challenges, the plain meaning of the language
controls. (People v. Cornett (2012) 53 Cal. 4th 1261, 1265.) Here, the terms of the
no contest clauses in the amended Family Trust instrument do not expressly
provide that the clauses apply to pleadings that challenge a transfer of property on
the grounds that it was not the transferor‟s property at the time of the transfer.
Therefore, even assuming for purposes of the successor trustees‟ argument that the
beneficiaries‟ claims could be characterized as a challenge to a transfer of property
within the meaning of section 21311, subdivision (a)(2), an issue that we expressly
do not decide, the no contest clauses cannot be enforced against such claims.
In summary, the trust‟s no contest clauses cannot be enforced to disinherit
the beneficiaries under the current law because the claims alleged in the
beneficiaries‟ proposed petition do not fall into any of the categories of contest set
forth in section 21311, subdivision (a).
C. The Successor Trustees do not qualify for a fairness exception to
the presumptive applicability of the current law.
Although the current law is presumptively applicable to instruments that
became irrevocable after January 1, 2001, like the Family Trust instrument here,
section 3, subdivision (h), provides a “fairness” exception. As we have previously
noted, section 3, subdivision (h) provides, in pertinent part: “If a party shows, and
the court determines, that application of . . . the new law would substantially
interfere with . . . the rights of the parties or other interested persons in connection
with an event that occurred or circumstance that existed before the operative date,
26
the court may, notwithstanding this section or the new law, apply . . . the old law
to the extent reasonably necessary to mitigate the substantial interference.” (See
fn. 6, ante.) We reject the successor trustees‟ contention that the fairness
exception is applicable in this case.
The successor trustees claim that application of the current law after the
death of both Rodney and Mary would unfairly defeat the Donkins‟ expectations
regarding the no contest clauses that they included in the trust documents, thus,
substantially interfering with the rights of the parties and other interested persons.
As we have explained, however, the Legislature plainly intended that the current
law be applied retroactively to instruments that became irrevocable by the death of
the trustor(s) even years before the current law became operative, as long as the
instrument did not become irrevocable before 2001. Thus, the mere fact that a
trust instrument was drafted in reliance on the former law and became irrevocable
before the operative date of the current law is not sufficient to invoke the fairness
exception in subdivision (h) of section 3.
Rather, as the Commission explained, it is “[w]here there are differences in
the effect of the proposed law and existing Section 21305, [that] the retroactive
application of the proposed law to January 1, 2001, would be limited by the
exceptions provided in Probate Code Section 3,” including the “general exception
that allows a court to apply prior law if it determines that retroactive application of
the new law would substantially interfere with the rights of interested persons.”
(Revision Rep., supra, 37 Cal. Law Revision Com. Rep. at p. 399; see also First
Supp., supra, at pp. 1-4.) That is, unless a party can show that a different result
would obtain under the former law on which the transferor relied when executing
the estate plan, the current law applies retroactively to January 1, 2001. In most
cases there will be no difference in result between the former law and the current
law (Revision Rep., supra, 37 Cal. Law Revision Com. Rep. at p. 395 [substantive
27
effect of current law will be “relatively modest”]) and the fairness exception will
be inapplicable. We turn to a consideration of whether the application of the
former law to the beneficiaries‟ claims in this case would lead to a different result.
The successor trustees contend that under the former law, the beneficiaries‟
claims would trigger the no contest clauses of the Family Trust instrument and of
the Trust‟s Second Amendment because the claims constitute an attack on the
validity of the terms of the trust within the meaning of former section 21300,
subdivision (c), and related case law. (See former § 21300, subd. (c) [defining as
an “indirect contest” a pleading “that indirectly challenges the validity of an
instrument or one or more of its terms” based on a ground not enumerated as a
“direct contest” in subdivision (b) of the section], Stats. 2002, ch. 150, § 1,
p. 757.)
As noted earlier, turning both to this former statute and to case law defining
the term “indirect contest,” we defined the term as referring to a claim “that
attacks the validity of an instrument by seeking relief inconsistent with its terms.”
(Johnson v. Greenelsh, supra, 47 Cal.4th at p. 605.) We also referred to such
challenges as those that would thwart the testator‟s distributive scheme. (Id., at
p. 606.) The successor trustees claim that the beneficiaries‟ claims violate the
trust‟s no contest clauses because they attack the validity of the amended
instrument and challenge its distributive scheme.
We are not persuaded because we believe that the beneficiaries‟ claims,
although sometimes couched in terms suggesting they are arguing the validity of
the Trust‟s Second Amendment, at bottom seek an interpretation of the Family
Trust instrument, rather than to void any portion of it or to set aside its distributive
plan. Such calls for interpretation do not violate no contest clauses.
