Estate of Traung
Samuel C. Shenk for Objector and Respondent.
SULLIVAN, J.
We review here an order made by the probate court in the course of its supervision of a testamentary trust by which it has authorized and directed a deviation from the express terms thereof because of a change of circumstances allegedly occurring after the testator‘s death. The trustees have challenged the propriety of the court‘s action which requires them to terminate the trust as to one of the beneficiaries and to pay all of his trust estate to his guardian. Appeal has been taken on a partial clerk‘s transcript.1
The testator, Charles F. Traung, died in 1940. He left surviving him his wife, Mae Percival Traung, his daughter, Betty Mae Traung, now Betty Mae Schenone, hereafter referred to as Betty and his son, Charles Louis Traung, hereafter referred to as Charles. In his will which was admitted to probate, the decedent created a trust in all of the residue of his estate for the above three persons as principal beneficiaries. In the record before us, we find the terms of the trust set forth in the decree of final distribution entered by the court on July 1, 1941. We summarize such provisions insofar as they are pertinent to this appeal.
The testator directed his trustees to pay the net income of the trust to his widow for life and upon her death to divide the trust estate into two equal parts, one part to be held for Betty and the other for Charles. He further directed them to pay
Distribution of Charles’ share of the trust was prescribed in two steps. The trustees were required to pay him one-third of his share, and therefore one-sixth of the entire trust, when he reached the age of 30. As to the second step, the testator‘s direction was as follows: “Provided, however, that when the said Charles Louis Traung shall attain the age of forty years, if in the judgment of Louis Traung and L. H. Jackson, of Rochester, New York, associated with Stecher Traung Lithograph Corporation, or the survivor of them, he shall have given evidence that he is capable of handling his portion of the trust estate with proper care and judgment, upon the request of Louis Traung and L. H. Jackson, given to the trustees, the trustees then shall terminate the trust as to the remainder of the portion of the trust estate held for the benefit of Charles Louis Traung, and shall pay over and deliver to him his portion of the trust estate. In the event of the death of Louis Traung and L. H. Jackson prior to the termination of the trust, such determination shall be vested in and made by said Wells Fargo Bank & Union Trust Co.”
The will also provided that in the event either Betty or Charles should die prior to the termination of the trust, the share of such person should go to his or her testamentary appointees, or failing such appointees, to his or her issue, or if no issue, to the survivor of said two persons. In the event both Betty and Charles died without having disposed of their respective shares by will and without issue, the trust estate was to go to the heirs of Charles F. Traung, the testator.
Under the will Louis Traung and Wells Fargo Bank and Union Trust Co., subsequently by merger Wells Fargo Bank American Trust Company, were named trustees, and L. H. Jackson, to whom reference has already been made, designated a substitute trustee in the event of Louis Traung‘s death. Jackson was substituted as trustee in the place of Louis Traung upon the latter‘s death on November 15, 1949. The trustees were invested with broad powers which we need not detail here.
In such manner does the will of a successful businessman give expression to his purpose and plan in making provision for the members of his family.
Mae Percival Traung, the testator‘s widow and the first life income beneficiary died on August 29, 1960. On that date Charles was over the age of 40 years. He was also incompetent and the Bank of California, Portland, Oregon, was the guardian of his estate.
On November 18, 1960, the trustees filed their “Nineteenth Report and Account ... and Petition for Instructions.” Such document contained the following allegations pertinent to the problem before us: The death of Mrs. Traung and the continued incompetency and disability of Charles; that the trustees proposed to distribute to the Bank of California as guardian of Charles’ estate, one-third of Charles’ share of the trust or one-sixth of the entire trust, less a specified amount claimed to have been expended for his benefit;3 that “L. H. Jackson, individually,4 has advised the trustees that in his judgment Charles Louis Traung by reason of his incompetency is not capable of handling the balance of his portion of the trust estate with proper care and judgment and that he accordingly has not requested and will not request the trustees to terminate the trust ...“; and that accordingly the trustees proposed to hold the balance of Charles’ share pursuant to the
The foregoing report, account and petition originally set for hearing on December 2, 1960, was heard by the probate court on January 23, 1961. In the meantime, on January 6, 1961, the probate court appointed Robert H. Baxter, respondent herein, as guardian ad litem of Charles, pursuant to a nomination made by Helen Traung, Charles’ wife, and by such order authorized respondent to file objections both to the above-mentioned report and account of the trustees and to a petition theretofore filed by the Bank of California of Portland, Oregon (not in the present record) for authority to remove property of nonresident ward, apparently in contemplation of the distribution proposed by the trustees. Baxter filed such objections forthwith on the day of his appointment.
