McDaniel v. Ortlieb

Filed 3/22/07 McDaniel v. Ortlieb CA5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FIFTH APPELLATE DISTRICT

APPEAL from a judgment of the Superior Court of Kern County. Louie L. Vega, Commissioner.

Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, Kevin C. Findley, Catherine E. Bennett, and Steven J. Lee for Plaintiff and Appellant.

LeBeau Thelen, Patrick Charles Carrick, and Thomas S. McIntosh for Defendant and Respondent.

-ooOoo-

INTRODUCTION

San Diego resident Elgin R. Parker and his wife, Eleanor Flo Parker, owned several thousand shares of Home Interstate Bancorp (Home Bank), a corporation they cofounded. On September 23, 1983, the Parkers created the Funded Intervivos Trust of the Parker Family (trust agreement or Parker Family Trust). In doing so, they transferred 12 numbered certificates representing 49,612 shares of Home Bank into their trust. As cotrustees of the trust, the Parkers had discretion to buy and sell assets during their joint lifetimes. The trust agreement also provided that the surviving trustor would have similar discretion to buy and sell assets during his or her lifetime.

The trust agreement further provided that, upon the death of the first trustor, the trust estate would be divided into three separate trusts to be known as Trust A, Trust B, and Trust C. According to the terms of the trust agreement, Trust A would consist of the surviving trustors share of the community property, at his or her election. Trust B would consist of a pecuniary amount equal to the maximum marital deduction allowable for federal estate tax purposes. Trust C would consist of the balance of the trust estate, particularly the balance of the deceased trustors interest in community property. During the lifetime of the surviving trustor, the latter would be entitled to the entire net income of Trusts A, B, and C and would be entitled to invade the principal of Trust A. Upon the death of the surviving trustor, the trust agreement directed that the remaining principal in Trusts A and B be transferred to Trust C for management and eventual distribution.

According to section 4.03(a) of the Parker Family Trust, upon the death of the surviving trustor/trustee, the successor trustee was directed to pay from the principal of Trust C specified expenses and taxes arising from the surviving trustor/trustees last illness, death, funeral, and burial. According to section 4.03(b) the successor trustee was directed to retain possession of the Home Bank stock and to hold those shares in a new trust called the Home Bank Trust.^[1] The agreement directed the trustee to distribute at least annually all dividends from the Home Bank Trust in equal shares to the children of the trustors. Upon the death of the last surviving child of the trustors, the trustee was to terminate the Home Bank Trust and distribute the shares of stock in HOME BANK ... in kind, in equal shares ... along with any dividends or principal remaining in Home Bank Trust ... to the grandchildren of Trustors ....

With respect to Trust C assets other than Home Bank stock, section 4.03(f) directed the successor trustee to distribute them in equal shares to the surviving trustors grandchildren. In the event a grandchild had not yet attained age 21, the successor trustee was directed to hold that grandchilds distributive share in trust until he or she attained age 21 and then distribute it outright. Trust C would terminate upon the distribution of trust assets to the last grandchild attaining the age of 21.

Elgin Parker died on January 18, 1987 and Eleanor Parker divided the trust assets into the three trusts and placed some of the Home Bank shares in Trust B and some in Trust C. On September 15, 1988, Mrs. Parker elected to withdraw her share of community property from Trust A and transferred those assets into a new trust known as the Eleanor Flo Parker Revocable Trust (Eleanor Flo Parker Trust). In 1997, Eleanor Parker sold all of the Home Bank shares and deposited the proceeds from the sale of shares owned by Trust B into bank accounts in the name of Trust B. She deposited the proceeds from the sale of shares owned by Trust C into bank accounts in the name of Trust C. On October 14, 2002, Eleanor Flo Parker died and her grandson, appellant Steven McDaniel, became successor trustee.

On March 1, 2005, appellant trustee petitioned for instructions inter alia, requesting the Court to determine to whom the property in Trust C should pass or be delivered to upon final or partial termination of the Trust C. On November 1, 2006, the superior court filed a formal order ruling in relevant part:

[T]he gift of the Home Bank Stock as provided in [Trust Agreement] Section 4.03(b) was not adeemed and ... the assets on hand in the Elgin Parker Residual Trust C [shall] be transferred and administered by [appellant trustee] as trustee of a separate trust to be known as the Home Bank Trust, with the trustee to continue to distribute all income and/or interest and/or dividends generated from the traceable cash proceeds generated from the prior sale of the Home Bank Stock to the remaining surviving children of the [Trustors] in equal shares, and upon the death of the last surviving child of the [Trustors], the Home Bank Trust assets are to be distributed, in kind, in equal shares, share and share alike, among the grandchildren of the [Trustors] ....

STATEMENT OF THE CASE

On January 10, 2005, Patricia Parker Ortlieb (respondent), a daughter of the trustors, filed a petition in San Diego County Superior Court to compel her nephew, appellant trustee Steven W. McDaniel (appellant trustee), to provide a report of information and to account for the Parker Family Trust dated September 23, 1983 and the Eleanor Flo Parker Trust dated September 15, 1988.

On March 1, 2005, appellant trustee filed a verified first and second and account and report of the Parker Family Trust in Kern County Superior Court. Appellant trustee petitioned for settlement of the accounts, for determination of trust distributees upon final termination of the trust, and for instructions.

On April 11, 2005, the San Diego County Superior Court granted appellant trustees petition to transfer the venue of the trusts to Kern County.^[2]

On or about April 18, 2005, respondent filed written objections to the first and second account and report. She also filed a notice of lodgment of exhibits in support of her written objections.

On April 18, 2005, appellant trustee filed written consents of beneficiaries to the division and modification of the trust and a related declaration regarding those consents.

On June 28, 2005, appellant trustee filed a written response to objections to the first and second accounts and report and petition for their settlement and a written supplement to those documents.

On December 16, 2005, appellant trustee filed a supplemental petition to the first and second account and report.

