Trolan v. Trolan

Filed 1/30/19
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
PATRICK TROLAN et al., as Trustees, H044213
etc., (Santa Cruz County
Super. Ct. No. 16PR00237)
Plaintiffs and Appellants,
v.
NELLIE TROLAN,
Defendant and Respondent.
This appeal arises out of a dispute between six siblings over the interpretation of
the Trolan Family Trust (the trust), created by their parents in 1974. Upon the death of
their mother in 2015, the siblings became cotrustees of the trust, with the power to act by
majority vote. Five of the siblings, Appellants in this matter, agreed to maintain the
assets in trust, hoping they would increase in value for the next generation. The sixth
sibling, Respondent, asked for distribution of her share of the trust in cash, setting the
stage for the instant appeal. Upon a petition filed by Appellants, the trial court
interpreted the trust to require liquidation and distribution of the trust assets upon the
death of the last surviving parent, based primarily on a provision requiring distribution to
any beneficiary when he or she turned 30 years old. The court removed the siblings as
trustees and ordered the replacement trustee to liquidate and distribute the trust assets, as
all parties were over 30.
Appellants contend the trial court erred in making these findings and orders;
additionally, they argue the court erred in ordering the trust to pay Respondent’s attorney
fees and costs incurred in opposing the petition. We agree with the trial court that the
clear, unambiguous language of the trust requires distribution of the trust assets and
termination of the trust. However, the trial court erred when it ordered liquidation of the
trust assets to accomplish that purpose, rather than deferring to the discretion of the
trustees to distribute the trust. The orders removing the parties as trustees and requiring
the trust to pay all attorney fees and costs flowed from that error. We therefore will
reverse the orders.
I. FACTUAL AND PROCEDURAL BACKGROUND
The six siblings are Patrick Trolan, Jay Trolan, Therese Trolan, William Trolan,
Tim Trolan (Appellants) and Nellie Trolan (Respondent). Their parents, Howard and
Alice Trolan, established the trust in 1974, when all of the siblings were minors. Howard
predeceased Alice, leaving her as the sole settlor and trustee.
In 2003, Alice Trolan amended the trust to name all six of her children, Appellants
and Respondent, as successor cotrustees, with the power to act by majority vote.
Alice Trolan died in July 2015; at that time the trust became irrevocable, and the
six siblings became the trustees.
A. Relevant Trust Provisions
The Fifth section of the trust is entitled “Dispositive Provisions.” Upon the death
of the later surviving of Howard and Alice Trolan, the trust provides that it shall be
apportioned into equal shares for each of the Trolans’ “then living children.”1 The trust
does not require the trustee to physically segregate or divide the trust shares, “except as
segregation or division may be required by the termination of any of the trusts . . . .” The
trustees have the ability to “distribute the remaining principal and any accumulated
income, or continue the trust for the benefit of the beneficiaries [named in the trust],
under the terms and conditions” set forth in the “Dispositive Provisions” section.
1
Additional provisions discuss distribution if any of the Trolans’ children are
deceased; as all six children were alive at the time of Alice Trolan’s death, those
provisions are not relevant to our discussion.
2
Relevant to the instant dispute, the trust provides, “Distributions of principal shall be
made as follows: [¶] . . . [¶] Whenever any beneficiary for whom a trust is then held
shall have attained the age of twenty-five (25) years the Trustee shall distribute to such
beneficiary one-half (1/2) of the principal of the trust held for him; upon having attained
the age of thirty (30) years the Trustee shall distribute to such beneficiary the balance of
his or her trust.”2 The trust further provides, “Unless sooner terminated in the manner
hereinbefore provided, each trust shall cease and terminate not later than twenty-one (21)
years from the death of the Surviving Spouse, or the death of the survivor of Co-Trustors’
children, or any of their descendants who are living at the date this trust is executed,
which ever death shall last occur.”
The trust also sets forth “Trustee’s Powers,” giving the trustee certain “powers and
discretions” in addition to those “granted to or vested in the Trustee by law or by [the
trust].” The trustee can “continue to hold any property received in trust, including
undivided interest in real property, and to operate any property or any business received
in the trust as long as the Trustee, in the Trustee’s discretion may deem advisable.” The
trustee also has the power, “[u]pon any division or distribution of the Trust Estate, to
partition, allot and distribute the Trust Estate in undivided interests or in kind, or partly in
money and partly in kind, at valuations determined by the Trustee, and to sell such
property as the Trustee may deem necessary to make division or distribution.”
B. Dispute Leading to Petition
The trust estate consists primarily of Comerica Bank stock and several parcels of
real property. Following Alice Trolan’s death, Respondent asked to receive her one-sixth
share of the estate in cash. Appellants agreed they wanted to retain the real property in
trust hoping the property would appreciate in value. As the majority, they agreed to
2
We shall hereafter refer to this provision as the Age 30 Provision.
3
transfer Respondent’s share to her in cash after determining the value of her share based
on the fair market value of the real property assets.
The parties retained a probate referee to value the real properties. Based on his
appraisal, a conflict arose regarding the value, particularly of property located on Deer
Creek Road in Santa Cruz.3 Appellants contend the referee overvalued the land. They
obtained alternate appraisals that valued the land much lower than the referee.
Respondent wanted to use the referee’s valuation to determine her share of the trust.
Appellants proposed several alternatives, none of which involved the complete
liquidation of the trust assets. Respondent found the proposals unacceptable.
During these negotiations, Appellants and Respondent each retained their own
attorneys. Respondent asked that her attorney fees be paid from the trust, a request the
Appellants opposed.
C. Procedural History
Appellants then filed a Petition Regarding the Internal Affairs of a Living Trust
(the petition), asking the trial court to make findings regarding the value of the trust estate
as a whole and Respondent’s share of that estate, based on the lower appraisal the
Appellants obtained in response to the referee’s overvaluation of the Deer Creek Road
property. They further asked the court to order that, upon distribution to Respondent of
her share, all parties sign a mutual general release confirming the accuracy of the court’s
finding regarding the value of Respondent’s share, and waiving Respondent’s right to
appeal or bring any further proceedings regarding administration of the trust. The parties
each own a 3 percent interest in one of the real properties contained in the trust, called the
3
Appellants allege the dispute concerns one piece of property on Deer Creek
Road; Respondent claims the dispute involves three pieces of property, two on Deer
Creek Road and one referred to as the “small Brook Tree lot.” For purposes of our
analysis, we will refer to all of the disputed properties as the Deer Creek Road property.