Baxter‘s objections contained the following allegations pertinent here: That Charles was 43 years old and was married; that he and his wife were residents of San Francisco; that because of a second brain operation in 1952, Charles was incapable of managing his own financial affairs and had been rated an incompetent by the Veterans Administration for the purpose of receiving benefits therefrom; that Charles had executed a holographic will prior to his second operation and the will was in the custody of his attorney; that termination of the Oregon guardianship proceedings was contemplated and respondent intended to petition the appropriate Superior Court in California to be appointed guardian of Charles’ estate; that, accordingly, no part of Charles’ trust estate should be paid to the above Oregon bank; that L. H. Jackson, in exercising his judgment with respect to distribution of the balance of the trust estate, “failed and neglected to consider the true intentions” of the testator as expressed in his will, that the trust provisions were designed “for the protection of the corpus against a son who might be prone to squander said funds” and that if the testator “had any idea” of Charles’ future illness and incompetency, he would not have imposed the conditions set forth in the will; that L. H. Jackson neglected to take into consideration the respondent Baxter‘s competence to handle Charles’ estate; that the entire trust estate of Charles, the one-sixth interest proposed to be distributed and the two-sixths interest proposed to be retained by the trustees be ordered distributed to the respondent as guardian
On January 23, 1961, the probate court also appointed the respondent Baxter guardian ad litem of unborn children of Charles, pursuant to a similar nomination by Charles’ wife, Helen, the general purport of the order being to authorize Baxter to file objections similar to, or participate in, those already filed by him as guardian ad litem of Charles.5
In its order of March 31, 1961,6 the probate court found, so far as is pertinent here, that Charles was 43 years old, married, a resident of San Francisco, and “as the result of multiple brain operations, the last of which was in the month of November, 1952, is incompetent and incapable of managing his own financial affairs“; that the respondent Baxter as guardian of his estate was “fully competent, experienced and capable of managing the financial affairs of Charles ... with proper care and judgment“; that the one-sixth of the trust estate payable to Charles at age 30 should be delivered to respondent as his guardian; that the physical condition of Charles was materially different than was the case when the testator executed his will; that “from the provisions of said
Upon such findings the court ordered the one-third of Charles’ share of the trust which was payable to him at age 30 delivered to respondent as his guardian and further ordered and directed the trustees to terminate the trust as it pertained to Charles and in addition to deliver to respondent as guardian the remaining two-thirds of Charles’ share.7
The contention of the trustees here is simply that the condition attached by the testator to the distribution of the balance of the trust estate has not been satisfied. Although appellants thus point at the heart of the problem, they probe no further. At oral argument, counsel for appellants took the position that the legal principles governing deviation from the express
We therefore propose to examine three questions implicit in the issue raised before us: (1) Does the probate court have jurisdiction to authorize or direct a deviation from the terms of the testamentary trust? (2) Was the court justified in directing such a deviation in the instant case? (3) Was the question of such deviation properly cognizable by the court in the proceedings before it?
[1] We first dispose of a preliminary matter. Appellants claim that “there is not one iota of evidence” to support the finding that Jackson‘s refusal to request distribution of the balance of the trust estate was unreasonable and in bad faith. Such a claim cannot be considered upon an appeal based solely upon the clerk‘s transcript. (Seay v. Allen (1955) 134 Cal.App.2d 440 [286 P.2d 392].) [2] Since there is no transcript of the evidence in the record before us, we will, as we must, assume that there was substantial evidence to support the findings. (Crowell v. Braly (1959) 169 Cal.App.2d 352, 354 [337 P.2d 211].) In their closing brief appellants assert that we have before us “all that was presented to the Probate Court” on the present issue. We are at a loss to understand this statement, for the order which appellants have brought before us recites that it was made “after hearing the evidence, and proof having been made. ...”
We take up the first question.
Does such admittedly broad probate jurisdiction include the power to authorize or direct deviation from the trust provisions? In Estate of Keet (1940) 15 Cal.2d 328, 334 [100 P.2d 1045], the Supreme Court at least assumed the existence of such powers and that under the facts of that case “[i]t would ... have been possible for the trustee, upon a proper showing, to secure permission from the court to deviate from express restrictions against sale.” Again, in Estate of Van Deusen (1947) 30 Cal.2d 285, 292-293 [182 P.2d 565], the court assumed, arguendo, that a probate court had the same power under
[6] In our view, the broad jurisdiction of probate courts over testamentary trusts was intended to include the power to modify the trust in proper cases. We find support for such conclusion in the foregoing authorities. Such power, we think, is necessarily incident to the judicial supervision which the section seeks to achieve. Among other things, the statute confers authority upon the court to pass upon the trustee‘s acts.