On January 6, 2006, respondent filed a written response to the supplemental petition and a supporting declaration.

On January 18, 2006, the court conducted a contested hearing on the petition and supplemental petition.

On February 3, 2006, appellant trustee filed a reply brief in support of the supplemental petition.

On or about February 9, 2006, respondent filed a written response to appellant trustees reply brief.

On February 22, 2006, the Honorable Louie L. Vega, commissioner of the superior court, filed an extended minute order concluding that trustor Eleanor Parkers sale of Home Bank stock did not constitute an ademption. Rather, it only changed the form of the source for funding the proposed Home Bank Trust as set forth in the Parker Family Trust. Commissioner Vega further noted: Patricia Ortlieb is to prepare the order after hearing consistent with the Courts findings and conclusions as set forth above.

On April 17, 2006, appellant trustee filed a timely notice of appeal from the minute order.

On November 1, 2006, the court filed a formal order instructing the appellant trustee regarding the supplemental petition to first and second account and report.^[3]

STATEMENT OF FACTS

In 1983, San Diego residents Elgin and Eleanor Parker were the parents of five children, namely Dian Parker McDaniel, Nancy Parker McNaughton, Rowland T. Parker, Arthur E. Parker, and respondent Patricia Lee Parker Ortlieb. They also had a number of grandchildren. As stated on September 23, 1983, the Parkers created the Parker Family Trust. The initial assets of the trust, listed on exhibit A of the trust agreement, included five bank accounts, two vehicles, four notes secured by deeds of trust, five parcels of real property, and shares of Ultra Aire Furnace Company, Comparator System Corporation, and Home Bank. The Parkers transferred 12 stock certificates representing 49,612 shares of Home Bank into the trust.^[4]

The trust agreement designated that Elgin and Eleanor were cotrustees of all trusts created under the trust agreement. The trust agreement also designated their grandson, appellant Steven W. McDaniel, as alternate trustee in the event of the death or disability of the surviving trustor. The agreement further provided that Elgin and Eleanor could transfer and convey property into the trust or withdraw property from the trust during their joint lifetimes. The trust agreement further provided that Elgin and Eleanor could revoke the trust in whole or in part during their joint lifetimes. They were entitled to the entire net income of the trust estate during their joint lives and were empowered to invade the principal for their care, maintenance, and support.

The trust agreement provided for division of the trust estate into three separate trusts upon the first death of a trustor. Upon such death, the agreement directed the trustee to collect all bequests and devises distributable to the trust estate and then divide the entire trust estate into Trusts A, B, and C. Trust A was to consist of the surviving trustors share of the community property, should he or she elect to place it in Trust A. Trust B was to consist of a pecuniary amount equal to the maximum marital deduction allowable for determining the federal estate tax payable on the death of the deceased trustor. Trust C was to consist of the balance of the trust estate and represented the balance of the deceased trustors interest in community property. The surviving trustor was entitled to the net income from each of the trusts during his or her lifetime and the trustee was empowered to invade the principal of Trusts A and C on the surviving trustors behalf.

Absent the surviving trustors appointment of Trust A assets via an inter vivos written instrument, the trustee was directed, upon the death of the surviving trustor, to transfer the remaining assets of Trusts A and B into Trust C and to manage and distribute them pursuant to section 4.03 of the trust agreement. Section 4.03 stated in relevant part:

(b) All shares of HOME BANK stock shall remain in the possession of the Trustee and be held in Trust (hereinafter Home Bank Trust.) The Trustee shall distribute all dividends from Home Bank Trust in monthly or other convenient installments to the children of Trustors ... in equal one-fifth (1/5) shares. In the event of the decease or demise of any of the children of the Trustors, at any time, such childs one-fifth (1/5) share of the dividends from Home Bank Trust shall be retained by the Trustee in Home Bank Trust. Upon the death of the last surviving child of Trustors, the Home Bank Trust shall terminate and the shares of stock in HOME BANK shall be distributed, in kind, in equal shares, share and share alike, along with any dividends or principal remaining in Home Bank Trust at the death of the last surviving child of Trustors and not already distributed by the terms of this section, to the grandchildren of Trustors as described by Section 4.03(c) of this Declaration and to the surviving issue of any of those grandchildren who do not survive termination of the Trust, such grandchildren to take, share and share alike, and such issue to take by right of representation....

(c) The class of individuals herein described as Trustors grandchild or grandchildren shall consist of the children of Trustors children described in Section 1.08 of this Declaration, in existence at the date of this Declaration, and those children born hereafter to Trustors children up to and including the date of death of the surviving Trustor.

(d) In the event that any of the grandchildren should die without issue prior to the age of twenty-one (21), their distributive share shall be redistributed to the surviving class of grandchildren or if deceased and over the age of twenty-one (21) to their issue by right of representation, in equal shares, share and share alike.

(e) All of the trust estate listed in Exhibit B of this Declaration and contained in Trust C herein, shall be distributed, in kind, to the beneficiaries dictated by Exhibit B. If the trust property listed in Exhibit B of this Declaration should no longer exist at the time of death of the Surviving Trustor, such specific distributions will become null and void and the designated beneficiaries will not be compensated therefore.

(f) All the Trust Estate of Trust C then remaining in the possession of the Trustee shall go, and be by the Trustee transferred, conveyed, and distributed, to the Surviving Trustors grandchildren, as described by Section 4.03(c) of this Declaration, and to the surviving issue of any of those grandchildren who do not survive termination of the Trust, such grandchildren to take, share and share alike, and such issue to take by right of representation.... Trust C shall terminate upon the distribution to the last grandchild attaining the age of twenty-one (21).

