Doolittle v. Exchange Bank

Filed 11/4/15 Unmodified document attached
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
SUSAN DOOLITTLE, A143422
Plaintiff, Cross-defendant and
Appellant, (Sonoma County
Super. Ct. No. SPR-86741)
v.
EXCHANGE BANK, as Trustee, etc., ORDER MODIFYING OPINION
AND DENYING REHEARING;
Defendant, Cross-complainant and NO CHANGE IN JUDGMENT
Respondent.
THE COURT:
The opinion filed on October 20, 2015 is modified as follows:
1. On page 17, line 16, delete the words “such as the amendment in this case,” so the
sentence reads:
And in determining capacity to execute a trust amendment that “in its content and
complexity, closely resembles a will or codicil,” the courts have held that the
lower mental capacity standard for the making of a will should apply.
2. On page 17, line 19, immediately after the case citations that follow the sentence
above, add as footnote 7 the following, which will require renumbering all subsequent
footnotes:
7
The parties have not addressed and we express no opinion as to the proper
standard to be applied on remand.
1
The petition for rehearing filed on behalf of Susan Doolittle is denied. The request for
modification filed on behalf of Exchange Bank is denied. There is no change in the
judgment.
Date: __________________________ Acting P.J.
2
Trial Court: The Superior Court of Sonoma County
Trial Judge: Honorable Michael Byrne
Counsel for plaintiff and appellant: HARTOG & BAER, P.C.
David W. Baer
John A. Hartog
Laura C. Roche
Counsel for defendant and respondent: ABBEY, WEITZENBERG, WARREN &
EMERY
Lewis R. Warren
Michael R. Wanser
REED SMITH LLP
Paul D. Fogel
Dennis Peter Maio
FRANCESCHINI FREITAS LLP
Richard Thomas Franceschini
3
Filed 10/20/15 Unmodified document
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
SUSAN DOOLITTLE,
Plaintiff, Cross-defendant and
Appellant, A143422
v. (Sonoma County
EXCHANGE BANK, as Trustee, etc., Super. Ct. No. SPR-86741)
Defendant, Cross-complainant and
Respondent.
Susan Doolittle appeals from orders of the probate court authorizing Exchange
Bank, the trustee for her mother’s trust, to use trust assets to defend against two actions
Susan has filed challenging the disposition of the trust estate under an amendment to the
trust. Susan contends the provision of the amendment that authorizes these expenditures
is, in effect, a no-contest clause that under current provisions of the Probate Code may
not be enforced without a determination that her challenges lack merit and were brought
without probable cause and, in all events, may not be enforced until the validity of the
amendment containing the authorization has been adjudicated. We find no merit in these
contentions and thus shall affirm the orders.
Factual and Procedural History
On November 5, 1999, Constance Doolittle (Connie) established an inter vivos
trust. Connie was both the trustor and the initial trustee of the trust and she retained the
right to amend and revoke it during her lifetime. Connie named various persons as
beneficiaries of gifts from the trust estate and designated her two daughters, Susan and
Carolyn, as remainder beneficiaries of her approximately $8.5 million estate.
1
On June 28, 2000, Connie amended the trust by executing the “First Amendment
to the Constance Doolittle Trust UTD November 5, 1999.” The amendment, among other
things, included two $500,000 gifts, one to a friend and the other to a caregiver.
In 2004, Connie hired Juan Amador as her gardener. A few months later, on
September 15, 2004, Connie amended and restated her trust in its entirety by executing
the “First Amended and Restated Trust Agreement of the Constance Doolittle Trust UTD
November 5, 1999.” Among other changes, the revised trust included a large gift of
real property to Juan, and added six additional residual beneficiaries, including
Juan and five other friends and caregivers.
Beginning in 2004, Connie began paying attorney fees out of trust funds to defend
against what she perceived as attacks by Susan and Carolyn on the validity of her
designated gifts to Juan. The record does not reveal the details of these attacks or of the
steps taken for which the attorney fees were paid.
On January 26, 2005, Connie amended and restated the trust in what would be its
final form, by executing the “Second Amended and Restated Trust Agreement of the
Constance Doolittle Trust UTD November 5, 1999” (hereafter 2005 trust). In the 2005
trust, Connie made gifts upon her death to various beneficiaries, including $500,000 to
Susan, $500,000 to Carolyn, and $150,000 to each of her grandchildren. She named
seven persons, not including Susan or Carolyn, as remainder beneficiaries, giving one-
fourth of the remainder to Juan and one-eighth of the remainder to each of six
beneficiaries who were Connie’s friends and caregivers.
In the 2005 trust instrument Connie declared that various powers belonged to her
as trustee and to any successor trustee, including the power to “litigate” and “employ”
and “reasonably compensate . . . attorneys.” Connie designated Exchange Bank (trustee)
as her successor trustee. Under the heading “No Contest Provisions,” the trust instrument
included the following two provisions:
“6.15.2 No Contest. If any beneficiary hereunder or any other person shall, singly
or in conjunction with any other person(s), in any manner, directly or indirectly, contest
in any court the validity of this Agreement or of Trustor’s Will or any Codicil thereto
2
(collectively, ‘Will’); seek to obtain an adjudication in any proceeding or court that this
Agreement, such Will or any provisions thereof are void; or otherwise seek to void,
nullify or set aside this Agreement, Trustor’s Will, or any provisions thereof, then the
right of that person to take any interest given to him or her by this Agreement or by
Trustor’s Will shall be determined as it would have been determined had such person
predeceased Trustor, without issue. Any proceedings that thwart the specific intentions
and directives expressed in this Agreement or in Trustor’s Will, or which frustrate
Trustor’s testamentary or other intentions, including actions for constructive trust,
heirship proceedings, petitions to construe this Agreement and/or Trustor’s Will,
creditor’s claims and the like shall be considered a direct or indirect contest of this
Agreement. Any attempt by any person to obtain more than is provided for him or her in
this Agreement or in Trustor’s Will shall be considered a contest to this agreement and to
Trustor’s Will. Trustor hereby affirmatively states that she has no obligations, contractual
or otherwise, to her daughters or to any of her daughters’ family members, including,
without limitation, a spouse (if any), companion (if any) and/or a daughter’s issue.
