Kauffman v. Lemmons

Filed 10/2/06 Kauffman v. Lemmons CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from an order of the Superior Court of Orange County, Marjorie Laird Carter, Judge. Affirmed.

Law Office of Phillip C. Lemmons, Phillip C. Lemmons and Tracy A. Stevenson for Defendant and Appellant.

Thomas J. O’Keefe; Good, Wildman, Hegness & Walley and Nikki Presley Miliband; Daniel F. Coxe; and Everett L. Skillman for Plaintiff and Respondent.

* * *

Appellant Phillip C. Lemmons appeals from the trial court’s order granting respondent Adam Kauffman’s petition to determine the construction of the Lynne M. Kauffman Trust. (Prob. Code, § 17200, subd. (b)(1); all further statutory references are to the Probate Code.) We conclude the trial court’s construction of the trust is reasonable and consistent with the trustor’s intent as expressed in the trust document and therefore affirm the order.

I

FACTS

In 1994, Lynne Kauffman, a then-unmarried woman, executed a revocable living trust “in order to facilitate the management of the [t]rustor’s estate during the [t]rustor’s life and to create a convenient vehicle for the disposition of the [t]rustor’s estate.” Kauffman conveyed the title to her home, the balance of several bank and savings accounts, securities and other investments, title to an automobile, and certain specified personal possessions to the trust. During Kauffman’s lifetime, she received the income and any principal derived from the trust assets. Upon her death, the trustee was to “divide the trust estate into as many equal shares as there are children of the trustor then living, and children of the trustor then deceased leaving issue then living.” The trust identified respondent and Peter Kauffman as the trustor’s “current living children.”

Each share was to be retained in a separate trust and administered according to the terms of the trust. There were provisions for the payment of income and principal to children under 21 for care, maintenance, education, vocation, business or profession advancement, the purchase of a home, or “happiness” at the discretion of the trustee. The trustee had the power to distribute net income and whatever principal deemed necessary “for the child’s proper support, care, maintenance, happiness, education, business or professional advancement, or to purchase a home, after taking into account . . . any income or other resources of the child . . . .” Although both Kauffman’s sons were over 21 years old when she created the trust, these provisions may be explained by Article Four, section (B)(4) (section (B)(4)).

Section (B)(4), entitled Child’s Death Before Full Distribution[], provides as follows: “If a child of the trustor dies before becoming entitled to receive distribution of his or her trust, the undistributed balance of that child’s trust shall thereupon be distributed to his or her then living issue, by right of representation, or if there are none, to the trustor’s then living issue, by right of representation; provided, however, that if any part of that balance would otherwise be distributed to a person for whose benefit a trust is then being administered hereunder, that part shall instead be added to that trust and shall thereafter be administered according to its terms, except that any addition to a partially-distributed trust shall augment proportionally the distributed and the undistributed portions of the trust.”

Article four, section (B)(5) (section (B)(5)), entitled Contingent Disposition, states, “If at any time before final distribution of the trust estate the Trustor’s issue are deceased and no other disposition of the property is directed by this instrument, the trust estate or the portion of it then remaining shall thereupon be distributed to those persons who would then be the heirs of the Trustor according to the laws of the State of California then in effect relating to the succession of separate property not acquired from a predeceased spouse.”

Article five consists of the plenary rights and responsibilities of the trustee to control and manage the trust assets according to the provisions of the trust. Kauffman named herself as the first trustee and respondent as successor trustee. A will executed on the same day named the Lynne M. Kauffman Trust as the pour-over beneficiary of her estate. Kauffman included a survivorship requirement of 180 days in her will. She named respondent the executor of her will and Peter successor executor.

Kauffman died on March 14, 2004. Respondent and Peter survived their mother; however, Peter died on July 9, leaving no spouse or living issue. Respondent acted as trustee for approximately 40 days before the appointment of a Michael Pursell as temporary successor trustee. The appointment became permanent on July 9. There had been no significant distribution of trust assets before Peter’s death.

On November 18, 2004, respondent filed a petition to determine construction of the Lynne M. Kauffman Trust. Respondent sought a court order directing the trustee to distribute the “entire balance of the trust estate to Adam Kauffman.” According to the petition, section (B)(4) should be interpreted to mean “that if a child died before receiving his full distribution, the balance of his share was to be distributed to his issue, if any, otherwise the balance of his share was to be distributed to [Kauffman’s] remaining child.” Respondent also referred to section (B)(5), which provided for distribution to Kauffman’s heirs at law if both her sons died before “final distribution of the trust estate.” He further relied on the trust’s instructions to create separate trusts for each living child upon Kauffman’s death and the 180-day survivorship provision in her pour-over will.