On February 15, 1985, Elgin and Eleanor executed a first amendment to their trust agreement to add the following provision:

Section 4.03(f)(1) Notwithstanding the method of dividing the proceeds of Trust C among the grandchildren which is set forth in the foregoing Section 4.03(f), the Co-Trustors wish that the amounts distributed be adjusted in unequal sums to adjust for the fact that some or all of said grandchildren have, or will have received unequal gifts from the Co-Trustors during the Co-Trustors lifetimes. The purpose of this adjustment is to provide that each grandchild shall have received an equal share with each other grandchild when both the intervivos gifts and Trust benefits are taken together. To accomplish this adjustment the then Trustee shall consider the list of those intervivos gifts, which is attached to this Trust as Exhibit C and which is incorporated herein by this reference. Said Exhibit C may be amended from time to time by the Co-Trustors, or the Surviving Co-Trustor, to reflect the more contemporaneous adjustment of said gifts....

Trustor Elgin Parker died on January 18, 1987. On May 12, 1988, surviving trustor Eleanor Parker executed a second amendment to the trust agreement. Pursuant to the trust agreement, Eleanor divided the trust estate into three separate trusts. Pursuant to the second amendment, Eleanor renamed the trusts as follows:

--Trust A became The Eleanor F. Parker Revocable Trust A dated January 18, 1987.

--Trust B became The Elgin R. Parker Marital Deduction Trust B dated January 18, 1987.

--Trust C became The Elgin R. Parker Irrevocable Trust C dated January 18, 1987.

As trustee, Eleanor allocated cash, promissory notes, real and personal property, a vehicle, and unearned tenant security deposits from rental property to the Eleanor F. Parker Revocable Trust A. She allocated promissory notes, real property, unearned tenant security deposits, and 5,192 shares of Home Interstate Bancorp Common Stock to the Elgin R. Parker Marital Deduction Trust B. She allocated 46,900 shares of Home Interstate Bancorp Common Stock to the Elgin R. Parker Irrevocable Trust C.

Pursuant to section 4.01 of the trust agreement, Eleanor directed the trustee to distribute the principal and undistributed income of the Eleanor F. Parker Revocable Trust A upon her death. Eleanor instructed the successor trustee to distribute the sum of $10,000 to her godchild, the sum of $5,000 to her friend, and the balance to her children and grandchildren in specified percentage shares. Eleanor directed that each child receive a 9.95085 percent share and that each grandchild receive a 3.86506 percent or 3.86505 percent share. Aside from these changes, Eleanor directed that the trust shall remain unchanged in every respect.

In June 1997, Eleanor Parker sold all of the Home Bank shares and deposited the proceeds from the sale of shares owned by Trust B into bank accounts in the name of Trust B. She deposited the proceeds from the sale of shares owned by Trust C into bank accounts in the name of Trust C. On October 14, 2002, Eleanor died and her grandson, appellant Steven McDaniel, became successor trustee.

On January 10, 2005, respondent filed a petition in San Diego County Superior Court to compel appellant trustee to provide a report of information and to account. On March 1, 2005, appellant filed a first and second account and report of trustee and petition for determination of the distributees of Trust C and instructions as to the handling of proceeds from Eleanor Parkers sale of the Home Bank stock. Appellant specifically alleged in relevant part:

At the death of the former trustee, Eleanor Flo Parker, in 2002 there was no Home Bank stock held by either trust, nor stock of any successor of Home Bank. Petitioner is informed and believes that the former trustee, Eleanor Flo Parker, sold all the stock in 1997 at a nice profit and placed the cash from the sale of the stock owned by Trust C in bank account(s) in the name of Trust C. The proceeds from the sale of the stock owned by Trust B was placed in bank accounts in the name of Trust B. The sale of the stock took place approximately 10 years after the death of Elgin R. Parker. Petitioner does not believe that Eleanor Flo Parker, as Trustee, sold the stock pursuant to any instruction by the Court, but using her own judgment. From the proceeds from the sale of this stock certain loans to grandchildren of the Settlors have been made from the proceeds in Trust C and all the present assets on hand at July 31, 2004 in Trust C, except for $5,000.00, resulted from the sale of the bank stock.... The proceeds from the sale of the Home Bank stock owned by Trust B have been commingled with other assets of Trust B.

Petitioner is informed and believes that the gift of the bank stock to the Home Bank Trust is not an ademption as to the stock owned by Trust C as the proceeds from the sale of this stock are on hand and traceable. Trust C was an irrevocable trust at the time of the sale and the effect of the sale of the stock could result in the change of the estate plan of Settlor, Elgin R. Parker, without his knowledge or consent. There was no withdrawal of the gift by any act of Elgin R. Parker and in fact, his intention appears to be to provide an income interest for his children during their lifetimes from this stock. The estate plan was possibly changed by Eleanor Flo Parker, as a Trustee of her husbands property by this sale, but there is no proof that Settlor, Elgin R. Parker, intended the gift to fail.

The terms of the FAMILY TRUST provide that all assets of Trust C other than the Home Bank stock are to be distributed to the grandchildren of the Settlors. These assets include the $5,000 of principal presently on hand in Trust C that was received from Trust B and not distributed and all other assets of Trust B yet to be transferred to Trust C. Schedule A of Exhibit E attached to the petition shows a distribution of $135,000 received from Trust B by Trust C during the accounting period and a distribution of principal in the amount of $130,000 to the grandchildren.

... Petitioner is requesting the Court to determine to whom the property in Trust C should pass or be delivered to upon final or partial termination of the Trust C. Petitioner is informed and believes that he should be instructed to create a separate trust to be known as the Home Bank Trust with the cash and notes on hand at July 31, 2004, except for the sum of $5,000 of principal received from Trust B, and he be instructed to follow the terms of the Home Bank Trust as set forth in Section 4.03(b) of the FAMILY TRUST as to the administration, beneficiaries and distribution of the assets of the Home Bank Trust.

