Heathman v. Lizer CA2/3
B263943
| Cal. Ct. App. | Jul 8, 2016Background
- Dean Martin created an irrevocable family trust in 1995; Gina Martin Heathman is one of nine current income beneficiaries.
- Trust pays trustees 1% of the average net value of principal annually (charged equally to principal and income); provision also allows extra reasonable fees for extraordinary services.
- Trust principal appreciated massively (from about $11.4M in 1995 to about $81.2M in 2014), causing trustee fees to grow from ~ $134K to ~ $812K annually.
- Heathman (with assent of all current beneficiaries) proposed petitioning under Prob. Code §§ 15403 and 15409(a) to replace the 1% fee with a market-based cap, arguing the fee now substantially impairs the trust’s purpose of benefiting beneficiaries.
- Heathman filed a "safe harbor" application under former § 21320 seeking a pre-filing judicial determination that the proposed petition would not trigger the Trust’s no-contest (in terrorem) clause.
- Trial court granted the safe-harbor ruling; trustees (Lizer and Smith) appealed. The Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument (Heathman) | Defendant's Argument (Trustees) | Held |
|---|---|---|---|
| Whether a petition to modify trustee compensation under §§ 15403/15409 is a prohibited “contest” under the trust’s no-contest clause | Proposal seeks equitable modification to prevent a provision from defeating the trust’s purpose; beneficiaries may petition to modify and statutes/public policy favor such petitions | Plain language of the no-contest clause forbids any act that “impairs or invalidates” a provision; deleting/replacing the compensation clause is therefore a contest | Petition to modify trustee compensation under §§ 15403/15409 (with unanimous beneficiary consent or under §15409 showing changed circumstances) is not a no-contest “contest” as a matter of policy; affirmed safe-harbor ruling |
Key Cases Cited
- Donkin v. Donkin, 58 Cal.4th 412 (2013) (describes enforceability and strict construction of no-contest clauses)
- Burch v. George, 7 Cal.4th 246 (1994) (testator intent controls application of no-contest clauses; clauses strictly construed)
- Hearst v. Ganzi, 145 Cal.App.4th 1195 (2006) (explains former § 21320 safe-harbor procedure and limits on merits determination)
- Estate of Bullock, 264 Cal.App.2d 197 (1968) (public policy: trusts are for beneficiaries, not trustees; no-contest clause cannot bar petitions protecting beneficiaries)
- Estate of Ferber, 66 Cal.App.4th 244 (1998) (no-contest clause invalid where it would bar non-frivolous petitions to protect beneficiary interests)
- Estate of Bodger, 130 Cal.App.2d 416 (1955) (predecessor authority that courts could not alter trustee compensation, later abrogated by statute)
- Balian v. Balian, 179 Cal.App.4th 1505 (2009) (section 21320 safe-harbor may be used to resolve whether a proposed §15409 petition is a contest without resolving merits)