Therefore, any attempt by any of Trustor’s children and/or issue to obtain more than is
provided for any of them in this Agreement or under Trustor’s Will shall be construed as
a contest to this Agreement and to Trustor’s Will. The Trustee is hereby directed to
defend, at the expense of any trust estate governed by this Agreement, any contest or
other attack of any nature on this Agreement, on any of its provisions and any
amendments hereto, and on Trustor’s Will, an attack of any nature on Trustor’s estate
planning and the inter vivos disposition, or disposition at death, of her assets and estate.
“6.15.3 Expenses of Contest. Notwithstanding the foregoing provisions of this
Section 6.15, if the Trustee should be unsuccessful in defending any matter described in
that Section and does not settle such action and if, for any reason, the gifts to and
interests of the contestant under this Agreement and/or Trustor’s Will are not forfeited,
all of the costs of such defense shall be charged against the gifts to and interests of such
contestant under this Agreement and/or Trustor’s Will, and all gifts to and interests of the
contestant under this Agreement and/or Trustor’s Will shall be reduced on a dollar-for-
3
dollar basis by the aggregate net value, as determined by the Trustee, of all real and
personal property passing or distributable to or for the benefit of the contestant as a result
of such matter or action, including, without limitation, assets of the trust estate or
Trustor’s probate estate, insurance proceeds, employee benefits and deferred
compensation. Accordingly, in making any settlement hereunder, the Trustee is directed
to abide by these provisions to the extent possible.”
On January 26, 2005, the same day she executed the 2005 trust, Connie also
executed a document entitled “Instructions to Successor Trustee and to Agent” which
provided that if any of her representatives (“ my attorney, my accountant, my investment
counsel, my trustee, my agent, any doctor or psychologist, or any other representative of
mine”) was called upon to testify to her intentions or her circumstances with respect to
the inter vivos gifts and estate planning documents, the representative should be
compensated at his or her “regular, usual and customary rate.”
At about the same time Connie was examined by Dr. Stephen E. Francis, a
licensed psychologist with a specialty in neuropsychology, who signed an affidavit in
which he attested that, on the date she executed the 2005 trust instrument and related
documents, she had sufficient capacity to do so. Connie also obtained six “certificates of
independent review” from Eliot Lippman, an independent estate planning attorney.
Lippman counseled Connie regarding the nature and consequences of each of the
bequests Connie had made, including the gift to Juan, and attested that none was the
product of fraud or undue influence.
On July 26, 2005, Connie resigned as trustee and Exchange Bank accepted the
position of successor trustee.
Connie died on January 22, 2014.
On May 21, 2014, in the Marin County Superior Court, Susan filed an action
against Juan for financial elder abuse, charging he had “systematically manipulated”
Connie by unduly influencing and fraudulently inducing her to execute the 2004 and
2005 trust documents. Susan’s complaint seeks: (1) a determination that those
instruments are invalid; (2) a determination that the no contest clause of the 2005 trust is
4
unenforceable; and (3) an order directing the trustee to distribute the trust estate in
accordance with the 1999 trust as amended by the 2000 trust amendment.
On May 23, 2014, Susan petitioned the Sonoma County Superior Court, sitting in
probate, for a determination that Connie lacked testamentary capacity when she executed
the 2004 and 2005 trust documents. Again, she charged that Juan had “systematically
manipulated” Connie and sought the same relief as in the Marin County action.
On June 16, 2014, Exchange Bank, as trustee, petitioned the probate court in
Sonoma County for instructions. Citing the provision of the 2005 trust that imposes a
duty to defend at the trust’s expense against any contest or other attack on Connie’s estate
plan, trustee requested an order confirming its authority to use funds in the trust estate to
retain counsel to defend against Susan’s two actions and to compensate Connie’s
representatives for all time spent in connection with their testimony in the two
proceedings.
The following day, Susan filed her own petition for instructions in the Sonoma
County probate court. She admitted that each of her two actions is a “contest” against
Connie’s estate plan, but argued that the defense-of-claims provision in the 2005 trust is a
no-contest clause and that the trustee is prohibited from defending against either action
until the courts resolve the two contests on their merits. On September 10, 2014, Susan
filed a first amended petition seeking, among other things, an order determining that the
2005 instructions is not a trust instrument.
On October 15, 2014, following a hearing, the probate court granted trustee’s
petition and in a separate order denied Susan’s petition. The court found that the defense
provision is not a “no-contest” clause and that the trustee is authorized to use trust funds
to defend against Susan’s action to invalidate the 2005 trust and her related action for
financial abuse of an elder. The court found further that the 2005 instructions are part of
the trust agreement.
5
Susan timely appealed from the two orders. On March 17, 2015, trustee petitioned
the probate court under Probate Code section 1310, subdivision (b),1 for authority to
comply with the October 15 orders, notwithstanding the automatic stay in effect under
section 1310, subdivision (a). On June 2, 2015, the probate court issued an order granting
trustee’s petition. Thereafter, Susan filed a petition for writ of supersedes and/or mandate
seeking review of the March 17 order. This court summarily denied Susan’s writ petition.