On April 11, 2005, the San Diego County Superior Court entered an order transferring the proceedings relating to the administration of the trusts to Kern County. On or about April 18, 2005, respondent filed written objections to the first and second account and report and prayed that appellant be required to provide a detailed explanation to the questions raised by his account. On December 16, 2005, appellant trustee filed a supplemental petition to the first and second account and report and petition. Appellant trustee alleged [t]his supplement supersedes the Accounting with respect to the ademption issue .... Appellant trustee changed his position and prayed that the court instruct the trustee not to fund the Home Bank Trust because:

The Trust instrument did not instruct the Trustee to retain the Home Bank stock but instead conferred broad authority on the Trustee to sell Trust assets. In addition, the Trust instrument did not provide that if the specified asset were sold, the proceeds from the sale would be retained in trust and distributed as the original asset was to be distributed.

On January 18, 2006, the Honorable Louie L. Vega, commissioner of the Superior Court, conducted a contested hearing on the petition and took the matter under submission. On February 22, 2006, Commissioner Vega filed a minute order stating in relevant part:

A. [] Case Statement

At issue in the instant case is whether, as now urged by Successor Trustee Steven W. McDaniel (McDaniel), the denominated source for funding a sub-trust, Trust C, of the Parker Family Trust (the Parker Family Trust) was adeemed when the surviving settlor, Eleanor Parker, sold all the bank stock specifically identified for funding that sub-trust and a proposed subsequent trust, the Home Bank Trust. Patricia Ortlieb (Ortlieb), one of the surviving children of the Parker Family Trust settlors, argues that selling the bank stocks merely changed the form of funding for the planned Home Bank Trust and therefore was not an ademption. [] ... []

[C.] Findings and Conclusions

Although the instant case involves a trust instrument and not a will, it is testamentary in nature. Thus, it is construed accordingly. In the instant case there is no evidence that Eleanor Parker intended not to fund Trust C when she sold the Home Bank stock designated for funding Trust C of the Parker Family Trust. To the contrary, when she liquidated the Home Bank stock, with a minor exception, all the proceeds from the stocks sale were used in a manner consistent with funding sub-trust Trust C, as provided in the Parker Family Trust.... Although McDaniel is now reversing his contention regarding the effect of the bank stock sale, his prior conduct is consistent with treating the proceeds from the stock liquidation as funding of the Trust C in accordance with Parker Family Trust.... Consequently, the funds from sub-trust Trust C are available for carrying out the intent of the settlors of the Parker Family Trust. [] The fact that the bank stock no longer exists is of no moment. McDaniels argument that Home Bank stock was specifically required to fund the Home Bank Trust is therefore without merit.

Ruling [] The sale of all the Home Bank stock by Eleanor Parker while she was Trustee of the Parker Family Trust did not constitute an ademption. It only changed the form of the source for funding proposed Home Bank Trust as set forth in the Parker Family Trust.

On November 1, 2006, Commissioner Vega filed a formal order instructing trustee regarding trustees supplemental petition to first and second account and report. The formal order set forth the material allegations of the pleadings, reiterated the findings and conclusions of the February 22, 2006 minute order, and ruled:

The sale of the Home Bank Stock included in Trust C by Eleanor Flo Parker while she was the remaining trustee of the Parker Family Trust and its subtrusts did not constitute an ademption. It only changed the form of the source for the funding of the proposed Home Bank Trust as described in Section 4.03 of the Parker Family Trust. (See the Estate of Austin, supra, Witkin, 14 Summary of California Law, Wills, 255-256.)

Therefore, the court rules that the gift of the Home Bank Stock as provided in Section 4.03(b) was not adeemed and that the assets on hand in the Elgin Parker Residual Trust C be transferred and administered by Petitioner as trustee of a separate trust to be known as the Home Bank Trust, with the trustee to continue to distribute all income and/or interest and/or dividends generated from the traceable cash proceeds generated from the prior sale of the Home Bank Stock to the remaining surviving children of the Settlors in equal shares, and upon the death of the last surviving child of the Settlors, the Home Bank Trust assets are to be distributed, in kind, in equal shares, share and share alike, among the grandchildren of the Settlors as described in Section 4.03(c) of the Parker Family Trust and to the surviving issue of any of those grandchildren who do not survive the termination of the Home Bank Trust, all as is more specifically set forth in Section 4.03 of the Parker Family Trust.

DISCUSSION

I.

FUNDING OF THE HOME BANK TRUST

Appellant trustee contends the Home Bank Trust cannot be funded because the specific assets the shares of stock are not available. Therefore, no dividends on Home Bank stock can be determined and paid to the trustors children and the stock cannot be distributed to the trustors grandchildren upon the death of the trustors children.

Generally speaking, interpretation of a trust presents a question of law unless interpretation turns on the credibility of extrinsic evidence. In construing trust instruments, as in the construction and interpretation of all documents, the duty of the court is to first ascertain and, if possible, give effect to the intent of the maker.^[5] The interpretation of a written instrument, even though it involves what might properly be called questions of fact, is essentially a judicial function to be exercised according to the generally accepted canons of interpretation so that the purposes of the instrument may be given effect. Extrinsic evidence is admissible to interpret the instrument but not to give it a meaning to which it is not reasonably susceptible. Under California law, it is the instrument itself that must be given effect. An appellate court is not bound by a construction of the instrument based solely upon the terms of the written instrument without the aid of evidence, where there is no conflict in the evidence or a determination has been made upon incompetent evidence. (Gardenhire v. Superior Court (2005) 127 Cal.App.4th 882, 888.)

More specifically, Probate Code^[6]section 21101 makes the rules of construction in part 1 of division 11 of the Probate Code applicable to a governing instrument of any type, except to the extent the application of a particular provision of the Probate Code is limited by its terms to a specific type of donative disposition or governing instrument. (Cal. Law Revision Com. com., 54A Wests Ann. Prob. Code (2007 supp.) foll.  21101, p. 170.) Unless a provision or context otherwise requires, part 1 of division 11 of the Probate Code (commencing with  21101) applies to a will, trust, deed, and any other instrument. ( 21101.) The intention of the transferor, as expressed in the instrument, controls the legal effect of the dispositions made in the instrument. ( 21102, subd. (a).) The rules of construction in part 1 apply where the intention of the transferor is not indicated by the instrument itself. ( 21102, subd. (b).)

