Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Kern County, Ct. No. S-1500-PB-58191 Ralph W. Wyatt, Commissioner.
Law Offices of William D. Olcott and William D. Olcott for Defendant and Appellant.
Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, LLP, Catherine E. Bennett, Joseph D. Hughes and Kurt D. Van Sciver for Plaintiff and Respondent.
OPINION
HILL, J.
Appellant, one of the beneficiaries under trusts created by his parents, challenges the order granting the petition of the trustee for approval of the accountings of the trusts and ordering that the trustee determine the interests of the beneficiaries of both trusts as if appellant had predeceased execution of the trust instrument without surviving issue. We conclude appellant forfeited his interests in the trusts by violating the no contest clauses governing both trusts and affirm.
FACTUAL AND PROCEDURAL BACKGROUND
On September 30, 1976, Dr. George Morrell Prince (George Sr.) and Rose Grace Dvorak Prince (Rose) executed a declaration of trust, creating the Dr. George Morrell Prince Family Trust of 1976. The trust instrument contained provisions for distribution of principal and income to the trustors during their joint lifetimes; on the death of the first of the trustors, the trust estate would be divided into two trusts, one trust consisting of the survivor’s one-half of the community property, the survivor’s separate property, and one-half of the decedent’s separate property qualifying for the federal estate tax marital deduction and the other trust consisting of all remaining property of the trust. On the death of the survivor, the property of the trusts was to be distributed to the children of the trustors, George Morrell Prince, Jr. (George Jr.), David Lawrence Prince (David) and Duane Joy Carraher (Duane), as specified. The trustee, however, was permitted to continue to hold certain property in the trusts for up to 10 years after the death of the surviving trustor. On November 29, 1976, the trustors amended the declaration of trust, adding a no contest clause.
Because several of the parties involved in this appeal share the same last name, first names are used in the interests of clarity and brevity, not out of disrespect.
George Sr. died on July 27, 1977. David became the successor trustee, along with Rose. The trust was divided into Trust A, the residuary trust, and Trust B, the survivor’s trust. Rose made several amendments to the trust provisions governing Trust B; one amendment included a no contest clause.
On January 15, 1992, Rose died. David became the sole trustee of both trusts. On July 21, 2008, David filed his first and second accounts of the trusts, and requested that the accounts be settled and he be allowed trustee’s fees. George Jr. filed objections to the accounts. He asserted the trustee’s fees claimed by David were excessive, the claims for reimbursement of trust expenses were excessive and unwarranted, and “advances” claimed for periods more than 10 years after Rose’s death should be disallowed. George Jr. also accused David of self-dealing, asserting David undercharged himself for rent for the use of real property belonging to the trusts.
On April 1, 2009, David filed a petition to invoke the no contest clause, asserting George Jr.’s objections to the accounting effectively contested certain provisions of the trust instrument and, as a result, George Jr. should forfeit his interest in the trusts. After receiving briefs on the issues and hearing argument, the court granted David’s petition and ordered that the trustee determine George Jr.’s interest as a beneficiary of both trusts as if he had predeceased execution of the trust instrument without surviving issue. George Jr. appeals, contending his objections did not constitute a contest and, if they did, they violated only the no contest provision applicable to Trust B and his rights in Trust A should have been preserved.
DISCUSSION
I. Objections as a Contest
“A ‘no contest clause’ is ‘a provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary if the beneficiary files a contest with the court.’ [Citation.]” (Cory v. Toscano (2009) 174 Cal.App.4th 1039, 1043.) “No contest clauses are valid in California and are favored by the public policies of discouraging litigation and giving effect to the purposes expressed by the testator [or trustor]. [Citations.] Because a no contest clause results in a forfeiture, however, a court is required to strictly construe it and may not extend it beyond what was plainly the testator’s [or trustor’s] intent.” (Burch v. George (1994) 7 Cal.4th 246, 254 (Burch); Scharlin v. Superior Court (1992) 9 Cal.App.4th 162, 169 (Scharlin).) A no contest clause in a trust instrument “creates a condition upon gifts and dispositions provided therein. [Citation.] In essence, a no contest clause conditions a beneficiary’s right to take the share provided to that beneficiary under such an instrument upon the beneficiary’s agreement to acquiesce to the terms of the instrument.” (Burch, supra, 7 Cal.4th at p. 254.)