Discussion
Susan’s principal contention is that the instructions to the trustee to defend her
claims at the expense of the trust are in effect a no-contest clause that cannot be enforced
unless and until it is ultimately determined that her claims lack merit and were brought
without probable cause. In response to this court’s request for additional briefing, the
parties have also addressed whether the instructions to defend, included in the trust
amendment the validity of which is disputed, can in any event be enforced prior to a
judicial determination of the validity of the disputed trust instrument. Finally, Susan
challenges the trial court’s ruling that the 2005 instructions, which authorize payment to
the trust’s attorney and other trust representatives at their “regular, usual and customary
rate” are enforceable.
1
Probate Code section 1310 provides in relevant part: “(a) Except as provided in
subdivisions (b), (c), (d), and (e), an appeal pursuant to Chapter 1 (commencing with
Section 1300) stays the operation and effect of the judgment or order. [¶] (b)
Notwithstanding that an appeal is taken from the judgment or order, for the purpose of
preventing injury or loss to a person or property, the trial court may direct the exercise of
the powers of the fiduciary, or may appoint a temporary guardian or conservator of the
person or estate, or both, or a special administrator or temporary trustee, to exercise the
powers, from time to time, as if no appeal were pending. All acts of the fiduciary
pursuant to the directions of the court made under this subdivision are valid, irrespective
of the result of the appeal. An appeal of the directions made by the court under this
subdivision shall not stay these directions.”
All further statutory references are to the Probate Code unless otherwise indicated.
6
1. The provision in the trust instructing the trustee to defend against contests is not a
no contest clause.
The provision in the 2005 trust directing the trustee to defend against contests at
the expense of the trust changes what the trustee’s obligations would be in the absence of
such a provision. Unless the language of a trust provides otherwise, a trustee is bound to
deal impartially with all beneficiaries. (§§ 16000, 16003.) Hence, when a dispute arises as
to who is the rightful beneficiary under a trust, involving no attack upon the validity or
assets of the trust itself, the trustee ordinarily must remain impartial, and may not use
trust assets to defend the claim of one party against the other. In Whittlesey v. Aiello
(2002) 104 Cal. App. 4th 1221, the court rejected a request for attorney fees from an
attorney who represented the trustee, who was also a beneficiary, in a challenge to the
validity of a trust amendment that changed the beneficiaries of the trust. The court held
that there was no basis for the recovery of expenses out of the trust assets because the
dispute was between the competing beneficiaries and did not stand to benefit the trust
itself. (Id. at p. 1230.) The court held that it would be inequitable to use trust assets to
defend against the undue influence claim of the beneficiary named in the original trust
document against those beneficiaries named in the amendment because if the former
beneficiary prevailed she “would be required to finance her own trust litigation and that
of her opponent, despite the fact she prevailed.” (Ibid.) Even assuming “the existence of
facts that would have led the trustee to believe the trust amendment was valid” (id. at
p. 1230), the court held, “does not establish the objective reasonableness of the trustee’s
defense of the trust amendment. While it would not have been proper for the trustee to
have allowed a default in the litigation, there was no basis for the trustee to have taken
other than a neutral position in the contest. . . . [T]he parties primarily interested in the
outcome of the litigation were [the beneficiary under the original trust document] on the
one hand and [the beneficiaries under the amendment] on the other. To the extent [the
attorney for the trustee] defended the amendment, he was not representing the interests of
the trust or the trustee. [¶] . . . In situations such that presented here, counsel must seek
7
compensation from the parties who stand to gain from the litigation, not the trust.” (Id. at
pp. 1230-1231.)
The decision and reasoning of Whittlesey were approved and followed in Terry v.
Conlan (2005) 131 Cal. App. 4th 1445 under similar circumstances. There, the trustee
under a trust amendment, who was one of the beneficiaries named in the amendment, was
not permitted to recover attorney fees incurred in defending against the claim of the
beneficiary named in the original trust agreement. The court held that the trustee “has not
participated in this litigation as a neutral trustee to defend the trust and protect its assets;
rather, she has consistently pursued her own interests and those of her siblings
[beneficiaries under the trust amendment], to the detriment of [the beneficiary under the
original trust instrument]. As such, she must bear her own costs in this litigation, rather
than be reimbursed from the trust.” (Id. at p. 1464.)
The trust agreements in Whittlesey and Terry did not contain an explicit directive
to the trustee to defend claims challenging the validity of the amendment at the trust’s
expense, as does the trust instrument in the present case.2 To avoid application of the
holding in Whittlesey, such a provision has been recommended in authoritative form
books. (See 2 Drafting Cal. Revocable Trusts (Cont.Ed.Bar 4th ed. 2014) No-Contest
Clause and Miscellaneous Trust Provisions, §§ 19.4, 19.5, p. 19-6; 3 Cal. Will Drafting,
(Cont.Ed.Bar 3d ed. 2014) §§ 35.9B, p. 35-12, 35.10, p. 35-14.) These sources suggest
inclusion in a trust or will of an optional provision reading, in the case of a trust: “The
trustee is authorized to defend, at the expense of the trust estate, any contest or other
attack of any nature on this trust or any of its provisions.” (2 Drafting Cal. Revocable
Trusts, supra, § 19.5, p. 19-6.) According to the Continuing Education of the Bar (CEB)
book on drafting revocable trusts, “Drafters may want to authorize the trustee to defend a
contest or an attack on the trust. . . . Without such a clause, the trustee might be hesitant
2
Another distinction between the facts in Whittlesey and Terry and the present case
is that the trustee in those two cases was also one of the beneficiaries whose interests
were being challenged, whereas in this case there is an independent trustee. However, we
perceive no significance to this distinction with respect to the issues before us.
8
to defend the trust because a court may rule that an attorney who represents the trustee in
an unsuccessful defense of a trust contest is not entitled to have fees paid from the trust.”
