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Matched Legal Cases: ['§ 1304', '§ 334', '§ 25', '§ 336', '§ 217', '§ 340', '§ 227', '§ 223', '§ 227', '§ 699', '§ 21121', '§ 246', '§ 15407', '§ 15301', '§ 709', '§ 60', '§ 59', '§ 58', '§ 58', '§ 159', '§ 17200']

California Creditor Debtor Law Forum • View topic - TR - Mahan v. Rudnick (7/13/2004)
TR - Mahan v. Rudnick (7/13/2004)
Post subject: TR - Mahan v. Rudnick (7/13/2004)
Libbie Hahan et al. v. Robert Rudnick et al.,
No. F042773 (Cal.App. 07/13/2004)
LIBBIE MAHAN, as Cotrustee, etc. et al., Plaintiffs and Respondents, v. ROBERT RUDNICK et al., Defendants and Appellants; ROBERT ANTHOINE, Defendant and Respondent.
F042773
July 13, 2004, Filed
PRIOR HISTORY: APPEAL from a judgment of the Superior Court of Kern County. Louie L. Vega, Commissioner. No. PB15776.
DISPOSITION: The judgment is affirmed. Costs are awarded to defendant and respondent Anthoine.
COUNSEL: Kimble, MacMichael & Upton, Mary Ann Bluhm and Mark D. Miller for Defendants and Appellants.
Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, David J. Cooper and Nancy L. Oehler for Defendant and Respondent.
JUDGES: Buckley, J.; Dibiaso, Acting P.J., Wiseman, J. concurred.
OPINION: When he died in 1959, Oscar Rudnick's will provided that his estate (consisting in large part of undeveloped land and mineral rights) should be used to create a trust for the benefit of his second wife, Sophie, during her lifetime (the Rudnick Trust), and that upon her death, the trust should be terminated and the assets [*2] distributed one-half to Oscar and Sophie's only child Rebecca, and one-half to Oscar's 11 children by his first wife, Libbie Rudnick (then deceased), or to their issue by right of representation. Sophie died in 1999, but administration of the Rudnick Trust was continued for three years while the trustees endeavored to sell the property.
Rebecca, then in her 40's, died unexpectedly in 2001 in the interim between her mother's death and the completion of delivery to her of her one-half share of the trust assets. In her will, Rebecca left her property to her husband, Robert Anthoine (she had no children), who then claimed Rebecca's still-undelivered share of the trust. In 2002, the trustees, Libbie Mahan (Libbie Rudnick's granddaughter) and Wells Fargo Bank, petitioned the probate court for instructions regarding whether, under the provisions of Oscar's will, Rebecca's interest in the trust had "vested" prior to her death, such that the trust was obligated to honor Anthoine's claim. The court held it was, i.e., that Oscar had intended Rebecca's interest to vest indefeasibly upon Sophie's death rather than upon the actual delivery to Rebecca of her share of the trust. Three of Oscar and [*3] Libbie's children -- Marcus Rudnick, Loretta Howard, and Robert Rudnick (the Rudnicks) -- have appealed from this decision. They also challenge the court's subsequent appointment of Anthoine to serve as the third trustee of the Rudnick Trust. n1 We will affirm both the court's orders.
n1 We refer to many of the parties by their first name for the sake of clarity only, and mean no disrespect.
Oscar Rudnick's Will
Oscar Rudnick's will contained the following three provisions bearing on the present controversy. We will identify them from here on as the "distribution clause," the "survivor clause," and the "spendthrift clause" respectively.
"FIFTH: All of the rest, residue and remainder of my estate, I give, devise and bequeath to SOPHIE RUDNICK, MARCUS RUDNICK and JOSEPH PHILLIPS [Oscar's wife, eldest son, and accountant respectively], and the survivor of them, as trustees,[ n2 ] for the trust uses and purposes more particularly hereinafter provided. [P] ... [P] [*4]
n2 Sophie Rudnick remained a trustee until her death on February 14, 1999. By then, Rebecca Rudnick had replaced her half-brother Marcus Rudnick as one of the other two trustees, and Wells Fargo Bank had replaced Joseph Phillips.
