Ammerman v. Callender
245 Cal. App. 4th 1058
| Cal. Ct. App. | 2016Background
- Donald W. Callender executed a trust (restated 2003) that directed the residuary be divided into three equal one‑third shares (subtrusts) for Cathe (daughter), Katy (surviving spouse), and Lucky (son).
- On Donald’s death (2009) the Trust assets included cash, real property, and valuable royalty/license agreements (Marie Callender royalties). Federal estate tax return valued the estate at ≈ $143M; royalties were a major component.
- The Trust directed payment of estate taxes and stated Katy’s subtrust was not to be reduced by estate taxes; it also gave Trustees discretion to defer distribution during an administrative/closing period and to make loans/advances to beneficiaries.
- Trustees initially debited $19.4M each from Cathe’s and Lucky’s subtrusts for estate taxes; estate tax filings reflected changed percentage ownerships (≈47.7% Katy, ≈26.5% Cathe, ≈25.8% Lucky). Beneficiaries signed a May 2012 letter accepting revised percentages but later disputed accounting.
- Trustees filed a petition for instructions. The trial court adopted the “changing fraction method” (recalculating beneficiaries’ fractional interests whenever non‑pro rata principal charges occur) and applied it to income and principal receipts. The court also charged Cathe with half the taxes attributable to a specific real property gift.
- The Court of Appeal reversed: it held the Trust created vested one‑third interests in the residuary that were not subject to the changing fraction method, and that the specific gift to Cathe (Goldenrod Property) was to be free of estate taxes as the Trust expressly stated.
Issues
| Issue | Plaintiffs' Argument | Defendants' Argument | Held |
|---|---|---|---|
| Whether the changing‑fraction method applies to the Trust residuary | Trustees/Katy/Lucky: non‑pro rata tax payments and distributions changed parties’ fractional interests and future receipts should be allocated on recalculated percentages | Cathe: Trust vested one‑third interests on death; non‑pro rata payments (taxes/distributions) do not change the vested fractions — any adjustments belong in final accounting or as loans/advances | Reversed: changing‑fraction method does not apply; Trust evidences intent for one‑third vested interests and permits loans/advances/truing up rather than altering vested fractions |
| Whether Probate Code §§16340–16341 (and the Uniform Principal & Income Act) mandate changing fractions for income/principal receipts | Trustees: §§16340–16341 tie income to fractional interests using distribution‑date values, supporting changing fractions | Cathe: Those provisions apply only to an undivided pooled fund and are preempted/limited by explicit Trust terms requiring separate subtrusts and vesting; §16335(a) preserves trust terms | Reversed: statute does not compel changing fractions here; Trust controls and §§16340–16341 do not explicitly address principal receipts in this context |
| Whether equity or extrinsic materials justify importing changing‑fraction accounting | Trustees/Katy: equity and parties’ interim conduct (May 2012 letter, some distributions) support recalculation to avoid unfair allocation of gains/losses | Cathe: Extrinsic evidence (drafter Barcal’s testimony) and Trust language show settlor intended equal thirds; out‑of‑state authorities and treatises are nonbinding | Reversed: equity and out‑of‑state/treatise/IRS authority insufficient to override clear Trust terms and drafter’s testimony |
| Whether Cathe must bear estate taxes on the Goldenrod Property specifically bequeathed to her tax‑free | Court below: construed the provision to mean Cathe should not pay the full portion; she should pay the same tax burden as if sold to a third party (thus apportion half) | Cathe: Trust expressly states the gift "shall be free" of any estate or death taxes; that specific provision controls the general apportionment clause | Reversed: the specific tax‑free clause for Goldenrod controls over the general tax‑apportionment clause; Cathe owes no taxes on that gift |
Key Cases Cited
- Safai v. Safai, 164 Cal.App.4th 233 (Cal. Ct. App. 2008) (trust instrument language controls settlor’s intent for interpretation)
- Siegel v. Fife, 234 Cal.App.4th 988 (Cal. Ct. App. 2015) (de novo review of trust interpretation absent conflicting extrinsic evidence)
- Brown v. Labow, 157 Cal.App.4th 795 (Cal. Ct. App. 2007) (paramount rule is to determine intent from the instrument itself)
- Estate of Cairns, 188 Cal.App.4th 937 (Cal. Ct. App. 2010) (whole instrument must be read to ascertain trustor’s intent)
- Penny v. Wilson, 123 Cal.App.4th 596 (Cal. Ct. App. 2004) (trustee’s duty of impartiality in administering trusts with multiple beneficiaries)