(2 Drafting Cal. Revocable Trusts, supra, § 19.4, p. 19-6, citing Whittlesey v. Aiello,
supra, 104 Cal. App. 4th 1221.) The authorization to defend in the documents before us is
even more expansive than the provision suggested by the CEB, leaving no doubt as to the
intention of the amendment’s drafters.
The optional provision in the CEB form books is recommended as an addition to a
standard no-contest clause. Susan contends that the authorization to defend her claim at
the trust’s expense is in fact part of a no-contest clause and therefore subject to the
restrictions that now apply to the enforcement of such a provision, specifically the
prohibition against enforcing such a provision unless it is determined that the contest was
brought without probable cause. While Susan is correct that the defense directive is
included in the same paragraph of the 2005 trust instrument as the forfeiture provision,
under the heading “No Contest,” and in that sense is “part of” the no-contest clause, as it
is in the CEB form books, that fact does not resolve the issue. The question is not
whether that directive is part of the no-contest clause, but whether the California statute
prohibits enforcement of this directive without a determination that Susan’s claims have
been asserted without probable cause. Under the governing Probate Code provisions, the
determination of this issue turns on whether the defense directive “penalizes” Susan
within the meaning of section 21310, subdivision (c).
The evolution of California law governing the enforcement of no-contest clauses
in a trust instrument is summarized by our Supreme Court in Donkin v. Donkin (2013) 58
Cal. 4th 412, 422-427. Under the current statutory scheme, applicable to trust instruments
that became irrevocable on or after January 1, 2001, a “no contest clause” may not be
enforced in response to a “direct contest” to a trust absent a determination that the contest
was brought without probable cause. (§ 21311, subd. (a)(1).) 3 A “no contest clause” is
3
Subdivision (a) of section 21311 provides: “A no contest clause shall only be
enforced against the following types of contests: [¶] (1) A direct contest that is brought
without probable cause. . . .” Subdivision (b) of section 21311 provides: “For the
9
defined as “a provision in an otherwise valid instrument that, if enforced, would penalize
a beneficiary if the beneficiary files a contest with the court.” (§ 21310, subd. (c).) A
“contest” is defined as “a pleading filed with the court by a beneficiary that would result
in a penalty under a no contest clause, if the no contest clause is enforced.” (§ 21310,
subd. (a).) A “direct contest” is a contest that alleges the invalidity of an instrument such
as a trust or will, or any of the terms of such an instrument, based on any of specified
grounds including lack of capacity or undue influence. (§ 21310, subd. (b).)
Susan does not dispute that her lawsuits are direct contests within the meaning of
the statute. As indicated, she contends that the directive to defend against her contests is
part of the trust’s no-contest clause and is unenforceable unless and until a determination
has been made that she filed the contests without probable cause.
The interpretation of a will or a trust presents a question of law subject to our
independent review “unless interpretation turns on the credibility of extrinsic evidence or
a conflict therein.” (Burch v. George (1994) 7 Cal. 4th 246, 254.) The interpretation of
section 21310 is also subject to de novo review. (Bradley v. Gilbert (2009) 172
Cal. App. 4th 1058, 1068.)
Susan argues that the instruction to defend at the trust’s expense comes within the
statutory definition of a no-contest clause because it penalizes her for contesting the
terms of the trust. She asserts that the provision does so “by reversing the otherwise
applicable law requiring the competing beneficiaries to bear their own legal expenses in a
contest of this nature.” She continues, “The law is clear that absent the no contest
directive, the trustee could not assume the contests’ defense at the trust’s expense.
Plainly, the no contest directive is intended to reverse this law and disadvantage Susan by
requiring her to prosecute the case ‘out-of-pocket,’ when Juan and the other proponent
beneficiaries need not expend anything on their defense. This litigation posture
purposes of this section, probable cause exists if, at the time of filing a contest, the facts
known to the contestant would cause a reasonable person to believe that there is a
reasonable likelihood that the requested relief will be granted after an opportunity for
further investigation or discovery.”
10
indisputably disadvantages Susan as the contestant: no contesting beneficiary would ever
prefer it, every defending beneficiary would.”
Trustee disputes that the directive that the trustee defend at the trust’s expense is a
“penalty” within the meaning of section 21310, subdivision (a), or that “penalize” as used
in subdivision (c) includes any provision that in any way “disadvantages” a beneficiary.
Trustee argues that these terms must be interpreted in the context in which no-contest
clauses have been understood historically. Prior to 1989, the Probate Code did “not
generally deal with no contest clauses.” (See Legis. Counsel’s Digest, Assem. Bill
No. 158, Stats. 1989, ch. 544 (1989-1990 Reg. Sess.) Summary Dig., pp. 176-177.)4
Neither the common law nor prior California case law provides an explicit uniform
definition of a no-contest clause, but in the context of deciding other issues—frequently
whether a particular application to the court constituted a contest violating the clause—
the cases uniformly assumed that a no-contest clause is, as trustee contends, one that
“takes away or reduces” or results in a forfeiture of a beneficiary’s share under a trust or
will as a result of the contest. (E.g., Estate of Black (1984) 160 Cal. App. 3d 582, 586 [A
no contest clause “impos[es] a penalty of forfeiture against beneficiaries who challenge”
the instrument.].) In Burch, the court explained, “An in terrorem or no contest clause in a
will or trust instrument creates a condition upon gifts and dispositions provided therein.
[Citation.] In essence, a no contest clause conditions a beneficiary’s right to take the
share provided to that beneficiary under such an instrument upon the beneficiary’s
agreement to acquiesce to the terms of the instrument.” (Burch v. George, supra, 7
Ca1.4th at p. 254.) The condition “results in a forfeiture” if not satisfied. (Ibid.) “What
these clauses generally provide is that a beneficiary under the will must take exactly as
the testator provided or not at all. Directed against beneficiaries who are also heirs, the
4
Although not using the term “no-contest clause,” former section 6112,
subdivision (d) provided that a “provision in a will that a person who contests or attacks
the will . . . takes nothing under the will or takes a reduced share does not apply to a
contest or attack on a provision of the will that benefits a witness to the will.” (Stats.