[The distribution clause]
"D. This trust shall continue during the lifetime of my wife SOPHIE RUDNICK, or until such time as the trust estate is exhausted, and upon the happening of any such event first occurring, the trust shall terminate, and any undistributed income and the corpus of the said trust, shall go and be distributed, "(1) one-half to the issue of my marriage to Sophie Rudnick, by right of representation;[ n3 ] and
n3 Oscar's will also contained the following provision:
"FOURTH: I have heretofore provided by other means for my eleven children by my first marriage, and for that reason I am making disproportionate provisions herein for the benefit of Rebecca Sophie Rudnick, in order to similarly provide for her."
Oscar and Libbie Rudnick had earlier created one or more trusts for the benefit of their children with assets including "the stock in two corporations engaged in the meat packing business, a feed lot, the [67,000-acre] Onyx Ranch, and other real and personal property assets." These trusts had been the subject of "substantial litigation" by and between the various beneficiaries.
"(2) one-half to my children by Libbie Rudnick, by right of representation. [P] ... [P]
[The survivor clause]
"F. Except as hereinabove otherwise provided in my last will and testament, the share of any child of mine who predeceases me or the distribution of the trusts created herein, shall go to such child's issue, if any, by right of representation, and if any such child dies leaving no issue, his or her share of the trust shall be divided into as many equal parts as there are children of mine surviving, and predeceased children leaving issue, and the same shall be added to their shares and thereafter held, administered and distributed by my trustees in accordance with the provisions of this trust... [P] ... [P]
[The spendthrift clause]
"I. It is expressly understood that the net income arising from these trust estates, and the principal thereof, are intended for the sole and individual use and enjoyment of said beneficiaries, subject to the terms and conditions hereof, and none of said beneficiaries shall in any event, either jointly or severally, sell, assign, transfer, convey, pledge, hypothecate or otherwise encumber his or her share or their interest [*6] or interests under these trusts, nor shall the principal of the trust estates hereunder, nor any part thereof, nor any portion or all of the income arising therefrom, be liable for any debt of any one or more or all of said beneficiaries, nor subject to any judgment rendered against any one or more or all of said beneficiaries, nor to the process of any court in aid or execution of any judgment so rendered." (Italics added.)
The Court's "Liquidation" Order
On November 12, 1999, a few months after Sophie's death, the two remaining trustees of the Rudnick Trust (Rebecca Rudnick and Wells Fargo Bank) petitioned the court, pursuant to section 17200 of the Probate Code, n4 for instructions authorizing them to distribute the trust assets (the real property and the mineral rights) in-kind, with each beneficiary to receive an undivided, cotenancy interest in the property proportionate to his or her share of the trust. n5 (Superior court case No. 15776.)
n4 Unless noted otherwise, all future statutory citations will refer to the Probate Code.
Section 17200 provides in part:
"(a) Except as provided in Section 15800, a trustee or beneficiary of a trust may petition the court under this chapter concerning the internal affairs of the trust or to determine the existence of the trust.
"(b) Proceedings concerning the internal affairs of a trust include, but are not limited to, proceedings for any of the following purposes:
"(1) Determining questions of construction of a trust instrument.
"(2) Determining the existence or nonexistence of any immunity, power, privilege, duty, or right.
"(3) Determining the validity of a trust provision.
"(4) Ascertaining beneficiaries and determining to whom property shall pass or be delivered upon final or partial termination of the trust, to the extent the determination is not made by the trust instrument.
"(5) Settling the accounts and passing upon the acts of the trustee, including the exercise of discretionary powers.
"(6) Instructing the trustee. [P] ... [P]
"(10) Appointing or removing a trustee. [P] ... " [*7]
n5 The trustees were authorized to make the distribution by subdivision G of article fifth of Oscar's will, as follows:
"In any case in which the trustees are required to divide the trust estate into parts or shares, or to distribute the same, they are hereby authorized and empowered, in their absolute discretion, to make such division or distribution in kind, or partly in kind or partly in money, and for the purpose of such allotment the judgment of the trustees concerning the propriety thereof and the relative value for the purpose of division or distribution of the property and securities so allotted, shall be binding and conclusive upon all persons and corporations interested therein."