“A contest is defined as ‘an attack in a proceeding on an instrument or on a provision in an instrument.’ [Citation.]” (Scharlin, supra, 9 Cal.App.4th at p. 168.) “‘Whether there has been a “contest” within the meaning of a particular no-contest clause depends upon the circumstances of the particular case and the language used.’ [Citations.]” (Burch, supra, 7 Cal.4th at pp. 254-255.) “In construing a trust instrument, the intent of the trustor prevails and it must be ascertained from the whole of the trust instrument, not just separate parts of it. [Citation.] Ordinary words must be given their normal, popular meaning and legal terms are presumed to be used in their legal sense. [Citation.]” (Scharlin, supra, at p. 168.) The court must consider the purposes the trustor intended the provisions of the instrument to serve. (Burch, supra, at p. 255.) It must not effectively “‘rewrite the [trust instrument] in such a way as to immunize legal proceedings plainly intended to frustrate [the trustor’s] unequivocally expressed intent from the reach of the no-contest clause.’ [Citation.]” (Ibid.) “The interpretation of a … trust instrument presents a question of law unless interpretation turns on the credibility of extrinsic evidence or a conflict therein.” (Id. at p. 254.) No extrinsic evidence was presented in this case.
We note that the current provisions of the Probate Code applicable to no contest clauses (Prob. Code, §§ 21310- 21315), which became operative on January 1, 2010, apply only to instruments, “whenever executed, that became irrevocable on or after January 1, 2001.” (Prob. Code, § 21315.) “The common law governs enforcement of a no contest clause to the extent this part does not apply.” (Prob. Code, § 21313.) The trusts became irrevocable no later that the date of Rose’s death, January 15, 1992. Consequently, the no contest clauses in issue are governed by common law, rather than the current statutes.
Amendment No. 1 to the trust instrument, which was executed by both trustors, added a no contest clause to the trust instrument. It provided:
“If any beneficiary other than the surviving Trustor, singly or in conjunction with any other person(s), (a) contests in any court the validity of any trust established under this Declaration of Trust or of the Will of either Trustor, (b) seeks to obtain an adjudication in any court that any such trust or any of its provisions or that such Will or any of its provisions is void or (c) seeks otherwise to void, nullify, or set aside any such trust or such Will, or any of the provisions thereof, then the right of that beneficiary to take any interest given to him under any trust established under this Declaration of Trust shall be determined as it would have been determined had he predeceased the signing of this Declaration of Trust without surviving issue.”
After the death of George Sr., Rose executed Amendment No. 2, which contained a similar no contest provision, applicable to Trust B:
“If any beneficiary, singly or in conjunction with any other person(s), (a) contests in any court the validity of any trust established under this Declaration, or any amendment to it, or of ROSE’s Will (including any codicil to it), (b) seeks to obtain an adjudication by any court that any such trust or Will, or any of their provisions, is void, or (c) seeks otherwise to void, nullify, modify, or set aside any such trust or Will, or any of their provisions, then the right of that beneficiary to take any interest given to him or her under Trust B shall be determined as it would have been determined had he or she predeceased ROSE without surviving issue.”
George Jr. essentially raised three objections to David’s accounting: (1) the expenses and advances for which David requested reimbursement were excessive or unwarranted, or both; (2) David was guilty of self-dealing, because he operated a cattle ranch on trust property and undercharged himself rent for the use of that property; and (3) the trustee’s fees requested by David were excessive, because David was compensated for his services as trustee by the $100,000 Rose gave him in Amendment No. 6 to the trust instrument.