We do not need to determine the specific nature of the dispute in order to decide this
appeal.
4
41st Avenue property in the petition; the trust owns the remaining 82 percent of the
property. Appellants asked the trial court to allow the transfer of stock shares in
exchange for the release of Respondent’s 3 percent interest in the 41st Avenue property
to the trust. Finally, they asked the court to order that Respondent pay her own attorney
fees and costs.
Respondent filed opposition to the petition, arguing that the terms of the trust
required outright distribution of the trust assets if all beneficiaries were at least 30 years
old at Alice Trolan’s death. She asked the court to make findings regarding the value of
the trust assets, and the value of her share of the trust, based on the average of the
appraisal prepared by the referee, and an additional appraisal she obtained for the Deer
Creek Road property. She included in her proposed valuation of the trust the expenses
the Appellants incurred, if proved by documentation and receipt, as well as her own
attorney fees and costs. Respondent indicated she would release her 3 percent interest in
the 41st Avenue property for $25,000. She asked the court to direct the trustees to
liquidate the portion of the trust estate held in stocks and pay any capital gains as a trust
expense. Respondent also believed the court should order the trustees to handle all
income taxes, including capital gains taxes, at the trust level upon the transferring of trust
assets to the six beneficiaries, so that all beneficiaries receive an equal beneficiary
interest after factoring tax implications. She asked the court to order the sale of the real
properties in the trust, with the proceeds divided equally amongst the six beneficiaries,
and the trust thereafter to be terminated.
Following their initial pleadings, the parties filed several replies and trial briefs,
each of which further elaborated on the nature of the dispute between them. Throughout
her pleadings, Respondent’s proposition for how the dispute should be resolved remained
the same; in her trial brief, she confirmed her position that the trust assets should be sold,
the proceeds equally distributed between the beneficiaries, and the trust thereafter
terminated. Appellants changed their requested relief in each subsequent filing, although
5
they remained steadfast in their belief the trust did not need to be liquidated but could
instead be maintained based on the decision of the majority of the cotrustees. In their
trial brief, Appellants asked the court to find that Appellants, as the majority trustees, had
the right to retain property in the trust in their discretion and had the right to decide
questions of valuation of property held in the trust, suggesting the court’s inquiry should
end there.4 If the trial court disagreed, Appellants asked the court to order Respondent to
accept their offer that the one Deer Creek Road property they believed was in dispute be
put on the market to determine the value of the lot. If the lot sold within 90 days, the sale
price would be used to determine and distribute Respondent’s share of the trust estate.
However, if after 90 days the parties did not receive an offer over $425,000, Appellants
suggested the court should use that figure to calculate Respondent’s share, to be paid
through a transfer of stock.
By stipulation of the parties, the court set an evidentiary hearing in September
2016. Each party provided exhibit and witness lists, and designated witnesses to testify
regarding the valuation of the disputed property. At the outset of the hearing, the court
issued a tentative ruling, “based on the Court’s interpretation of the language of the
Trust.” 5 It determined there was no need to hold an evidentiary hearing to interpret the
trust because, “the controlling language of the trust is specific and unambiguous,” such
that it could, “make a ruling requiring liquidation of the trust based on the trust’s plain
language.” The court found the Age 30 Provision, which it described as a “mandatory
specific provision,” prevailed over the general provision allowing the trustees to continue
to hold property in trust. After announcing the tentative decision, the court allowed
argument. It then offered the parties the opportunity to meet and confer to settle their
4
The brief references a proposed order Appellants submitted with the brief; that
proposed order is not part of the record on appeal.
5
The September 30, 2016 evidentiary hearing was not reported, as the parties did
not provide a court reporter. The court issued an Order Certifying Settled Statement on
Appeal in Lieu of Transcript on April 6, 2017.
6
dispute. After several hours, they were not able to reach a resolution, causing the court to
adopt its tentative ruling. “The Court did not hear testimony from any of the appraisers
or from the parties because the language was clear and the Court believed it must give
preference to the specific trust provisions over the general trust provisions.”
After ruling the Age 30 Provision required liquidation and distribution of the trust,
the court ordered the removal of all cotrustees and appointed a professional fiduciary to
carry out the trust terms. It did so, “Based on the Court’s belief that the failure to
distribute the trust assets was a breach of the fiduciary duties of loyalty and impartiality,
and the fact that the parties could not reach a resolution even when they were aware of
the Court’s tentative ruling, and based on the sua sponte authority provided by [Probate
Code] §15642(a).” The court then ordered the new trustee (the successor trustee) to
liquidate the trust assets, pay expenses and taxes, pay both parties’ attorney fees and costs
from the trust, and distribute the balance equally between the parties. Regarding the 41st
Avenue property, the court ordered that the 82 percent owned by the trust should be
distributed to the parties in one-sixth shares, as tenants in common. The court
memorialized these orders in a written order filed October 13, 2016; the attorney for the
successor trustee gave the parties notice of the entry of that order on the same date.
Appellants subsequently filed a motion to vacate the October 13, 2016 order,
while the successor trustee filed a petition to begin enforcing the order. On December 2,
2016, the court issued an order allowing the successor trustee to marshal the assets and
pay expenses, taxes, and both parties’ attorney fees pending the court’s ruling on the
motion to vacate; the court ruled that she could not start liquidating the assets until a
determination regarding the October 13, 2016 order had been made. Appellants filed a
Notice of Appeal of the December 2, 2016 order on December 8, 2016. When the court
declined to rule on their motion to vacate based on that notice of appeal, Appellants then
amended the appeal, first to include the October 13, 2016 order, and then to include the
7
September 30, 2016 minute order.6 Appellants timely appealed each of these appealable
orders. (Code Civ. Proc., § 904.1(1); Prob. Code, §§ 1300, 1304; Cal. Rules of Court,
rules 8.104(a) and (c), 8.108(c).)7
II. DISCUSSION
A. The Trial Court Erred in Ordering the Liquidation of the Trust
At the heart of Appellants’ appeal is their contention that the trial court erred in
finding that the trust had to be liquidated and distributed based on the Age 30 Provision;
all subsequent orders flowed from that finding, including the court’s order removing the
parties as trustees and its orders instructing the successor trustee to pay both parties’
attorney fees and costs from the trust assets. Therefore, we will first consider the
propriety of the court’s interpretation of the trust to require the immediate distribution
and liquidation of the assets.
