Nоrma Jean Klein appeals from an order granting “safe harbor” to her son, Christopher Gene Fazzi, to file a proposed petition in probate court challenging Norma’s status and actions as trustee of two trusts in which Christopher is a beneficiary.
In granting Christopher’s safe harbor application, the trial court found neither of the two trusts contains a “no contest” clause and, moreover, even if the clause did apply, the proposed petition does not constitute a “contest” as defined in the Probate Code.
I
Background Facts and Procedure
On January 29, 1987, Norma and her husband, Lloyd Klein, created a revocable trust entitled the Klein Family Trust (the Trust or the original trust) and concurrently executed “pour-over” wills. The Trust designatеd the two spouses as cotrustees of the Trust during their joint lifetimes.
According to the terms of the Trust, upon the death of either spouse, the survivor, as trustee, was to divide the trust assets into three new trusts: Trust A, Trust B, and Trust C. The Trust directed the trustee/surviving spouse to fund Trust A with his or her share of the community property and separate property, and this trust would remain revocable during that spouse’s lifetime. The trustee was to place into Trusts B and C, according to a specified formula, the decedent spouse’s separate property and share of community property. Christopher, his five siblings, and stepsiblings were to be the remainder beneficiaries of Trusts B and C, which would become irrevocable trusts when the first spouse died. The surviving spouse was to be the income beneficiary of all three trusts until his or her death.
The Trust contained a “no contest” clause that essentially provided any person, heir, or beneficiary under the Trust who “contests] in any court any of the provisions of this instrument . . . shall not be entitled to any distributions ... or any benefits under this trust instrument.” (Trust, f 6.05, italics added.)
Lloyd died on December 11, 1996, and Norma became the sole trustee. Nine months later, Norma executed an asset allocation agreement that distributed the Trust assets into the three subtrusts, A, B, and C.
On April 9, 2008, Christopher filed an application fоr a safe harbor determination under Probate Code former section 21320
In this safe harbor application, Christopher requested a determination that his propоsed petition did not violate the “no contest” clause of the Trust. The proposed petition sought the following: (1) removal of Norma as trustee “for cause”
Norma filеd a response and objections to the safe harbor application. Essentially, she argued the proposed petition violated the Trust’s “no contest” clause because in seeking “to ignore the designation of Michael” as the successor trustee of Trusts B and C and to appoint in his stead a professional fiduciary, the petition sought relief in contravention of paragraph 7.02. Underpinning that argument was her additional contention that both the successor trustee and “no contest” provisions of the Trust applied to Trusts B and C. She further argued that the proposed petition to remove her as trustee for cause violated the “no contest” clause and, finally, that Christopher could not prevail on his proposed petition because it would require a determination of the petition on the merits, which is precluded by former seсtion 21320, subdivision (c).
The trial court granted Christopher’s application for a safe harbor determination. In a minute order dated August 6, 2009, the trial court stated its reasoning as follows: “The Court grants safe harbor on the following grounds: Trusts B and C do not contain a no contest clause, nor do they refer to or incorporate the no contest clause of the original Trust, which is no longer in existence. The proposed petition is not a ‘contest’ as defined in the Probate Code (see section 21300). There simply is no . . . challenge to the validity of trusts B or C, or to the original trust. . . . ffl The proposed pleading doesn’t contest provisions of the Trust.”
This appeal followed.
II
Discussion
Norma argues the trial court erred in granting Christopher safe harbor to file the proposed petition. She asserts the trial court erred in finding that the Trust’s “no contest” clause did not apply to the subtrusts and the proposed petition did not constitute a “contest” under the terms of that clause. Norma’s claims have merit.
The rules for interpreting the scope of a “no contest” clause are well established. Where, as here, “[t]here is no conflict or question of credibility in the relevant extrinsic evidence^] . . . interpretation of the trust is a question of law for our independent review. [Citation.] Although no contest clauses are enforceable and favored by the public policies of discouraging litigation and preserving the transferor’s intent, they are nevertheless strictly construed and may not be extended beyond their plainly intended function. [Citations.]” (Johnson, supra,
Christopher’s argument for interpreting the “no contest” clаuse as inapplicable to Trusts B and C is beguilingly simple. He contends that because the Trust does not explicitly state the “no contest” clause applies to the subtrusts, it must be strictly construed as applying only to the original trust. But such a construction not only ignores the trustors’ intent as revealed in “the whole of the trust,” it is also patently unreasonable.