Was the exercise of this power warranted in the instant case? [9] It is a settled principle of the law of trusts that a court of equity will direct or permit a deviation from the express terms of a trust upon a proper showing of changed conditions occurring after its creation. (Adams v. Cook (1940) 15 Cal.2d 352, 358-360 [101 P.2d 484]; Stanton v. Wells Fargo Bank etc. Co. (1957) 150 Cal.App.2d 763, 770 [310 P.2d 1010]; 49 Cal.Jur.2d, Trusts, §§ 312-316 at pp. 152-156; 2 Scott on Trusts (2d ed. 1956) § 167 at pp. 1167-1178; Bogert (2d ed. 1960) Trusts and Trustees, § 561, pp. 128-141; Rest. 2d Trusts, § 167.)
The rule is set forth in the Restatement Second of Trusts, section 167, subsection (1) as follows: “The court will direct or permit the trustee to deviate from a term of the trust if owing to circumstances not known to the settlor and not anticipated by him compliance would defeat or substantially impair the accomplishment of the purposes of the trust; and in such case, if necessary to carry out the purposes of the trust, the court may direct or permit the trustee to do acts which are not authorized or are forbidden by the terms of the trust.” Comment b to the above subsection adds a caveat against its indiscriminate application: “The court will not permit or direct the trustee to deviate from the terms of the trust merely because such deviation would be more advantageous to the beneficiaries than a compliance with such direction.”
Both Scott and Bogert contain illuminating expositions on the underlying theory of the rule. Scott observes (2 Scott on Trusts (2d ed. 1956) § 167 at pp. 1176-1177): “In all these cases the court in conferring power upon the trustee is attempting to prevent the failure or substantial impairment of the purpose for which the settlor created a trust. It is permitting the trustee to do, not what the settlor intended to permit him to do, but what it thinks the settlor would have intended to permit if he had known of or anticipated the circumstances which have happened. ... In so doing the court is not interpreting the terms of the trust, but is permitting a deviation from them in order to carry out the purpose of the trust.” Bogert states (Bogert (2d ed. 1960) Trusts and Trustees, § 561 at pp. 128-130) that the trust instrument contains two parts “(1) that in which the settlor describes the beneficiaries who are to obtain financial benefits, fixes the size of those benefits, and in many cases states the purposes of the trustor in providing for these benefits; and (2) the portion of the instrument in which the settlor provides for the methods by which the trustee is to employ the trust property in such a way as to secure for the cestuis the intended advantages, as, for example, the retention or sale of the original trust property, the making of new investments, and the time of payments to be made to the beneficiaries.” (Emphasis added.) This authority points out that while normally a court of equity will secure the carrying out of both the dispositive provisions and the administrative provisions, occasionally adherence to the latter will render it impossible or extremely difficult for the trustee to carry out the former and that “[i]n this dilemma the courts take a position which seems very reasonable and justifiable. They take the view that where there is a conflict between a dispositive provision and an administrative direction the latter should give way. The primary and fundamental objects of the trustor are to make certain property transfers to the cestuis and thus secure for them certain advantages, as, for example, support in comfort, education, or a life of luxury. The terms of the trust having to do with the manner in which the trustee should act in order to obtain the primary objectives are not on the same level of importance but are rather minor and auxiliary. The jurisdiction of equity to enforce trusts should and does include power to vary the details of administration which the settlor has prescribed in order to secure the more important result, namely, obtaining for the beneficiaries the advantages which the settlor stated he wished them to have.” (Pp. 129-130.)
Thus in Adams v. Cook, supra, 15 Cal.2d 352, 361, a case involving changed conditions subsequently arising in connection with a business trust, it was said: “It is perfectly clear from the above authorities that the rule against courts modifying the terms of a contract, and that they should construe it precisely as the parties had made it, does not apply to declarations of trust, where the primary purpose of the trust would not be accomplished by a strict adherence to the terms of the declaration of trust and that when it is made to appear in a court of equity, as was shown in the present case, that the benefits and advantages which the trustors desired to confer upon the beneficiaries would not accrue to them by ‘a slavish adherence to the terms of the trust,’ the court may modify the terms of the trust to accomplish the real intent and purpose of the trustors.”
