GIAMMARRUSCO v. SIMON
Filed 3/12/09
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
| CYNTHIA GIAMMARRUSCO, Plaintiff and Respondent, v. MARK SIMON, Defendant and Appellant. | B199998 (Los Angeles County Super. Ct. No. BP088411) |
APPEAL from an order of the Superior Court of Los Angeles County, Aviva K. Bobb, Judge. Affirmed.
Greenberg Glusker Fields Claman & Machtinger and Michael A. Greene for Defendant and Appellant.
Sacks, Glazier, Franklin & Lodise, Terrence M. Franklin, Matthew W. McMurtrey; Hoffman, Sabban & Watenmaker and Kenneth S. Wolf for Plaintiff and Respondent.
___________________________________________
In this probate case, a trust provided that the surviving trustor could exercise a limited power of appointment over specified property in three ways: (1) “by a Will . . . duly admitted to probate,” (2) “by a . . . Codicil duly admitted to probate,” or (3) “by a written acknowledged instrument delivered to the Trustee.” The trust then stated, “[i]f no Will or Codicil purporting to be that of the Survivor is filed for probate within sixty (60) days of his or her death, it shall be conclusively presumed that the Survivor did not exercise this limited power of appointment.” (Italics added.)
The survivor attempted to appoint the entirety of the subject property by delivering an acknowledged instrument to the trustee, intending to give the property primarily to her daughter and grandchildren. After the survivor’s death, no will or codicil was filed for probate within 60 days, raising the question of whether the conclusive presumption provision renders the acknowledged instrument ineffective and giving rise to this litigation.
The daughter intends to argue at trial that the ambiguous language of the limited power of appointment may be reformed or interpreted to give effect to the acknowledged instrument notwithstanding the conclusive presumption. She applied for declaratory relief, requesting a declaration that this argument would not violate the trust’s no contest clauses, which disinherit a beneficiary who seeks to nullify a provision of the trust. The survivor’s stepson, also a beneficiary under the trust, opposed the application, asserting that the daughter’s argument, if successful, would nullify the conclusive presumption provision. The trial court granted the application. The stepson appealed.
We affirm for two independent reasons. First, the daughter relies on other provisions of the trust and extrinsic evidence, contending that the ambiguous language is the result of a scrivener’s error. If she prevails on this theory, the trial court may reform the ambiguous language to implement the trustors’ intent. Second, the trial court may excuse compliance with the conclusive presumption provision — the condition that a will or codicil be filed within 60 days of the survivor’s death — if the survivor exercised the limited power of appointment in a way that approximated the manner prescribed by the trust and that did not defeat a significant purpose of the trustors. (See Prob. Code, §§ 630–632; all statutory references are to that code unless otherwise indicated.)
I
BACKGROUND
The following allegations, facts, and evidence are taken from the papers filed in connection with the daughter’s application for declaratory relief, our prior unpublished opinion in this case (Simon v. Giammarrusco (May 30, 2006, B181504) (Simon)), and the record in Simon.
Howard Olesky and Maxine Olesky, as trustors and trustees, created The Olesky Family Trust — 1983 (Family Trust) on or about February 27, 1984. They restated or amended the Family Trust several times. Howard died on October 20, 1996. Maxine died on November 9, 2003.
Plaintiff, Cynthia Giammarrusco, is Howard and Maxine’s daughter. Mark Simon, defendant, is Howard’s son by a prior marriage.
“The Family Trust provided that upon the death of the first trustor — Howard — the trust was to be divided into three shares: (1) a decedent’s trust, containing the maximum amount that could be placed in a trust not qualifying for the marital deduction without requiring payment of federal estate taxes; (2) a marital trust, containing assets qualifying for the marital deduction; and (3) a survivor’s trust, containing the survivor’s — [Maxine’s] — share of the community property and any portion of the decedent’s share of the community property not allocated to the decedent’s trust or the marital trust. The decedent’s trust and marital trust would [become] irrevocable [upon Howard’s death], but the survivor would have power of revocation or appointment over the survivor’s trust.” (Simon, supra, B181504.) The survivor’s trust would become irrevocable upon Maxine’s death to the extent it held any assets she had not appointed.
