Norma 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. Because the trial court erred in granting the application for safe harbor, we reverse.
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 designated 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 which provided, essentially, that any person, heir, or beneficiary under the Trust who "contest[s] 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, ¶ 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 for a safe harbor determination under Probate Code former section 21320
In this safe harbor application, Christopher requested a determination that his proposed 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 filed 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 section 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. . . . [¶] The proposed pleading doesn't contest provisions of the Trust."
This appeal followed.
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.
Christopher's argument for interpreting the "no contest" clause 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, ¶ 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 only 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) 132 Cal.App.4th 483 [33 Cal.Rptr.3d 689] (McIndoe) bolsters our conclusion. In McIndoe, the husband and wife trustors of a revocable family trust created and funded two separate trusts, a "survivor's trust" and an "exempt trust," upon the death of the first spouse, a plan that differs from the Kleins' only in the number of subtrusts created, two rather than three. The McIndoe family trust, also like the Kleins', included a no contest clause that did not specifically state that it applied to the subtrusts. After the death of the first spouse in McIndoe, the surviving spouse repeatedly exercised her right to amend the revocable "survivor's trust," which held her separate property and share of the trustors' community property. These amendments favored one sibling beneficiary over the other, and when the surviving trustor died, the disadvantaged beneficiary challenged the amendments on the ground of undue influence. The disadvantaged beneficiary sought a safe harbor determination that her proposed contest to the heavily amended survivor's trust would not constitute a contest to the exempt trust. The court agreed, based on the terms of the original trust.
Importantly for our purposes, the court in McIndoe 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, 132 Cal.App.4th at p. 487.) The court stated, "The no contest clause was located in the `general provisions' section of the trust document, which specified that all general provisions `apply to each trust established hereunder[.]' . . . Because the no contest clause of the original trust applied to all subtrusts, there was no need to add a no contest clause to the exempt trust." (Id. at p. 488.)
Similarly, Meyer v. Meyer (2008) 162 Cal.App.4th 983 [76 Cal.Rptr.3d 546] (Meyer), does not support Christopher's position that the "no contest" clause is inapplicable to Trusts B and C. In Meyer, the court held the beneficiaries should be granted safe harbor to challenge a testamentary trust because the "no contest" clause was contained in the decedent's will and by its express terms applied only to the will. (Id. at p. 996.) As with Perrin, this case is distinguishable on its facts.
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., ¶ 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 the 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 outrageously 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 does not address the subject.
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) 66 Cal.App.4th 244 [77 Cal.Rptr.2d 774] (Ferber), this court declared that "[n]o contest clauses that purport to insulate executors completely from vigilant beneficiaries violate" public policy. (Id. at p. 253; see also Bullock, 264 Cal.App.2d at p. 201 ["there is a well-recognized public interest that estates of decedents be administered in such a manner that there can be no doubt with reference to the correctness of the proceedings . . ."].) We concluded in Ferber that "no contest" clauses barring removal actions are enforceable only as to frivolous attempts to oust an executor or trustor. (Ibid.)
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 as to that portion of the proposed petition challenging Norma as trustee for cause, and denying the application as to the remaining portions of the proposed petition. Norma is entitled to her costs on appeal.
Rylaarsdam, Acting P. J., and Ikola, J., concurred.