1. Standard of Review
“The interpretation of a written instrument, even though it involves what might
properly be called questions of fact [citation], is essentially a judicial function to be
exercised according to the generally accepted canons of interpretation so that the
purposes of the instrument may be given effect. [Citations.] Extrinsic evidence is
‘admissible to interpret the instrument, but not to give it a meaning to which it is not
reasonably susceptible’ [citations], and it is the instrument itself that must be given effect.
6
Although the October 13, 2016 order reflects the rulings the court made on
September 30, 2016, Appellants included the September 30, 2016 minute order in the
appeal as a “precautionary measure,” in the event the minute order stood as an
independently reviewable order under the Probate Code, as the October 13 order does not
“precisely track” the minute order.
7
On January 4, 2017, Appellants filed a petition for writ of supersedeas, mandate,
prohibition, certiorari, or other appropriate relief, and a request for immediate stay, which
we denied in an order filed June 5, 2017, after considering briefs from both parties. We
also denied Appellants’ February 2, 2017 request to take judicial notice of judicial
admissions in lieu of a settled statement.
8
[Citations.] It is therefore solely a judicial function to interpret a written instrument
unless the interpretation turns upon the credibility of extrinsic evidence.” (Parsons v.
Bristol Development Co. (1965) 62 Cal. 2d 861, 865; Sanders v. Yanez (2015)
238 Cal. App. 4th 1466, 1471.) As the trial court did not consider extrinsic evidence in
interpreting the subject trust, we review the matter de novo. (See Estate of Cairns (2010)
188 Cal. App. 4th 937, 944 (Cairns); Ike v. Doolittle (1998) 61 Cal. App. 4th 51, 73 (Ike).)
2. The Clear, Unambiguous Language of the Trust Required Distribution and
Termination of the Trust Upon Alice Trolan’s Death
Appellants argue that the trial court misinterpreted Alice Trolan’s intent,
contending she did not mean to have the trust liquidated and terminated once all of the
beneficiaries turned 30. They believe the trial court’s interpretation of the Age 30
Provision is inconsistent with the general provisions of the trust which delineate the
powers of the trustees, in particular the power to continue to hold property in trust, and
the power to act by majority vote. Based on this alleged ambiguity, Appellants argue the
trial court erred in refusing to consider extrinsic evidence.
Probate Code8 section 21102 provides: “(a) The intention of the transferor as
expressed in the instrument controls the legal effect of the dispositions made in the
instrument. [¶] (b) The rules of construction in this part apply where the intention of the
transferor is not indicated by the instrument. [¶] (c) Nothing in this section limits the use
of extrinsic evidence, to the extent otherwise authorized by law, to determine the
intention of the transferor.”
“The words of an instrument are to receive an interpretation that will give every
expression some effect, rather than one that will render any of the expressions
inoperative.” (§ 21120.) “All parts of an instrument are to be construed in relation to
each other and so as, if possible, to form a consistent whole. If the meaning of any part
8
All future statutory references are to the Probate Code unless otherwise noted.
9
of an instrument is ambiguous or doubtful, it may be explained by any reference to or
recital of that part in another part of the instrument.” (§ 21121.)
In order to first ascertain, and then, if possible, give effect to the intent of the
trustor, the court must consider the whole of the trust instrument, not just separate parts
of it. (Cairns, supra, 188 Cal.App.4th at p. 944.) If the language of the instrument
clearly sets forth the intent, the court does not consider extrinsic evidence; it only looks to
extrinsic evidence in the event of an ambiguity. (See Estate of Dodge (1971) 6 Cal. 3d
311, 318 (Dodge); Estate of Avila (1948) 85 Cal. App. 2d 38, 39-40 (Avila).) The trial
court can consider extrinsic evidence to reveal a latent ambiguity. (Estate of Dye (2001)
92 Cal. App. 4th 966, 977-979; Estate of Russell (1968) 69 Cal. 2d 200, 206-213 (Russell).)
The court can also consider extrinsic evidence regarding the circumstances under which
the trust was made, in order to interpret the trust instrument, but not to give it a meaning
to which it is not reasonably susceptible. (Russell, supra, 69 Cal.2d at p. 211; Ike, supra,
61 Cal.App.4th at pp. 73-74.) However, if the court can ascertain the testator’s intent
from the words actually used in the instrument, the inquiry ends. (Estate of Newmark
(1977) 67 Cal. App. 3d 350, 355-356.) “Where the terms of [the instrument] are free from
ambiguity, the language used must be interpreted according to its ordinary meaning and
legal import and the intention of the testator ascertained thereby.” (Avila, supra,
85 Cal.App.2d at pp. 39-40.)
Considering the trust as a whole, we conclude the trust is not ambiguous on its
face; the provisions clearly require the distribution of assets and termination of the trust
upon the death of the last surviving spouse if the beneficiaries have all reached age 30.
While Appellants contend the trial court erred in failing to consider extrinsic evidence on
this point, nowhere in their briefs on appeal do Appellants allege that such evidence
would reveal a different intent on Alice Trolan’s part. Rather, they argue that the
provisions of the trust itself reflect her intention, as the general powers afforded to the
trustees conflict with the Age 30 Provision. But reviewing all provisions together, we
10
find the Age 30 Provision to be specific and unambiguous, and consistent with the other
provisions of the trust. The Fifth section of the trust (the “Dispositive Provisions”) which
includes the Age 30 Provision, sets forth how long the trust will survive—at least through
the life of the surviving spouse, and until all beneficiaries reach the age of 30. The
remaining provisions specify the trustees’ duties during the life of the trust. These terms
are not contradictory, as it is reasonable to conclude that the trustees’ duties as specified
remain in effect until, as required under the Age 30 Provision, the trust is distributed and
terminated. The Age 30 Provision simply determines when the trust shall be distributed.