A month later, however, Rebecca (as trustee) withdrew her consent to the petition. It was replaced on March 14, 2000 by an amended petition requesting the court's "(i) approval of a plan for winding up the Trust over a three-year period through liquidating the Trust assets, (ii) ... instructions on [the trustees'] discretionary and other powers with respect to the distribution of assets of the Trust not [*8] liquidated during the three-year winding up period, and (iii) ... appointment of a third Co-Trustee [Libbie Mahan]."
This proposal to liquidate trust assets over time, rather than immediately distribute them in-kind in undivided shares, was based on what the amended petition described as "much dissension" and "disorganization among the beneficiaries, a lack of any plan for marketing of assets, issues of marketability of title if certain of the beneficiaries took title in their own name, the unmanageability of a co-tenancy relationship among fourteen beneficiaries, personal use of property by beneficiaries, and a high likelihood of partition litigation among beneficiaries with dramatically different interests should a distribution in undivided interests be made for the real property surface assets."
The amended petition purported to set out, in exhibit C, a list of beneficiaries and their respective interests in the trust assets. This list reflected the trustees' interpretation of the distribution clause in Oscar's will, which was expressed in the petition as follows:
"6. Under the dispositive provisions of the Trust in Article Fifth (D), the assets are to be divided into two [*9] shares, one for the issue of Sophie Rudnick, by right of representation[,] and one for the issue of Oscar Rudnick's deceased first wife, Libbie Rudnick, by right of representation.... In order for the issue of Sophie Rudnick and Libbie Rudnick to have a vested remainder interest in the Trust, they were required to survive Sophie Rudnick...
"7. Rebecca S. Rudnick, age 47, survived her mother, Sophie Rudnick, as the only issue of Sophie Rudnick and thus takes her fifty percent share under the Will and the Trust." (Italics added.)
A hearing followed on May 8, 2000, and the court granted the amended petition in an order filed June 28. The order directed the trustees to adopt a three-year plan to sell the trust assets (ending in May of 2003) and to deliver the proceeds from the sale to the beneficiaries "in the percentages and to the individuals specified in Exhibit 'A' attached hereto and made a part hereof ...." Exhibit A, which tracked the petition's exhibit C, provided that 50 percent of the sale proceeds should be paid to Rebecca. The Rudnicks did not appeal from this order. (See § 1304, subd. (a) [a final order granting or denying section 17200 petition is appealable]. [*10] )
Rebecca died on June 1, 2001 (i.e., during the three-year liquidation period), after some but not all of her share of the trust assets had been delivered to her. Rebecca's will, probated in Indiana, left all her estate to her husband, Robert Anthoine. Payments from the trust continued to be made to her estate during the remainder of 2001, but the trustees withheld all further payments beginning in 2002.
On February 15, 2002, Anthoine filed an amended spousal property petition in Kern County Superior Court case No. 50409, seeking a determination that Rebecca's estate included her one-half remainder interest in the assets of the Rudnick Trust. (Anthoine's petition also asserted claims to items of Rebecca's property unrelated to her interest in the Rudnick Trust.)
Rebecca's death had left the Rudnick Trust with only two trustees, Libbie Mahan and Wells Fargo Bank. This would continue to be the case for the next 18 months, as we will discuss below.
The Court's "Vesting" Order
On February 28, 2002, the trustees filed another section 17200 petition in which they asserted that "Rebecca survived the life of Sophie Rudnick but did not survive the [*11] termination of the Trust as extended in the [June 28, 2000] Order." On this premise, they requested the court's "instructions regarding whether Rebecca Rudnick's interest in all future distribution from the Trust was vested at the time of her death or whether her interest in the Trust reverts back into the Trust as a result of Rebecca Rudnick dying without issue before all distribution from the Trust have [sic] been made." The petition asked the court to make the following determinations in particular:
"1. Did Rebecca Rudnick survive termination of the Trust;
"2. Does the Trust require that a beneficiary survive not only the termination of the Trust, but also distribution[,] for the beneficiary's interest to not be defeased;
"3. Does the [June 28] Order granting the Amended Petition extend the termination of the Trust so that the Trust did not terminate at Sophie Rudnick's death but continues [sic] for three additional years;
"4. Does the [June 28] Order granting the Amended Petition vest distribution in Rebecca Rudnick so that she need not survive the termination of the Trust; [and]
"5. Did the [June 28] Order granting the Amended Petition vest Rebecca [*12] Rudnick's interest prior to her death ... [?]"
