Staley v. Woodgrift
Filed 7/3/13 Staley v. Woodgrift CA2/6
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE
DISTRICT
DIVISION SIX
KERI M. STALEY, as Special Trustee, etc.,
Plaintiff and
Appellant,
v.
BEVERLY D. WOODGRIFT, as Trustee, etc.,
Defendant and
Respondent.
2d Civil No.
B240835
(Case No.
56-2011-0397502-
PR-TR-OXN)
(Ventura
County)
This is a dispute
between the surviving spouse and her stepdaughter over the meaning of a family
trust. The stepdaughter petitioned the
the trust. We modify the trial court's
judgment to require the surviving spouse to allocate half of the appraised
value of the personal property to the subtrust created for the benefit of the
stepchildren. We also reverse and remand
for further proceedings on whether property acquired by the spouses in joint
tenancy after the trust's creation is to be deemed withdrawn from the
trust. We otherwise affirm.
Kenneth and Beverly
Woodgrift created the Woodgrift Family Trust (Trust) in May 2000.
later. As the Trust required, Beverly
divided up the Trust's assets into two subtrusts: (1) a Survivor's Trust consisting of Beverly's
half of the "Trust Estate"; and (2) an Exemption Trust consisting of
"the balance" of the "Trust Estate." (Art. III, §§ 1-5.) Beverly
became the Trustee of the Survivor's Trust.
Keri M. Staley, one of Kenneth's children from a prior marriage, became
the Special Trustee of the Exemption Trust.
(Art. IX, § 2b.)
Keri filed a petition
with the trial court seeking instructions on eight different provisions of the
Trust. The trial court declined to
provide instructions on one of the issues, but resolved the remaining issues
largely in Beverly's favor.
DISCUSSION
We independently review
the trial court's interpretation of a trust and other written instruments. (Johnson
v. Greenlesch (2009) 47 Cal.4th 598, 604.)
I.
Keri's Authority as Special
Trustee of the Exemption Trust
The Trust provides that Beverly,
as the surviving spouse, is entitled to "all of the net income" from
the Survivor's Trust and the Exemption Trust.
(Art. III, § 7a.) Beverly
is also entitled to use the principal of those subtrusts' assets as she
"deems necessary for [her] proper health, support, and
maintenance." (
§ 7b.) However, "before making
any principal distributions" from the Exemption Trust if assets remain in
the Survivor's Trust, Beverly
"must obtain the approval of the Special Trustee" of the Exemption
Trust. (Ibid.) The Special Trustee
of the Exemption Trust exists "solely for the purpose of approving any
discretionary distributions of principal from [that Trust] for the benefit of
[Beverly.]" (Art. IX, §1b.)
Keri contends that, as
Special Trustee, she is authorized and obligated to (1) confirm that the
Exemption Trust was correctly funded at its creation; (2) review
Trust to verify that Beverly is properly characterizing withdrawals as
"interest" rather than "principal"; and (3) approve or deny
the accrual of further interest as well as any further withdrawals on the
reverse mortgage on the home where Beverly lives.
A.
Keri argues that her
role in approving Beverly's requests to use the principal of the Exemption
Trust for her support makes Keri responsible for the Exemption Trust's
principal. Keri asserts that she can
viably discharge this responsibility only if she also has the authority to
ensure proper initial funding of the Exemption Trust's principal and to verify
every withdrawal from that Trust (even if Beverly deems it to be
"income" under the terms of the California Revised Uniform Principal
and Income Act that Beverly is obligated to follow (Art. X, § 22)). For support, Keri relies upon (1) precedent
recognizing a trustee's authority "'. . . to do acts which, though not
specified in the instrument, are implied in its general directions
. . .'" (Kipp v. O'Melveny
(1905) 2 Cal.App. 142, 144); and (2) statutes obligating a trustee to
"administer the trust with reasonable care, skill and caution" (Prob.
Code, § 16040),
title="">[2]
and "to take reasonable steps . . . to take and keep control of
and to preserve the trust property" (§ 16006; see also § 16200). The trial court rejected Keri's position, and
limited her role to approving "invasion[s] of the principal of the
Exemption Trust."