This reading of the trust is not strained and does not result in an absurd reading of the
terms of the instrument but renders it a “consistent whole” under section 21121, and
“give[s] every expression some effect, rather than one that will render any of the
expressions inoperative.” (§ 21120.) We are required to construe the trust so as to give
effect to each term it contains; the plain meaning of the Age 30 Provision when construed
with the trust instrument as a whole conveys Alice Trolan’s unambiguous intent that the
trust be distributed and terminated when all of the beneficiaries reach 30 years of age.
However, Appellants argue that the record on appeal does not include the whole
trust because the second page of the document was not presented to the trial court.
Appellants do not specify how a failure to consider page two harmed them in this case;
while they generally allege the second page contains provisions showing their parents’
intent to maintain the trust after Alice Trolan’s death, they do not specify to which
provisions they refer. “To establish prejudice, a party must show ‘a reasonable
probability that in the absence of the error, a result more favorable to [it] would have
been reached.’ [Citation.]” (Diaz v. Carcamo (2011) 51 Cal. 4th 1148, 1161.)
Appellants contend Respondent had the burden of providing the trial court a complete
copy of the trust because she was the party asking the court to interpret the trust.
However, Appellants also asked the trial court to interpret the trust, insofar as they asked
the court to determine whether the trust gave them authority to maintain, rather than sell,
11
the trust assets. Nothing in the record indicates they asked the trial court to consider page
two of the trust in evaluating the issues; in their trial brief, Appellants did not cite to any
of the provisions of page two as evidence of their parents’ desire to maintain the trust
after Alice Trolan’s death. Nor does the record show Appellants objected to the court
proceeding without a complete copy of the trust.
Appellants correctly assert that this court cannot consider page two, provided by
Respondent in her appendix on appeal, as it is outside the record reviewed by the trial
court. (Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal. 3d 180, 184, fn. 1.) Yet,
that does not relieve Appellants of their burden to show prejudice from any purported
errors committed by the trial court. Their argument thus fails, for they do not provide any
information to show page two of the trust would alter the interpretation of Alice Trolan’s
intent, either by this court or the trial court.
Appellants next argue applying the Age 30 Provision as suggested by Respondent
would have required the distribution of the trust during Alice Trolan’s life, thus making
the provision unenforceable as drafted. The plain language of the trust shows otherwise.
The Age 30 Provision falls under Section 5(I)(3) of the trust document, which states at
the outset, “Upon the death of the Surviving Spouse, the Trustee shall distribute the
remaining principal and any accumulated income, or continue the trust for the benefit of
the beneficiaries hereinafter named, under terms and conditions as follows: . . .” (Italics
added.) The Age 30 Provision is one of the “terms and conditions,” such that it only
applied once Alice Trolan, the “Surviving Spouse,” died. It did not apply during Alice’s
life.
Appellants assert the above-quoted portion of Section 5(I)(3) gives the trustees the
ability to terminate the trust or continue the trust for the benefit of the beneficiaries, such
that they could elect to continue the trust after Alice Trolan’s death, which the majority
did. But Appellants disregard the fact the provision allowing the trustees to terminate or
12
continue the trust is subject to the terms and conditions set forth in the remainder of
Section 5(I)(3). Section 5(I)(3)(d) begins, “Distributions of principal shall be made as
follows. . . .” (Italics added.) The subsequent provision, Section 5(I)(3)(d)(1) allows the
trustee to make distributions to any beneficiary entitled to income from the trust as
needed, “If the Trustee deems the net income payable hereunder not sufficient to provide
for the reasonable care, support, maintenance, and education of any beneficiary. . . .”
However, the Age 30 Provision, located in Section 5(I)(3)(d)(2), provides that there will
be a partial distribution if the beneficiary is at least 25 years old, and full distribution
once the beneficiary reaches age 30. These provisions, taken with the whole of Section 5,
and the whole of the trust, indicate the trustees could continue the trust only where the
terms and conditions required it to do so, namely if the beneficiaries were all under the
age of 30. Once all beneficiaries were 30 or over, the terms of the trust required
distribution to each of the beneficiaries upon the surviving spouse’s death.
Appellants claim the fact all of Alice Trolan’s children were over 30 at the time
she amended the trust in 2003 and 2004 shows her intent that the Age 30 Provision would
not serve to terminate the trust immediately upon her death. Respondent makes valid
arguments to the contrary. First, she contends the court is required to assume Alice
Trolan could have had more children up to her death. While the facts presented in the
instant case suggest it was unlikely Alice would have more children after signing the
amendments, the rule on this issue is clear: “On the general subject of the inheritance
and devolution of estates, it is never presumed that a woman, no matter how aged, is
incapable of bearing children.” (Fletcher v. Los Angeles Trust & Sav. Bank (1920)
182 Cal. 177, 184, internal citations omitted; see Cal. Will Drafting (Cont.Ed.Bar 3d ed.
2017) § 34.17.) The second, and arguably more likely scenario proposed by Respondent,
is that one of Alice Trolan’s children could have predeceased Alice. Under
Section 5(I)(3)(b)(2) of the trust, the deceased child’s share of the trust would have then
passed to his or her offspring, people who could have been under 30 at the time of Alice
13
Trolan’s death. Therefore, we do not agree the fact the parties were over 30 at Alice
Trolan’s death reveals her intent to maintain the trust after her death.
Appellants also argue Section 5(I)(3)(e) requires the trust to exist for 21 years after
Alice Trolan’s death. That is not what the provision requires. Rather, it states, “Unless
sooner terminated in the manner hereinbefore provided, each trust shall cease and
terminate not later than twenty-one (21) years from the death of the surviving
spouse. . . .” (Italics added.) As Respondent suggests, this provision comports with the
basic statutory rule against perpetuities. “A nonvested property interest is invalid unless
one of the following conditions is satisfied: [¶] (a) When the interest is created, it is
certain to vest or terminate no later than 21 years after the death of an individual then
alive. [¶] (b) The interest either vests or terminates within 90 years after its creation.”
