Opinion
A143855 A145200
01-23-2017
VIRGINIA M. MCCORMICK et al., Plaintiffs and Respondents, v. JOHN D. MCCORMICK, Defendant and Appellant; BANK OF MARIN, Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Marin County Super. Ct. No. PRO090166)
McCormick v. McCormick. Another probate litigation between relatives arising out of a trust. The trust here is the Master Trust in the elaborate estate plan of A.L. McCormick (A.L.), which Master Trust itself established eight other trusts, two for each of his four children, one of whom is respondent Virginia McCormick. But this same-surname v. same-surname litigation is not the usual case of sibling against sibling, or the occasional one of child against stepparent. No, the litigants here are nephew against aunt, John McCormick having objected to his Aunt Virginia's request for a distribution from her trust assets so she could make a tax-exempt gift to her son David—an objection coming against the background that John admitted below, and confirms here, that he has no expectation of ever receiving a distribution from Virginia's residue trust.
As is typical in interfamily disputes, we refer to the parties by their first names.
The probate court denied John's objections and granted Virginia's petition. John appealed that order, an appeal we have stayed. While that appeal was pending, the trustee Bank of Marin (Bank) petitioned for instructions whether to exercise its discretion to distribute the funds Virginia requested. John objected to the Bank's petition, the court held that John lacked standing, and in an order dated December 18, 2014 dismissed John's objections and directed the Bank to distribute $5,340,000 to Virginia. The Bank began the distribution, but before it was completed John filed an appeal from the December 18 order, and then wrote the Bank, claiming his appeal caused an automatic stay. The Bank stopped its distribution. Virginia moved to enforce the December 18 order, and John again filed opposition. To no avail, as on April 6, 2015, the probate court granted Virginia's petition. John appealed the April 6 order as well.
We ordered John's appeals consolidated, now reject them, and affirm.
BACKGROUND
The A.L. McCormick Estate Plan
A.L. McCormick had four children: Virginia, Alan, Bruce, and John, the father of appellant. In August 1991, A.L. established the A.L. McCormick 1991 Trust (Master Trust). The Master Trust was amended and restated in its entirety in November 1994 (the Fifth Amendment) and amended again in March 1996 (the Sixth Amendment).
The Master Trust provided that upon A.L.'s death the trustee would make various charitable contributions and gifts, and then distribute the remaining trust property to his four children. The Master Trust established two separate trusts for each child: (1) a GST trust, to receive property exempt from GST tax, and (2) a residue trust, to receive his remaining property. The Master Trust further provided that a trustee shall administer these trusts for the primary benefit of the child for whom the trust is named. As relevant here, the trustee administers Virginia's residue trust for her benefit. And under the trust, the trustee may pay Virginia or her descendants "as much of the net income and as much of the principal of the trust, up to the whole thereof, as in the absolute and uncontrolled discretion of trustee is necessary for such person's support, education and medical care, after taking into consideration, to the extent trustee may deem advisable, such person's resources known to trustee."
"GST" stands for generation skipping transfer.
The Master Trust also gave Virginia a special power of appointment, the authority to "appoint by will executed at any time" the balance of the property remaining in Virginia's residue trust to one or more of A.L.'s descendants (excluding Virginia). If Virginia did not exercise her power of appointment, then the property in Virginia's residue trust would be "distributed to Virginia's descendants then living, by right of representation, or if there be no such descendants, to trustor's [A.L.'s] descendants then living, by right of representation. . . ." In other words, A.L.'s trust gave Virginia the power to appoint the trust property to any of his descendants, which included David. The property would descend to A.L.'s other descendants by right of representation only if Virginia did not exercise that power.
A.L. died in June 1996. The trustee of his trust thereafter distributed Virginia's share of A.L.'s property to a trustee, in trust, "to be held as Virginia's Residue Trust." The Bank substituted in as trustee of Virginia's residue trust and currently serves in that role. While the current value of Virginia's trust is not in the record, it is undoubtedly substantial, as the Bank's 2013 financial statements showed assets as of that date of $25,063,068.
The Petition to the Probate Court
In November 2012, Virginia filed a petition under Probate Code section 17200, subdivision (b)(6) for orders approving distribution of assets. The petition sought distribution of $5,120,000, the amount equal to the GST exemption for that year. The petition stated that the distribution was sought in order for Virginia to make a lifetime gift of this amount to her son David, in order to avoid gift or GST taxes on that amount. The petition further cited, and quoted, section 4.7.1.2 of the Master Trust as authority for the distribution.
All undesignated statutory references are to the Probate Code.