As amended by Howard and Maxine in October 1990 and December 1991, the Family Trust stated that upon Howard’s death, Mark would receive $200,000 and Mark’s children would each receive $100,000. If Howard were the first trustor to die (the decedent), these gifts would be made from the decedent’s trust; if Howard were the survivor, the gifts would come from the survivor’s trust.
In addition, the Family Trust, as amended in October 1990, set forth the actions the survivor could take. During his or her lifetime, the survivor had a “general” power of appointment — the power to dispose of property — in the survivor’s trust and a “limited” power of appointment over property in the decedent’s and the marital trust. A power of appointment is “general” if it is exercisable “in favor of anyone at all, including oneself or one’s own estate.” (Black’s Law Dict. (8th ed. 2004) p. 1209, col. 2; see § 611, subd. (a).) If a power of appointment is not “general,” it is “limited.” (See Cory v. Ward (1980) 106 Cal.App.3d 631, 638; § 611, subd. (d).) A limited power of appointment is exercisable only in favor of “the person or class specified in the instrument creating the power.” (Black’s Law Dict., supra, at p. 1209, col. 2.) Under the Family Trust, the survivor’s general and limited powers of appointment, respectively, were described as follows.
“1. Distribution of Survivor’s Trust. Upon the death of the Survivor, the Trustee shall distribute the balance then remaining, if any, of the Survivor’s Trust (including any undistributed income) to such one or more persons and entities, on such terms and conditions, either outright or in trust, as the Survivor may appoint. This power of appointment may be exercised only by a Will or Codicil duly admitted to probate, or by a written, acknowledged instrument delivered to the Trustee, which Will, Codicil or written, acknowledged instrument expressly refers to and exercises this power of appointment; and such Will, Codicil or written, acknowledged instrument may be executed before or after the death of the Decedent. If no Will or Codicil purporting to be that of the Survivor is filed for probate within sixty (60) days of his or her death, and if no written, acknowledged instrument is filed with the Trustee prior to the end of such period, then it shall be conclusively presumed that the Survivor did not exercise this power of appointment. . . .
“2. Distribution of Decedent’s and Marital Trusts.
“(a) Upon the death of the Survivor, the Trustee shall distribute to his or her estate all of the then accrued and undistributed income of the Marital Trust, and shall add the balance of the Marital Trust to the Decedent’s Trust, to be held, administered and distributed as a part of that trust, as set forth below.
“(b) Limited Power of Appointment. The Trustee shall distribute all or any part of the Decedent’s Trust to such one or more of the Trustors’ issue, and on such terms and conditions, either outright or in trust, as the Survivor may appoint. This limited power of appointment may be exercised only by a Will or Codicil duly admitted to probate or by a written acknowledged instrument delivered to the Trustee, which Will, Codicil or written acknowledged instrument expressly refers to and exercises this limited power of appointment. If no Will or Codicil purporting to be that of the Survivor is filed for probate within sixty (60) days of his or her death, it shall be conclusively presumed that the Survivor did not exercise this limited power of appointment. The Survivor may appoint more to some beneficiaries than others, or to the exclusion of others.” (Italics and boldface added.)
The lack of symmetry between the conclusive presumption provisions in the general and limited powers of appointment — the clause that appears only in the former (“and if no written, acknowledged instrument is filed with the Trustee prior to the end of such period”
— is at the heart of the dispute in this case. If that clause also appeared in the conclusive presumption provision for the limited power, there would be no basis for this litigation. Upon Howard’s death in 1996, the decedent’s trust was not funded because Howard had used his “unified credit” during his lifetime. Two marital trusts — an exempt marital trust and a nonexempt marital trust — and the survivor’s trust were created. (See Simon, supra, B181504.) For clarity, we will refer to the decedent’s trust and the two marital trusts as “Howard’s Trusts.” (Upon the survivor’s death, the balance of the marital trusts, if any, would be transferred to the decedent’s trust.) The survivor’s trust was Maxine’s; we will refer to it as the Survivor’s Trust.