Appellant trustee initially contends:

[N]othing in the Family Trust evidences an intent that the Parkers hold the Home Bank stock during their lives, but rather the whole of the Family Trust instrument evidences the Parkers intent to reserve the rights to buy or sell assets as they saw fit, even after the first spouse died. Further, it is only after the second spouse dies that the trust instrument instructs the Successor Trustee to retain the Home Bank stock. The Family Trust provides for the creation of the Home Bank Trust after the death of the second Trustornot before. Finally, the trust instrument instructs the Successor Trustee to distribute dividendsnot incometo the Parker children.

McDaniel contends that the plain meaning of these various trust provisionsin the context of the entire trust as a probate avoidance and estate tax deviceis that the Home Bank Trust cannot be funded because the specific asset is not available. Because there is no Home Bank stock, no dividends on Home Bank stock can be determined nor paid to the Parker children as required in the Family Trust. Finally, because there is no Home Bank stock, the stock cannot be distributed to the Parker grandchildren after the death of the Parker children as required in the Family Trust.

Appellant trustee bases these conclusions on four factors: (a) the trustors reserved the rights to buy or sell assets in their absolute discretion, even after the first of them died; (b) only the successor trustee was required to retain the Home Bank stock; (c) the successor trustee was required to create the Home Bank Trust only after the second trustor-spouse died; and (d) the family trust created a specific bequest of the Home Bank stock to the Home Bank Trust and Eleanor Parkers 1997 sale of the stock extinguished the gift. Factors (a), (b), and (c) are not legal contentions. Rather, in framing these factors, appellant trustee simply outlines the salient factual provisions of the trust agreement. We will briefly review these factual matters and then proceed to appellant trustees legal contention, factor (d).

A. The Powers of the Trustors

Appellant asserts:

The Family Trust imbued Mr. and Mrs. Parker, as co-trustees, and Mrs. Parker, as Surviving Trustee, with the absolute discretion to buy or sell any trust assets. ... The only limitation was a duty impressed upon Mrs. Parker, the Surviving Trustee, that she retain assets only so long as they were income producing. ... The limitation did not require that she retain all income producing assetsthe trust gave her the discretion to sell what she wanted to sellshe only had a duty to sell the asset if it did not produce income. That is, while she may not have been under a duty to sell the stock, she had the absolute discretion to sell the stock.

Another term of the Family Trust supports this interpretation. Mrs. Parker had the absolute discretion to decide with which assets she would fund each of the sub-trusts. ... Nothing in the instrument told Mrs. Parker to fund the Marital Deduction Trust B with certain assets, including the approximately 5,000 shares of Home Bank stock she placed in that trust. Nothing in the instrument told Mrs. Parker to fund the Remainder Trust C with the balance of the Home Bank stock. It is a critical fact that Mrs. Parker could have funded Mrs. Parkers Trust A in whole or in part with all of the Home Bank stock. This is critical because Mrs. Parker had an absolute power of appointment over Trust Ashe could have then bequeathed the Home Bank stock to anyone and in doing so completely removed the power of the Successor Trustee to fund the Home Bank Trust.

Appellant is correct to a point. During their joint lifetimes, the trustors had the power to revoke the trust in whole or part (section 1.07) and, in their capacity as trustees, to retain assets in the trust for so long as deemed advisable (section 5.01). They also had the absolute discretion to sell, convey, and exchange trust assets (section 5.02(a).) After the death of the first Trustor to die, the trustee had the power to retain any property in the trusts only so long as such property is productive of income (section 5.01). After the death of the first Trustor to die and after the death of the surviving Trustor, the trustee continued to have the absolute discretion to sell, convey, and exchange trust assets (section 5.02(a)).

Thus, there is no question that Eleanor Parker had absolute discretion over the disposition of the Home Bank stock upon the death of Elgin Parker. The only questions that arise relate to (1) the placement and management of proceeds upon the sale of Home Bank stock, and (2) the retention and distribution of such proceeds upon the death of Eleanor Parker.

B. Retention of Home Bank Shares

Appellant trustee further contends only the successor trustee is required to retain the Home Bank stock. He asserts:

The trust only requires the Successor Trustee retain the Home Bank stock. [ 4.03(b).] The reference to Trustee at this point in the instrument can only mean the Successor Trustee, McDaniel and not the Surviving Trustee, Mrs. Parker, because Section 4.03 begins with the qualifying language, [o]n the death of the Surviving Trustee ... [AA 41.] Thus, the Family Trust instrument did not instruct the trustee generally to retain the Home Bank stockit only instructed the Successor Trustee to retain the Home Bank stock and distribute it to the Home Bank Trust.

Appellant trustees narrow point is once again factually correct. Section 4.03 is a subsidiary provision of article 4 of the trust, entitled Distribution on Death of Surviving Trustor. Nothing in section 4.03 limited Eleanor Parkers power, as trustee, to sell, convey, or exchange trust assets such as the Home Bank stock after the death of Elgin Parker. Once again, the only questions that arise relate to (1) the placement and management of proceeds upon the sale of Home Bank stock, and (2) the retention and distribution of such proceeds upon the death of Eleanor Parker.

C. Creation of the Home Bank Trust

Appellant maintains:

The explicit language of the Family Trust provided that Mrs. Parker as the surviving spouse and Surviving Trustee allocate trust assets to three sub-trusts: Trust A, Trust B, and Trust C. [AA 38-39, Art. 3.] The second amendment to the Family Trust is unambiguousMrs. Parker funded Mrs. Parkers Trust A, the Marital Deduction Trust B, and the Remainder Trust C. [AA 68.] Nothing in the second amendment mentions the Home Bank Trust. [AA 68-77.] One would not expect mention of the Home Bank Trust in the second amendment because the Family Trust does not contemplate creating and funding the Home Bank Trust until after the second of the Trustors to diethat is, after Mrs. Parkers death. [AA 41,  4.03(b).]^[7]

Again, appellant offers an accurate exposition of the operation of the trust agreement. However, the fundamental questions on appeal relate to (1) the placement and management of proceeds upon the sale of Home Bank stock, and (2) the retention and distribution of such proceeds upon the death of Eleanor Parker. These are matters that will be addressed in section D. below.