In December 2004, the Orange County Superior Court appointed appellant the special administrator of Peter’s estate. In his response to the petition, appellant argued section (B)(4) was irrelevant because Peter survived his mother and both Kaufman’s sons were over 21 at the time of her death. Thus, he asserted, respondent was required to distribute one-half of the Lynne M. Kauffman Trust assets immediately at her death. Appellant further contended section (B)(5) did not apply because both Kauffman’s son survived her. Under his interpretation of the trust, Kauffman intended to benefit her children, their issue, or her children’s estates. He also argued the will’s survivorship clause was irrelevant for purposes of interpreting the trust.

The court set the matter for hearing. Both parties submitted trial briefs. Appellant reasserted his position that “Peter’s interest in the Trust estate should be distributed to Peter’s Estate because Peter survived the Trustor.” Respondent reiterated his position that merely surviving the trustor did not entitled Peter’s estate to a share of the trust assets. He argued Kauffman’s intent, as demonstrated by the trust instrument, was to transfer the estate to her living children; therefore, “Peter’s share should be distributed to the Trustor’s other living child, Adam.”

The trial court agreed with respondent’s position. In its order granting the petition, the court held: “Entitlement to distribution of the Trust assets did not vest upon the death of the Trustor, but upon the distribution of the Trust assets, and the Trust assets were not in a position to be distributed at the time of Peter Kauffman’s death.

[A]ssets of the Trust not distributed prior to Peter Kauffman’s death must be distributed to Adam Kauffman, the Trustor’s surviving issue, pursuant to the terms of the Trust.” Appellant filed a timely notice of appeal from the court’s order. (§ 1304, subd. (a); Code Civ. Proc., § 904.1, subd. (a)(10).)

II

DISCUSSION

In proceedings to determine the construction of a trust, the court applies the same principles of interpretation that it applies to ascertain the construction of a will, deed, or other written instrument designating a beneficiary or making a donative transfer of property. (§§ 45, 21101-21140.) The transferor’s intention controls the legal effect of the dispositions contained within the instrument. (§ 21102, subd. (a).) Interpretations that give effect to every expression in the instrument and to those that prevent intestacy are preferred. (§ 21120.) The instrument is to be read as a consistent whole, with the meaning of any one part to be explained by reference to any other pertinent part. (§ 21121.) Moreover, the words used in the instrument, both technical and nontechnical, are to be given their ordinary and grammatical meaning unless some other usage is clearly intended. (§ 21122.)

On appeal, the reviewing court applies the de novo standard of review to questions involving the interpretation of a will or trust when there is no conflict in the extrinsic evidence or issues of credibility. (Estate of Dodge (1971) 6 Cal.3d 311, 318.) However, the reviewing court is bound by the same paramount rule of construction as that of the trial court: “The intention of the transferor as expressed in the instrument controls the legal effect of the dispositions made in the instrument.” (§ 21102, subd. (a); Estate of Guidotti (2001) 90 Cal.App.4th 1403, 1407; In re Winter’s Estate (1896) 114 Cal. 186, 188.)

The parties focus on the first sentence of Section (B)(4)the paragraph, “[i]f a child of the trustor dies before becoming entitled to receive distribution of his or her trust,” arguing their respective positions on whether Peter survived long enough to become entitled to receive distribution of the trust set up for him pursuant to the directions of the Lynne M. Kauffman Trust. But regardless of whether Peter’s death occurred before he became “entitled to receive distribution,” his estate is not “living issue.” If anything is clear in this trust document it is Kaufman’s intent to pass her estate to her living children.

Moreover, section (B)(5) directed that if both respondent and Peter died “at any time before final distribution of the trust estate” and “no other disposition of the property is directed by this instrument, the trust estate or the portion of it then remaining shall there upon be distributed” to Kauffman’s heirs at law. Apparently, Kauffman intended to transfer her property to her heirs if respondent and Peter did not survive to final distribution and did not intend them to be transferred to her sons’ estates. The trial court came to the same conclusion. In its findings and orders, the court held, “The terms of the Trust clearly set forth the Trustee’s intent that the Trust assets be distributed to her children, their issue, or to the Trustor’s heirs, and not to the estates of the Trustor’s issue.”

“Where the construction given the will considered without the aid of extrinsic evidence is reasonable and appears to be consistent with the testator’s intention a court of review will not substitute another construction even though it appears to be equally tenable. [Citation.]” (Estate of Bateman (1962) 205 Cal.App.2d 792, 797.) For reasons of her own, Kauffman decided the beneficiaries of her trust must not only survive her but also survive long enough to become entitled to receive the distribution of trust assets. It may seem an odd condition to some, but there could be valid reasons for the wait. According to the schedule of assets, the trust consisted of real property, securities, investments, bank accounts, and other holdings. The trust gave the trustee the power to sell, lease, or otherwise manage and control all trust assets. According to the record, in the approximately four months after Kaufman’s death, the trustee had yet to ascertain all the trust assets and liabilities, allow for creditor’s claims, or determine the need to sell the real property.

The trial court held, “Entitlement to distribution of the Trust assets did not vest upon the death of the Trustor, but upon distribution of the Trust assets . . . .” This interpretation is reasonable and one that appears consistent with the trustor’s intent. Thus, Peter failed to survive until he became entitled to distribution, the time required by the trust; therefore, his estate does not take under it. (§ 21109, subd. (a).)