The trustees and Anthoine stipulated that the portion of Anthoine's spousal property petition asserting a claim to Rebecca's interest in the Rudnick Trust should be consolidated with the trustees' section 17200 vesting petition.
Anthoine and the Rudnicks n6 each filed a trial brief, and a reply to the other's brief, setting out their respective positions with regard to whether Rebecca's interest in the trust assets vested upon Sophie's death; if so, whether her interest was divested by her death; and what effect, if any, the June 28 order "extending" the trust had upon these questions. And, they each filed additional briefs following discovery.
n6 The Rudnicks' opening trial brief was filed on behalf of the three appellants (Robert Rudnick, Marcus Rudnick, and Loretta Howard) and on behalf of Philip Rudnick as well. Philip was not a party to the subsequent briefs, but he did appear in pro. per. at the hearing on the vesting petition. He is not a party to this appeal.
A hearing followed on August 20, 2002. On November 7, the court filed a written decision in which it held that, under the terms of Oscar's will, Rebecca's interest in the trust had vested upon Sophie's death, and was not later "forfeited" by Rebecca's death prior to delivery of the trust assets. A formal order to this effect was filed on January 28, 2003. n7
n7 The court's written decision made reference to both the probate proceeding (case No. 15776) and the spousal property proceeding (case No. 50409). But the subsequent order referred only to the probate proceeding.
On January 16, 2003, Anthoine petitioned the court to appoint him to serve as the third trustee of the Rudnick Trust, succeeding Rebecca. n8 The Rudnicks objected to the petition. So did Libbie Mahan (a cotrustee along with Wells Fargo Bank), who filed a petition asking the court to confirm her nomination of Joshua Rudnick for the position. Mahan also asked the court to continue the hearing on Anthoine's [*14] petition in order to consider her petition at the same time. Anthoine opposed Mahan's request. The court declined to continue the hearing on Anthoine's petition, which went forward as scheduled on March 18, 2003. The court announced its intention to grant the petition at the hearing and, on April 3, issued an order appointing Anthoine.
n8 With regard to the number and selection of trustees, Oscar's will provided:
" ... Should any trustee die, become incompetent, or for other reasons be unable or unwilling to act as such, the surviving or continuing trustees shall have the power and authority to designate in writing the trustees to fill the vacancy or vacancies. A decision of the majority of the trustees shall be binding upon the trust in the event of a disagreement between them... [P]
" ... Should any of my designated executors or trustees predecease me or the distribution of my estate and the termination of the trusts, I hereby authorize the surviving executors or trustees, if they so elect, by written appointment filed with the probate court administering my estate or the testamentary trusts, to fill the vacancy or vacancies in the office of executors and trustees, so that there may at all times be three executors or trustees."
It appears Wells Fargo Bank had declined to take a position with respect to who the third trustee should be, thus leaving it to the court to decide.
On March 27, 2003, the Rudnicks filed a notice of appeal from the court's January 28 vesting order (in case No. 15776), and from the court's statement of intended ruling at the March 18 hearing on Anthoine's appointment petition. As for the latter issue, we will treat the notice of appeal as having been filed immediately after judgment was entered on April 3, 2003. (See Cal. Rules of Court, rule 2(d)(2).) n9 The Rudnicks have not appealed from the court's order, if any was issued, in case No. 50409.
n9 We are informed that Marcus Rudnick died on October 23, 2003, survived by his wife and 11 children. Since the Rudnicks' appeal challenges an interpretation of Oscar's will that affects all of Oscar and Libbie's children (or their issue) equally, irrespective of whether or not they have joined the appeal (see Estate of McDill (1975) 14 Cal.3d 831, 840, 122 Cal. Rptr. 754; Estate of Sanderson (1960) 183 Cal. App. 2d 740, 742-743, 6 Cal. Rptr. 893), and since we have not received a request to abate the action or make a substitution of parties (see Konig v. Fair Employment & Housing Com. (2002) 28 Cal.4th 743, 745, fn. 3), we have not changed the title of the case.