The Bank took a neutral stance in the petition, allowing the probate court to interpret the trust. And on December 24, 2012, the court entered an order approving the distribution from Virginia's trust of a 17.5 percent interest in Blue Bell Enterprises LLC (Blue Bell), which interest was at that time deemed to be valued at about $5.2 million. However, transfer of an interest in Blue Bell required the consent of the other members of Blue Bell, but they would consent to the transfer only if certain concessions were made, concessions not acceptable to Virginia. So, no distribution was ever made under the 2012 order.
For the next several months, acting through their counsel, Virginia and the Bank discussed various alternatives for a distribution. The Bank made some proposals unacceptable to Virginia, including creation and funding of a parallel trust or a new petition for instructions to have the court consider an alternate source of assets for distribution. Virginia's fundamental position was that the Bank should distribute the requested funds outright without the need for any court review.
Within those discussions, the Bank consistently expressed its position that, while it was mindful of Virginia's efforts to avoid GST tax and other tax consequences and was open to seeking out relief to the extent appropriate, given the language limiting distributions under Virginia's residue trust, it would not make such a distribution without court supervision and instructions, and only after all interested parties were served and given an opportunity to be heard.
Virginia's next petition followed, in July 2013, when Virginia filed a "Petition for Declaratory Relief That Petition to Modify Trust Does Not Violate the Trust's No-Contest Clause." This petition was brought pursuant to the safe harbor provisions of section 17200, subdivision (b), and specifically noted that if declaratory relief was granted as requested, Virginia contemplated filing a second petition to modify her trust to allow a distribution of $5,250,000. The petition explained that one of the purposes of the Master Trust was to avoid GST taxes, and that modifying Virginia's residue trust to allow Virginia and David to avoid $2.1 million in GST taxes would accomplish that purpose.
A.L.'s Master Trust had a no-contest clause, providing as follows: a "claimant"—a person who participates in proceedings to void, nullify, or set aside any provision of that trust instrument or a trust of which A.L. McCormick was the trustor or his will—shall be deemed to have predeceased A.L. McCormick. In the event of such a challenge by such a claimant, any property distributable to the claimant "shall be immediately disposed of . . . as if each claimant had predeceased trustor."
The Bank filed a response to the petition, stating it had no objection to the proposed distribution, but it asked the probate court to determine whether notice of Virginia's petition should be given to a guardian ad litem acting on behalf of David's unborn children and to any other beneficiaries under the Master Trust. The Bank stated that the Probate Code required that all of A.L.'s descendants be notified of Virginia's petition for declaratory relief because if she violated that clause, she would be deemed to have predeceased A.L. The Bank also stated that if such a violation occurred and David died without issue before the violation, Virginia's residual share of the trust property would then be divided among A.L.'s other descendants, including John.
Following the Bank's response, the court directed Virginia to provide notice to "all trust beneficiaries of [A.L. McCormick's trust]." This included notice to John. John filed objections, and among other things sought discovery concerning a supposed GST tax issue and A.L.'s intent. Virginia filed a reply, and the matter came on for hearing on October 15, 2013, before the Honorable Verna Adams. Judge Adams allowed further briefing, which was filed, and on October 30, she issued her "Ruling on Submitted Matter," ruling that Virginia's proposed petition would not violate the no-contest clause. The ruling also denied John's request for discovery.
John appealed the "Ruling on Submitted Matter," which we docketed as No. A140687. John's opening brief in that appeal stated that "As a practical matter, John has no expectation of ever receiving a distribution from Virginia's Residue Trust. His sole interest in pursuing this appeal is to see that his beloved grandfather's estate plan is administered properly in accordance with its terms and with California law." We thereafter stayed all further briefing in No. A140687, pending the outcome of these appeals.
The effect of John's appeal had significant consequences, including that it delayed indefinitely any judicial ruling on the issue of whether the Bank could make the requested distribution. It also resulted in increasing litigation expenses to Virginia, which she claimed should be funded by her trust.
And so the Bank filed its petition.
On July 14, 2014, the Bank filed a petition for instructions, seeking instructions on whether it should: (1) distribute assets worth $5,250,000 to Virginia in 2014 in the form of cash or securities; (2) distribute to Virginia, upon her request, assets with value equal to any increase in her available federal gift tax exemption; and (3) continue to pay Virginia's attorney's fees related to the appeal of the October 30, 2013 order and/or Virginia's proposed petition to modify the trust.
The Bank's petition noted that the court had granted both Virginia's 2012 petition for distribution of assets and her 2013 petition for declaratory relief and that John had appealed from the latter order. The Bank stated that it was "willing to exercise its discretion . . . to make a distribution of cash and/or securities from Virginia's Trust in the sum of $5,250,000" and "to make distributions to Virginia equal to the amount of any increase in gift tax exclusion," and concluded with the observation that if the court authorized the distribution, there would be no need to incur additional costs and fees litigating John's appeal.