Appellant raises several unpersuasive arguments. First, he contends Kauffman’s death triggered the expiration of the trust under section 15407, subdivision (a)(1) and also fulfilled its purpose under section 15407, subdivision (a)(2). Because the trust expired, he contends, Peter was entitled to the immediate distribution of trust assets at Kaufman’s death. We disagree.

The trust document contains no express trust termination provision. To the contrary, the purpose of the trust was two-fold, (1) the management of the trustor’s estate during her life and (2) the creation of “a convenient vehicle for the disposition of [her] estate” after her death. Only one of these stated purposes has been accomplished. Consequently, Kauffman’s death did not terminate the trust and entitle Peter to an immediate distribution of trust assets. Nevertheless, appellant cites several inapt cases in support of his argument. (Ammco Ornamental Iron, Inc v. Wing (1994) 26 Cal.App.4th 409 (Ammco); Salvation Army v. Price (1995) 36 Cal.App.4th 1619 (Salvation Army); Ball v. Mann (1948) 88 Cal.App.2d 695 (Ball).)

In Ammco, supra, 26 Cal.App.4th 409, a judgment creditor argued the trustee was also the sole beneficiary of the trust and therefore the trust should terminate permitting the creditor to collect on an unpaid debt. The appellate court held that although it was legally possible for the entire beneficial interest and legal title to become united in a single person, in this case the corpus of the trust was to be distributed amongst other named remainder beneficiaries. (Id. at p. 420-421.) This case does nothing to advance appellant’s argument.

In Salvation Army, supra, 36 Cal.App.4th 1619, the court interpreted a trust set up for the purpose of providing the trustor’s spouse with income during his life. At the trustee’s death, the trust provided for the termination of the trust and the distribution of its assets. (Id. at p. 1624.) Again, this case has no application here because the Lynne M. Kauffman Trust does not contain an express termination provision and its purposes have not been fulfilled.

In Ball, supra, 88 Cal.App.2d 695, Lester Mann and Maxine Neff, unmarried persons, held title to real property in joint tenancy. During their cohabitation, two children were born. An apparent fondness for alcohol led them to execute a trust agreement conveying title to their property to a third party reciting that the conveyance was made so that the third party would use the proceeds from the property “wholly and solely” for the support of their minor children. (Id. at p. 697.) When Mann died, Neff argued the trust agreement included a provision that the property was to revert to her and Mann once the children reached majority. The trust contained no such language. The trial court held that upon the youngest child’s reaching majority, the trust should terminate and the children receive the balance of any property remaining in equal shares. (Id. at p. 697.) The appellate court agreed. “When the objects of a trust have been fully performed the title of the trustee ceases and the legal as well as the equitable title vests in the beneficial owner unless the intention of the creator clearly appears that the legal title should continue in the trustee.” (Id. at p. 699.)

Appellant also attempts to rely on section 15407, subdivision (b). That subdivision provides, “On termination of the trust, the trustee continues to have the powers reasonably necessary under the circumstances to wind up the affairs of the trust.” Appellant contends respondent delayed the process of distribution in violation of this section and others dealing with the obligation of a trustee to give notice to known creditors (§ 19050, subd. (a)) and those who might contest the trust (§ 16061.7, subd. (h)). We find no merit in this argument. Appellant does not provide one citation to the record in support of his assertion the trustee intentionally delayed the distribution process or violated any of the myriad statutory provisions cited. To the contrary, the trial court found, “there were substantial duties that remained for the trust[ee] to do before there could be a distribution . . . . “

Finally, appellant argues section 11801 protects his interest in the trust. This issue is raised for the first time on appeal. Generally, issues that were not litigated in the trial court are deemed waived for appeal. (Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180, 184-185, fn. 1; see also 9 Witkin, Cal. Procedure (4th ed. 1997) Appeal, §§ 394-398, pp. 444-451.) But the assertion is meritless in any event.

Section 11801, subdivision (a), “Except as provided in subdivision (b), the share in a decedent’s estate of a beneficiary who survives the decedent but who dies before distribution shall be distributed under this chapter with the same effect as though the distribution were made to the beneficiary while living.” Subdivision (b), which appellant does not cite or discuss, provides, “distribution may not be made under this chapter if the decedent’s will provides that the beneficiary is entitled to take under the will only if the beneficiary survives the date of distribution or other period stated in the will and the beneficiary fails to survive the date of distribution or other period.” Subdivision (b) defeats appellant’s claim even assuming the claim were not waived.

We conclude Peter died before he became entitled to receive distribution of his trust under the Lynn M. Kauffman Trust. Consequently, respondent is entitled to distribution of the entire balance of the trust.

III

DISPOSITION

The order is affirmed. Respondent to recover his costs on appeal.

MOORE, J.

WE CONCUR:

BEDSWORTH, ACTING P. J.

O’LEARY, J.

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