Opinion
3:19-cv-346-DPM
03-06-2024
IN RE ELIJAH AND MARY STINY TRUSTS
MEMORANDUM OPINION AND ORDER
D.P. Marshall Jr. United States District Judge
Our law favors settlements, especially among family members. And a proposed compromise of one slice in this case, which has involved many disputes and lengthy proceedings, is particularly welcome. The Court concludes, though, that Mary Stiny's intentions about what should happen to Della Moore's share, if Moore predeceased Stiny, are clear and the Court must enforce them to keep faith with all applicable and material provisions of the Stiny trust.
When Mrs. Stiny amended her survivor's trust for the second and last time, she eliminated a bequest to her church in Hoxie and added a bequest to her mother, Della Moore. This change created an alleged ambiguity. The amended provision - Article Seven, paragraph D(2) - is in an Appendix. On the one hand, Mrs. Stiny's amendment provided that, if her mother predeceased her, the bequest "shall lapse." Under California law, in that instance her mother's share would be shared among a group of family members listed in amended paragraph (D)(2)(i)-(vii). CAL. PROB. CODE § 21109. Call them group one. They include one of Mrs. Stiny's daughters, Rena Wood, and several of her grandchildren. On the other hand, the amendment contained a more general provision about what should happen if any one of the listed family members in group one predeceased Mrs. Stiny. It says: "Except as otherwise provided, in the event any beneficiary named in clauses (iii) through (viii) above, predeceases trustor, the such share shall be distributed to the predeceased beneficiary's living issue, by right of representation ...." See Exhibit F, Doc. 284-6 at 2.
Della Moore died first. Then Mrs. Stiny died. In addition to Mrs. Stiny, Della Moore had eight other children. None of these eight individuals are in group one. Call them group two. Several of the children of group two members are in group one. A dispute exists about Mrs. Stiny's intentions and who should get her mother's lapsed 2.66% share of the survivor's trust.
When the most recent round of litigation about the Stiny Trusts writ large began, the trustee served all the members of groups one and two and many others with process. Some members of groups one and two have appeared, and some have not. The main litigation issues have involved some of Mr. Stiny's grandchildren and Mrs. Stiny, plus what should happen to Rena Wood's share. Wood passed away during the case and her estate now stands in her place. All the members of group one and group two who have appeared and been active in the case, and the trustee, have come together about Della Moore's share. Several of them have moved the Court to approve a settlement and direct distribution. Two members of group one, Corbyn Martin and Sterling Martin, did not appear but attended the trial; they have filed written consents to the settlement. Doc. 286 & 287. All parties who have appeared were served with the trustee's August 2022 motion to approve, as well as with the October 2023 motion to approve by all of Mrs. Stiny's siblings. No one has objected to the settlement. This unanimity is remarkable in this case full of disputes. The proposed distribution of Della Moore's share is as follows:
(Image Omitted) Doc. 284 at 7; Doc. 309 at 4.
The Court studied the proposed settlement but struggled to see any ambiguity or contradiction in the applicable trust provisions. It held a February 2024 hearing to ventilate that issue; it also pressed the parties on whether the family settlement doctrine applies to an active irrevocable trust. The Court has benefitted from the parties' oral arguments, pre-hearing briefs, and post-hearing briefs. The Court concludes that, under California law, the settlement should not be approved.
First, it disregards Mrs. Stiny's clear intent-it would distribute trust money to Mrs. Stiny's siblings and to her son, John Moore. CAL. PROB. CODE § 21102. That's because her siblings are Della Moore's children and John Moore is Della Moore's grandson, which makes them Della Moore's "issue" under California law. CAL. PROB. CODE § 50. Mrs. Stiny, however, made no provisions for her siblings. And she was unambiguous when it came to her son: "Wife has knowingly made no provision for her son, JOHN MOORE." Exhibit F, Doc. 284-6 at 2. This intention was longstanding. This provision in the second amendment echoed identical provisions through various amendments dating back to 2007. Exhibit C, Doc. 284-3 at 3.
Second, the Court must "give every expression some effect, rather than one that will render any of the expressions inoperative." CAL. PROB. CODE § 21120. The language -"Except as otherwise provided" - gives effect to Mrs. Stiny's direction that her mother's gift "shall lapse." The bequest to Della Moore and this phrase were added in the second amendment, when Mrs. Stiny substituted her mother for her church in paragraph D(2)(viii). Compare Exhibit E, Doc. 284-5 at 2, with Exhibit F, Doc. 284-6 at 2. While Mrs. Stiny could have expressed her intent about Della Moore's share in other ways, this added phrase qualified the fallback distribution that Mrs. Stiny had provided for in her first amendment. It was a fix of a then-existing term. Without an exception, Mrs. Stiny's siblings and son would receive a slice of the share that she intended for her mother. But the lapse exception forecloses that possibility. This reading gives effect to every expression in the amended survivor's trust. And it construes all the trust's parts in a way that forms a consistent whole. CAL. PROB. CODE § 21121.
The settling parties are, in effect, proposing a modification of Mrs. Stiny's irrevocable survivor's trust. Doc. 317 at 7; Doc. 318 at 7. That step requires two things: all beneficiaries' consent to the modification; and the Court's determination "that the reason for doing so under the circumstances outweighs the interest in accomplishing a material purpose of the trust." CAL. PROB. CODE § 15403. Mrs. Stiny's distributive intent is a material purpose. E.g., Boys & Girls Club of Petaluma v. Walsh, 87 Cal.Rptr.3d 413, 422-23 (Cal.Ct.App. 2008). And, because she was unambiguous with respect to her mother's share, the Court should not disturb that intent. CAL. PROB. CODE § 21102(a). As important as maintaining family harmony is, and it is very important, the applicable law must be followed.