After Howard’s death, Maxine took several steps. She attempted to exercise the limited power of appointment over Howard’s Trusts by executing a written acknowledged instrument and delivering it to the trustee. The instrument purported to leave all of the property in Howard’s Trusts to Cynthia, Maxine’s grandchildren, and other relatives to the exclusion of Mark and his children. (The record does not contain the acknowledged instrument, so we do not know its entire contents or date of execution.) Maxine also amended the Survivor’s Trust, appointing Cynthia as her successor trustee and leaving specific gifts of $200,000 to Mark and $100,000 to each of his children.
Howard’s Trusts are governed by a no contest clause, executed by Howard and Maxine on March 8, 1988, which states: “In the event that any beneficiary under this instrument shall, singly or in conjunction with any other person or persons, contest in any court the validity of this trust or shall seek to obtain an adjudication in any proceeding in any court that this trust or any of its provisions is void, or seek otherwise to void, nullify or set aside this trust or any of its provisions, then the right of that person to take any interest which is given to him or her by this instrument shall be determined as it would have been determined if he or she had predeceased the execution of this instrument without surviving issue.” (Italics added.)
The Survivor’s Trust contains a no contest clause added by Maxine on October 3, 2003, seven years after Howard’s death. It provides: “If any beneficiary under this Trust shall, singly or in conjunction with any other person or persons, initiate or support a Contest, directly or indirectly (whether or not it is pursued to its completion), then the right of that person to take any interest which is given to him or her by this Trust shall be determined as though he or she had predeceased the execution of this Trust without surviving descendants.” (Italics added.) “Contest” includes “[c]ontesting the validity of any of [Maxine’s] Estate Planning Documents” or “[s]eeking to obtain an adjudication that any part of [Maxine’s] Estate Planning Documents is void or seeking otherwise to void, nullify or set aside any part of [Maxine’s] Estate Planning Documents.” (Italics added.) “Estate Planning Documents” refers to any will, codicil or trust executed by Maxine as well as any other document she executed affecting the disposition of her assets after her death. It also refers to “[a]ny document executed by [Maxine] which exercises a power of appointment vested in [her].”
After Maxine died on November 9, 2003, no will or codicil purporting to be hers was filed for probate within 60 days.
On October 8, 2004, Mark filed an application for declaratory relief in the trial court under section 21320. That statute provides: “If an instrument containing a no contest clause is or has become irrevocable, a beneficiary may apply to the court for a determination of whether a particular motion, petition, or other act by the beneficiary . . . would be a contest within the terms of the no contest clause.” (Subd. (a).)
“[Mark’s] position was that if Maxine did not ‘exercise her power of appointment over Howard’s Trusts through her Will or Codicil,’ Mark was entitled to receive $200,000 and his children $100,000 each under [Howard’s Trusts]. This would be in addition to the $200,000 given to him and the $100,000 each given to his children [by Maxine] under . . . the Survivor’s Trust. He sought interpretation of ‘the inconsistent language [in the limited power of appointment] . . . — one sentence allowing the power of appointment to be exercised by written instrument delivered to the Trustee during the survivor’s lifetime, and the other sentence providing a conclusive presumption that the power was not exercised unless exercised in the survivor’s Will or Codicil filed for probate within sixty (60) days following the survivor’s death.’ He therefore sought a declaration that his ‘proposed [action] to interpret [the] clause granting [the limited] power of appointment’ would not violate the no contest clause of either [Howard’s Trusts] or the Survivor’s Trust.”