Virginia filed a response to the Bank's petition, arguing that the probate court should direct the Bank to distribute to Virginia the federal lifetime gift tax exemption of $5,340,000, so she could gift her son that amount.
John also filed a response to the Bank's petition, filing objections. Expressly representing that he was "not motivated by financial interest," but by his interest in effectuating the "intentions of his grandfather A.L. McCormick," John argued that A.L.'s trust forbade the Bank to exercise its discretion to make a distribution to avoid GST taxes. John also moved to have the petition assigned to another judge, on the ground that Judge Adams was prejudiced against him.
Virginia and the Bank both replied to John's objections. Virginia argued that John lacked standing to object to the Bank's petition because she had exercised her power of appointment so as to ensure that John could not receive any property remaining in her residue trust after her death. The Bank observed that "John's interest as a contingent remainder beneficiary is admittedly remote, and may be non-existent to the extent that Virginia has or will exercise a power of appointment that excludes John from any possibility of taking under the Trust."
John filed supplemental papers, disputing Virginia's and the Bank's arguments, and stating his intent to conduct discovery relating to A.L.'s intentions, the Bank's deliberations, and whether the proposed distribution would result in tax savings.
After a hearing in early October 2014, and further post-hearing briefing on John's motion to reassign the matter, Judge Adams recused herself, and reassigned the matter to the Honorable Faye D'Opal.
The parties thereafter filed additional memoranda with respect to John's standing and the merits of his objections. The motion came on for hearing on December 18 before Judge D'Opal, in the course of which Judge D'Opal observed that John's "standing has been lost . . . so the Court finds he does not have standing." She then stated she was "going to instruct the bank to distribute the $5,340,000 to Virginia McCormick so that it can be gifted to David B. Levey . . . ." That same day, Judge D'Opal entered an order (1) dismissing John's objections to the Bank's petition, and (2) instructing the Bank to (a) "[d]istribute $5,340,000.00 in cash, bonds, and publicly traded securities" to Virginia "so that she can gift it outright" to David, and (b) "continue to reimburse her for her attorneys' fees, costs and expenses in connection with all of the litigation pending" with respect to Virginia's residue trust (the December 18 order).
On December 18, Virginia's counsel communicated with counsel for the Bank, noting the possibility that an appeal by John would stay the effect of the December 18 order, and indicating that Virginia was planning to petition the court to require a bond as a condition for stay of the December 18 order.
On December 19, the Bank began implementing the December 18 order by issuing checks covering all attorney's fees Virginia had by then requested. And on December 22, the Bank initiated a wire transfer of $340,000 to Virginia's bank account in Montana.
On December 23, John filed a notice of appeal of the December 18 order. The same day, John served the notice on counsel by e-mail, together with a one-page letter asserting to the Bank that the filing of the appeal automatically stayed the effect of the December 2014 order, and that the exception to stay (for money judgments or orders for the payment of money) under section 1310, subdivision (e) was not applicable.
On December 29, Virginia's counsel sent a letter to the Bank's counsel, arguing against John's position and asserting that under section 1310, subdivision (e) John would have to post a bond of "approximately $8 million" in order for his appeal to stay the December 18 order.
Also on December 29, the Bank's counsel sent an e-mail to Virginia's counsel advising that John's "appeal has stayed the order of the court," and asking whether the $340,000 already distributed to Virginia had been transferred to her son David as contemplated by the December 18 order.
Virginia's counsel replied that same day, threatening to take "appropriate action" if an additional $5,000,000 of stocks and bonds were not distributed "forthwith."
By e-mail dated December 30, the Bank's counsel agreed to further review the stay issue, and again inquired "regarding the disposition of the $340,000 that was distributed." Virginia's counsel replied immediately by e-mail, to which the Bank's counsel responded, "[I]f this distribution is not going to David Levey, as proposed, then it does have to take this into account in addressing it's [sic] discretionary distributions under the trust."
On January 8, 2015, after reviewing several additional letters from counsel as to whether section 1310, subdivision (e) applied, counsel for the Bank advised all counsel that "because of the lack of direct legal authority, we believe the appropriate course of action is for the Trustee to seek the Court's instructions on this matter. The Trustees is [sic] neutral regarding the outcome of such a determination, and is willing to pursue that petition for instructions on an expedited basis."
Virginia was even more expeditious.
On January 20, 2015, Virginia filed a "Motion to Enforce December 18, 2014 Order And to Direct the Trustee to Distribute Funds (Prob. Code § 1310(b), (e))." Her motion was made on the alternative grounds that: (1) the December 18, 2014 order fell within the automatic stay exception provided for in section 1310, subdivision (e), and (2) the court should direct the trustee to distribute the funds pursuant to section 1310, subdivision (b), in order to prevent injury or loss to the beneficiaries of Virginia's trust.