The Rudnicks make two basic arguments with respect to when, under Oscar's will, a remainder beneficiary (e.g., Rebecca) acquired a vested right to his or her share of the Rudnick Trust. Their first argument assumes the trust terminated when Sophie died, but maintains the right vested not upon termination but upon actual delivery of the proceeds from the sale of the trust property. Their second argument assumes the right vested upon termination of the trust, but maintains the beneficiaries consented to postpone termination beyond Sophie's death until the trust property could be sold and the proceeds delivered to the beneficiaries. We consider these two arguments in order.
When Did "Distribution" of the Trust Occur?
A "remainder" is a future estate, or executory interest, created in favor of a person (the "remainderman") other than the grantor or testator, that will take effect in possession upon the termination of the precedent estate. (4 Witkin, Summary of Cal. Law (9th ed. 1987) Real Property, § 334, pp. 533-534; 30 Cal.Jur.3d (1987) Estates, § 25, pp. 719-720.)
Remainder interests may be characterized as vested or contingent. [*17] (4 Witkin, Summary of Cal. Law, supra, Real Property, § 336, p. 535; 28 Am.Jur.2d (2000 ed.) Estates, § 217 et seq., p. 243.) When the identity of the remainderman is known, but the accrual of his or her right of possession is subject to a condition precedent, the interest is contingent upon the happening of the condition, and becomes vested only if and when the condition occurs. (4 Witkin, Summary of Cal. Law, supra, Real Property, § 340, pp. 537-538; 28 Am.Jur.2d, supra, Estates, § 227, p. 250.) It is the certainty of the right of future possession, not the certainty of actual possession, that distinguishes a vested from a contingent interest. (In re De Vries (1911) 17 Cal.App. 184, 189; 28 Am.Jur.2d, supra, Estates, § 223, pp. 247-248.) That is to say, "The distinction between a vested and contingent remainder is not the uncertainty whether a remainderman will live to enjoy his or her interest, but whether he or she will ever have a right to enjoyment." (28 Am.Jur.2d, supra, Estates, § 227, p. 250, fn. omitted.)
Future interests, whether vested or contingent, may be sold, transferred, or devised [*18] in the same manner as present interests. (Civ. Code, § 699; Estate of Zuber (1956) 146 Cal. App. 2d 584, 591.) "Although in some respects the distinction between the types of future interests is important, upon the attribute of alienability and descendibility there is no distinction." (Estate of Ferry (1961) 55 Cal.2d 776, 785, 13 Cal. Rptr. 180.) (However, the right of a remainder beneficiary to alienate his or her future interest in a trust may be limited during the life of the trust by a spendthrift clause in the trust instrument, as we discuss below.)
Vested remainders, in turn, may be divided into those that are vested indefeasibly and those that are vested subject to complete defeasance (as upon the occurrence of a condition subsequent). Thus, Rebecca's remainder interest might be characterized as one that vested upon Sophie's death subject to complete defeasance if she (Rebecca) died before actually receiving it. For reasons that will appear however, we believe it is more correct, and less confusing, to frame the issue in this case in terms of the requirement in Oscar's will that the remainder beneficiaries survive "distribution" [*19] of the trust following Sophie's death.
"...'Where a future interest under a trust is given to a beneficiary, and the beneficiary dies before the time fixed for enjoyment of his interest, the question arises whether his interest ceases, or whether it passes on his death under his will or by intestate succession. The answer depends on whether on a proper construction of the terms of the trust the beneficiary's interest is conditional on his survival. It is immaterial whether the condition, if any, is a condition precedent or a condition subsequent; it is immaterial whether the interest of the beneficiary is contingent on his survival or whether it is vested but subject to be divested if he should not survive. In any case, if the interest is dependent on his survival, it ceases on his death. If, on the other hand, his interest is not dependent on his survival, it passes on his death under his will or by intestacy.'" (Kropp v. Sterling Sav. & Loan Assn. (1970) 9 Cal. App. 3d 1033, 1043, 88 Cal. Rptr. 878; see generally, Halbach, Future Interests: Express and Implied Conditions of Survival, Part I (1961) 49 Cal. L.Rev. 297 [hereafter Halbach].)