Mark’s proposed action sought various determinations by the probate court, specifically: “‘1. The Court interpret . . . The Olesky Family Trust —1983 such that the conclusive presumption set forth therein may not be controverted by contrary evidence; [¶] 2. The Court determine that, because no Will or Codicil of Maxine was filed for probate within sixty (60) days of her death, Maxine’s limited power of appointment . . . was not effectively exercised; [and] [¶] 3. The Court determine that, because Maxine is conclusively presumed to have not exercised the limited power of appointment . . . , [Mark] is entitled to receive the sum of Two Hundred Thousand Dollars ($200,000) from Howard’s Trusts . . . and that each of [Mark’s] two children is entitled to receive the sum of One Hundred Thousand Dollars ($100,000) from Howard’s Trusts.’ The probate court found that the proposed [action] would not violate the no contest clause of either [Howard’s Trusts] or the Survivor’s Trust.” (Simon, supra, B181504.)
Cynthia filed an appeal. We affirmed (Simon, supra, B181504). Thus, under Mark’s interpretation of the disputed language, he and his two children are collectively entitled to $400,000 under Howard’s Trusts and to $400,000 under the Survivor’s Trust.
On March 6, 2007, in response to Mark’s application and our decision, Cynthia filed her own application under section 21320. Cynthia sought a determination that she would not violate the no contest clause in Howard’s or the Survivor’s Trusts by requesting that the trial court reform the language of the limited power of appointment so that an acknowledged instrument would be effective as long as it was filed with the trustee within 60 days of Maxine’s death. In short, Cynthia wanted the conclusive presumption provision for the limited power of appointment to read like the comparable provision for the general power of appointment. To that end, she requested that the trial court insert the additional clause found in the conclusive presumption provision for the general power of appointment — “and if no written, acknowledged instrument is filed with the Trustee prior to the end of such period” — into the conclusive presumption provision for the limited power of appointment.
In the alternative, Cynthia requested that the trial court excuse compliance with the filing of a will or codicil within 60 days of Maxine’s death and thereby validate the exercise of the limited power of appointment through an acknowledged instrument delivered to the trustee. That request was based on section 631, subdivision (a), which permits a trial court to excuse compliance with the formal requirements of exercising a power of appointment if certain conditions are satisfied.
Cynthia relied in part on extrinsic evidence. The estate planning attorney for Howard and Maxine stated in a declaration that the conflict between the sentence establishing the three methods of exercising the power of appointment and the sentence containing the conclusive presumption was, in essence, a scrivener’s error. The attorney explained that Howard and Maxine initially did not want to leave any gift for Mark; Howard did not feel that Mark was “his son”; Howard was worried that Mark would attack his estate plan after he died; and Howard’s main concern was the well-being of Maxine and Cynthia. According to the attorney, Howard and Maxine eventually decided, after consultation with counsel, that if they left a gift for Mark, it would serve as a disincentive for him to challenge the estate plan in light of the no contest clause; Howard decided to leave $200,000 to Mark and $100,000 to each of Mark’s two children. The attorney’s declaration further stated that, after Howard’s death, the changes made in Maxine’s estate planning documents were intended to maintain the same gifts for Mark and his children, not increase them.
Other evidence indicated that Maxine’s will expressly stated that no power of appointment was intended to be exercised therein. Also, substantially all of Maxine’s assets were held in the Survivor’s Trust. Maxine believed she had exercised her limited power of appointment over Howard’s Trusts by an acknowledged instrument delivered to the trustee. Consequently, there was no reason to file a will or codicil.
In opposition to Cynthia’s application, Mark argued that her effort to “reform” the language of the conclusive presumption provision would violate the no contest clause in Howard’s and the Survivor’s Trusts because it would void, nullify, or set aside the conclusive presumption created by Maxine’s failure to comply with the 60-day filing deadline for a will or codicil. Further, he asserted that the reformation of a trust to correct a scrivener’s error, as opposed to the interpretation of a trust, was a contest per se: Cynthia’s proposed reformation of the disputed language would “invalidate” the conclusive presumption based on an alleged “mistake” in drafting. That, Mark argued, would be nothing short of rewriting Howard’s Trusts. In Mark’s view, the provision containing the conclusive presumption was unambiguous.