(§ 21205.) Section 5(I)(3)(e) simply requires the trust to terminate after 21 years if it has
not otherwise terminated pursuant to the other provisions.
Appellants suggest Respondent concedes in her response to the appeal that the
trust contains ambiguities. They claim Respondent concedes the Age 30 Provision
cannot be enforced as drafted to require distribution when each beneficiary turned 30
because Alice Trolan was still alive when each of her children turned 30. Appellants
further believe Respondent concedes the Age 30 Provision is inconsistent with other
provisions in the trust. But Respondent does not concede either of these arguments. As
discussed above, she correctly argues the Age 30 Provision did not take effect until Alice
Trolan’s death, such that it did not require distribution while she was alive. She further
says looking only at the Age 30 Provision, without considering the trust as a whole, one
might think it is inconsistent with other provisions in the trust. However, she further
argues that taking the trust as a whole, the Age 30 Provision is “clearly consistent” with
the other provisions cited by Appellants. Respondent does not concede ambiguity in the
trust.
14
Appellants further contend that application of the “specific-general rule” of
statutory and document interpretation to the trust implicitly reveals ambiguity in the trust
terms. Appellants claim, “Rules of interpretation are only applicable if a document is
unclear and requires construction,” thus arguing the trial court’s use of the specific-
general rule confirms the trust was ambiguous. We are not persuaded.
Code of Civil Procedure section 1859 sets forth the specific-general rule. “In the
construction of a statute the intention of the Legislature, and in the construction of the
instrument the intention of the parties, is to be pursued, if possible; and when a general
and particular provision are inconsistent, the latter is paramount to the former. So a
particular intent will control a general one that is inconsistent with it.” (Code Civ. Proc.,
§ 1859.) The rule has been applied by courts of review to trust documents. Thus, Estate
of Greenleaf (1951) 101 Cal. App. 2d 658 (Greenleaf), demonstrates Code of Civil
Procedure section 1859 does apply to interpretation of trusts; however, the Court of
Appeal does not suggest the trial court must first consider extrinsic evidence or find an
ambiguity to apply the rule. Rather, this rule governing the interpretation of the intent of
the parties who drafted an instrument applies when two provisions in the document are
inconsistent. “As to the general provisions of the trust in reference to the sale or
disposition of the trust property, it appears that the trustee is vested with a wide
discretion. It does not definitely appear that the general grant of discretion applies to the
particular clause here involved, which clause specifically directs the trustee to act. Under
section 3534 of the Civil Code particular expressions qualify those which are general.
(See, also, Code Civ. Proc. § 1859.)” (Id. at pp. 664-665.) Thus, with respect to the
Trolan trust, to the extent the Age 30 Provision is inconsistent with other general
provisions of the trust, it is appropriate for the trustor’s specific intent expressed in the
Age 30 Provision to control over the general powers of the trustees pursuant to Code of
Civil Procedure section 1859, without the need to find an ambiguity in the trust.
15
The ruling in Estate of Simoncini (1991) 229 Cal. App. 3d 881, 889-890 further
supports our conclusion that the specific-general rule applies even if there is no
ambiguity in the document under review. Under the rule that the court must consider the
whole of the testamentary instrument, and give ordinary interpretation to the words used
therein, the Court of Appeal in Simoncini determined the will at issue in the case was
unambiguous, despite the fact certain provisions appeared inconsistent. (Id. at p. 890.)
The court reiterated the importance of considering specific statements of intent which
may seem to conflict with more general statements, specifically a provision giving a
particular property to one person despite the general statement the entire estate property
should be equally divided. (Ibid.) “In our view, any other interpretation of the Will
would violate the principle that the words of a will must be interpreted so as to give every
expression some effect, rather than in a way that will render other language of the will
inoperative. This interpretation of the disputed language also satisfies the statutory
requirement that all parts of the Will must be construed so as to form a consistent whole.
[Citation.] Appellant’s interpretation, on the other hand, would require us either to ignore
specific language in the Will, or actually to rewrite it so as to render it entirely
inoperative. This is not the function of this court. [Citation.] We are not free to ignore
the plain meaning of the words actually used by the testatrix in her Will. [Citation.]”
(Ibid.)
The cases Appellants cite in support of their argument do not alter our analysis.
Edwards v. Arthur Anderson LLP (2008) 44 Cal. 4th 937 does not explicitly concern
application of the specific-general rule; the language Appellants quote from that opinion
does not provide sufficient support for their argument.9 While In re P.A. (2012)
211 Cal. App. 4th 23, a juvenile justice case, did involve the specific-general rule, it
“ ‘Where the language of a contract is clear and not absurd, it will be followed.
9
[Citations.] But if the meaning is uncertain, the general rules of interpretation are to be
applied.’ [Citations.]” (Edwards v. Arthur Anderson LLP, supra, 44 Cal.4th at p. 953.)
16
similarly does not require us to find the trial court’s application of that rule revealed an
ambiguity in the trust. Rather, the Court of Appeal held that the specific-general rule
could not be used to defeat legislative intent as between two inconsistent provisions of
the Welfare and Institutions Code. (Id. at p. 40.) Neither of these cases is factually
similar to the case before us. Nor do they reveal any error in the trial court’s application
of the specific-general rule. In the instant matter, even if the subject provisions were
inconsistent, we can apply the specific-general rule to find the specific Age 30 Provision
prevails over the other, general provisions outlining the duties of the trustees without first
needing to find an ambiguity in the trust.
Even if the application of the specific-general rule did not implicitly reveal the
existence of an ambiguity in the trust, Appellants argue the court was required to admit
extrinsic evidence to determine whether there existed any ambiguities in the document.
