In our monthly department meetings, the trusts and estates group at Weintraub keeps current by reviewing recent cases and discussing how they could affect our practice. See below for some highlights from the past few months:
Pena v. Dey – When is Self-Help Enforceable?
(Filed August 30, 2019)
James Robert Anderson established a living trust in 2004, which he amended in 2008. He was diagnosed with abdominal cancer and brain cancer in 2011. After his diagnoses, Anderson became closer with an existing friend, Grey Dey, who eventually moved in with Anderson and provided care to him until Anderson’s death in May 2014.
In February 2014, Anderson contacted a new attorney, requesting changes to his trust. Anderson sent the attorney a marked up copy of a section of the first amendment that created fifteen separate trust shares of varying percentages to be distributed to different beneficiaries. Anderson altered eleven of those gifts, adding notes in margins, and attached a separate list of beneficiaries to divide the largest share. Anderson wrote a note to his attorney on a Post-it note that read, “Hi Scott, Here they are. First one is 2004. Second is 2008. Enjoy! Best, Rob.”
The attorney began the amendment but it was not completed prior to Anderson’s death. The trust provided that an amendment must “be made by written instrument signed by the settlor and delivered to the trustee.” Anderson’s trustee filed a petition for instructions. The court adopted the rule from Cory v. Toscano (2009) 174 Cal.App.4th 1039, which held that handwritten interlineations constitute “instruments.” When those interlineations are made after the trust is executed, they are not part of the original instrument and are therefore a separate instrument. The court found that the interlineations did constitute a “written instrument” separate from the trust, but because they were not signed by the settlor, they were not a valid amendment. The court determined the signature on the Post-it note did not count because it was separate from the interlineation.
As estate planners, we always recommend clients NOT attempt to amend their documents by altering them by hand. Not only is it difficult to ensure the proper formalities, such as a signed separate written instrument, are followed, but often the alteration is unclear, which can invite litigation. However, if the matter is urgent, a trustor should always let his or her attorney know. In some rare cases, it might be helpful to put a handwritten, signed amendment in place as a backstop if the more formal amendment cannot be finalized promptly. This should be done only in consultation with an attorney because the required formalities vary from trust to trust.
Key v. Tyler – How to Defend a Challenge
(Filed April 19, 2019, Second District, Division Two)
Sarah Plott Key filed a petition to invalidate a 2007 amendment to her parents’ trust. Key alleged that her sister, Elizabeth Plott Tyler, procured the amendment through undue influence. Tyler, in her capacity as trustee, filed a response defending the validity of the amendment. The record contained substantial evidence that Tyler actively sought to have her mother amend the trust to exclude Key and that their mother was dependent on Tyler, who actively revised the amendment itself. The court determined that there was “NO” evidence that the amendment represented the desires and choices of her mother, and the amendment was found to be invalid.
Key then filed a petition to enforce the no contest clause against Tyler for her defense of the 2007 amendment. Tyler filed an anti-SLAPP motion stating that the no contest clause provision arose from protected litigation conduct and that Key could not show a likelihood of success on the merits of the petition. Tyler contended that she could not have triggered the no contest clause because the no contest clause statute requires that a pleading be filed alleging the invalidity of a protected instrument and she, Tyler, had made no such filing. Instead, all of Tyler’s filings sought to uphold the latest amendment. The trial court agreed.
However, the appellate court disagreed, and determined that Tyler violated the no contest clause in her defense of the amendment which she was determined to have procured through her own undue influence. The court reasoned that by defending the invalidity of the trust amendment that she procured through undue influence, she was necessarily contending that certain original trust provisions had been revoked, which is a basis for a direct contest. The case was reversed and remanded.
Many trusts include provisions allowing a trustee to defend a lawsuit using trust funds. This case makes doing so risky if the trustee is also a beneficiary. Under Key v. Tyler, a trustee defending a challenge to an amendment could be viewed as asserting that the original terms had been revoked. Because this case is so new, it’s hard to predict how to avoid such a dilemma, but it may be possible to draft the no contest clause provision to state that to the extent the trustee is also a beneficiary, any defense of the trust or an amendment to the trust by such trustee shall be deemed to have probable cause and also not be an invocation of the no contest clause. This language might not be enforceable, but it could help clarify the trustor’s intent regarding challenges. Additionally, in August 2019, the California Supreme Court denied a petition for review so it would seem any relief must come by way of legislative changes or focused estate planning to avoid the issue.
Blech v. Blech – How Can Creditors Reach Trust Assets?
(Filed August 15, 2019)
This suit arose from a family dispute involving the four adult children of Arthur Blech. Three of the siblings obtained a judgment against the fourth, Richard Blech, and filed petitions under California Probate Code Section 15306.5 to have the trustee of their father’s trust pay 25% of Richard’s future distributions directly to the sibling creditors.
A year later, Carmack v. Reynolds (2017) 2 Cal.5th 844 clarified a creditor’s ability to reach amounts due and payable to a beneficiary while still in the hands of the trustee, and the siblings (joined by an additional third party creditor) sought an order directing the trustee to use the unencumbered portion of Richard’s next trust distribution to pay down their judgments against him under California Probate Code 15301(b). The petition was filed in the fall of 2017. The hearing was January 10, 2018. The next trust distribution was scheduled for January 11, 2018. The court declined to rule from the bench and issued an order in favor of the creditors on January 19, 2018.
Richard appealed, claiming the court should not have considered the creditors’ petition because it was filed before his disbursement was due and payable; that the court improperly directed the trustee to withhold his January 2018 disbursement until after the court issued its final order; that the court erred when it declined to rule from the bench; and that the trust required the trustee to make all payments directly to him. The appellate court affirmed the trial court and rejected all of Richard’s arguments.
The court found California Probate Code 15301(b) allows creditors to file petitions prior to the time that a trust distribution is due and payable to a beneficiary. The appellate court focused on a plain reading of the statute and the fact that the drafters had been trying to clarify that trust principal could be reached by creditors while still with a trustee. The probate court’s inherent power to supervise the administration of the trust is broad, and “has long been recognized to encompass the authority to take remedial action.”