In Stanton v. Wells Fargo Bank etc. Co., supra, 150 Cal.App.2d 763, 770, after referring to a number of authorities, including Scott, Bogert and the above-mentioned section 167 of the Restatement Second of Trusts, Mr. Justice Peters summarized the rule in the following words: “The power to permit deviation from the terms of private trusts is analogous to the cy-pres doctrine applicable to charitable trusts. [Citation.] A few generalizations can be made. Normally, of course, the trust instrument constitutes the measure of the trustee‘s powers. [Citation.] Except in unusual or emergency situations the courts will limit the trustees to the powers conferred. But the courts will not permit the main purpose of a trust to fail by compelling slavish adherence to the administrative limitations of the trust instrument. Where the main purpose of the trust is threatened the courts will and should grant permission to deviate from restrictive administrative provisions. But the court should not permit a deviation simply because the beneficiaries request it where the main purpose of the trust is not threatened and no emergency exists or is threatened. It must be remembered that it is the theory of this rule that, by the exercise of this power, the court is not defeating the trust, but in fact furthering it. The equity court is simply doing what the testator, presumably, would have done had he anticipated the changed conditions. In other words, the specific intent of the testator is disregarded in order to enforce his general intent.”
[10] The case before us falls within the above rule. The trust provisions show an intent on the part of the testator that Charles should ultimately have full enjoyment of his share
In his conception of such purpose and intent, the testator obviously contemplated a beneficiary who would be sui juris. It was natural for him, therefore, to express his desired condition dealing with the proper care and management of the balance of Charles’ share in terms that related to the personal competence and responsibility of such beneficiary. The proviso that “he [i.e., Charles] shall have given evidence that he is capable of handling his portion ...” (emphasis added) must be considered in this context. The testator did not contemplate Charles’ incompetency. His will is completely silent on this contingency, although providing for other contingencies, as for example Charles’ marriage, issue and failure of issue, testacy and intestacy. As we have pointed out, Charles’ incompetency was a condition arising in 1952, 12 years after the testator‘s death. The trial court found that Charles’ physical condition was materially different “than was the case when the will ... was executed,” that he was “incompetent and incapable of managing his own financial affairs,” that the respondent as guardian of Charles’ estate was “fully competent, experienced and capable of managing the financial affairs” of Charles, but that the trustees were advised by L. H. Jackson, the person designated in the will, that since Charles, by reason of such incompetency, was not capable of handling the balance of his share of the trust, Jackson would not request the trustees to distribute it and terminate the trust.
The trial court therefore found all of the necessary facts upon which it could and did predicate its order directing a
It was therefore within the compass of the rule we have set forth for the court to permit or direct a deviation from the trust provisions dealing with distribution to Charles at age 40 and to permit or direct distribution to his guardian. This subserves rather than defeats the testator‘s primary purpose. Under the theory of the foregoing rule, it permits the trustees to do, not what the testator intended them to do but what the court thinks the testator would have intended, if he had anticipated the circumstances of Charles’ incompetency. (2 Scott on Trusts (2d ed. 1956) § 167 at pp. 1176-1177, supra.) If the testator had anticipated Charles’ incompetency, he would have presumably provided for Charles’ enjoyment of the corpus as well as the income, so long as the corpus was properly managed and protected.
The court below also appears to have based its order terminating the trust upon a determination that it would serve no useful purpose to have the trustees’ administering two-thirds of Charles’ share while respondent as Charles’ guardian was administering the other third, thus subjecting the trust estate to duplicate fees and expenses “contrary to the intention of the trustor.” This undoubtedly would result in a saving to the beneficiary. [11] However, deviation from the terms of a trust is not justified merely because it would be more advantageous to the beneficiary than compliance with the testator‘s directions or would offer an expedient solution to the
[12] Although a change of circumstances would warrant deviation from the trust provision here involved, appellants did not seek permission from the court below to deviate from it. They took the position in their report and account that since Jackson had advised them that in the latter‘s judgment Charles was not capable of handling the balance of the trust and that since Jackson “has not requested and will not request the trustees to terminate the trust” as to Charles, they would continue to hold the balance of his share in trust. Such action, or more properly inaction, on appellants’ part would not preclude deviation since as the Restatement provides “[t]he court will direct or permit the trustee to deviate from a term of the trust. ...” (Rest. 2d Trusts, § 167, subsec. 1; emphasis added.) [13a] Nor do we think that the doctrine of deviation based upon changed circumstances is rendered inoperative in the instant case because the determination of Charles’ ability to handle the corpus rested “in the judgment of” L. H. Jackson.