1988, ch. 1199, § 75, italics added.)
11
forfeiture penalties are used to induce disappointed survivors to take a lesser benefit
under the will rather than risk an all or nothing gamble by contesting probate . . . .”
(Leavitt, Scope and Effectiveness of No-Contest Clauses in Last Wills and Testaments
(1963) 15 Hastings L.J. 45.)
Probate Code provisions first adopted in 1989 were intended to codify “much of
the law governing enforcement of no contest clauses.” (Burch v. George, supra, 7 Cal.4th
at p. 254, fn. 6.) The definition of a no-contest clause as a provision that “penalizes” a
beneficiary for filing a contest first appeared in the Probate Code in former section
21300, subdivision (b) (Stats.1989, ch. 544, § 19, p. 1825), then moved a year later to
former section 21300, subdivision (d) (Stats. 1990, ch. 79, § 14, p. 463), and finally
moved, unchanged, in 2008, to section 21310, subdivision (c) (Stats. 2008, ch. 174, § 2,
p. 567).5 The legislative history of these provisions contains no explicit discussion of the
intended scope of the terms “penalty” and “penalize.” However, the recommendation of
the California Law Revision Commission that preceded adoption of the 1989 legislation
began with the statement, “A will, trust, or other instrument may contain a no contest, or
in terrorem, clause to the effect that a person who contests or attacks the instrument or
any of its provisions takes nothing under the instrument or takes a reduced share.”
(Recommendation Relating to No Contest Clauses (1990) 20 Cal. L. Revision Com. Rep.
p. 11.) The commission recommended the definition of a no-contest clause in
substantially the same form as in the current statute (“a provision in an otherwise valid
instrument that, if enforced, would penalize a beneficiary if the beneficiary brings a
contest”) with the comment that the definition section “is intended for drafting
convenience.” (Id. at p. 15.) The term “no contest clause,” the comment states, “has been
used in the literature, as well as the term ‘in terrorem clause,’ to describe a provision of
5
The language undoubtedly was taken from the Uniform Probate Code which, as
approved by the National Conference of Commissioners on Uniform State Laws and by
the American Bar Association in August 1969, and as revised in 2010, reads: “A
provision in a will purporting to penalize any interested person for contesting the will or
instituting other proceedings relating to the estate is unenforceable if probable cause
exists for instituting proceedings. (U. Prob. Code, § 3-905.)
12
the type defined in this section.” (Ibid.) More tellingly, the comment also states that this
definition of a no-contest clause “supersedes a portion of former subdivision (d) of
Section 6112 (‘a provision in a will that a person who contests or attacks the will or any
of its provisions takes nothing under the will or takes a reduced share’).” (Id. at p. 16.)
The comment points out that the new provision, unlike former section 6112, governs
trusts and other donative transfers as well as wills. (Ibid.) But the comment says nothing
to suggest that the new definition expands the reach of a no-contest clause beyond
providing that one who contests a donative instrument “takes nothing” or “takes a
reduced share.” (Id. at pp. 15-16.)
Numerous legislative analyses of the no-contest provisions as they were adopted
in 1989 and amended in 1990 refer to a no-contest clause as a provision “that provides
that a person who contests the will shall take nothing or a reduced share.” (E.g., Legis.
Counsel’s Dig., Assem. Bill No. 158, supra, Summary Dig., p. 176; Sen. Com. on
Judiciary on Assem Bill No. 158, as amended Aug. 21, 1989, p. 1; Sen. Rules Com. on
Assem. Bill No. 158, p. 1; Recommendation Proposing New Probate Code (Dec. 1989)
20 Cal. Law Revision Com. Rep., pp. 1978-1979.) There is nothing in this history that
suggests an intention to treat anything other than the forfeiture of all or a portion of a gift
as a penalty to which section 21310 refers. When in 2008 the Law Revision Commission
suggested further revisions to the no-contest clause statute, to simplify and clarify those
provisions and extend the probable cause provision to all direct contests, no change in the
statutory definition of a no-contest clause was recommended. Yet the Commission’s
report again begins with the statement, “A no contest clause (also called an in terrorem
clause) is a provision inserted in a will, trust, or other instrument to the effect that a
person who contests or attacks the instrument or any of its provisions takes nothing under
the instrument or takes a reduced share.” (Recommendation on Revision of No Contest
Clause (2007) 37 Cal. Law Revision Com. Rep. p. 363; see also p. 361.)
Susan has not cited any authority applying section 21310 in the broad manner she
suggests. To the contrary, numerous decisions rendered after adoption of the current
statutory definition continue to reflect the same understanding of a no contest clause as
13
one that takes away or reduces a beneficiary’s interest. (Estate of Katleman (1993) 13
Cal. App. 4th 51, 65, fn. 7 [“The statutory definition of a no contest clause as a ‘penalty’
implies that a no contest clause takes away or reduces the gifts of persons provided for in
the will if they contest it.”]; see also Burch v. George, supra, 7 Cal.4th at p. 254.) In the
most recent Supreme Court pronouncement dealing with the enforcement of a no-contest
clause, the Court has again reaffirmed that “[a]n 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.’ ”
(Donkin v. Donkin, supra, 58 Cal.4th at p. 422.)6
Susan argues that if the defense directive is not considered a part of the no-contest
clause, her share in the estate will be reduced even if she prevails in the litigation. She
explains that if she is successful in striking the later amendments, she and her sister will
be reinstated as the sole residual beneficiaries and the cost of the defense will have
reduced the trust residue to which they are entitled. The same is true, however, for the
beneficiaries named in the disputed trust amendment. If the trustee prevails against
Susan’s contest, they will remain the residual beneficiaries and their share of the residue
will also have been reduced by the cost of the defense. In short, assuming probable cause
for Susan’s claims, whoever prevails ultimately bears the costs of the defense. While
Susan is required to bear her costs “out-of-pocket,” that would be the case regardless of
whether the trust assumes the cost of defense. The fact that the adverse parties in interest
are not similarly burdened is not a penalty imposed on Susan but an unavoidable
6
In complete accord, the current Restatement of the Law of Property provides,
under the caption “No-Contest Clauses,” as follows:”A provision in a donative document
purporting to rescind a donative transfer to, or a fiduciary appointment of, any person
who institutes a proceeding challenging the validity of all or part of the donative
document is enforceable unless probable cause existed for instituting the proceeding.”