The first two objections did not challenge the validity of the trusts; they did not challenge the validity of the trust instrument or any provision of it. They do not seek to “void, nullify, or set aside” any provision of the trust or the disposition of any interest in property of the trust. They challenged only the trustee’s actions in the administration of the trust. “It is always proper for a beneficiary of an estate who believes that the executor is not fulfilling his duty to make the objections which the code permits without risk of suffering a penalty provided by an in terrorem clause.” (Estate of Miller (1964) 230 Cal.App.2d 888, 902; accord, Estate of Kruse (1970) 7 Cal.App.3d 471, 476; see also Estate of Lewy (1974) 39 Cal.App.3d 729, 734, concluding an attempt to prevent appellant from serving as executrix for lack of capacity to do so was not a contest because it did not attack the validity of the will in any way.) Consequently, George Jr.’s objections (1) and (2) did not constitute a contest of the trusts that would cause a forfeiture of his interest under the no contest clauses.
George Jr.’s third objection to David’s accounting was stated in the following language:
“Pending discovery on this matter, GEORGE asserts that the claimed Trustee’s Fees are excessive. The Trustee has never claimed any fees until this time and, in fact, has stated to GEORGE that he would not make any claim for fees against the Trust. In fact, GEORGE expects that the evidence in this matter will show that the $100,000 paid to DAVID by the Trust following Rose’s death in 1992 was intended by the Settlors to compensate DAVID, in whole, for his actions as Trustee. This is why, for example, except for Corporate Trustees under Article VII of the Trust, the Trust does not provide for payment of any Trustee’s Fees.”
George Jr. did not merely contend that the amount of trustee’s fees David sought was excessive because it was larger than warranted by the services David provided to the trust. He essentially argued that the amount requested was excessive because it did not take into account the $100,000 Rose designated for David in Amendment No. 6 to the trust instrument, which George Jr. asserted was intended to compensate David for his work as trustee. If the court were to accept that argument and reduce David’s trustee’s fees on that basis, the effect would to be to recharacterize the $100,000. It would no longer be treated as a distribution to a beneficiary of Trust B. Instead, it would be characterized as a payment of trustee’s fees to the trustee. David, as beneficiary, would be denied the $100,000 distribution. Thus, by his attempt to have the court treat the $100,000 distribution as a payment of trustee’s fees, George Jr. sought “to void, nullify, or set aside” a provision of Trust B.
In Estate of Pittman (1998) 63 Cal.App.4th 290 (Pittman), the court referred to a no contest clause similar to the ones contained in Amendment Nos. 1 and 2 as “an extremely broad no contest clause prohibiting not only a ‘contest’ of the trust as that term of art is traditionally utilized, but also prohibiting one from seeking to obtain an adjudication that a provision is void and additionally prohibiting anyone from seeking ‘otherwise’ to void, nullify, or set aside the trust or any of its provisions.” (Id. at p. 304.) In Pittman, the trustors had included in the trust instrument schedules of trust property, which designated each item of property as community property or as separate property of one of the trustors. After the death of both trustors, the children of the wife challenged the characterization of the items of property on the ground it was done without their mother’s knowledge or without advising her of the legal effect of the designation. The court described the purpose of the no contest clause: “The settlors’ intentions control and these intentions must be gleaned by considering the purposes the settlors sought to attain by the provisions of the trust. As previously set forth, the no contest clause in the Pittman trust was extremely broad. It is clear the Pittmans’ purpose was to expansively prohibit any attempt to set aside any provision of the trust.” (Id. at pp. 300-301.) The court concluded the petitioners’ challenge to the trust’s characterization of the trust property “contested the provisions of the trust declaring the nature of the property in each schedule. The trust as a whole evinces a clear and decided intent on the part of [the trustors] that each piece of property in the trust estate pass in precisely the manner established in the trust. Consequently, the [petitioners’] petition violated the purpose of the no contest provision in the Pittman trust.” (Id. at p. 305.)