Oscar's [*20] will required Rebecca and the other remainder beneficiaries to survive both his death (at which point they acquired a contingent interest in the trust), and "the distribution of the trusts created herein" (when their interests vested). The question then is when did "distribution" occur: upon termination of the trust (Sophie's death), or upon actual delivery of the property to the beneficiaries? Put another way, was Oscar referring to the accrual of Rebecca's right to receive a share of the trust property in the future, or to her actual receipt of the property? n10
n10 It is useful to recall at this point that some trust assets were, in fact, delivered to Rebecca after Sophie's death in 1999, and for a short time, to Rebecca's estate following her own death in 2001. The latter action, which was not challenged at the time by the Rudnicks, was inconsistent with their present contention that Rebecca's interest, having vested upon Sophie's death, was "defeased" as to any future deliveries by her own death.
We note in addition that the trustee's amended liquidation petition in 2000, and the court's resulting order, assumed (if not decided) that Rebecca's interest had vested upon Sophie's death. Indeed, Anthoine argued in connection with the trustees' 2002 vesting petition that the issue of vesting necessarily had been decided by the earlier liquidation order, and so was res judicata. The Rudnicks argued it was not res judicata because the order had not decided whether Rebecca's interest, once accrued, would be divested if she were to die before taking delivery of her share. The court, in its vesting order, did not address the res judicata issue except to say that its liquidation order had not affected Rebecca's vested interest "in any manner," nor were her vested rights "forfeited" by her death.
Subdivision E of the fifth paragraph of Oscar's will provided that the trustees were to pay the net income from the trust property, up to a maximum of $ 20,000 per year, to Sophie, and any income over that amount could, in the trustees' discretion, "be retained in the trust or distributed annually to the other beneficiaries of this trust and in the same proportions they would receive the same upon termination as provided in Paragraph Fifth, Subdivision D." The Rudnicks concede in their opening brief that "this exception clarifies that any beneficiaries who have actually received distributions of Trust income need not survive until the entire 'distribution of the trusts' takes place (whenever that may be)." Thus, the Rudnicks' position seems to be that the interests of the remainder beneficiaries vested when, and only then to the extent that, they took actual delivery of their shares of the trust property.
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The trial court adopted the first interpretation in holding that Rebecca's remainder interest in the Rudnick Trust had vested indefeasibly when Sophie died, without regard to whether her (Rebecca's) share of the trust property had been or would be delivered to her prior to her own death (i.e., it was not subject to a condition subsequent that she survive delivery).
We exercise our independent judgment in reviewing the court's decision, and look to Oscar's will in its entirety in an effort to discern his intention in this regard. ( § 21121; Estate of Dodge (1971) 6 Cal.3d 311, 318, 324, 98 Cal. Rptr. 801.)
The Rudnicks challenge the court's decision by asserting:
"Whether Rebecca's interest vested before her death does not answer the question of whether she must survive physical distribution to transfer her Trust interest by will. The proper inquiry is: do the express survival provisions of Subdivision (F) and the spendthrift provisions of Subdivision (I) [of Oscar's will] require Rebecca, personally, to actually receive a Trust distribution before she can transfer it?"
As we have explained, subdivision F (the survivor clause) of Oscar's will provides that [*22] "the share of any child of mine who predeceases me or the distribution of the trusts created herein" shall go to that child's issue or, if there are no issue, to the other surviving children or their issue. (Italics added.) Subdivision I (the spendthrift clause) states that a beneficiary may not "sell, assign, transfer ... or otherwise encumber his or her share or their interest or interests under these trusts." n11
n11 It is significant, according to the Rudnicks, although they admit "somewhat puzzling," that subdivisions F and I (and some others as well ) refer to trusts (plural), when Oscar's will explicitly created only one trust. They suggest that "Oscar used the word 'trusts' to refer to the shares of individual beneficiaries after a division of the Trust into further shares as directed by the will as allowable by law, and before actual distribution." By this they seem to be saying it was Oscar's intention that, upon Sophie's death, separate trusts should be created for each of his surviving children, from which their respective shares of the Sophie trust would then be distributed to them. Thus, the requirement the remainder beneficiaries survive "the distribution of the trusts created herein" arguably referred to these smaller individual trusts (which the argument supposes were still in the process of being created when Rebecca died). The Rudnicks continue:
"If a child predeceases distribution of the 'trusts' without issue, Oscar plainly provided for the child's share to be divided into equal parts for his [Oscar's] surviving children and his predeceased children leaving issue[,] and required the trustees 'thereafter' to hold, administer and distribute the shares in accordance with the Trust's provisions. [Citation to the survivor clause.] This language supports the conclusion that Oscar intended Rebecca to actually receive a distribution from the Trust before she could transfer her interest to her heirs."