(Rest. of the Law of Property, Wills and Other Donative Transfers (2003) § 8.5, p. 194.)
Comment a to this section states, “A no-contest clause typically provides for the
rescission of any benefit to a devisee, beneficiary, or done who challenges the validity of
the document, or of a term of the document.” (Ibid.)
14
consequence of the situation; if anything, a benefit to the other parties. If the rule were
otherwise and the beneficiaries named in the amendment were unable to assume the costs
of defense, there would be no means to defend implementation of the trustor’s intentions
in amending the trust even if the challenger’s attack on the amendment were entirely
unfounded.
Indeed, the unavoidable realities of the situation provide an additional reason why
the defense directive to the trustee cannot be construed as a no-contest clause. A
provision eliminating or reducing a gift to a beneficiary who without probable cause
attacks the validity of a trust or other donative instrument can sensibly be applied after
the merits of the underlying challenge have been determined. Under the conventional
understanding of a no-contest clause—as a provision removing or reducing what is
otherwise given to the contesting party—the provision need not and cannot be enforced
until it is known whether the contest has merit. If, on the other hand, the directive to the
trustee to defend the challenge were construed as a no-contest clause, which could be
enforced only after it was determined that the underlying challenge lacked merit and was
brought without probable cause, the trustee would have no means of knowing whether the
instruction should be observed prior to resolution of the merits of the underlying
controversy. The trustee would be unable to comply with the directive until after the
litigation had been concluded, rendering the directive meaningless. As a fundamental
matter of statutory interpretation, such an absurdity is to be avoided. (E.g., California
School Employees Assn. v. Governing Board (1994) 8 Cal. 4th 333, 340.)
It should be noted that this conclusion does not imply that all of the provisions of
sections 6.15.2 and 6.15.3 of the 2005 trust instrument may be enforced. The portion of
section 6.15.2 that directs the trustee to defend the underlying contest at the expense of
the trust estate was properly determined by the trial court not to be a no-contest clause
within the meaning of section 21310, subdivision (c). However, the provisions of sections
6.15.2 and 6.15.3 that purport to reduce or eliminate the amounts otherwise distributable
to a beneficiary filing a contest appear to come squarely within the definition of a no-
contest clause. Although the issue is not presented in this appeal, those provisions appear
15
unenforceable unless it is determined that Susan’s challenges have been brought without
probable cause.
In summary, we agree with the trial court’s conclusion that the defense directive is
not an element of the no-contest clause.
2. The provision in the trust instructing the trustee to defend against contests is
enforceable prior to the determination of the merits of Susan’s challenges.
“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.” (§ 16000.) “A trustee has the following powers without the
need to obtain court authorization: [¶] (a) The powers conferred by the trust instrument.
[¶] (b) Except as limited in the trust instrument, the powers conferred by statute. [¶] (c)
Except as limited in the trust instrument, the power to perform any act that a trustee
would perform for the purposes of the trust under the [applicable] standard of care . . . .”
(§ 16200.) “The grant of a power to a trustee, whether by the trust instrument, by statute,
or by the court, does not in itself require or permit the exercise of the power. The exercise
of a power by a trustee is subject to the trustee’s fiduciary duties.” (§ 16202.) These
powers and corresponding duties of the trustee remain in effect until the trust is
terminated. (§ 15407; 13 Witkin, Summary of Cal. Law (10th ed. 2005) Trusts, § 193,
pp. 775-776.) As a power conferred by the instrument, the power to defend against
contests remains in effect until the trust, or as in this case the trust amendment, is
judicially invalidated or otherwise terminated.
There is some logic to Susan’s contention that since the validity of the amendment
conferring the trustee with the authority to defend her claims is the very subject of the
litigation and has not yet been adjudicated, enforcement of the defense directive should
await the outcome of the litigation. Susan analogizes the situation to a contest to the
probate of a will, in which the executor named in the proffered will may not use estate
assets for the costs of defending the challenge until the contest has been resolved and the
will admitted to probate. (Henry v. Superior Court (1892) 93 Cal. 569; Estate of Pereira
(1961) 191 Cal. App. 2d 369.) However, an executor has neither authority nor
16
responsibility to carry out the terms of a will until the will has been admitted to probate
(see § 8250, subd. (b) [person named as executor in a will under no duty to defend a
contest until appointed personal representative]), whereas, as pointed out above, the
trustee under an inter vivos trust has such authority once assuming the position of trustee.
A person challenging the validity of a trust instrument on the grounds that the
trustor lacked capacity to execute the document or did so under the undue influence of
another carries the heavy burden of proving such allegations. Section 810, subdivision (a)
creates “a rebuttable presumption affecting the burden of proof that all persons have the
capacity to make decisions and to be responsible for their acts or decisions.” Under
section 811, a determination that a person lacks the capacity to execute a trust must be
supported by evidence of a deficit in at least one of specified mental functions that “by
itself or in combination with one or more other mental function deficits significantly
impairs the person’s ability to understand and appreciate the consequences of his or her
actions with regard to the type of act or decision in question.” (§ 811, subds. (a), (b).)