The clause in Pittman provided: “If any beneficiary under this trust, singularly or in conjunction with any other person or persons, contests in any court the validity of this trust or the settlors’ Last Will and Testament or seeks to obtain an adjudication in any proceeding in any court that this trust or any of its provisions or that such Will or any of its provisions is void or seeks otherwise to void, nullify, or set aside this trust or any of its provisions, then that person’s right to take any interest given to him or her by this trust shall be determined as it would have been determined as if the person had predeceased the execution of this Declaration of Trust without surviving issue.” (Pittman, supra, 63 Cal.App.4th at p. 294.)
Amendment No. 6, which provides for the distribution of $100,000 to David, repeatedly describes this distribution as a “gift.” It does not describe it as a payment of trustee’s fees, nor does it indicate the amount is to be paid to David as trustee, rather than as a beneficiary of the trust. The amended provision is included in the portion of the trust instrument providing for disposition of the trust property to the beneficiaries (Article II); it was not included in the portion of the trust instrument governing the powers and duties of the trustee (Article III) or the portion providing for successor trustees, which authorizes payment of trustee fees to a corporate trustee (Article VI). George Jr.’s attempt to recharacterize the payment as trustee’s fees contests the provisions of Amendment No. 6 declaring the payment to be a gift to David as a beneficiary of Trust B. It would thwart Rose’s expressed intention that David receive this gift. George Jr.’s objection violates the very broad no contest clause applicable to Trust B, which is contained in Amendment No. 2.
George Jr. seeks to avoid this result by claiming his challenge to the characterization of the payment as a gift, as set out in his objections to David’s accounting, was not a current challenge, but merely an expression of a potential future challenge. He points to the language of his objection that he “expects that the evidence in this matter will show that the $100,000 … was intended by the Settlors to compensate DAVID, in whole, for his actions as Trustee.” The public policies supporting the validity of no contest clauses include the policies of discouraging litigation and giving effect to the purposes expressed by the trustor. (Burch, supra, 7 Cal.4th at p. 254.) The policy of discouraging litigation would not be promoted by permitting a beneficiary to file objections or other challenges to the trust provisions, then, after the trustee has responded by asserting a violation of the no contest clause, permitting the objecting party to avoid the effect of a no contest clause by asserting the document filed did not contain an actual objection but only a potential future objection. By filing a document raising even a potential objection, George Jr. caused David to file a response in order to avoid any contention that he agreed with, or at least did not dispute, the issue raised. A no contest clause is included in a trust instrument to avoid litigation and the burden on the trustee and the trust of responding to such objections and disputes. George Jr.’s contention that he was not raising a present objection in violation of the no contest clause is without merit. Accordingly, we conclude George Jr.’s objection to the trustee’s fees as excessive, based on his contention that the $100,000 payment to David was intended to be, and should be treated as, a payment of his trustee fees, constituted a contest in violation of the trust’s no contest provision.
II. Scope of Forfeiture Under No Contest Clauses
George Jr. contends that, if his objections to David’s accounting constituted a contest at all, they contested only the disposition of the $100,000 from Trust B and should only require forfeiture of his interest in that trust. He contends Trust A became irrevocable on the death of George Sr., which occurred before Rose amended Trust B to include the $100,000 gift to David. Consequently, he argues his objections to Trust B did not affect Trust A and he should not have been found to have forfeited his interest in Trust A by his challenge to the $100,000 gift from Trust B. He cites no authority in support of this argument.