The trial court's
construction is correct. "'The
extent of the duties and of the powers of a trustee depends primarily upon the
terms of the trust. . . .' [Citation.]" (Crocker-Citizens
Nat. Bank v. Younger (1971) 4 Cal.3d 202, 211.) A trustee's implied powers are, by
definition, limited to those "necessary to carry out the objects and
purposes of the trust." (
Cal.App. 713, 719.) A trustee's
statutory duties are similarly circumscribed.
(§ 16200 [limiting trustee's powers to those "in the trust
instrument"].)
According to the Trust,
the Special Trustee of the Exemption Trust has the "sole[]" duty of
"approving any discretionary distributions of principal from [the
Exemption Trust] for the benefit" of the surviving spouse when that spouse
seeks to use the Exemption Trust's principal while assets remain in the
Survivor's Trust. (Art. IX, §1b.) This duty is to be exercised in light of the
Trust's "primary objective" "to provide for the present and
future health, support and maintenance" of the surviving spouse. (Art. III, § 7d.) Moreover, a Special Trustee is appointed only
if the surviving spouse is acting as her own trustee. (Id.,
§ 7b.) Given this narrow function, the
Special Trustee is not a trustee of the Exemption Trust for any and all
purposes, and consequently has no general duty to safeguard the Exemption
Trust's property. Absent such a duty,
the authority Keri seeks is not implied by the Trust or by statute.
B. Special
Trustee's role regarding the reverse mortgage
Keri further contends
that her power to approve distributions of principal from the Exemption Trust
includes authority over the reverse mortgage on one of the Trust's
properties. At the time of Kenneth's
death, Kenneth and Beverly owned a home on Quail Run Lane in Indian Wells,
California (Quail Run property) valued at $2,645,000. The property is subject to a "reverse
mortgage." Under this mortgage,
interest not immediately paid becomes additional loan principal. The maximum "cap" of the reverse
mortgage is $1,067,800; at the time of Kenneth's death, the outstanding
principal balance of the reverse mortgage was $259,240. When Kenneth died, Beverly allocated half of
the value of the property and half of the reverse mortgage to each subtrust.
Keri argues that she is
entitled to approve the accrual of further interest on the reverse mortgage
because that interest is added to the principal of the loan and thus reduces
the equity in the property (and hence the principal of the Exemption
Trust). Keri also argues that she is
entitled to approve Beverly's withdrawal of any further funds from the reverse
mortgage for the same reason. The trial
court declined to address Keri's first contention, and rejected her second on
the ground that Beverly could allocate any further withdrawals to the Surviving
Trust's half interest in the property with the caveat that Keri could later
intervene "if the outstanding balance of the reverse mortgage threatens to
exceed or exceeds fifty percent (50%) of the fair market value of the Quail Run
Property."
The Special Trustee's
authority to approve or disapprove "distributions of principal" from
the Exemption Trust does not confer the right to "approve" the
accrual of interest or Beverly's further withdrawals of funds against the
reverse mortgage on the Quail Run property.
To be sure, the continuing accrual of interest on the original $259,240
loan amount reduces the equity in the property.
But such increases in the amount of the loan principal are not
"distribution[s] of principal" from the Exemption Trust. The Survivor's Trust and Exemption Trust have
one-half interests in the property; as long as the accruing interest on the
reverse mortgage is allocated, as an accounting matter, to the Survivor's
Trust's interest in the Quail Run property, the Exemption Trust's interest is
not diminished.
The same logic applies
to further draws on the reverse mortgage.
The Trust expressly grants Beverly the power to "encumber the Trust
Estate or any property therein by mortgage . . . or otherwise." (Art. X, § 12.) We agree with the trial court that further
draws on the reverse mortgage, if combined with reduced property values, might
create the possibility that the reverse mortgage's balance (although capped at
$1,067,800) might exceed the value of the Surviving Trust's one-half interest
in the Quail Run property and implicate the Special Trustee's authority to
approve further withdrawals. Until such
time, however, the Exemption Trust's principal is sufficiently protected if
Beverly allocates, as an accounting matter, any withdrawals to the Survivor's
Trust's interest and keeps Keri apprised of possible diminution of the
Exemption Trust's interest in that property.
II.
Tangible Personal Property
The Trust states that
"[t]he Survivor's Trust shall include" the surviving spouse's
"interest in the Trust Estate."