And in determining capacity to execute a trust amendment that “in its content and
complexity, closely resembles a will or codicil,” such as the amendment in this case, the
courts have held that the lower mental capacity standard for the making of a will should
apply. (Andersen v. Hunt (2011) 196 Cal. App. 4th 722, 729-731; Lentz v. Lentz (2014)
222 Cal. 4th 1346, 1351-1352; § 6100.5.) “[T]he standard for testamentary capacity is
exceptionally low.” (In re Marriage of Greenway (2013) 217 Cal. App. 4th 628, 642.)
Similarly, “the party contesting a testamentary disposition bears the burden of proving
undue influence” and “[u]ndue influence must be proven by clear and convincing
evidence.” (Conservatorship of Davidson (2003) 113 Cal. App. 4th 1035, 1059,
disapproved on other grounds in Bernard v. Foley (2005) 39 Cal. 4th 794, 816, fn. 14;
§ 8252, subd. (a).) It is entirely consistent with these principles that the trust should
ordinarily be administered according to its terms unless and until the party challenging its
validity sustains its heavy burden of proof.
This is not to say that a contestant is without recourse in appropriate
circumstances. Upon a sufficient showing, the party contesting the validity of a trust
17
instrument may seek a preliminary injunction, which is within the probate court’s
discretion to grant. (Code Civ. Proc., § 526; Stevens v. Torregano (1961) 192 Cal. App. 2d
105, 111). Such an application would allow the court to weigh the equities and enjoin the
use of trust assets to defend a challenge upon a proper showing of likelihood of success.
(See Hunt v. Superior Court (1999) 21 Cal. 4th 984, 999 [“In deciding whether to issue a
preliminary injunction, a trial court weighs two interrelated factors: the likelihood the
moving party ultimately will prevail on the merits, and the relative interim harm to the
parties from the issuance or nonissuance of the injunction.”].) The same equitable
considerations may properly be considered by the probate court in acting on petitions for
instructions under section 17200 and in ruling on a motion under section 1310,
subdivision (b) to authorize the trustee to act upon an order that is under appeal. (§ 17206
[“The court in its discretion may make any orders and take any other action necessary or
proper to dispose of the maters presented by [a petition under section 17200].”]; see, e.g.,
Schwartz v. Labow (2008) 164 Cal. App. 4th 417, 427-428; cf. Estate of Denton (1971) 17
Cal. App. 3d 1070, 1074-1076.)
Susan made no explicit request for preliminary relief in the trial court. Nor, in her
papers opposing trustee’s petition, supporting her own petition, or opposing the motion
under section 1310, subdivision (b), did she provide any evidence based on which the
court might have invoked such equitable considerations in acting on the applications
before it. Susan made no attempt to establish that she is likely to prevail in her challenges
to the validity of the trust amendment or that the balance of equities favors denying
trustee the authority to defend her actions at the expense of the trust. On the other hand,
trustee presented substantial evidence tending to negate the allegations of incapacity and
undue influence, and there is no showing that the beneficiaries under the 2005 trust
amendment have the resources to defend her actions if the trustee may not do so at trust
expense. Under these circumstances, the probate court did not abuse its discretion in
authorizing trustee to defend at trust expense the validity of the trust amendment.
18
3. The 2005 instructions are enforceable as part of the 2005 trust.
Susan contends that the “2005 Instructions to Successor Trustee and to Agent”
(2005 instructions) are inter vivos instructions that are no longer enforceable after
Connie’s death. While the 2005 trust document authorizes the trustee to defend Susan’s
challenge at the expense of the trust, the 2005 instructions contain the additional
authorization to pay the trust’s attorney and other trust representatives “at his or her
regular, usual and customary rate for all time expended.”7 Thus, although we have
concluded that the defense directive in the 2005 trust is not a no-contest provision and
may be enforced prior to the determination of the merits of Susan’s challenge to the trust
amendment, the validity vel non of the 2005 instructions has independent significance
requiring resolution at this point.
In the trial court, the trustee argued that the instructions are a valid amendment to
the 2005 trust, executed contemporaneously with the 2005 trust instrument, and the court
agreed that the instructions are “a part of” the 2005 trust. Susan disputes this conclusion,
contending that this document was a separate inter vivos instruction that terminated on
Connie’s death.
The 2005 trust provides that the trustor shall have the right to “modify, alter and
amend any of the provisions, terms or conditions” of the trust “by an instrument signed
by her and delivered to the trustee.” Under this provision, any instrument that manifests
an intent to amend the trust will be enforceable as an amendment to the trust. (Cook v.
Cook (2009) 177 Cal. App. 4th 1436, 1442 [amendment that satisfies procedural
7
The 2005 instructions provide in relevant part: “I, Constance Doolittle, as the
Trustor of the Constance Doolittle Trust UTD November 5, 1999 (‘Trust’), as amended,
and on behalf of myself as an individual, hereby instruct the successor trustee of the Trust
and my agent under a durable power of attorney, that in the event any one or more of my
attorney, my accountant, my investment counsel, my trustee, my agent, any doctor or
psychologist, or any other representative of mine . . . is called upon to testify on my
behalf as to my intentions or my circumstances with respect to my inter vivos gifts and
estate planning documents, I hereby instruct my said successor trustee and my agent to
compensate such representative at his or her regular, usual and customary rate for all time
expended by such representatives with regard to such testimony . . . .”
19
requirement under the terms of the trust and “clearly manifest[s]” trustor’s intent to
amend is enforceable.].)