In Scharlin, Max and Frances Scharlin executed a trust agreement which provided that, on the death of one of them, the trust estate would be divided into a survivor’s trust and a decedent’s trust. (Scharlin, supra, 9 Cal.App.4th at p. 165.) The survivor’s trust would contain the survivor’s separate property, the survivor’s share of the couple’s community property, and the maximum allowable amount for the marital deduction under federal estate tax law. (Ibid.) The balance of the estate would be deposited in the decedent’s trust, which would become irrevocable. The trust instrument included a no contest clause. After Max died, Frances amended the trust instrument, revoking and replacing the provisions for disposition of the survivor’s trust property after her death. The amendment included a no contest clause, applicable to any legal action “‘to void, or set aside this Trust, or any of its provisions or Amendments.’” She confirmed and republished the remainder of the original trust instrument. (Id. at p. 166.) After Frances’ death, the settlors’ son, Joseph, sought a determination that a petition alleging his sister, Jacqueline, obtained the amendment to the survivor’s trust by exercising duress or undue influence over Frances would not constitute a contest as to the decedent’s trust, although he conceded it would be a contest as to the survivor’s trust. (Ibid.) Jacqueline argued the petition would violate the no contest provisions in both the original trust and the amendment.
“‘If any beneficiary under this Trust shall, singly or in conjunction with any other person or persons, contest in any court the validity of this Trust or of a deceased Trustor’s Last Will and Testament, or shall seek to obtain an adjudication in any proceeding in any court that this Trust or any of its provisions or that such Will or Trust, or any of its provisions, is void, or seek otherwise to void, nullify, or set aside this Trust, or any of its provisions, then the right of that person to take, which is given to him by this Trust, shall be determined as it would have been determined had the person predeceased the execution of this Trust agreement without surviving issue.’” (Scharlin, supra, 9 Cal.App.4th at p. 166.)
The court rejected Jacqueline’s argument that Joseph was violating the no contest clause in the original trust instrument by challenging the survivor’s power to amend or revoke the survivor’s trust; it concluded he was challenging only the manner in which the amendment occurred. “Joseph does not contend the surviving settlor lacked the right or power to amend. Rather, he argues the surviving settlor did not in fact amend the trust, and any so-called amendment was the result of duress or undue influence, not the free will of the settlor.” (Scharlin, supra, 9 Cal.App.4th at p. 170.)
The court also rejected Jacqueline’s contention Joseph was violating the no contest clause found in the amendment. That no contest clause included language making an action to void an amendment of the survivor’s trust a violation of that clause. The court explained: “The no contest provision in the original trust made no mention of amendments to the trust nor that any contest or challenge to any amendment would result in a forfeiture. It is clear from the agreement that, while Frances had the right to amend the provisions of [the survivor’s trust], she had no right to amend or revoke or otherwise change any of the provisions, including the no contest clause, of the original trust agreement as to [the decedent’s trust]. This means Frances could not amend any of the provisions of the no contest clause of the original trust insofar as it applied to [the decedent’s trust]. She could neither enlarge upon nor diminish the rights or penalty provisions under the original no contest provisions. To the extent, therefore, that Jacqueline argues the amendment’s no contest clause controls, she is in error. [¶] As to [the decedent’s trust], the clause in the original trust agreement controls.” (Scharlin, supra, 9 Cal.App.4th at pp. 170-171, fn. omitted.) The court concluded the proposed petition attacking the amendment to the survivor’s trust on the ground it was obtained by duress or undue influence was not a contest as to the decedent’s trust. (Id. at p. 171.)
In McIndoe v. Olivos (2005) 132 Cal.App.4th 483 (McIndoe), Byron and Muriel Grimm established a trust with their daughters and grandchildren as beneficiaries. On the death of the first trustor, the trust estate was to be divided into a survivor’s trust, including the survivor’s separate property, the survivor’s interest in the trustors’ community property and the minimum amount necessary to eliminate any federal estate tax on the death of the first trustor, and an exempt trust containing the balance of the estate. The survivor’s trust could be amended or revoked by the survivor, but the exempt trust could not. The trust instrument included a no contest clause disinheriting any beneficiary who contested the trust. After Byron’s death, Muriel amended the survivor’s trust multiple times, removing her daughter, Sharon, as a beneficiary. After Muriel’s death, Sharon sought a determination that a petition challenging the amendments to the survivor’s trust would not violate the no contest clause of the exempt trust.