(Art. III, § 2.) The Trust then
states: "In funding the Survivor's
Trust, the Trustee shall allocate to the Survivor's Trust all of the Trustors'
automobiles, memberships, household furniture and furnishings, personal effects
and other articles of household or personal use or ornamentation constituting
part of the Trust Estate." (
Focusing on the second provision, Beverly construed the language as
awarding the Survivor's Trust all of
the couple's personal property; on that basis, she kept for herself the
proceeds of selling $28,000 in furniture and $85,000 for two boats. The trial court disagreed with Beverly's
reading, concluding instead that (1) the Survivor's Trust and Exemption
Trust are each entitled to half of the value of couple's personal property; and
(2) Beverly may allocate the property itself to either subtrust. We agree with the trial court's first ruling,
but not with its second.
The trial court
correctly determined that the couple's personal property is to be divided
equally between the Survivor's Trust and the Exemption Trust. As noted above, these subtrusts divide the
"Trust Estate." The
"Trust Estate" is defined to include "[a]ll property now or
hereafter subject to this Trust," and specifically includes the couple's
personal property. (Art. III, § 2;
Preamble; Schedule A to the Trust.)
Beverly raises two
objections to this reasoning. She points
to the sentence allocating personal property to the Survivor's Trust. But that sentence enumerates the specific
assets that are to be allocated to the Survivor's Trust, and thereby ensures
that Beverly gets to keep using her household furniture and other
belongings. It does not override the
Trust's mandate that the value of the Trust Estate be split between the two
subtrusts. Beverly also argues that
allocating half of the Trust's personal property to the Exemption Trust
unfairly benefits the beneficiaries of the Exemption Trust who will get half of
that property now, and another half from the Survivor's Trust (for a total of
75 percent of the personal property) when Beverly dies. This argument overlooks that this alleged
unfairness is avoidable because Beverly has the authority under the Trust to
alter the default beneficiaries to the Survivor's Trust. (Art. XII, § 2.)
We accordingly agree
with the trial court's ruling requiring an appraisal of all personal property
not already valued by a prior sale. Once
appraised, however, assets totaling one-half of that value should be allocated
to the Exemption Trust. The Trust
contains no language justifying a delay in this allocation, so we disagree with
the trial court's ruling that the allocation may occur following Beverly's
death. Unlike the trial court, we
further conclude that Beverly may not allocate any personal property to the
Exemption Trust absent the consent of that Trust's beneficiaries. The Trust states that personal property
"shall" be allocated to the Survivor's Trust; it leaves no discretion
to allocate differently.
III.
After-Acquired Assets Held in
Joint Tenancy
When they executed the
Trust, Kenneth and Beverly also executed an Agreement to Convert Property
(Agreement). In pertinent part, that
Agreement provided that "[a]ll property hereafter acquired by [Kenneth] and [Beverly] or either of them
shall be immediately and automatically converted into [their] community
property." (Italics added.) Consistent with the Agreement, the Trust
included in the "Trust Estate" all "bank accounts . . . now
owned or hereafter acquired" and
"[h]ousehold furniture and furnishings, personal effects and other
articles of household or personal use or ornamentation . . . now owned or
Keri argues that three
different bank accounts, two cars, and two boats held in joint tenancy were
part of the Trust Estate and are to be divided between the Survivor's Trust and
the Exemption Trust. The trial court
ruled that those assets owned by Beverly and Kenneth at the time the Trust was
executed (namely, the Bank of America checking account ending in 5272 and the
Ameritrade account with a balance of $7,348) were included in the Trust
Estate. It ruled that a Bank of America
certificate of deposit and the other assets acquired after the Trust was
executed and held in joint tenancy were outside the Trust Estate because Keri
had not shown their inclusion by clear and convincing evidence, as section 5302
required.