Section 1310, subdivision (b) provides: "Notwithstanding that an appeal is taken from the judgment or order, for the purpose of preventing injury or loss to a person or property, the trial court may direct the exercise of the powers of the fiduciary, or may appoint a temporary guardian or conservator of the person or estate, or both, or a special administrator or temporary trustee, to exercise the powers, from time to time, as if no appeal were pending. All acts of the fiduciary pursuant to the directions of the court made under this subdivision are valid, irrespective of the result of the appeal. An appeal of the directions made by the court under this subdivision shall not stay these directions."
Subdivision (e) provides: "An appeal shall not stay the operation and effect of a judgment for money or an order directing payment of money" unless "[a] bond is posted" or the payment is to be made from a decedent's estate or the estate of a person subject to guardianship or conservatorship.
The Bank filed a response, stating that it took no position as to whether John's notice of appeal resulted in an automatic stay of the December 18 order. But, the Bank went on, if the court were inclined to direct the Bank to comply with that order, the court should "expressly do so pursuant to Probate Code § 1310(b) . . . ."
John filed opposition to Virginia's motion, on two grounds: (1) no bond was required to effect a stay of the December 18 order because it was not a "judgment for money or an order directing payment of money" under section 1310, subdivision (e); and (2) Virginia had failed to meet her burden of proof that staying implementation of the order would cause "injury or loss to person or property" under section 1310, subdivision (b).
Virginia filed a reply, and her motion came on for hearing on March 23, before the Honorable Mark A. Talamantes, to whom the matter had been assigned in late February. The hearing before Judge Talamantes was not reported. The minute order on the docket sheet states that the "appeals do not stay the case" and the motion is "granted." Judge Talamantes directed Virginia's counsel to prepare a proposed order, further advising that if all parties could not agree on a proposed order, he would select one. Virginia submitted a proposed order, John objected, and on April 6, Judge Talamantes entered his order, ordering the Bank to comply with the December 18 order, and to distribute $5,340,000 to Virginia, to reimburse her attorney's fees, costs, and expenses, and to distribute any additional amounts equal to an increase in her applicable gift tax exemption (the April 6 order). The text of the April 6 order refers to Virginia's motion as a motion "for an order enforcing the order entered December 18, 2014, and directing the trustee to distribute funds pursuant to Probate Code section 1310(b) . . . ."
According to the additional evidence provided by the Bank, following Judge Talamantes's order, the Bank completed the distribution of the balance of what it was ordered to distribute in the December 18 order, and distribution of the entire $5,340,000 to Virginia was completed on April 23, 2015. An additional $90,000 was distributed on April 30, due to an increase in the allowed exemption.
We grant the Bank's unopposed motion for us to take additional evidence.
DISCUSSION
Introduction
John's opening brief says in its introduction that "the Probate Court's clearly erroneous April 2015 Order 'effectively abrogates appellate review,' " citing California Trust & Probate Litigation § 23.29 (CEB 2015) (CEB, Trust & Probate Lit.). Nevertheless, the introduction continues, John's "appeal presents this Court with important opportunities: (a) to clarify for this institutional trustee its responsibilities to the Probate Court when it receives demands by beneficiaries for actions that are contrary to the trustee's fiduciary duties; and (b) to inform the Probate Court as to the limits of its authority to abrogate appellate review under Probate Code § 1310(b)." Or, as John's brief puts it at a later point, "Notwithstanding that the transfer of the funds and payment of the attorneys' fees approved by the December 2014 Order has occurred by reason of the April 2015 Order, there is still a purpose to this Court's reversal of the order. Such reversal would instruct the Marin County Probate Court (and other probate courts if this Court's opinion is published) as to the limits of the probate court's discretion under Probate Code § 1310(b). An appeal of a § 1310(b) order can only have the benefit of giving proper instruction to courts addressing future cases arising under that statute."
We decline the opportunity, and do what we are supposed to do—decide John's case, not issue advisory opinions. (Finnie v. Town of Tiburon (1988) 199 Cal.App.3d 1, 10; see generally Ebensteiner Co., Inc. v. Chadmar Group (2006) 143 Cal.App.4th 1174, 1178-1179.) As the briefing acknowledges, there is plenty of case law discussing section 1310, subdivision (b). We need not add to that discussion. In sum, we will discuss what we need to discuss to decide the matter, nothing else. And we need not discuss the issue of John's standing, because even if he had standing it would not matter—his appeals would not succeed. Indeed, as to the distribution made pursuant to the April 6 order, John's appeal can have no effect. It is moot.
Section 1310, Subdivision (b) Renders John's Appeal Moot
As noted, the April 6 order ordered the Bank to make the requested distribution. And it did. That ends the inquiry, even if John's appeal were meritorious, which it is not.
