47 Cal.App.5th 548
Cal. Ct. App.2020Background:
- In 2005 Harry Berkowitz and his wife created The Berkowitz Family Trust, providing for a Surviving Spouse Trust (revocable) and a Marital Trust (irrevocable) after the first spouse’s death.
- Both the Surviving Spouse Trust and the Marital Trust contained identical general powers of appointment permitting the surviving spouse to distribute trust assets to “one or more persons, including the surviving spouse.”
- The wife died in 2011; in April 2017 Berkowitz (the surviving spouse) exercised the general power and appointed all trust assets to himself, eliminating contingent remainder interests (including those of Janice Tubbs and her children).
- Tubbs sued, arguing Berkowitz’s fiduciary duties as successor trustee limited his ability to exercise the power in his own favor and that the exercise violated the settlor’s intent and an implied covenant of good faith.
- The trial court granted summary judgment for Berkowitz, ruling the power was general, exercisable in a nonfiduciary capacity, and the trustee had no discretion but to follow the settlor’s directions; the Court of Appeal affirmed.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a trustee’s fiduciary duties limit a donee’s exercise of a general power of appointment to appoint trust assets to himself | Tubbs: Berkowitz, as successor trustee, must administer the Marital Trust in beneficiaries’ interest and cannot use the power to divest remaindermen | Berkowitz: The powerholder (donee) may act in a nonfiduciary capacity; the trust expressly permits appointment to himself | Court: General power permits nonfiduciary exercise; trustee must implement the donee’s direction and did not breach fiduciary duties by doing what the trust expressly authorized |
| Whether an implied covenant of good faith can restrict an express, general power of appointment | Tubbs: The covenant and settlor intent restrict unlimited appointments that subvert beneficiaries | Berkowitz: The trust language controls; no implied limit overrides explicit power | Court: Implied covenant cannot override clear, express grant of unfettered power in the trust |
| Whether designation of same person as trustee and donee causes merger/invalidates trust | Tubbs: Combining roles without fiduciary limits effectively merges legal/equitable title, defeating remainder interests | Berkowitz: Contingent interests survived until power was exercised; the instrument granted a revocation-like power | Court: No merger/invalidity; contingent rights remained until lawful exercise of the power, which effectuated the settlor’s express grant |
Key Cases Cited
- Estate of Daily, 130 Cal.App.3d 993 (1982) (general power of appointment treated as equivalent to absolute ownership)
- Estate of Kuttler, 160 Cal.App.2d 332 (1958) (donee of a general power has broad freedom of disposition)
- Aguilar v. Atlantic Richfield Co., 25 Cal.4th 826 (2001) (summary judgment standard — no triable issue of material fact)
- Hearst v. Ganzi, 145 Cal.App.4th 1195 (2006) (trustees do not breach duties where actions are explicitly authorized by the trust instrument)
- Estate of O'Connor, 26 Cal.App.5th 871 (2018) (discussion of powers of appointment and creating instrument)