We believe Oscar's language actually supports the opposite conclusion. Requiring that a predeceased child's share be "held, administered and distributed" according to the terms of the trust supposes the trust is still in existence. Since the trust terminated upon Sophie's death, it follows the survivor clause in Oscar's will must have referred to his children who predeceased Sophie.
We find additional support for this interpretation in the language of subdivision E of the will (see the preceding footnote), which authorized the trustees, during the life of the trust, to distribute any net income in excess of the $ 20,000 payable annually to Sophie, to the remainder beneficiaries "in the same proportions they would receive [it] upon termination as provided in [the distribution clause]." (Italics added.) This seems plainly to contemplate that termination and "distribution" will occur at the same time.
The Rudnicks maintain these two clauses, taken together, prohibited Rebecca from transferring to Anthoine, through her will, her share of the trust assets of which she had yet to take actual possession at the time of her death. This argument, and its focus on the survivor and spendthrift clauses of the will, beg the question of what Oscar intended in the distribution clause when he said that "the trust shall terminate" upon Sophie's death and any remaining assets "shall go and be distributed" to the remainder beneficiaries. n12 Did this "distribution" occur when the beneficiaries' right of possession accrued (upon Sophie's death), or when they received actual possession of the assets? If the answer is the former, the survivor and spendthrift clauses had no bearing on Rebecca's right to dispose of her remainder interest in the trust.
n12 The Rudnicks also find it significant that, upon Sophie's death, the trust assets were to be distributed "one-half to the issue of my marriage to Sophie Rudnick," and "one half to my children by Libbie Rudnick." (Italics added.) They note that the term "issue," since it looks beyond a testator's "children" to all his or her lineal descendants, implies an intention to require the "issue" to survive distribution of the testator's estate. They assert: "The use of the term 'issue' indicates Oscar's preference to limit the benefits to his lineal descendants and not to allow one who dies before the end of the prescribed period [of survival] to dispose of any part of the property to anyone outside the descending bloodline." (But see Halbach, supra, 49 Cal. L.Rev. 297 [discussing distinction between "issue," "heirs," and other classes of beneficiaries in terms of when the members of the class are determined, and noting at p. 322 that determination may sometimes be made on death of life tenant even when distribution is to occur at a later time].)
This argument, of course, begs the question of when the end of the "prescribed period" was to occur. What event were the remainder beneficiaries required to survive: Sophie's death, or the actual delivery to them of their shares of the trust? In any case, there is no material difference between Oscar's gifts to his issue by Sophie and to his children by Libbie because both gifts were made "by right of representation" (see § 246), and both gifts were treated identically under the survivor clause in the event "any child of mine ... predeceases me or the distribution of the trusts."
Finally, if Oscar had intended the result the Rudnicks claim he did, he could have given Rebecca, if she had no surviving children upon Sophie's death, a life estate in half the assets of the Sophie trust, with a gift over to Oscar's issue by Libbie upon Rebecca's death. (See Estate of Newman (1964) 230 Cal. App. 2d 158, 40 Cal. Rptr. 785 (Newman).)
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The court considered this same issue, under very similar circumstances, in Newman, supra, 230 Cal. App. 2d at page 166. There, Newman's will established a testamentary trust for the benefit of his wife (also named Sophie), and provided that upon her death the trust assets were to be distributed to the remainder beneficiaries named in the will, including Newman's brother Moritz. The will also provided that, if any of the beneficiaries "'are not living at the time of said distribution,'" the deceased beneficiary's share was to be added to the shares of the surviving beneficiaries. And it provided that the trust "'shall terminate upon distribution of all [its] assets.'" (Id. at pp. 160-161.)