Section 1310, subdivision (b) provides in relevant part as follows: "Notwithstanding that an appeal is taken from the judgment or order, for the purpose of preventing injury or loss to a person or property, the trial court may direct the exercise of the powers of the fiduciary . . . as if no appeal were pending. All acts of the fiduciary pursuant to the directions of the court made under this subdivision are valid, irrespective of the result of the appeal. An appeal of the directions made by the court under this subdivision shall not stay these directions."
That ends it for John, just as it did for Donald Sterling, an owner of the Los Angeles Clippers basketball team, as held in Sterling v. Sterling (2015) 242 Cal.App.4th 185 (Sterling). Sterling arose in the setting where Donald and his wife Rochelle were co-trustees of the family trust. Rochelle petitioned the court to remove her husband as a co-trustee on the ground he lacked capacity, and to direct her to sell the trust's interest in the Clippers. The court granted her petition. Rochelle then brought an ex parte petition seeking an order to confirm the sale of the Clippers and to direct the trustee under section 1310, subdivision (b). (Sterling, supra, at pp. 188, 192.) The trial court issued the order approving the sale. Donald filed two writ petitions in the Court of Appeal, arguing that the trial court's order must be stayed because, among other things, section 1310, subdivision (b) "protects [the trustee] from any liability for actions taken under order of the trial court," and that "[e]ven if he prevails on the merits of the appeal, Donald can do little to recover the Clippers." (Sterling, supra, at p. 194.) The court denied Donald's writ petitions and his request for a stay. (Ibid.)
Donald appealed, and the Court of Appeal affirmed. The sale, the court held, could not be undone because it had been ordered under section 1310, subdivision (b). As the court concluded: "[B]y way of this appeal, Donald seeks the following relief: 'that this Court reverse the probate court's orders and direct that the sale of the Los Angeles Clippers from [Rochelle] to Ballmer be undone.' Donald fails to show that he is entitled to this relief. He cites no authority for the proposition that this court can 'undo' a sale after that sale was sanctioned under section 1310(b). . . . Acts taken pursuant to section 1310(b) are valid regardless of the outcome on appeal. [Citation.] Therefore, even if Donald is successful, the sale of the Clippers cannot be 'undone' and Donald seeks no other relief and demonstrates no other prejudice." (Sterling, supra, 242 Cal.App.4th at p. 195.)
Just months ago our colleagues in Division One dismissed two appeals based on section 1310, subdivision (b), this in the case of East Bay Regional Park Dist. v. Griffin (2016) 2 Cal.App.5th 734. Doing so, the court noted as follows:
"The last sentence of section 1310, subdivision (b) appears to contemplate appeals from orders made pursuant to the statute. However, the second to last sentence—which states the acts of the fiduciary taken pursuant to section 1310, subdivision (b) are valid, regardless of the outcome of appeal—indicates the relief that may be sought through such appeals is limited. Thus, an appellate court may not reverse an order made pursuant to section 1310, subdivision (b) to the extent doing so would disturb acts of the trustee taken pursuant to statute. Moreover, where a section 1310, subdivision (b) order grants relief identical to that of the underlying order on appeal, the statute effectively deprives an appellant of his or her right to appeal altogether.
"We recognize depriving a litigant of his or her right to appeal is an extraordinary measure. But the Legislature appears to have determined that, in certain cases, expeditious resolution of disputes is more important than allowing for a right of review." (East Bay Regional Park Dist. v. Griffin, supra, 2 Cal.App.5th at pp. 743-744.) And so Division One dismissed the appeals, because "there is no relief we can grant appellants." (Id. at p. 747.)
John cites no authority for the proposition that an action made in compliance with a section 1310, subdivision (b) order could later be "undone." Nor could he, as such a claim would directly contradict the language of the statute to the effect that the trustee's acts in reliance on such an order are "valid, irrespective of the result of the appeal."
In any event, Judge Talamantes's April 6 order was correct.
The April 6 Order Enforcing the December 18 Order Was Correct
As noted, after John filed his appeal from the December 18 order directing the Bank to distribute $5,340,000 to Virginia, the Bank declined to comply, stating it was uncertain as to whether John's appeal effected an automatic stay. After Virginia's informal efforts failed to convince the Bank its uncertainty was unwarranted, she filed her January 20 motion to enforce the order. Virginia's motion quoted section 1310, subdivision (e), that an appeal "shall not stay the operation and effect of . . . an order directing payment of money," and noted that the December 18 order directed such a "payment." The motion also urged the court to exercise its discretionary power under section 1310, subdivision (b), for the purpose of "preventing injury or loss to a person or property."