We begin with former section 21305, subdivision (b). It provides that
“notwithstanding anything to the contrary in any instrument, the following
28
proceedings do not violate a no contest clause as a matter of public policy” and
lists a number of types of claims, including one that governs here. (Stats. 2002,
ch. 150, § 2, p 758.) Former section 21305, subdivision (b)(9) lists “[a] pleading
regarding the interpretation of the instrument containing the no contest clause or
an instrument or other document expressly identified in the no contest clause.”
(Italics added.)12
Under the common law, too, disputes over the interpretation of instruments
were not ordinarily seen as violating a no contest clause. “Rather than thwarting
the testator‟s dispositive intent, the proceeding serves to ascertain and enforce that
intent.” (Estate of Strader (2003) 107 Cal. App. 4th 996, 1004, relying on Estate of
Kruse (1970) 7 Cal. App. 3d 471, 476; see Graham v. Lenzi (1995) 37 Cal. App. 4th
248, 258.)
A proposed pleading concerns the interpretation of an instrument when its
allegations put in issue a provision or term of the instrument that “is ambiguous
and requires judicial interpretation.” (Cory v. Toscano (2009) 174 Cal. App. 4th
1039, 1044.) As we shall see, even the successor trustees‟ own arguments make it
plain that the issue in dispute is the proper interpretation of ambiguous provisions
of the amended Family Trust instrument.
12 Former section 21305, subdivision (d) provides that subdivision (b)(9),
(11), and (12) applies only to instruments of decedents dying on or after January 1,
2003, and to documents that became irrevocable on or after January 1, 2003.
(Former § 21305, subd. (d), Stats. 2002, ch. 150, § 2, p. 758.) Former section
21305, subdivision (b)(9), is applicable under former section 21305, subdivision
(d), to the beneficiaries‟ action seeking a determination of the effect of the Trust‟s
Second Amendment because Mary died in 2005, and the Family Trust instrument
as amended by the Trust‟s Second Amendment became irrevocable in 2005.
29
The beneficiaries proposed to file a petition seeking a determination of
various issues pertaining to the administration of the Family Trust. Their
proposed petition objected to the two accountings that had been provided to them
by the successor trustees, claiming that the accountings were inadequate and
disclosed inappropriate transactions and excessive fees by the successor trustees.
The beneficiaries alleged that the accountings failed to disclose any segregation of
the original trust estate into separate trusts after the death of Rodney, as required
by the terms of the Family Trust instrument. Further, they alleged that the
successor trustees had failed to make any distribution of Decedent‟s Trusts B and
C after the death of Mary, as required by the terms of the trust agreement. The
beneficiaries‟ proposed petition sought (1) to compel a proper accounting, (2) to
fix the compensation of the successor trustees and surcharge them for any excess
fees, (3) to remove the successor trustees from office for misfeasance, and (4) to
compel the distribution of the assets of Decedent‟s Trusts B and C.
The successor trustees argue that at least some of these claims amount to an
indirect contest under the former law, thereby triggering the no contest clauses of
the amended Family Trust instrument. Specifically, the successor trustees contend
that the language used by Mary in the replacement “allocation” paragraph of the
Trust‟s Second Amendment clearly manifested her intent to amend the provisions
of the entire Family Trust and to allow the successor trustees to control the
disposition of all of the assets owned by the Family Trust, regardless of which
subtrust owns them.13 That is, they urge a particular interpretation of the
amended allocation paragraph. They argue that, as the Court of Appeal
13 The successor trustees fail to explain their interpretation of the Trust‟s
Second Amendment‟s retention and republication of the “distribution” paragraph
of the Family Trust instrument.
30
concluded, the beneficiaries‟ challenges to Mary‟s failure to create the subtrusts
required by the Family Trust instrument, Mary‟s legal authority and ability to
amend the Family Trust as set out in the Trust‟s Second Amendment, and the
successor trustees‟ failure to make distributions, would, if pursued, constitute a
contest under the no contest clauses because these claims legally challenge and
attack the distributive scheme of the Family Trust, as they interpret that scheme.
The successor trustees‟ argument, however, is premised on a description of
the nature of the beneficiaries‟ claim that is not accurate. As we understand the
beneficiaries‟ argument, the beneficiaries are not challenging the actions of Mary
in executing the Trust‟s Second Amendment per se, nor do they argue that the
Trust‟s Second Amendment is void. Rather, the beneficiaries argue in favor of an
interpretation of the Family Trust instrument, including the Trust‟s Second
Amendment, different from the one urged by the successor trustees. The
beneficiaries‟ contentions seek to establish the meaning of the instrument‟s terms
through an understanding of what they view as Mary‟s probable intent. They
argue that because Mary possessed only limited authority after the death of
Rodney to alter the provisions of the Family Trust and could not validly amend the
trust with respect to his Decedent‟s Marital Share, the new paragraph substituted
by the Trust‟s Second Amendment regarding the allocation of trust assets after
Mary‟s death must have been intended by her to govern, and should be interpreted
to govern, only the assets of Survivor‟s Trust A. Consistent with this
interpretation, the beneficiaries argue that the trust‟s distribution paragraph, left
unaltered by the Trust‟s Second Amendment, required the assets of the Decedent‟s
Trusts B and C to be distributed “outright as soon as is practicable” after the death
of Mary.