D. The Bequest of Home Bank Stock

Appellant contends (1) the gift of Home Bank stock to the Home Bank Trust was specific, not general; (2) the gift of Home Bank stock dividends to the Parker children was specific, not general; and (3) the trustors intended specific gifts.

Section 21117 classifies at-death transfers under any instrument, including a trust. ( 21101, 21104.) A specific gift is a transfer of specifically identifiable property. ( 21117, subd. (a).) A general gift is a transfer from the general assets of the transferor that does not give specific property. ( 21117, subd. (b).) With respect to the law of wills, in determining whether a bequest is specific or general, the fundamental and controlling factor is the intent of the testator at the time the will was drafted. (Estate of Buck (1948) 32 Cal.2d 372, 374.) A specific legacy or bequest differs from a general legacy or bequest in that it is not intended by the decedent to be paid by the estate generally, but is to be paid solely by delivering to the beneficiary the specific thing given by the will as distinguished from a designated value or quantity. (Estate of Ehrenfels (1966) 241 Cal.App.2d 215, 221.)

With respect to shares of stock, the Supreme Court has held:

[A] gift of a certain number of securities described by the name of the corporation, or by value or quantity, but not indicating any particular lot of such securities, will be construed as a general bequest if there is nothing on the face of the will or in evidence of the surrounding circumstances, where admissible, to indicate that the testator intended a gift only of the securities owned by him. [Citations.] It has been held, however, that where there are bequests of shares of a closely held corporation the nonpublic character of the shares bequeathed is evidence of an intent to make a specific gift. [Citations.] (Estate of Buck, supra, 32 Cal.2d at pp. 374-375.)

Appellant submits the family trust specifically identifies the Home Bank stock by certificate number in exhibit A and the gift of that stock to the Home Bank Trust carries the indicia of a specific gift, not a general one. He further contends the gift of the Home Bank stock dividends to the Parker children bears the indicia of a specific gift, not a general one under section 4.03(b) of the trust agreement. He submits that Elgin and Eleanor Parker intended specific gifts because they knew both of them could sell the stock at any time and the provisions of their trust contemplated only a gift of stock, not a gift of proceeds. The trial courts formal order did not specifically respond to these points or expressly designate the Home Bank stock and dividends as specific gifts. However, the court did acknowledge appellant trustees assertion that the Home Bank stock was the denominated source for funding of the Home Bank Trust and that the Home Bank stock was specifically identified in the Trust for funding of the Home Bank Trust. Moreover, the court cited with approval to Estate of Mason (1965) 62 Cal.2d 213, Estate of Zahn (1971) 16 Cal.App.3d 106, and Estate of Austin (1980) 113 Cal.App.3d 167, each of which addresses the ademption of specific legacies. Thus, it appears the trial court implicitly agreed that the instant case entailed specific, as opposed to general gifts or transfers. The trial courts formal order then addressed the question of whether the specific gifts were adeemed in the instant case.

Ademption of a specific legacy is the extinction or withdrawal of a legacy in consequence of some act of the testator equivalent to its revocation, or clearly indicative of an intention to revoke.^[8] The ademption is effected by the extinction of the thing or fund bequeathed, or by a disposition of it subsequent to the will which prevents its passing by the will, from which an intention that the legacy should fail is presumed. A change in the form of property subject to a specific testamentary gift will not effect an ademption in the absence of proof that the testator intended that the gift fail. Nevertheless, a specific testamentary gift is adeemed regardless of the testators intention when the specific property has been disposed of by the testator and cannot be traced to other property in the estate or when the testator has placed the proceeds of such property in a fund bequeathed to another. (Estate of Mason, supra, 62 Cal.2d at pp. 215-216.)

In Estate of Ehrenfels, supra, 241 Cal.App.2d 215, the decedent bequeathed 466 shares of Standard Oil Company of New Jersey stock to a number of legatees pursuant to her will and two codicils. Her will stated in relevant part:

The bequests of shares of stock of Standard Oil Company of New Jersey are intended to be said shares as presently constituted. In the event that prior to my death said shares be changed by splitting or otherwise said legacies shall be satisfied with the changed shares representing and being the equivalent of the presently outstanding shares. (Estate of Ehrenfels, supra, 241 Cal.App.2d at p. 218.)

Prior to her passing, decedent was adjudicated incompetent and the guardian of her estate exchanged all of her shares of Standard Oil for shares of the Diversification Fund, Inc., a new mutual fund. The exchange was conducted pursuant to a court order. The decedent passed away several years after the exchange. Some of the legatees maintained the bequests were general and that they were entitled to Standard Oil stock in kind or to the cash equivalent of that stock as of the date of decedents death or an alternate date. The trial court concluded the bequests were specific, the guardians conduct did not adeem the bequests, and the decedents intent could best be carried out by giving the stock legatees the proceeds of the Standard Oil stock in changed form, namely by giving them the equivalent number of shares of Diversification Fund, Inc. The legatees appealed, asserting the bequests were general. Division One of the Court of Appeal, First Appellate District, disagreed and affirmed the trial court order. (Estate of Ehrenfels, supra, 241 Cal.App.2d at pp. 219-220, 228.)