Citing Russell, supra, 69 Cal. 2d 200, Appellants contend the trial court had to undertake
a two-step process to determine whether an ambiguity existed in the trust. They believe
the trial court first had to provisionally admit extrinsic evidence to determine whether
there was an ambiguity, and then, if the trust was ambiguous, admit extrinsic evidence to
interpret the settlor’s intent. However, the Supreme Court in Russell indicates this two-
step process only applies if there exists a latent ambiguity that does not appear on the face
of the testamentary document (a will in that case). (Id. at p. 207.) On appeal, Appellants
do not argue a latent ambiguity exists in the trust; they contend the ambiguity appears on
the face of the trust instrument, citing to other provisions of the trust to argue the trial
court incorrectly interpreted the Age 30 Provision. Nor does anything in the record
presented to the trial court indicate Appellants intended to argue a latent ambiguity had
the trial court held an evidentiary hearing.
Moreover, because Appellants have not identified the extrinsic evidence they
would have offered to prove a latent ambiguity, they have not met their burden to show
they suffered prejudice as a result of the alleged error. (Grail Semiconductor, Inc. v.
17
Mitsubishi Electric & Electronics USA, Inc. (2014) 225 Cal. App. 4th 786, 799.) We
agree with Respondent that the only evidence offered by Appellants regarding Alice
Trolan’s intent is that which can be “inferred from the trust instrument.” In reply to this,
Appellants suggest, “[t]he fact that the court denied an evidentiary hearing is exactly the
point,” yet they do not specify the extrinsic evidence the court could or should have
considered if it held such a hearing.
Based on the above, we find the clear, unambiguous terms of the trust express
Alice Trolan’s intent that the trust terminate, and thus that the trustees must distribute the
trust assets, as she is deceased and all of the beneficiaries are now 30 years or more at
this time.
3. The Trust Does Not Require Liquidation of the Assets
Appellants assert that the trial court erred when it ordered liquidation of the trust
assets. We agree. Having found the trust clearly and unambiguously requires
distribution of the trust assets, we also conclude that the language of the trust clearly and
unambiguously grants the trustees discretion regarding the method of distribution of the
trust assets. Under Section 6(H) of the trust, the trustees have the power, “[u]pon any
division or distribution of the Trust Estate, to partition, allot and distribute the Trust
Estate in undivided interests or in kind, or partly in money and partly in kind, at
valuations determined by the Trustee, and to sell such property as the Trustee may deem
necessary to make division or distribution.” Based on this language, we conclude that
Appellants were not required to liquidate the assets to accomplish distribution of the trust
under its terms; rather, liquidation is one of several possible options allowed by Section
6(H).
Absent language in the trust explicitly mandating the liquidation of the trust, the
sole authority, if any, for the trial court’s order was the trial court’s overarching authority
to administer trusts. The court can alter administrative provisions of the trust under
“ ‘peculiar’ or ‘exceptional’ circumstances” where necessary to accomplish the purpose
18
of the trustor. (Ike, supra, 61 Cal.App.4th at p. 83.) The court cannot substitute its
judgment and discretion for that of the trustees’ if the trustees are acting within proper
limits, unless there is a complete failure or refusal to perform the duties of the trustees.
(Greenleaf, supra, 101 Cal.App.2d at p. 662.) While the trustees’ discretion is not
unlimited or arbitrary, “. . .[t]he judgment of the trustees, exercised in good faith, shall
control. . . .” (Copley v. Copley (1981) 126 Cal. App. 3d 248, 284 (Copley).)
Based on our construction of the trust, and the record before us, we conclude the
trial court exceeded its authority when it ordered immediate liquidation of the trust assets
and substituted its judgment regarding the method of distribution of the trust assets for
that of the trustees. Nothing in the record before us suggests the trial court considered
whether the Appellants, as majority trustees, were exercising their discretion to value and
distribute the trust assets in good faith. Rather, it appears the trial court relied on an
erroneous determination that the language of the trust instrument itself required the
immediate liquidation of the assets and thus concluded the trustees had failed or refused
to perform the duties of the trust.
However, we note that the trustees could accomplish the purpose of the trust—the
distribution of equivalent shares of the trust assets to each of the beneficiaries—without
liquidating the trust assets. Moreover, under the terms of the trust, Appellants were
properly attempting to distribute Respondent’s share of the assets to her at the pendency
of this litigation, although they were doing so under the mistaken belief they could keep
their own shares in the trust. Appellants filed the petition to obtain the trial court’s
assistance with the distribution of assets to Respondent, asking the trial court to resolve
the dispute over the valuation of the real property so that they could complete their
distribution obligation with respect to Respondent. The filing of the petition for this
purpose falls within the parameters of section 17200, which, among other things,
authorizes trustees to petition the court to determine questions of construction of a trust
instrument, to determine the existence or nonexistence of a duty or right, and to pass
19
upon the acts of the trustee, including the exercise of discretionary powers. (§ 17200,
subd. (b)(1), (2), and (5).) Appellants’ proper application for a judicial determination of
the value of assets and guidance on the construction of the trust did not provide a basis
for the trial court to order immediate liquidation of the assets. The record does not
demonstrate that Appellants completely failed or refused to comply with the terms of the
trust such that the trial court could, under its administrative power, substitute its
discretion for that of the trustees and order liquidation of the assets. The trial court should
have deferred to the trustees’ determination regarding how to distribute the trust assets, in
accord with Section 6(H) of the trust.10
B. Removal of Trustees
According to the settled statement, the trial court removed the parties as
cotrustees, and appointed a professional fiduciary to serve as successor trustee, “[b]ased
on the Court’s belief that the failure to distribute the trust assets was a breach of the
fiduciary duties of loyalty and impartiality, and the fact that the parties could not reach a
resolution even when they were aware of the court’s tentative ruling, and based on the
sua sponte authority provided by PC §15642(a). . . .” Appellants argue the trial court
abused its discretion in doing so, as they believe the court misconstrued the trust to
require the immediate liquidation of the trust assets, and thus lacked statutory grounds for
removal. Respondent contends the court correctly removed the trustees, as they failed to
comply with the Age 30 Provision, and because there was hostility between the
Appellants and herself. We agree with Appellants that the trial court abused its discretion
when it ordered the parties removed as trustees.