By order dated June 4, 2007, the trial court ruled that Cynthia’s proposed actions would not violate the no contest clauses. The order recited: “It would not be a contest of either [Howard’s Trusts] or the Survivor’s Trust for Cynthia Giammarrusco [to seek] to either modify [Howard’s Trusts] . . . or in the alternative to request relief from the formal requirements of filing Maxine Olesky’s will or codicil, and thereby deem the limited power of appointment validly exercised by Maxine.” Mark appealed.
II
DISCUSSION
In reviewing the trial court’s order that a beneficiary’s proposed action will not violate a no contest clause, we apply a de novo standard of review. (Betts v. City National Bank (2007) 156 Cal.App.4th 222, 231.)
“Under section 21320, ‘a beneficiary may, without violating a no contest clause, apply to the court for a determination whether a particular act would be a contest provided that no determination of the merits of the petition is required.’ . . . ‘“[S]ection 21320 provides . . . a ‘safe harbor’ for beneficiaries who seek an advance judicial determination of whether a proposed legal challenge would be a contest [under a particular no contest clause].” . . . If a court determines that a . . . proposed action would constitute a contest, the beneficiary will then be able to make an informed decision whether to pursue the contest and forfeit his or her rights under a will or to forgo that contest and accede to the [trust’s] provisions.’” (Betts v. City National Bank, supra, 156 Cal.App.4th at p. 232, citation and fn. omitted.)
“A ruling on whether the beneficiary’s proposed action would be a . . . contest may not involve a determination on the merits of the action itself. . . . This makes sense. Otherwise, the summary procedure [provided by section 21320] could be used to allow the very form of challenge and protracted litigation the [trustor] sought to prevent.” (Estate of Ferber (1998) 66 Cal.App.4th 244, 251; accord, Estate of Davies (2005) 127 Cal.App.4th 1164, 1173 (Davies); Estate of Kaila (2001) 94 Cal.App.4th 1122, 1135–1137.)
A. No Contest Clauses
“An in terrorem or no contest clause in a will or trust instrument creates a condition upon gifts and dispositions provided therein. . . . [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. . . .
“No contest clauses are valid in California and are favored by the public policies of discouraging litigation and giving effect to the purposes expressed by the [trustor]. . . . Because a no contest clause results in a forfeiture, however, a court is required to strictly construe it and may not extend it beyond what was plainly the [trustor’s] intent. . . .
“‘Whether there has been a “contest” within the meaning of a particular no-contest clause depends upon the circumstances of the particular case and the language used.’ . . . ‘[T]he answer cannot be sought in a vacuum, but must be gleaned from a consideration of the purposes that the [trustor] sought to attain by the provisions of [his] [trust].’ . . . Therefore, even though a no contest clause is strictly construed to avoid forfeiture, it is the [trustor’s] intentions that control, and a court ‘must not rewrite the . . . [trust] in such a way as to immunize legal proceedings plainly intended to frustrate [the trustor’s] unequivocally expressed intent from the reach of the no-contest clause.’” (Burch v. George (1994) 7 Cal.4th 246, 254–255, citations omitted, italics added.)
In determining whether a no contest clause would be violated, the courts consider the language of the clause, other terms of the trust, and extrinsic evidence of the trustor’s intent, which may include the testimony of the attorney who drafted the estate plan. (See Burch v. George, supra, 7 Cal.4th at pp. 256–260; Estate of Kaila, supra, 94 Cal.App.4th at pp. 1130–1135; Davies, supra, 127 Cal.App.4th at p. 1174.) In general, if the beneficiary’s proposed action would “effectively nullify or thwart [a] provision[] in the trust instrument” or “result in the nullification of [the trustor’s] clearly stated intent,” the proposal “would constitute a contest within the meaning of the no contest clause.” (Burch v. George, supra, 7 Cal.4th at pp. 261, 263, italics added.)
The no contest clause in Howard’s Trusts precludes a challenge to the “validity” of the trusts or an attempt to “void, nullify or set aside . . . any of [their] provisions.” The no contest clause in the Survivor’s Trust — made expressly applicable to any “document executed by [Maxine] which exercises a power of appointment” — contains the same language.