The allocation paragraph of the Family Trust instrument, as amended by the
Trust‟s Second Amendment, does not expressly refer to Survivor‟s Trust A and
31
Decedent‟s Trusts B and C. It does not state whether, or how, its provisions are
applicable to the subtrusts. Nor is there language in the Trust‟s Second
Amendment explaining how its new allocation provisions operate with the
distribution paragraph in the Family Trust that the Trust‟s Second Amendment
confirmed and republished. In the context of these ambiguities, the successor
trustees and the beneficiaries advocate for different interpretations of the language
of the amended Family Trust instrument.
In the present setting, the exception provided in former section 21305,
subdivision (b)(9), applies, as a matter of law, because, fairly understood, the
beneficiaries‟ claims seek to resolve issues regarding the interpretation of the
Family Trust instrument as amended by the Trust‟s Second Amendment. The
Court of Appeal erred in failing to apply the exception and in concluding, instead,
that the beneficiaries‟ assertion of their interpretation of the amended trust
instrument and request for distribution violated the no contest clauses of the
amended Family Trust instrument under the former law.
The remainder of the beneficiaries‟ proposed claims fall within public
policy exceptions for challenges to fiduciary misconduct and, therefore, as a
matter of law, also do not violate the no contest clauses of the amended Family
Trust instrument under the former law. Specifically, the beneficiaries allege that
the accountings of the successor trustees are inadequate and disclose misfeasance
of the successor trustees through inappropriate transactions and excessive fees.
They complain about the failure of the successor trustees to reflect in a 2006
accounting the segregation of the trust estate into the required subtrusts14 and their
14 As we have earlier described, on the death of the first spouse (Rodney), the
Family Trust instrument required the surviving trustee (Mary) to divide the trust
estate into two shares — a survivor‟s share that was to be designated “Survivor‟s
(Footnote continued on next page.)
32
failure to distribute the assets of the decedent‟s subtrusts. The beneficiaries seek
an order compelling a new accounting, fixing the compensation of the successor
trustees, surcharging them for any excess fees, and removing them from office for
misfeasance. Substantively, these portions of the beneficiaries‟ proposed action
allege that the successor trustees have failed in their fiduciary duty to administer
the trust according to its terms (§ 16000) and have failed in their duty to properly
report and account on their administration of the trust. (§§ 16061, 16062, 16063.)
Such challenges to the actions of the successor trustees are covered by several of
the public policy exceptions contained in the former law. Specifically, the former
law provided that “notwithstanding anything to the contrary in any instrument,”
pleadings “regarding an accounting or report of a fiduciary,” pleadings that
“challeng[e] the exercise of a fiduciary power,” pleadings that seek “to compel an
accounting or report of a fiduciary,” and pleadings that seek “the removal of a
fiduciary” “do not violate a no contest clause as a matter of public policy.”
(Former § 21305, subd. (b)(6), (7), (8), & (12).)
As explained by the court in Bradley v. Gilbert (2009) 172 Cal. App. 4th
1058, when it was examining the scope and application of former section 21305,
(Footnote continued from previous page.)
Trust A” and a decedent‟s share that was to be designated “Decedent‟s Marital
Share.” The trust assets allocated to the Decedent‟s Marital Share were to be
further divided into the bypass subtrust and the marital deduction subtrust as
determined by the application of the specified formula. In complaining that the
accounting did not reflect that the trust estate had been segregated into the
required subtrusts, the beneficiaries contend that they are challenging the actions
of the successor trustees, not the actions of Mary. And, indeed, their proposed
petition does not allege a failure by Mary to create the subtrusts, but a failure of
the successor trustees to properly report and account for the subtrusts. The Court
of Appeal misconstrued the claims of the beneficiaries to the extent it found
otherwise.
33
subdivision (a)(6), to the circumstances before it: “[A] beneficiary should be able
to question the actions of a faithless fiduciary without being subject to the
restrictions of [a no contest] clause: „[T]he Legislature has determined that in
furtherance of the public policy of eliminating errant fiduciaries, a beneficiary who
believes a fiduciary is engaged in misconduct should be able to bring the alleged
misconduct to the court‟s attention without fear of being disinherited.‟ [Citation.]