The trustors’ intent that the “no contest” clause applies to the subtrusts is implicit in the terms of the Trust. This document, a revocable instrument, created and funded the three subtrusts upon the first trustor’s death. (Trust, 1 4.02(b).) At operation, Trusts B and C were irrevocable, and a host of provisions in the original trust immediately came into play, establishing rules for the administration of the subtrusts. For example, paragraph 4.02(b) directed that each of the subtrusts “shall constitute and be held, administered and distributed by the Trustee as a separate Trust.” Paragraphs 4.04 and 4.05 established distribution rules for the assets and principal of Trusts B and C. Most importantly, for our purposes, paragraph 6.05 prohibited any beneficiary entitled to “any distributions ... or any benefits under this trust instrument” from “contest[ing] in any court any of the provisions of this instrument.” Taken together, these provisions reveal the trustors’ intent that the Trust should govern the trustee’s administration of the subtrusts upon their creation and funding.
This conclusion the “no contest” clause applies to the subtrusts is the оnly reasonable construction of the clause. Because the original trust was revocable, a “contest” was never a possibility during the joint life of the trustors. Only upon Lloyd’s death, when the remainder beneficiaries gained their irrevocable interests in Trusts B and C, did the possibility of a “contest” pose a risk to the trustors’ plan for the assets they placed in trust. Ascertaining the
McIndoe v. Olivos (2005)
Importantly for our purposes, the court in Mclndoe affirmed that “the no contest clause in the original trust applies to challenges to the original trust, the exempt.trust and the survivor’s trust,” even though the no contest clause there did not specifically state it applied to the subtrusts. (McIndoe, supra,
Like the “no contest” clause in Mclndoe, the “no contest” clause in the present case was also located in a “general provisions” section of the Trust—article 6, entitled “MISCELLANEOUS PROVISIONS.” (Trust, H 6.01 to 6.06.) Though article 6 did not specify that its provisions applied to each subtrust, that intent was implied in the provisions themselves, and from the instrument as a whole, as explained above. Consequently, Mclndoe supports our finding that the “no contest” clause applied to Trusts B and C. (See also Scharlin, supra, 9 Cal.App.4th 162, 170-171 [where original trust created two subtrusts, revocable survivor’s trust, and irrevoсable decedent’s trust, “no contest” clause in original trust controls decedent’s trust].)
Similarly, Meyer v. Meyer (2008)
B. The Proposed Petition Constitutes a “Contest” of the Trust
The Probate Code defines a “contest” as “any action identified in a ‘no contest clause’ as a violation of the clause. . . .” (Former § 21300, subd. (a).) The “no contest” clause at issue here is broad. It prohibits a beneficiary from contesting “any of the provisions of this instrument.” (Trust, | 6.05.) “ ‘ “Whether there has been a ‘contest’ within the meaning of a particular no-contest clause depends upon the circumstances of the particular сase and the language used.” [Citations.]’ [Citation.]” (Johnson, supra,
Christopher argues his proposed petition is not a “contest” because it “does not challenge, either directly or indirectly, the validity of the Original Trust.” He asserts his petition “does not seek to invalidate any provision of the Original Trust . . . and, instead, seeks to ensure that the testator’s intent as expressed in the Original Trust... is properly carried out.” Thus, Christopher contends that if he obtains all the relief requested in his petition, “the separate trusts will remain unaltered, and the various trust beneficiaries will receive only what they are due under the Original Trust. . . His argument does not ring true.
First, Christopher asserts the Trust does not “provide for a Trustee to Trusts B/C or a successor,” and that paragraph 7.02 applies only to the original trust, not to the subtrusts. (Italics added.) He argues paragraph 7.02 “governs only the Klein Family Trust and that none of the terms of that Trust were referred to or incorporated into Trusts B/C which were expressly created to be held separate and a part [sic\ from the Klein Family Trust.” (Italics added.) In other words, Christopher asserts the Trust designates neither a trustee nor a successor trustee to administer the subtrusts. But this argument flatly contradicts much of article 4 of the Trust, which details how the trustee is to hold and administer the three subtrusts. (See, e.g., f 4.02 (b) [upon first trustor’s death, trustee shall divide Trust estate into three subtrusts, each of which “shall ... be held, administered and distributed by the Trustee”].)