For simplicity, we sometimes use “nullify” to include words of similar import, such as “invalidate,” “void,” “set aside,” “thwart,” and “frustrate.”
B. Cynthia’s Proposed Action
The provision in Howard’s Trusts establishing three methods of exercising the limited power of appointment is ambiguous. It is immediately followed by a provision creating a conclusive presumption that one of the methods — an acknowledged instrument delivered to the trustee — is ineffective if a filing deadline is not satisfied with respect to the other two methods — a will or codicil.
In pursuing his application for declaratory relief with the trial court under section 21320, Mark admitted that these provisions were “inconsistent” and “conflicting.” We agreed in affirming the order granting his application. (Simon, supra, B181504.) But now Mark maintains that the provisions are unambiguous. He cannot have it both ways. The methods of exercising the limited power of appointment and the conclusive presumption provision could not be contradictory and conflicting for purposes of Mark’s application but unambiguous when Cynthia applies for declaratory relief. In lay terms, what is good for the gander is good for the goose.
Cynthia argues that if the conclusive presumption applies to the “acknowledged instrument” method, then that provision of Howard’s Trusts would be rendered surplusage — a “trap” for the survivor. She posits that Howard and Maxine could not have intended to authorize a specific method of exercising the limited power of appointment, only to take it away in the very next sentence.
Given the ambiguity between (1) the provision establishing three methods of exercising the limited power of appointment and (2) the conclusive presumption provision, we cannot say that Cynthia’s proposed action would nullify Howard’s Trusts or attempt to nullify any of the trusts’ provisions. Here, the trustors’ intent is not so “clearly” or “unequivocally expressed” that it would be frustrated by the beneficiary’s proposed action. Cynthia may offer extrinsic evidence of their intent, and Mark does not contend otherwise. She may be able to convince the trial court that Howard and Maxine had no reason to use different conclusive presumptions for the limited and general powers of appointment. In that event, if the trial court reforms the conclusive presumption provision for the limited power of appointment — by inserting the additional clause found in the conclusive presumption provision for the general power of appointment — no provision of the trusts would be nullified.
Mark offers several reasons to support the requirement that the survivor’s will or codicil be filed within 60 days after death, such as determining whether all of the survivor’s property is in the trust, aiding the trustee in the proper distribution of assets, and ensuring that a will or codicil has not superseded or modified a prior exercise of appointment made through an acknowledged instrument delivered to the trustee. Nevertheless, these are reasons that go to the merits of the parties’ dispute and should be saved for trial. (See Estate of Ferber, supra, 66 Cal.App.4th at p. 251; Davies, supra, 127 Cal.App.4th at p. 1173; Estate of Kaila, supra, 94 Cal.App.4th at pp. 1135–1137.)
In sum, Cynthia’s contention that the ambiguous language is the result of a scrivener’s error and that the error should therefore be remedied in accordance with the grantors’ intent does not violate the no contest clauses in the trusts.
C. Appropriate Remedies
In his opening brief, Mark asserts that the reformation of a trust constitutes a contest because Cynthia is seeking to modify or change the language of the trust in response to a drafting mistake. But there is no such rule. The reformation of a trust’s language does not necessarily frustrate the trustor’s intent or seek to nullify a provision of the trust. It may, in fact, clarify an ambiguity or resolve a conflict within the document so as to state the trustor’s intent more clearly or unequivocally. Similarly, under section 631, an interpretation excusing Cynthia from having to file a will or codicil — thereby giving effect to the “acknowledged instrument” method — would not run afoul of the no contest clauses given that Cynthia would have to prove (1) she substantially complied with the manner of appointment prescribed by the trusts and (2) the failure to comply with all of the pertinent formalities did not defeat a significant purpose of the trustors. In these circumstances, no provision of the trusts would be nullified.
TO BE CONTINUED AS PART II….
Publication courtesy of California pro bono lawyer directory.
Analysis and review provided by Chula Vista Property line attorney.
San Diego Case Information provided by www.fearnotlaw.com