Judge Talamantes granted the motion, stating the "Bank of Marin shall comply with this Court's order of December 18, 2104, and is directed to distribute $5,340,000.00 to Virginia McCormick" and reimburse her for her attorney's fees. The title of his order cites "Prob. Code § 1310(e)" in brackets, and the text of his order states that Virginia had moved "for an order enforcing the order entered December 18, 2014, and directing the trustee to distribute funds pursuant to Probate Code section 1310(b) . . . ." (Italics added.) In sum, the order refers to both provisions Virginia raised.
A fundamental principle of appellate review is that an order of the lower court is presumed correct. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.) Another fundamental principle is that where the record is silent on a matter, "the reviewing court must indulge all intendments and presumptions that support the order or judgment." (Estate of Bonzi (2013) 216 Cal.App.4th 1085, 1101.) Thus, we will uphold the April 6 order if either section 1310, subdivision (b) or 1310, subdivision (e) supports it. Both do.
Section 1310, Subdivision (e)
As quoted, section 1310, subdivision (e) states that "[a]n appeal shall not stay the operation and effect of a judgment for money or an order directing payment of money" unless (1) the appellant posts a bond or (2) payment is to be made from the decedent's estate or the estate of a person subject to guardianship or conservatorship. Neither of the exceptions applies here: John never posted a bond, and the December 18 order directed the Bank to distribute money from a trust, not an estate.
John contends that the order should have been stayed, because it was neither " 'a judgment for money [nor] an order directing payment of money,' " an issue, the parties agree, we decide de novo. (See Estate of Stoddart (2004) 115 Cal.App.4th 1118, 1126-1127.) And we decide against John.
The December 18 order instructs the Bank to "[d]istribute $5,340,000.00 in cash, bonds, and publicly traded securities." An instruction that the Bank "[d]istribute $5,340,000.00" is an instruction directing it to pay money. The instruction to distribute the amount in "cash, bonds, and publicly traded securities" allows the Bank flexibility in paying that sum. Put otherwise, the December 18 order directed the Bank to distribute a specific amount, giving the Bank the discretion to use one or more recognized means to effect the distribution.
Relying heavily on one aspect of legislative history—a proposal from the State Bar Conference of Delegates—John argues that an order directs "payment of money" only when the court has ordered a "wrongdoer" to pay money to a "victim" and the wrongdoer might hide assets during the pendency of an appeal. The argument is based on a passage in the legislative history indicating that the Conference of Delegates proposed adding subdivision (e) to section 1310 to preclude an automatic stay when such a stay would allow " 'individuals who are found to have looted a trust or estate an opportunity to hide assets during an appeal . . . ." John argues that "[t]here has been no finding that John (or anyone else) has 'looted' Virginia's Trust" and so "[t]here would therefore be no logic whatsoever in requiring John to post an $8 million bond—or any bond—during the pendency of the appeal."
Simply, the Legislature did not limit the undertaking requirement to situations in which an appellant had looted a trust or estate and thus had the opportunity to hide assets during an appeal. Rather, it said that a bond is required in all situations where the judgment or order is one "directing payment of money." (§ 1310, subd. (e).)
Moreover, the passage from the legislative history John quotes supports Virginia's interpretation of section 1310, subdivision (e). If the purpose of the amendment was in fact to prevent persons who had looted an estate from hiding "assets" during an appeal, that purpose would be frustrated by interpreting the term "money" in section 1310, subdivision (e) narrowly so as to exclude any form of payment other than cash. The State Bar and Legislature surely did not intend to deprive looters of the opportunity to hide cash, yet permit them to hide bonds and publicly-traded securities.
The two cases cited by John are unavailing. The first, Estate of Dabney (1951) 37 Cal.2d 402, dealt with Code of Civil Procedure, section 949, not section 1310, subdivision (b). The second, our opinion in Estate of Kampen (2011) 201 Cal.App.4th 971 (Kampen), is likewise off point. In Kampen we held that an order distributing the assets of an estate under section 11705 was not a "money judgment" under Code of Civil Procedure section 680.270, and on that basis rejected the petitioner's claim that it was entitled to interest. (Kampen, at pp. 986-988.) We did not consider whether the order there was "an order directing payment of money" (§ 1310, subd. (e)).
Code of Civil Procedure, section 949 was repealed in 1968, replaced in substance with Code of Civil Procedure section 917.9. (See May v. May (1969) 275 Cal.App.2d 264, 281.)
Indeed, Kampen would support Virginia, as we reasoned that the order "operate[d] in rem" to settle the rights of all persons interested or potentially interested in the estate, and that it did "not set forth an exact amount of damages owed, which is a requirement for a money judgment." (Kampen, supra, 201 Cal.App.4th at pp. 987-988.) Here, by contrast, the December 18 order sets forth a precise amount that the Bank must distribute to Virginia—$5,340,000. The order does not "operate in rem" to declare rights to trust property as against the world. Rather, it granted the Bank's petition for instructions under section 17200, and directed it to pay a precise amount to Virginia.