The appellate court held the language of decedents will, coupled with the circumstances existing at the time she executed the will, led to the conclusion the bequests were specific rather than general. Of major significance was the specific provision in the will that: The bequests of shares of stock of Standard Oil Company of New Jersey are intended to be said shares as presently constituted, (Estate of Ehrenfels, supra, 241 Cal.App.2d at p. 224), and that if, prior to her death, said shares were changed by splitting or otherwise, the legacies were to be satisfied with the changed shares representing and being the equivalent of the presently outstanding shares. Moreover, in eight clauses of the will in which she bequeathed Standard Oil stock, decedent combined these bequests with gifts of specific items of jewelry and personal property. A presumption that the testator intended a gift to be specific arises when the gift is closely associated in the will with other gifts to the named legatee that are clearly specific. (Id. at pp. 223-225.)

After concluding the gifts were specific, the appellate court proceeded to the question of the satisfaction of the bequests. The court noted that, as a general rule, a specific testamentary gift is adeemed when the specific property has been disposed of by the testator and cannot be traced to other property of the estate or when the testator has placed the proceeds of such property in a fund bequeathed to another. However, absent proof that the testator intended an ademption, the sale of specifically bequeathed property by a testators guardian does not adeem a specific bequest. California courts have consistently employed a tracing procedure where the testator disposed of or exchanged specifically bequeathed property prior to death. In sum, the guardian of a person who has become incompetent after making a will is not prohibited from selling, exchanging, or reinvesting, pursuant to lawful authority, property which is the subject of a specific devise or legacy under the will. While the guardians act in doing so does not adeem the specific devise or legacy, it relegates the devisee or legatee to taking the proceeds of the sale as far as they can be traced. In Ehrenfels, the proceeds of the Standard Oil stock consisted of the Diversification Fund, Inc. shares, which could readily be traced. Thus, the trial court properly determined that the various bequests of Standard Oil stock, adjusted for stock splits, could be satisfied out of the shares of the common stock of Diversification Fund. (Estate of Ehrenfels, supra, 241 Cal.App.2d at pp. 226-228.)

Although the instant case does not involve a decedent who had been a conservatee, the Ehrenfels case is instructive. Appellant trustee averred in his verified petition filed March 1, 2005:

Petitioner is informed and believes that the gift of the bank stock to the Home Bank Trust is not an ademption as to the stock owned by Trust C as the proceeds from the sale of this stock are on hand and traceable. Trust C was an irrevocable trust at the time of the sale and the effect of the sale of the stock could result in the change of the estate plan of Settlor, Elgin R. Parker, without his knowledge or consent. There was no withdrawal of the gift by any act of Elgin R. Parker and in fact, his intention appears to be to provide an income interest for his children during their lifetimes from this stock. The estate plan was possibly changed by Eleanor Flo Parker, as a Trustee of her husbands property by this sale, but there is no proof that Settlor, Elgin R. Parker, intended the gift to fail....

In his supplemental petition filed December 16, 2005, appellant trustee essentially took the opposite position. He prayed the court for an instruction not to fund the Home Bank Trust because [t]he Trust owned no Home Bank stock at the date of death of ... Eleanor Flo Parker, the surviving Trustor, when Steve McDaniel became the Trustee. [] Petitioner has determined that because the Trust had no Home Bank stock as of the death of Eleanor Parker, the surviving Trustor, he cannot fund the Home Bank Trust.

The intention of the transferor as expressed in the instrument controls the legal effect of the dispositions made in the instrument. ( 21102, subd. (a).) In the instant case Trusts B and C became irrevocable when Elgin Parker died. His donative intent with respect to his one-half of the community property included an intent to create the Home Bank Trust for the benefit of his children during their lifetimes. Appellant has not cited and we have been unable to find any portion of the record to suggest that this intent changed during the joint lifetime of the trustors after they executed the trust agreement. Appellant acknowledged as much in his verified petition filed on March 1, 2005. In addition, appellant trustee acknowledged the proceeds from the sale of the Home Bank stock are on hand in the trust estate and are traceable. Moreover, in his first and final account and report for the period October 14, 2002 through November 4, 2003, appellant stated:

In fact, the Home Bank Stock was liquidated sometime after Mr. Parkers death for approximately $800,000. Mrs. Parker wanted to diversify the trust assets to preserve the principal and sold the Home Bank Stock. It is the Trustees understanding that at the time the assets of The Parker Family Trust were allocated to the subtrusts following Mr. Parkers death, only Home Bank Stock was used to fund Trust C....

As noted in Estate of Mason, supra, 62 Cal.2d at page 615, a change in the form of property subject to a specific testamentary gift will not effect an ademption in the absence of proof that the testator intended that the gift fail. Nothing in the instant record suggests that either trustor intended the gift to their children to fail. If anything, Eleanor Parkers conduct in selling the Home Bank stock for reasons of financial diversification and then her allocation of proceeds of the sale to Trust C strongly supported the trial courts conclusion that only a change in the formnot an ademptionoccurred in the instant case.

The structure of the trust agreement, as executed on September 23, 1983, is supportive of this conclusion. In exhibit B to the trust agreement, the trustors listed 182 separate items of personalty and designated specific recipients for most of those items. In Section 4.03(e) of the trust agreement, the trustors provided:

(e) All of the trust estate listed in Exhibit B of this Declaration and contained in Trust C herein, shall be distributed, in kind, to the beneficiaries dictated by Exhibit B. If the trust property listed in Exhibit B of this Declaration should no longer exist at the time of death of the Surviving Trustor, such specific distributions will become null and void and the designated beneficiaries will not be compensated therefore.

This provision strongly suggests the trustors were well aware of the concept of ademption and the absence of a similar provision as to the Home Bank Trust reflected an intention to preserve the gift to their children, a change in form notwithstanding. Appellants contention must be rejected.

II.

DID THE TRIAL COURT MISUNDERSTAND THE TERMS OF THE TRUST?

Appellant trustee contends the courts order erred in four respects: (1) the court confused Trust C and the Home Bank Trust; (2) the order was inconsistent as to whether the gift of Home Bank stock to the Home Bank Trust was a specific gift; (3) the successor trustees actions were not relevant to interpretation of the instrument; and (4) the court erred in applying the law of ademption to this two-trustor trust.