Susan contends that the language used in the instructions does not manifest an
intent to amend the terms of the trust. She argues, “The instructions’ language is in the
conjunctive, directed at both Connie’s successor trustee and her agent under her durable
power of attorney. A durable power of attorney can only operate while the principal is
alive; death terminates the agency relationship. [Citation.] The instructions could only be
enforceable during Connie’s lifetime since her agent cannot act under a durable power of
attorney post mortem. Moreover, Connie did have a successor trustee during her lifetime:
Exchange Bank, which replaced Connie as trustee only six months after she signed the
2005 Amendment. Accordingly, the subject instrument was aimed at potential inter vivos
actions. [Citation.] [¶] That the instructions apply to persons called upon to testify on
Connie’s behalf reinforce the conclusion that they expired on her death. When an
individual is deceased, no one can testify on her behalf. Finally, in contrast to the
Instructions, the separate instructions to Ms. Marois [Connie’s estate planning attorney]
that Connie signed the same day expressly apply to services that Ms. Marois may render
both ‘before and after my death . . . .’ The instructions contain no such language.” (Italics
omitted.)
Susan also argues that extrinsic evidence demonstrates that the instructions were
intended to terminate upon Connie’s death: “After Connie’s death, Ms. Marois prepared
and sent a section 16061.7 notification to the trust’s beneficiaries on behalf of Exchange
Bank as the trustee, listing and enclosing each of the documents constituting the ‘terms of
the trust’ and informing the beneficiaries of the deadline to contest the trust or any of its
terms. The instructions, however, were not among the documents listed in and enclosed
with the section 16061.7 notification. Ms. Marois’ cover letter likewise listed the trust
documents without including the instructions. Had there been any intent that the
instructions would constitute a trust amendment, Ms. Marois would have identified them
20
as part of ‘the terms of the trust’ and enclosed them with the trustee’s section 16061.7
notification.” 8 We disagree.
While there may be an ambiguity as to whether the instructions were intended to
remain in effect after Connie’s death, substantial evidence supports the trial court’s
finding that the 2005 instructions were so intended. Susan is correct that Connie’s agent
cannot act after her death, but her successor trustee clearly can. The absence of the
instructions from the documents listed in the section 16061.7 notice provides little
evidence of Connie’s intent. The list does not purport to be exhaustive. The instructions
were signed contemporaneously with the execution of the 2005 trust instrument and
amplify the defense directive in the trust amendment. Assuming the validity of the
amendment, the provisions of the 2005 trust, including the defense directive and fee
8
Under section 16061.7, a trustee is required to serve notice on the beneficiaries
when a revocable trust becomes irrevocable because of the death of one or more of the
settlors of the trust. (Id., subds. (a)(1), (b)(1).) The notification “shall contain the
following information: [¶] (1) The identity of the settlor or settlors of the trust and the
date of execution of the trust instrument. [¶] (2) The name, mailing address and telephone
number of each trustee of the trust. [¶] (3) The address of the physical location where the
principal place of administration of the trust is located, pursuant to Section 17002. [¶] (4)
Any additional information that may be expressly required by the terms of the trust
instrument. [¶] (5) A notification that the recipient is entitled, upon reasonable request to
the trustee, to receive from the trustee a true and complete copy of the terms of the trust.”
(Id., subd. (g).)
The notice served in this case complied with subpart (5) as follows: “Upon
reasonable request to the trustee, you are entitled to receive a true and correct copy of the
terms of the trust. The trustee has elected to provide a true and correct copy of the trust
with this notice. The following copies of documents are attached to this notice: [¶] A.
Second Amended and Restated Trust Agreement of the Constance Doolittle Trust UTD
November 5, 1999 (signed by Constance Doolittle on January 26, 2005); [¶] B.
Resignation of Trustee and Consent to Act — Constance Doolittle Trust UTD November
5, 1999 (signed by Constance Doolittle on July 26, 2005 and by Exchange Bank on July
27, 2005); [¶] C. Appointment of Successor to Thomas W. Smith to Remove Trustee and
Appoint Independent Corporate Trustee Pursuant to Subsection 4.5.1 of the Constance
Doolittle (sic) UTD November 5, 1999, as Amended (signed by Thomas W. Smith on
March 28, 2005); and [¶] D. Declination of Thomas W. Smith to Act with Respect to the
Constance Doolittle Trust UTD November 5, 1999, as Amended, and Revocation of
Conditional Appointment of Successor (signed by Thomas W. Smith on May 5, 2006).”
21
shifting provision, evidence a clear intent to discourage and forcefully oppose any
challenges to the trust amendment. There is no reason to believe that the instruction to
compensate at their regular rates all representatives for time spent in defense of the
amendment was intended to terminate upon Connie’s death. Connie obviously anticipated
the possibility of a challenge after her death and there is no logical reason why she would
have wanted her representatives to be compensated less generously for defending a
contest after her death than for a contest before her death. Accordingly, we find no error
in the court’s conclusion that the 2005 instructions are enforceable as part of the 2005
trust.
Disposition
The trial court’s orders are affirmed. The trustee shall recover its costs on appeal.
_________________________
Pollak, Acting P.J.
We concur:
_________________________
Siggins, J.
_________________________
Jenkins, J.
22
Trial Court: The Superior Court of Sonoma County
Trial Judge: Honorable Michael Byrne
Counsel for plaintiff and appellant: HARTOG & BAER, P.C.
David W. Baer
John A. Hartog
Laura C. Roche
Counsel for defendant and respondent: ABBEY, WEITZENBERG, WARREN &
EMERY
Lewis R. Warren
Michael R. Wanser
REED SMITH LLP
Paul D. Fogel
Dennis Peter Maio
FRANCESCHINI FREITAS LLP
Richard Thomas Franceschini
A143422
23