Third, the parties contend that the Court may approve the settlement, whether an ambiguity exists or not. But the California Supreme Court has squarely foreclosed that argument when a beneficiary's interest is subject to a valid spendthrift clause. Kelly v. Kelly, 79 P.2d 1059, 1063 (Cal. 1938). That is the situation here. Article Eleven, paragraph E, provides: "No interest in the principal or income of any trust created under this instrument shall be anticipated, assigned, encumbered, or subjected to creditor's claim or legal process before actual receipt by the beneficiary." Exhibit A, Doc. 284-1 at 19. The parties' settlement agreement "executed before payment to the beneficiar[ies] confers on the assignee[s] no right to demand payment or delivery from the trustee as it becomes due to the beneficiar[ies]." Kelly, 79 P.2d at 1063.
Settlements are a creatures of contract law. See Kelly, 79 P.2d at 1063-64; De Mille v. Ramsey, 254 Cal.Rptr. 573, 577-78 (Cal.Ct.App. 1989). And the parties are free, of course, to do whatever they may agree to do after the trust corpus is distributed. But, that can happen only after Mrs. Stiny's chosen beneficiaries have received their distributions. De Mille, 254 Cal.Rptr. At 578. Arkansas law suggests a similar route. Buckalew v. Arvest Trust Co., 2013 Ark.App. 28, at 6, 425 S.W.3d 819, 823; Trask v. Trask, 2018 Ark.App. 400, at 13-14, 559 S.W.3d 277, 284.
The cases on which the group two members rely are distinguishable. The Arkansas cases involve post-deal challenges to the enforceability of a family settlement agreement; plus they arise in the will context. Doc. 317 at 1-5; Butler v. Dike, 2009 Ark.App. 435, 320 S.W.3d 647; Green v. McAuley, 953 S.W.2d 66 (Ark. Ct. App. 1997); Dudgeon v. Dudgeon, 177 S.W. 402 (Ark. 1915). The California cases concern trusts but under markedly different facts. Two cases dealt with challenges to settlement agreements that had already been approved by the court. Chui v. Chui, 291 Cal.Rptr.3d 213 (Cal.Ct.App. 2022); Manufacturers Warehouse v. Batistelli, No. B222402, 2011 WL 3341743 (Cal.Ct.App. 4 Aug. 2011) (unpublished). And, in Boys & Girls Club of Petaluma v. Walsh, 87 Cal.Rptr. at 416, the issues were whether all beneficiaries had consented to modification and whether modification was appropriate under California Probate Code § 15403. This precedent takes this issue back under the governing statute already discussed.
Fourth, the parties have also raised the possibility that the settlement is similar to a disclaimer by the members of group one. But disclaimers are different from settlements." [A] disclaimer does not involve an agreement with other parties but rather [i]mplies a unilateral action which conveys no interest to other parties." Estate of Murphy, 154 Cal.Rptr. 859, 866 (Cal.Ct.App. 1979). That's because a disclaiming beneficiary is treated as having predeceased the settlor. CAL. PROB. CODE § 282. If the members of group one had disclaimed their interest in Della Moore's share, the resulting distribution would not be to group two members. It would be to the living issue of group one members. In any event, no beneficiary has filed a disclaimer here. CAL. PROB. CODE § 275.
Last, and as the trustee notes, California law prescribes a specific order of operations in these circumstances. Della Moore predeceased Mrs. Stiny, so her gift must lapse unless the anti-lapse statute applies. CAL. PROB. CODE §§ 21109 & 21110(a). The anti-lapse statute does not apply; Mrs. Stiny expressly required Della Moore to survive her. CAL. PROB. CODE § 21110(b). The question therefore is which, if any, of Mrs. Stiny's remaining beneficiaries should get Della Moore's share? California law answers this question with a priority list. CAL. PROB. CODE § 21111. According to that list, Della Moore's share must go to Mrs. Stiny's remaining beneficiaries under Article Seven, paragraph D(2)(i)-(vii), "in proportion to their other interest in the residuary gift or the future interest." CAL. PROB. CODE § 21111(b). Two reasons require this result. First, Mrs. Stiny made the residuary gift-paragraph D(2)-to more than one beneficiary. Second, Mrs. Stiny did not provide an alternative distribution for Della Moore's share. The fallback provision calling for distributions to a predeceased beneficiary's living issue does not apply because Mrs. Stiny provided otherwise - that Della Moore's share "shall lapse." Exhibit F, Doc. 284-6 at 2.
* * *
The motions, Doc. 284 & 309, are denied. In due course, the trustee must reallocate Della Moore's share proportionally among the beneficiaries listed in amended paragraph D(2)(i)-(vii). Exhibit F, Doc. 284-6 at 2; CAL. PROB. CODE § 21111(b). Each beneficiary's share, as increased by Della Moore's lapsed share, will be the percentage share owed at final distribution. That distribution will abide the Court's resolution of other pending issues - namely, the dispute over Rena Wood's share and the three Stiny grandchildren's request for an accounting or information.
So Ordered.
APPENDIX OMITTED