Appellants first three contentions refer to language of the trial courts minute order filed February 22, 2006. Minute orders are not final orders of the court and a trial court may change or amend a minute order first entered, upon a proper motion in the course of proceedings. (Estrin v. Fromsky (1942) 53 Cal.App.2d 253, 255.) Where, as here, a further or formal order is required by the trial court, an appeal does not lie from a minute order. (Herrscher v. Herrscher (1953) 41 Cal.2d 300, 304.) As to the trial courts alleged confusion of trusts, respondent properly points out the formal order filed November 1, 2006, does not confuse Trust C and the Home Bank Trust. The formal order draws a distinction between the two trusts, stating: In this case, there is no evidence that Eleanor Flo Parker intended not to fund Trust C and subsequently the Home Bank Trust when she sold the Home Bank Stock during her life.

Respondent acknowledges the formal order does retain certain language that appellant trustee challenges in the minute order of February 22. Appellant claims the trial court used the phrases specifically identified and specifically required in an inconsistent manner. In the Case Statement portion of the formal order, the trial court provided:

At issue in the instant case is whether, as now urged by Petitioner as successor trustee, the denominated source for funding of the Home Bank Trust from the assets included in Trust C was adeemed when the surviving settlor of the Trust, namely Eleanor Parker, sold all of the Home Bank Stock specifically identified in the Trust for funding of the Home Bank Trust. (Italics added.)

In the The Courts Findings and Conclusions portion of the formal order, the court stated:

The fact that the Home Bank Stock no longer exists is of no moment. Petitioners argument that the Home Bank stock was specifically required to fund the Home Bank Trust is therefore without merit. (Italics added.)

Appellant submits on appeal:

Certainly, the latter conclusion is circular logicit seems the court is saying the missing stock is irrelevant because it is irrelevant. Nevertheless, the court was correct when it first identified the gift of the Home Bank stock as specific .... The court seemed confused about which trust was to receive the specific gift ... but the gift was specific. As a specific gift, the fact the stock no longer exists is crucialit means the gift fails. The court erred because notwithstanding its conclusion the gift was specific; the court applied the law of general gifts in making the order.

Appellant trustees contention must be rejected. First, the trial courts formal order did not use the phrases in an inconsistent manner. In the case statement portion of the formal order, the court simply sought to set forth or paraphrase appellant trustees contention. In the findings and conclusions portion of the formal order, the court employed the phrase specifically required in the sense of necessary or indispensable. In other words, the court sought to say that the Home Bank stock was not specifically necessary to fund the Home Bank Trust. Second, the court did not expressly reject the notion that the transfer of the Home Bank stock under the terms of the trust agreement amounted to a specific transfer. Third, appellant trustee automatically assumes that the status of the Home Bank stock as a specific gift means that the gift fails under the circumstances of the instant case. However, in his discussion of this sub-issue, appellant trustee fails to consider or address the impact of the law of ademption to the underlying facts and circumstances. His contention must be rejected.

Appellant trustee further contends the trial court erroneously examined his actions as successor trustee, i.e., paying the Parker children certain funds from Trust C in tax year 2004. He maintains his actions as successor trustee are irrelevant and that the court should have looked solely at the intent of the trustors. With respect to the trustors intent, the court stated in its formal order:

Although the instant case involves a trust instrument and not a will, it is testamentary in nature. Thus, it is construed accordingly. In this case, there is no evidence that Eleanor Flo Parker intended not to fund Trust C and subsequently the Home Bank Trust when she sold the Home Bank Stock during her life. To the contrary, when she liquidated the Home Bank Stock with minor exception, all the proceeds from the stocks sale were used in a manner consistent with the funding of Subtrust C as provided in the Parker Family Trust. [] ... []

The sale of the Home Bank Stock included in Trust C by Eleanor Flo Parker while she was the remaining trustee of the Parker Family Trust and its subtrusts did not constitute an ademption. It only changed the form of the source for the funding of the proposed Home Bank Trust as described in Section 4.03 of the Parker Family Trust. (See the Estate of Austin, supra, Witkin, 14 Summary of California Law, Wills, 255-256.)

The true measure of an order is not an isolated phrase appearing therein, but its effect when considered as a whole. In construing orders, a court must always consider them in their entirety and the rules of interpretation will apply in ascertaining the meaning of a courts order as in ascertaining the meaning of any other writing. (Concerned Citizens Coalition of Stockton v. City of Stockton (2005) 128 Cal.App.4th 70, 77.) Here, appellant trustee focuses on an isolated paragraph of the courts formal order, ignoring the remainder of the text. As respondent points out, Eleanor Parker dealt with the sales proceeds of the Home Bank stock in a manner consistent with the continued viability of section 4.03(b) of the trust agreement and the trial court so found.

Appellant lastly contends an ademption occurred in the instant case and the trial court erred by finding to the contrary. He maintains:

The statute [governing ademptions, Probate Code sections 21131-21135] does not address a transfer made by two transferors. McDaniel found no case law applying the statute to two-trustor trusts, either. Since a principle of the doctrine of ademption is that the transferor himself or herself must have disposed of the property before death, analysis under the doctrine is complicated by two trustors who die perhaps years apart. As such, McDaniel contends the court need not reach the issue of ademption, and instead simply analyze the problem as one of construction of a trust instrument.... But if the doctrine of ademption applies to this two-trustor trust, the logical conclusion is that the gift was adeemed. [] ... []

... When Mrs. Parker died, none of the subtrusts of the Family Trust owned the Home Bank stock and no balance of the purchase price of the Home Bank stock was owed from the purchaser. Eminent domain does not apply. No insurance proceeds are owed. No security interest was given for the purchase. Accordingly, even if the doctrine of ademption applies to two-trustor trusts, the statutory provisions governing specific gifts indicate that the Parker children, as recipients of a lifetime income intere