But even if John's fundamental position—that bonds and securities are not money—had merit, it would still not avail him, as by the end of 2014 the Bank had, or could obtain, $5,340,000 in cash. The record shows that by December 22, the Bank either held cash sufficient to comply with the December 18 order or easily could have obtained it by liquidating trust property in the manner described in its counsel's e-mail. In sum, even assuming that bonds and publicly-traded securities are not "money" under section 1310, subdivision (e), "cash" indisputably is. The December 18 order did not command the Bank to furnish any particular combination of cash, bonds, or publicly-traded securities, only that it distribute $5,340,000 to Virginia. The order to distribute cash was not subject to section 1310, subdivision (e)'s automatic stay.
Section 1310, Subdivision (b)
As quoted, section 1310, subdivision (b) provides that "[n]otwithstanding that an appeal is taken from the judgment or order, for the purpose of preventing injury or loss to a person or property, the trial court may direct the exercise of the powers of the fiduciary . . . as if no appeal were pending." John concedes that "[t]he Probate Court exercised its extraordinary powers under Probate Code § 1310(b)," and that "[i]t appears that the Probate Court held that a stay should not apply here under § 1310(b) . . . ." John also concedes that the question whether the court validly exercised its authority under section 1310, subdivision (b) "is probably reviewed for abuse of discretion," but then goes on to assert, however quizzically, that we "need not defer to the Probate Court."
The terms "for the purpose of preventing injury or loss to a person or property," confer discretion on the court to exercise equitable powers guided by "equitable considerations." (See Doolittle v. Exchange Bank (2015) 241 Cal.App.4th 529, 546 ["equitable considerations may properly be considered by the probate court . . . in ruling on a motion under section 1310, subdivision (b)"].) Thus, as John appropriately concedes, we review Judge Talamantes's exercise of his equitable authority for abuse of discretion. (Conservatorship of McElroy (2002) 104 Cal.App.4th 536, 557 (McElroy); accord, Sterling, supra, 242 Cal.App.4th at p. 194.)
McElroy, a case heavily relied on by Virginia, is persuasive. There, a conservator petitioned under section 2580 for an order authorizing the transfer of property to certain trusts for the purposes of avoiding estate tax and probate expenses. (McElroy, supra, 104 Cal.App.4th at pp. 552-553.) An objector, Carol Kravagna, opposed the petition. The probate court determined she lacked standing and granted the petition. (Id. at p. 555.) Kravagna appealed, and the conservator sought enforcement of the court's order notwithstanding the appeal, based on Probate Code section 1310, subdivision (b). The court granted that petition as well, finding that the risk of harm to Kravagna was insignificant in relation to the risk of harm to the estate—possible tax liability—if the conservator were not allowed to transfer property into the trusts and the conservatee passed away before the transfer occurred. (McElroy, supra, at pp. 556-557.) The Court of Appeal affirmed, concluding that "immediate action was necessary" to avoid unnecessary tax liability. (Id. at p. 557.) Likewise here.
As Virginia demonstrated below, she sought a distribution so she could gift the funds to David, thus avoiding the 40 percent GST tax that would have applied if the funds passed directly from Virginia's residue trust. By distributing funds from the trust to Virginia and enabling Virginia to gift those funds to David, the transfer will not be subject to tax under federal law now in effect. If Virginia had passed away before the Bank complied with the December 18 order, however, the transfer would have been subject to substantial tax liability, i.e., 40 percent of $5,340,000, or approximately $2 million. Judge Talamantes had the discretion to enforce his order on this ground alone.
McElroy affirmed an order granting a petition under section 1310, subdivision (b) where the appellant had little chance of prevailing on her claims, would suffer little harm if the petition were granted, and the estate would incur "potential tax liability if the conservatee were to die before the actions were taken." (McElroy, supra, 104 Cal.App.4th at pp. 556-557.) While the conservatee in McElroy was elderly and in poor health, the principle applies here just the same: there was no good reason to risk millions of dollars in harm to Virginia and David when granting the motion caused John no harm whatsoever.
John's reply brief attempts to distinguish McElroy on the basis that the conservatee there was " 'elderly and in poor health.' "
Not only were Virginia and David at risk of harm, but they faced continuously accruing harm in the form of liability for taxes on income and appreciation in the value of non-cash assets. That is, the assets remaining in Virginia's residue trust could be expected to appreciate over her lifetime, and based on the IRS actuarial tables at the time of Virginia's petition to enforce the December 18 order, her remaining life expectancy was 19.2 years. Assuming a modest five percent rate of growth, the $5,340,000 would grow to over $13,000,000 over the next 19 years. And were the GST tax to be imposed on that entire amount, the tax liability (40 percent) will have increased to over $5,000,000. In sum, as the trust assets grew, the harm resulting from the failure to make such distribution grew. The probate court order avoided such harm.