10
By this same measure, the trial court erred in ordering the trust’s share of the
41st Avenue property distributed to the parties in one-sixth shares to be held as tenants in
common. The trustees should decide how to distribute that property, along with the other
trust assets.
20
1. Standard of Review
Although Appellants argue the standard of review is de novo, all relevant legal
authority indicates we must review the trial court’s removal of the parties as trustees for
abuse of discretion. (See Estate of Gilmaker (1962) 57 Cal. 2d 627, 633; Tevis v. Butler
(1894) 103 Cal. 249, 250-251.) The trial court’s power to remove trustees “is a power
that the court should not lightly exercise, and whether or not such action should be
taken . . . rests largely in the discretion of the trial court. Furthermore, the court will not
ordinarily remove a trustee appointed by the creator of the trust. [Citation.]” (Estate of
Bixby (1961) 55 Cal. 2d 819, 826 (Bixby).)
We measure the trial court’s exercise of discretion against the legal principles
governing the subject of its action. (Sargon Enterprises, Inc. v. University of Southern
Calif. (2012) 55 Cal. 4th 747, 773 (Sargon); Horsford v. Board of Trustees of Calif. State
Univ. (2005) 132 Cal. App. 4th 359, 393-394.) “ ‘The scope of discretion always resides
in the particular law being applied, i.e., in the “legal principles governing the subject of
[the] action. . . .” Action that transgresses the confines of the applicable principles of law
is outside the scope of discretion and we call such action an “abuse” of discretion. . . . [¶]
The legal principles that govern the subject of discretionary action vary greatly with
context. They are derived from the common law or statutes under which discretion is
conferred.’ To determine if a court abused its discretion, we must thus consider ‘the legal
principles and policies that should have guided the court’s actions.’ ” (Sargon, supra,
55 Cal.4th at p. 773, internal citations omitted.)
2. The Trial Court Abused Its Discretion When It Removed the Trustees
“A trustee may be removed in accordance with the trust instrument, by the court
on its own motion, or on petition of a settlor, cotrustee, or beneficiary under
Section 17200.” (§ 15642, subd. (a).) Section 15642, subdivision (b) sets forth grounds
for removal of a trustee, including: “(1) Where the trustee has committed a breach of the
trust. [¶] . . . [¶] (3) Where hostility or lack of cooperation among cotrustees impairs the
21
administration of the trust. [¶] (4) Where the trustee fails or declines to act . . . .”
Because Alice Trolan appointed her six children as cotrustees, we look to whether “a
disqualification clearly appears” in the record.11 (Bixby, supra, 55 Cal.2d at p. 826.)
Based on its finding that the Age 30 Provision required immediate liquidation and
termination of the trust, the trial court determined the trustees breached their duties of
loyalty and impartiality to the trust. However, as discussed ante, the trust did not require
liquidation of the assets, but distribution of them. Appellants argue they were making
appropriate efforts to distribute Respondent’s share of the trust assets to her, such that
there was no statutory basis to remove the parties as trustees. It does not appear from the
record that the trial court considered whether Appellants breached their fiduciary duties if
they were not, in fact, required by the terms of the trust to liquidate the assets.
Under section 16000, “On acceptance of the trust, the trustee has a duty to
administer the trust according to the trust instrument and, except to the extent the trust
instrument provides otherwise, according to this division [§ 15000 et seq.].” Section
16040 provides, “The trustee shall administer the trust with reasonable care, skill, and
caution under the circumstances then prevailing that a prudent person acting in a like
capacity would use in the conduct of an enterprise of like character and with like aims to
accomplish the purposes of the trust as determined from the trust instrument.” Trustees
must “reasonably” exercise any discretionary powers authorized by the trust instrument.
(§ 16080.) Even if given “absolute,” “sole,” or “uncontrolled” discretion by the trust
11
Appellants suggest the law requires a heightened showing of cause when the
trial court removes a trustee on its own motion. Section 15642 does not include a
separate standard for sua sponte motions compared to a request made by a settlor,
cotrustee, or beneficiary. Appellants do not cite any legal authority indicating such a
higher standard exists for a sua sponte motion; nor are we aware of any such authority.
We evaluate the issue under the law applicable to all orders removing trustees appointed
by the settlor.
22
instrument, “the trustee shall act in accordance with fiduciary principles and shall not act
in bad faith or in disregard of the purposes of the trust.” (§ 16081, subd. (a).)
The duty of loyalty is set forth in section 16002, subdivision (a), providing, “The
trustee has a duty to administer the trust solely in the interest of the beneficiaries.” As a
fiduciary, the trustee “is bound to act in the highest good faith toward his beneficiary and
may not obtain any advantage therein over the latter by the slightest misrepresentation,
concealment, threat, or adverse pressure of any kind.” (Estate of McLaughlin (1954)
43 Cal. 2d 462, 469-470.) Where there are two or more beneficiaries, the duty of
impartiality, memorialized in section 16003, provides, “the trustee has a duty to deal
impartially with them and shall act impartially in investing and managing the trust
property, taking into account any differing interests of the beneficiaries.” (See Penny v.
Wilson (2004) 123 Cal. App. 4th 596, 604 [“The purpose of the trust is paramount, and the
trustee must act impartially toward all beneficiaries.”]; Werschkull v. United California
Bank (1978) 85 Cal. App. 3d 981, 998-999.)
In the instant matter, if we agreed the trust required complete liquidation of the
trust assets, we would easily find the trial court properly exercised its discretion to find
Appellants breached the duties set forth above by failing to liquidate the trust assets and
distribute the profits accordingly. However, that is not what the trust required. Although
Appellants erroneously believed the instrument allowed them to maintain the trust
beyond Alice’s death, the fact remains they were trying to distribute Respondent’s share
to her upon her demand. A dispute arose as to the valuation of trust property. Under the
terms of the trust, the majority of cotrustees had broad discretion as to the method of
distribution, “at valuations determined by the Trustee. . . .”