The trial court applied
section 5302, which provides that jointly held accounts pass to the surviving
holder(s) unless a different arrangement is proven by clear and convincing
evidence. (Id., subd. (a).) However,
section 5302 does not apply to married couples like Kenneth and Beverly. (§ 5305, subd. (a).) Consequently, the question of whether these
after-acquired assets are part of the Trust Estate turns instead on whether
Kenneth and Beverly were overriding their earlier intent (expressed in the
Trust and the Agreement) to include these assets in the Trust Estate by
exercising their right to withdraw them from the Trust Estate. (Art. XII, § 1.) This hinges on whether (1) Kenneth's and
Beverly's decision to place title to these assets in joint tenancy was meant to
effect a withdrawal; and (2) whether this decision was executed with a
"writing, signed by the person or persons having the power" to
withdraw assets, as required by the Trust.
(Id., § 5.) We remand to the trial court for further
proceedings on the issue of withdrawal.
IV.
Funeral Expenses
The Trust specifies that
when one spouse dies before the other, the deceased spouse's "last illness
and funeral expenses" are to be paid "out of the Trust
Estate." (Art. III, § 6a.) The Trust also provides that the "last
illness and funeral expenses" of the second spouse are to be paid
"from the Survivor's Trust."
(Art. IV, § 2a.) Keri argues
that Beverly erred in charging Kenneth's funeral expenses to the Exemption
Trust because those expenses are chargeable to the "Trust Estate"
(and thus half to each of the subtrusts).
Beverly responds that Kenneth's funeral expenses are to be allocated to
the Exemption Trust, and hers to the Survivor's Trust. The trial court agreed with Beverly. So do we.
The plain language of
the Trust assigning the duty to pay Kenneth's funeral expenses "out of the
Trust Estate" is ambiguous on the question of how those expenses are to be
allocated between the Survivor's Trust and the Exemption Trust. We resolve this ambiguity by applying the
default rule set forth in section 19326 that bars assigning the funeral
expenses of the first spouse to "the community share of the surviving
spouse." (Ibid.) This resolution also
yields an equitable result: The Trust
explicitly instructs that Beverly's funeral expenses are to be allocated to the
Survivor's Trust, so requiring Kenneth's funeral expenses to be paid from the
Exemption Trust means that the subtrust created for the benefit of each
spouse's children will pay their respective parent's funeral expenses.
V.
Keri's Attorney's Fees
Keri argues that she is
entitled to reimbursement for her attorney's fees under the Trust and under
sections 16243 and 16247. The trial
court ruled that the fees associated with this litigation were not "reasonably
incurred," and did not decide the threshold question of her entitlement to
reimbursement.
We conclude that Keri is
not entitled to attorney's fees by virtue of her position as Special Trustee of
the Exemption Trust. The Trust allows
"[e]ach Trustee" to be "reimbursed for reasonable expenses
incurred on behalf of this Trust."
(Art. IX, § 13.) But the
Trust defines "Trustee" as "the original Trustee or Trustees as
well as to any successor, replacement or added person, corporation or other
entity from time to time acting." (
incur the fees she now seeks while "acting" as their successor. Keri's reliance on statutory authority
suffers from a similar defect. Sections
16243 and 16247 empower a "trustee" to hire and pay attorneys, but
section 84 defines "trustee" as "an original, additional, or
successor trustee." As Special
Trustee of a subtrust assigned a very specific and limited duty, Keri also does
not meet the statutory definition of "trustee" that would entitle her
to rely on sections 16243 and 16247.
DISPOSITION
We modify the judgment
to require that Beverly allocate one-half of the appraised value of the
personal property to the Exemption Trust.
We reverse and remand for further proceedings on whether Beverly's and
Kenneth's acquisition of assets in joint tenancy after the Trust's creation
withdrew those assets from the Trust.
Otherwise, we affirm the judgment.
The
parties shall bear their own costs on
appeal.
NOT TO BE PUBLISHED.
HOFFSTADT,
J.
We concur:
GILBERT, P. J.
YEGAN, J.
Glen
Reiser, Judge
Superior
Court County of Ventura
______________________________
Law Offices of Gregory
M. Hultgren and Gregory M. Hultgren; Benton, Orr, Duval & Buckingham and
Thomas E. Olson for Plaintiff and Appellant.
Law Offices of David A.
Esquibias, David A. Esquibias and Tracy H. Kitzman for Defendant and
Respondent.
name="_ftn1" title=""> [1] We intend no disrespect, but will use the parties'
first names for clarity.
name="_ftn2" title=""> [2] Unless otherwise stated, all statutory references are
to the Probate Code.