To place barriers to a court‟s review of alleged fiduciary misconduct would,
moreover, be contrary to well-established policy to ensure that estates are properly
administered.” (Bradley v. Gilbert, supra, at p. 1071.) Here, the beneficiaries are
arguing that the successor trustees engaged in misconduct when they failed to
carry out the terms of the Family Trust instrument, as interpreted by the
beneficiaries. Such a claim is permitted as a matter of public policy under the
former law.15
15 Notwithstanding the parties‟ arguments, in concluding that several of the
public policy exceptions expressed in former section 21305, subdivision (b), are
applicable to the beneficiaries‟ proposed claims here, it is unnecessary to embark
on any extended consideration of the case law prior to the 2000 statutory
amendments that added former section 21305 to the former no contest clause law
(see, e.g., Estate of Ferber, supra, 66 Cal. App. 4th 244; Estate of Parrette (1985)
165 Cal. App. 3d 157) or the post-2000 case law regarding the enforcement of no
contest clauses against allegations concerning fiduciaries. (See, e.g., Fazzi v.
Klein (2010) 190 Cal. App. 4th 1280; Hearst v. Ganzi (2006) 145 Cal. App. 4th
1195.) As we have previously described, the law in California regarding no
contest clauses has evolved over the course of many years, with an incremental
specification by common law and statutory amendment of numerous public policy
exceptions to the enforcement of no contest clauses. A number of the statutory
public policy exceptions cover the beneficiaries‟ allegations of misconduct by the
successor trustees under the circumstances of this case. We need not consider the
circumstances presented by different cases at other points in time.
34
The successor trustees are not aided by subdivision (c) of former section
21320, which precluded a ruling in a safe harbor proceeding if a determination of
the merits of the beneficiary‟s proposed claim was required. As a matter of law,
and without the necessity of resolving the merits, the nature of the issues raised by
the beneficiaries‟ proposed petition exempts the beneficiaries‟ proposed action
from the no contest clauses for reasons of public policy expressed by the former
law. (Estate of Ferber, supra, 66 Cal.App.4th at p. 251.) It is up to the court or
arbitrator to rule on the merits of the parties‟ conflicting interpretation of the trust
instrument in the future, if the beneficiaries choose to pursue their claims.
Finally, the successor trustees cannot establish that under the former law
the beneficiaries have already violated the no contest clauses by their filing of a
request for an order of the probate court compelling arbitration of their claims or
by their filing of the safe harbor application in lieu of proceeding to arbitration.16
If, as we conclude, the substantive claims raised by the beneficiaries do not as a
matter of law violate the no contest clauses on grounds of public policy, as
expressed in the former law, the beneficiaries are not disinherited by the assertion
of those claims in court or in arbitration. Nor did the filing of the safe harbor
application, prior to commencing arbitration, trigger the no contest clauses under
the former law, as the successor trustees argued. A ruling under former section
21320, subdivision (a), determines neither the merits of the proposed claims nor
16 Although not expressly addressed by the probate court in its order, the
successor trustees raised such arguments in their response to the beneficiaries‟ safe
harbor application, as well as in their petition for instructions. Therefore, the
arguments may fairly be read as having been implicitly rejected by the probate
court. Accordingly, we reject the successor trustees‟ claim that the Court of
Appeal lacked jurisdiction (and implicitly that we lack jurisdiction) to consider
whether the beneficiaries triggered the no contest clauses by their actions or
inaction regarding arbitration of their claims.
35
the appropriate forum for assertion of those claims. (Former § 21320, subds. (b),
(c).) It determines only whether pursuit of the claims will result in disinheritance
under the terms of the no contest clauses and the law governing them. (Id., subd.
(a).)
In summary, we conclude that if the former law were to be applied the
beneficiaries could pursue their proposed claims without risk of being disinherited.
Because this is the same result that is reached by applying the current law, the
successor trustees cannot qualify for the fairness exception provided in section 3,
subdivision (h).
V. DISPOSITION
The judgment of the Court of Appeal is reversed.
CANTIL-SAKAUYE, C. J.
WE CONCUR:
KENNARD, J.
BAXTER, J.
WERDEGAR, J.
CHIN, J.
CORRIGAN, J.
LIU, J.
36
See next page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion Donkin v. Donkin
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 204 Cal. App. 4th 622
Rehearing Granted
__________________________________________________________________________________
Opinion No. S202210
Date Filed: December 26, 2013
__________________________________________________________________________________
Court: Superior
County: Los Angeles
Judge: Reva G. Goetz
__________________________________________________________________________________
Counsel:
Snow Law Corporation and Stephen L. Snow for Defendants and Appellants.
Mark H. Boykin for Plaintiffs and Respondents.
Counsel who argued in Supreme Court (not intended for publication with opinion):
Stephen L. Snow
Snow Law Corporation
28212 Kelly Johnson Parkway, Suite 195
Valencia, CA 91355
(661) 259-9443
Mark H. Boykin
6355 Topanga Canyon Boulevard, Suite 420
Woodland Hills, CA 91367
(818) 883-0871