Nothing in the trial court’s settled statement suggests the court considered whether
the Appellants were taking reasonable steps to distribute the trust; the court focused only
on their failure to liquidate the assets. The record reveals Appellants made appropriate
efforts to value the property and distribute Respondent’s share accordingly, as authorized
23
by the trust. The parties jointly retained counsel to start administering the trust shortly
after Alice Trolan’s death in July 2015. In September 2015, Respondent notified the
attorney she wanted to receive her share of the trust in cash, a request repeated once she
retained her own counsel. A residential property broker valued the Deer Creek property
at $425,000 in September 2015. Unable to negotiate an agreement, the jointly retained
attorney started proceedings with a probate referee to value the trust assets and move the
matter forward; the referee valued the Deer Creek property at $625,000. Given the
disparity between the two evaluations, Appellants reasonably obtained a further report on
the condition of the property, and an additional evaluation of the property’s value, which
came back at $355,000. As the parties could not resolve the dispute regarding the value
of the Deer Creek property, Appellants filed the petition to seek the trial court’s
assistance. During the proceedings, each party obtained further valuations of the
property; Respondent obtained an appraisal valuing the property at $625,000, while
Appellants next appraisal returned a value of $425,000.
While, as cotrustees, Appellants owed a duty of loyalty and impartiality to all
beneficiaries, including Respondent, Respondent cites no legal authority, nor are we
aware of any, requiring trustees to acquiesce to the demands of one beneficiary when
doing so potentially undervalues the shares distributed to the other beneficiaries.
Appellants took reasonable steps to attempt to resolve the dispute and distribute
Respondent’s share to her. Based on its incorrect reading of the trust, the trial court
erroneously determined the trustees breached the duties of loyalty and impartiality by not
liquidating the trust assets.
The alleged breach of duties was not the sole reason the trial court removed the
trustees and appointed a professional fiduciary. In the settled statement, the court said it
did so because “the parties could not reach a resolution even when they were aware of the
court’s tentative ruling.” While hostility or lack of cooperation among cotrustees can be
a basis to remove the trustees under section 15642, subdivision (b)(3), removal is only
24
appropriate if the hostility impairs the administration of the trust. (IFS Industries, Inc. v.
Stephens (1984) 159 Cal. App. 3d 740, 754; Copley, supra, 126 Cal.App.3d at p. 288.)
There is no evidence the hostility between Appellants and Respondent impaired the
administration of the trust under its clear and unambiguous terms. Alice Trolan elected
to appoint her children as cotrustees, allowing them to act by majority vote. The trust
allows the trustees, in this case, the majority of the cotrustees, to determine the method of
distribution and value of assets at the time of a distribution. If the cotrustees could not
reach a consensus as to the value, such that there was no majority, that would constitute
an impairment of the administration of the trust. However, the fact Respondent does not
agree to the majority cotrustees’ valuation of the trust assets does nothing to impair them
from administering the trust according to the trust instrument.
Having found no statutory basis for the trial court to remove the parties as trustees,
we will reverse the trial court’s order accordingly.
C. Attorney Fees and Costs
Appellants contend Respondent challenged their petition in her role as a
beneficiary, not as a trustee, such that the trial court erred in ordering the trust to pay her
attorney fees and costs. Respondent argues her actions were for the benefit of the trust, in
her role as a successor cotrustee.
“We apply an abuse of discretion standard to the trial court’s decision granting . . .
fee requests payable from the trust’s assets. There are limits to the scope of our
deference, however, ‘When the record is unclear whether the trial court’s award of
attorney fees is consistent with the applicable legal principles, we may reverse the award
and remand the case to the trial court for further consideration and amplification of its
reasoning.’ ‘[D]iscretion must not be exercised whimsically, and reversal is appropriate
where there is no reasonable basis for the ruling or the trial court has applied the “wrong
test” or standard in reaching its result.’ ‘A trial court’s award of attorney fees must be
25
able to be rationalized to be affirmed on appeal.’ ” (Donahue v. Donahue (2010)
182 Cal. App. 4th 259, 268-269, internal citations omitted.)
The record on appeal does not provide detailed information about the trial court’s
reasons for ordering the trust to pay both Appellants’ and Respondent’s attorney fees and
costs. “If litigation is necessary for the preservation of the trust, the trustee is entitled to
reimbursement for his or her expenditures from the trust; however, if the litigation is
specifically for the benefit of the trustee, the trustee must bear his or her own costs
incurred, and is not entitled to reimbursement from the trust. [Citation.]” (Terry v.
Conlan (2005) 131 Cal. App. 4th 1445, 1461.) The court’s rulings that the trust required
immediate liquidation and that a failure to distribute the trust accordingly constituted
breaches in the trustee’s fiduciary duties would, if correct, support a finding that
Respondent undertook litigation for the benefit of the trust. However, given the trial
court’s erroneous application of the relevant legal principles, we are compelled to remand
the issue to the trial court for further consideration. Our reversal on this issue is without
prejudice to the trial court’s further findings in this regard.
III. DISPOSITION
We reverse the trial court’s September 30, 2016, October 13, 2016 and
December 2, 2016 orders, and remand the matter to the trial court with instructions to
remove the successor trustee, to reinstate Appellants and Respondent as trustees, and to
order the trustees to distribute the trust assets pursuant to Section 6(H) of the trust. The
trial court shall then reconsider de novo Respondent’s request that the trust pay her
attorney fees and costs. Each side shall bear its own costs on appeal.
26
_______________________________
Greenwood, P.J.
WE CONCUR:
_____________________________________
Grover, J.
______________________________________
Danner, J.
Trolan et al. v. Trolan
No. H044213
Trial Court: Santa Cruz County Superior Court
Superior Court No.: 16PR00237
Trial Judges: The Honorable John M. Gallagher,
The Honorable Marjorie Laird Carter
Attorneys for Plaintiffs and Appellants, Willoughby, Stuart, Bening & Cook
Patrick Trolan et al.: Ellyn E. Nesbit
Richard E. Damon, PC
Richard E. Damon
Attorneys for Defendant and Respondent, John E. Boessenecker
Nellie Trolan: Randall D. Boessenecker
Law Office Ann Marshall Robbeloth
Ann Marshall Robbeloth
Law Office of Edward Broitman
Edward Morris Broitman
Trolan et al. v. Trolan
No. H044213