Christopher’s second attack on thе successor trustee provision directly contradicts the trustors’ intent. Christopher argues that if paragraph 7.02 does apply to the subtrusts, and Michael is found to be the successor trustee, then the court should find Michael “unfit” to serve because he lacks the necessary education and skill to perform his duties. Christopher also alleges Michael lacks “the requisite good faith and impartiality,” as evidenced by his “openly and outrаgeously hostile [attitude] toward [Christopher].”
For many, the decision of who will serve as trustee or successor trustee is a significant one. Here, Lloyd and Norma made clear their intention that their son Michael would follow one of them as successor trustee. Christopher’s assertion the court should ignore this intent and override paragraph 7.02 because he considers Michael prospectively unfit is indisputably a contest of one of the provisions of the Trust. It follows that the trial court erred in granting Christopher safe harbor to file his proposed petition.
The trial court, however, correctly concluded Christopher’s request to remove Norma as trustee “for cause” did not violate the “no contest” clause. The simple reason is that the Trust does not prohibit an action to remove an individual trustee, for cause or otherwise. In fact, the Trust dоes not address the subject.
Case law holds that, absent a specific provision barring a challenge to the trustee, a removal action does not violate the “no contest” clause. (Estate
Moreover, even if the “no contest” clause at issue here specifically prohibited any action to remove the trustee, that provision would be unenforceable. In Estate of Ferber (1998)
Disposition
The order granting Christopher’s application for a safe harbor determination is reversed. The trial court is directed to enter a new order granting the safe harbor application on that portion of the proposed petitiоn challenging Norma as trustee for cause, and denying the application on the remaining portions of the proposed petition. Norma is entitled to her costs on appeal.
Rylaarsdam, Acting P. J., and Rola, J., concurred.
Notes
Because all the individuals mentioned in this opinion are related and bear one of two last names, we refer to them by their first names. We intend no disrespect but simply aim for clarity and convenience. {In re Marriage of Smith (1990)
As we explain below, the two trusts do contain a “no contest” clause and Christopher’s challenge to his brother’s appointment as successor trustee violates that clause. Christopher’s action to remove his mother is not a contest, however. Consequently, we reverse and direct the trial court to enter a new order granting the safe harbor application in part, and denying it in part.
All further statutory references are to the Probate Code. Effеctive January 1, 2010, the Legislature repealed former sections 21300 through 21308 (General Provisions) and former sections 21320 through 21322 (Declaratory Relief) and enacted a major revision of the statutory scheme governing no contest clauses. (See §§ 21310-21315.) The new law limits the enforceability of no contest clauses to only three types of claims: (1) direct contests brought without probable cause; (2) challenges to the transferor’s ownership of property at the time of the transfer if expressly included in the no contest clause; and (3) creditor’s claims and actions based on them, if expressly included in the no contest clause. (§ 21311, subd. (a); see also Johnson v. Greenelsh (2009)
Christopher accuses Norma of breaching her fiduciary duties by enriching herself in the administration of Trusts B and C at the expense of the remainder beneficiaries. Among other things, he alleges Norma improperly diverted trust assets by overfunding Trust A and underfunding Trusts B and C, transferring properties of B and C to “unrelated partnerships,” and failing to account for her dealings as trustee.
The court in Mclndoe went on to find that under the terms of the trust, thе beneficiary could contest the survivor’s trust without jeopardizing her interests under the exempt trust. “Had the trustors intended a contest to a particular subtrust result in a contest to all subtrusts, they could have so stated.” (Mclndoe, supra,
In the aftermath of Ferber, the Legislature went one step further and banned the enforcement of a no contest clause against any action to remove a fiduciary. Former section 21305, subdivision (b) declared that, “notwithstanding anything to the contrary in any instrument, the fоllowing proceedings do not violate a no contest clause as a matter of public policy: [f| ... [f] (6) A pleading challenging the exercise of fiduciary power, [f] (7) A pleading regarding the appointment of a fiduciary or the removal of a fiduciary.” Former section 21305 does not apply here because the subtrusts became irrevocable on December 11, 1996, and the statute applies only to instruments that became irrevocable on or after January 1, 2001. (Former § 21305, subd. (d); Hermanson v. Hermanson (2003)