Finally on this issue, John speculates that Congress may one day lower the GST tax rate or repeal the GST tax altogether. That speculation is unfounded, and certainly not a basis for embracing his arguments. Congress enacted the first estate tax in chapter 463 of the Revenue Act of 1916 ((Sept. 8, 1916) 39 Stat. 756, 777-780), and enacted the modern-day Generation Skipping Transfer tax in 1986. (See Tax Reform Act of 1986, Pub.L. No. 99-514, §§ 1431-1433 (Oct. 22, 1986), 100 Stat. 2085, 2717-2732.) The GST tax addresses circumvention of the estate tax, which, as nearly a century of history demonstrates, is unlikely to be repealed. Prudent estate planning required taking the current state of the law into account. Judge Talamantes did not abuse his discretion in doing so.
The December 18 Order Was Correct
John's last argument is that Judge D'Opal erred when she in essence construed the Master Trust as granting the Bank discretion to distribute $5,340,000 to Virginia so she could gift that amount to her son. We disagree, and conclude that the Master Trust—read as it must be, as a whole—demonstrates that one of its key goals was to enable A.L. to pass his financial legacy to all his extended descendants with as little tax burden as possible. And the distribution ordered by Judge D'Opal here accomplished that purpose.
To begin with, the Master Trust provided that a portion of A.L.'s assets should pass to his children's children without GST tax, and thus provided for four separate GST trusts to receive assets in an amount equal to A.L.'s remaining lifetime GST exemption.
Second, the Master Trust provided that the trustee shall have uncontrolled discretion to distribute trust property to Virginia for her "support, education and medical care, after taking into consideration, to the extent trustee may deem advisable, such person's resources known to trustee." Such a limitation preserves the trust property for David's benefit during Virginia's lifetime.
John points to this same language—"support, education and medical care"—and asserts that a distribution to Virginia for tax avoidance purposes is not such a distribution. We read it differently, that the terms "support, education and medical care" are evidence of A.L.'s intent to limit the Trustee's uncontrolled discretion to those items, and thus preserve property for David by limiting distributions to Virginia for her personal use. And given that the distribution here was intended for David, not for Virginia, it was consistent with A.L.'s intent, even if at bottom the intent was to limit the amount the IRS would ultimately receive.
John further argues that the Master Trust did not permit the trustee to make a distribution without first ascertaining "Virginia's other means available for making gifts to David." But the trust required the Bank to take Virginia's resources into account only to the extent those resources are "known to trustee," and then, only "to the extent trustee may deem advisable." In other words, the Master Trust imposed on the Bank only a limited duty to determine whether considering Virginia's resources would be "advisable."
Estate of Ferrall (1953) 41 Cal.2d 166, on which John relies, is thus distinguishable. The language in the will in Ferrall was different than the language in the trust here: it did not grant the trustee discretion to determine whether considering the beneficiary's personal resources would be "advisable." (Id. at pp. 168-169.)
Finally, John argues that the Bank wrote in a January 29, 2013 letter to Virginia that the trust did not authorize it to make an " 'outright distribution' " to her; that the Bank failed to disclose its position to the probate court; and that this failure "cannot be excused" and constitutes a "fundamental flaw" in the Bank's 2014 petition for instructions. We do not understand the argument. The Bank's legal opinion was not a material fact that could affect the correctness of the probate court's ruling. In any event, and as John concedes, he made the arguments he claims the Bank failed to make. In his words, he had to "do the Bank's job."
The Master Trust provided that if Virginia did not exercise her power of appointment, property remaining in trust at the time of her death would pass to her descendants. This, and all other aspects of the Master Trust, manifested A.L.'s intent to preserve trust property for David's benefit and his intent to avoid taxation. The distribution here effectuated the core purpose of the Master Trust, to pass family assets to the next generation. Not the IRS.
Our conclusion that Judge D'Opal's December 18 order was correct also disposes of John's argument, made for the first time in his reply brief, that the payments to Virginia of " 'amounts equal to any increase in [the] applicable gift tax exemption' " are improper. As indicated above, the Bank's petition for instructions asked, among other things, whether it should distribute to Virginia upon her request assets equal to any increase in her available gift tax exemption and whether it should continue to pay Virginia's attorney's fees. The December 18 order granted the Bank's petition.
DISPOSITION
The December 18 order and the April 6 order are affirmed. Virginia and the Bank shall recover their costs on appeal.
/s/_________
Richman, J.
We concur:
/s/_________
Kline, P.J.
/s/_________
Stewart, J.