The court concluded the no contest provision in the original trust instrument applied to all the trusts: the original trust, the exempt trust, and the survivor’s trust. The clause appeared in the “‘general provisions’” portion of the instrument, which specifically stated it applied “‘to each trust established hereunder.’” (McIndoe, supra, 132 Cal.App.4th at p. 488.) After discussing the trustors’ intention to take advantage of the marital deduction, the court rejected the McIndoes’ assertion that the original trust instrument gave the survivor complete control of the decedent’s assets, including those in the exempt trust. (Id. at p. 489.) It concluded:
“The McIndoes’ assertion that the original trust gave the surviving trustor complete control of the deceased trustor’s assets, is incorrect. Because the surviving trustor did not retain control of the assets in the exempt trust and did not have the power to amend, revoke or terminate the exempt trust, the surviving trustor retained no control over the exempt trust. As a result, it is reasonable to conclude that the trustors did not intend that a contest to amendments to the survivor’s trust would result in a contest and possible forfeiture of the exempt trust. Rather, only a contest to the exempt trust could trigger a possible forfeiture of a beneficiary’s rights under the exempt trust. Had the trustors intended a contest to a particular subtrust result in a contest to all subtrusts, they could have so stated. Following the McIndoes’ interpretation, the surviving trustor would, in effect, be given power over the assets in the exempt trust, a result the trustors clearly did not intend, as evidenced by their use of a marital deduction and exempt trust.” (Ibid.)
The original trust instrument permitted the surviving trustor to amend the survivor’s trust. Rose amended the provisions governing Trust B, the survivor’s trust, several times. Her amendments added the $100,000 gift to David and a no contest clause applicable to Trust B. That no contest clause affected the right of any beneficiary bringing a contest “to take any interest given to him or her under Trust B.” As discussed above, George Jr.’s challenge to the $100,000 gift violated the Trust B no contest clause. Accordingly, by contesting the $100,000 gift to David, George Jr. forfeited his interest in Trust B.
The original trust instrument made Trust A, the residuary trust, irrevocable and not subject to amendment or change after the death of the first trustor, but permitted the survivor to amend Trust B, the survivor’s trust. Amendment No. 1, executed by both trustors prior to the death of George Sr., added a no contest clause to the trust instrument. Forfeiture under that clause was triggered by contesting “the validity of any trust established under this Declaration of Trust” or seeking “otherwise to void, nullify, or set aside any such trust... or any of the provisions thereof.” (Italics added.) In the event of such a contest, the contestant would forfeit “the right of that beneficiary to take any interest given to him under any trust established under this Declaration of Trust.” (Italics added.) This no contest clause was even broader than those addressed in Scharlin and McIndoe. It expressly applied to challenges to any trust established under the trust instrument and, in the event of a contest, provided for forfeiture of any interest granted under any trust established by the trust instrument. The trustors could not have expressed more clearly their intent that any challenge to any of the trusts was to result in a forfeiture of the contesting beneficiary’s interests in all of the trusts.
In McIndoe, the court stated: “Had the trustors intended a contest to a particular subtrust result in a contest to all subtrusts, they could have so stated.” (McIndoe, supra, 132 Cal.App.4th at p. 489.) Here, the trustors did so. They stated in Amendment No. 1 that any contest of any trust established under the trust instrument, which included Trust A and Trust B, would result in a forfeiture of that beneficiary’s interests under any trust established under the instrument. Accordingly, we conclude the trial court was correct in finding that George Jr.’s challenge to the $100,000 gift to David of property in Trust B constituted a contest under the no contest clause in Amendment No. 1 to the trust instrument, and that the violation of that clause resulted in George Jr.’s forfeiture of his interest in both Trust A and Trust B.
DISPOSITION
The judgment is affirmed. Respondent is awarded his costs on appeal.
WE CONCUR: CORNELL, Acting P.J., KANE, J.