On this aspect of the problem, it makes little difference whether we consider this power as a discretionary one vested in Jackson who in respect thereto is a virtual trustee or as one vested in the trustees but exercisable only upon the request of Jackson as their consultant. In either case, we find no absolute discretion conferred by the trust instrument. [14] A discretionary power conferred upon a trustee may be controlled by the proper court if not reasonably exercised. (
The trial court determined that it was the testator‘s primary purpose and overriding intent to have Charles receive his full share of the corpus so long as it would be managed with proper care and judgment. Charles’ incompetency was a change of circumstance clearly not anticipated by the testator, and in the light of it, compliance with the testator‘s directions that Charles should, in the judgment of Jackson, give evidence of being capable of handling the trust should not be enforced. As has already been demonstrated, to adhere to such direction is to defeat the testator‘s purpose and intent. Such purpose can be carried out with full protection to the property by distribution to the guardian. The insistence of Jackson that he adhere to the original directions, rather than deviate from them, is not a reasonable exercise of his judgment because it defeats the purpose of the testator. Indeed the court below found that Jackson‘s refusal to request a termination of the trust was not a reasonable exercise of judgment, was an abuse of discretion and, in apparent paraphrase of the Estate of Canfield (supra) was “contrary to the state of mind contemplated by the trustor.” [13b] We conclude that the discretion vested in Jackson did not prevent the application by the court of the rule allowing a deviation from the provisions of the trust under which Jackson exercised his discretion.
We hold therefore that the probate court was justified in directing such deviation in the instant case and in ordering the trustees to terminate the trust and deliver the balance of the corpus to the respondent.9
Respondent as Charles’ guardian ad litem thereupon filed objections to appellants’ report, account and petition, the contents of which we summarized at the outset of this opinion. In short, these objections contained allegations that Jackson, in exercising his judgment on the distribution of the balance of the corpus, “failed and neglected to consider the true intentions” of the testator who, if he “had any idea prior to his death of the future illness and incompetency of his son ... would not have imposed the conditions set forth in his said last will. ...” These allegations, together with the other allegations of respondent, including those bearing upon respondent‘s competence as guardian to manage the trust estate, in our opinion constituted an adequate petition to the probate court invoking the doctrine of deviation based upon changed
[16b] Respondent‘s objections, including such petition, and his prayer for an order “[a]uthorizing and directing” distribution to respondent as guardian of all of Charles’ share of the trust, properly invoked the jurisdiction of the probate court to direct deviation from the provisions of the trust, to distribute the balance of Charles’ share, and to terminate the trust as to him.
The attempted appeal from the designated portions of the memorandum opinion of the court made and entered on March 2, 1961 (there being no minute order made on said date) is dismissed. The Order Modifying Nineteenth Report and Account of the Trustees of the Trust Created by the Will of Charles F. Traung and Dispositions of Petitions and Objections Interposed Thereto given and made on March 31, 1961, is affirmed.
Bray, P. J., concurred.
DRAPER, J.*
I dissent.
To reach its result, the majority must hold that a man formally adjudged an incompetent in two states is nonetheless “capable of handling his portion of the trust estate with proper care and judgment.” Moreover, it must hold that this is so clear that the contrary conclusion of cotrustee Jackson, in whom the will vests the power of determination, is arbitrary and unreasonable. As an incident, it is also necessary
A principal, if not the sole, purpose of the trust appears from its terms to have been the imposition of limitations upon distribution of the corpus to the testator‘s two children. Whatever may be our view of the wisdom or desirability of such restrictions, the majority does not suggest that they were beyond the power of the testator.
The three texts upon which the majority relies permit deviation from the terms of the trust only when “compliance would defeat or substantially impair the accomplishment of the purposes of the trust,” and only when “necessary to carry out the purposes of the trust” (Rest. 2d Trusts, § 167[1]; and see like statements in 2 Scott on Trusts (2d ed.) 1167, 1176). Bogert distinguishes between “dispositive” and “administrative” provisions, and suggests limitation of the power of deviation to the latter (Bogert, Trusts and Trustees (2d ed.) 128-130). In the present will, there is a notable absence of any emphasis upon, or even declaration of, purposes to be served or standards to be reached by dispositions to the two children. Rather, the emphasis appears to be upon restricting disposition of the corpus. Thus the deviation from terms of the will accepted by the majority effects, in my view, a frustration rather than an accomplishment of the basic purpose of the testator.
Moreover, the present order may well invade the rights of residuary beneficiaries of the trust. The identity of such residuary beneficiaries is not now determinable. Among those presently likely to participate in such ultimate succession are minors. Unborn children may be entitled to portions of the residue. Yet to direct immediate distribution of the substantial portion of corpus here involved ignores the rights of such possible residuary beneficiaries. Protection of their rights is
I would reverse the order.