Newman's wife died in 1962 and Moritz died about six months later, before any of the trust assets had been delivered to the remainder beneficiaries. The trustees thereafter petitioned the court for instructions to determine whether Moritz's share should go to his estate or should be divided among the other beneficiaries. The trial court ruled Moritz's share should go to his estate because the death of Sophie Newman had "'fixed the [*25] rights of the remaindermen.'" (Newman, supra, 230 Cal. App. 2d at p. 161.) Some of the other beneficiaries appealed, and the appellate court affirmed.
"Appellant contends that the death of Dr. Moritz Newmann before taking physical possession of his share terminated his interest and that of his estate. This contention is without merit. The testator Leo J. Newman directed that 'upon the death of decedent's wife, Sophie Newman, the principal then left of Trust A, with all accumulations thereon shall be distributed as follows ...' and also provided for gifts over in the event the named legatees 'are not living at the time of said distribution.' (Italics added.) Clearly the 'distribution' was to be as of the date of Sophie Newman's death. No other time for it is specified in the trust instrument.
"In this instrument 'upon the death of decedent's wife' and 'shall be distributed' are inextricably linked in the dispositive sentence so as to make distribution and death of the life tenant concurrent events upon which the rights of the remaindermen vest absolutely. [P] ... [P]
"To hold that vesting of the remainderman's interest takes place at the time of the actual physical [*26] distribution of the assets is to subject that interest to possible fortuitous and extraneous circumstances beyond the control both of the remainderman and the trustee. Unless spelled out clearly, it would be unreasonable to so construe the will. [P] ... [P]
" ... Admittedly, if [Moritz] died before the 'date of distribution,' the will, the decree of distribution to the trustees and section 1023 [n13 ] all would have barred his estate from participation. But this begs the very question before us in the present action-namely what was the 'date of distribution' of the trust estate. As we have said, we conclude, with the trial court, that that date was the date of Sophie Newman's death and not the date when, all of the sundry mechanical problems involved in the transfer of record title having been accomplished, physical delivery of the trust assets could be accomplished. Instruments of conveyance must be drawn, executed and recorded, stock certificates must be endorsed, delivered to corporate transfer agents and registrars, and returned, checks must be drawn and receipts prepared. If the death of a remainderman in the midst of this process were to divest his interest, the process [*27] might well become incredibly repetitious. While a testator or trustor may legally direct such result, it should not be assumed that he so intended except in the light of the most explicit and positive language; no such language faces us here." (Newman, supra, 230 Cal. App. 2d at pp. 162-165; see also Estate of Steiner (1966) 240 Cal. App. 2d 78, 82, 49 Cal. Rptr. 352; compare Estate of Taylor (1967) 66 Cal.2d 855, 858, 59 Cal. Rptr. 437 [interest of legatee required to survive "'the distribution of my estate'" vested when distribution should have been made (not when it was actually made)]; In re Winter (1896) 114 Cal. 186, 189 [testamentary trust providing that, upon death of life tenant, trust property was to be sold and proceeds divided between testator's "surviving brothers and sisters" held to mean the brothers and sisters surviving when property was sold (not when proceeds were delivered)]; Estate of Rankin (1953) 118 Cal. App. 2d 184, 186 [distribution of an estate means final distribution in probate, but it is "long-settled practice" that distribution of a trust occurs upon termination [*28] of the trust].)
n13 The provisions of former section 1023 now appear in section 11801, which provides as follows:
"(a) Except as provided in subdivision (b), the share in a decedent's estate of a beneficiary who survives the decedent but who dies before distribution shall be distributed under this chapter with the same effect as though the distribution were made to the beneficiary while living.
"(b) Subject to Section 21525, distribution may not be made under this chapter if the decedent's will provides that the beneficiary is entitled to take under the will only if the beneficiary survives the date of distribution or other period stated in the will and the beneficiary fails to survive the date of distribution or other period."
The Salvation Army Decision
Relying in part on Newman, the court reached a similar conclusion in Salvation Army v. Price (1995) 36 Cal.App.4th 1619 (Salvation Army). There, Corinne Reisinger's will created two testamentary trusts, A and B, for [*29] the benefit of her husband James for his life. Upon James's death, the assets in trust B were to be paid to five specified charities (including the Salvation Army) in amounts set out in the will, totalling $ 240,000. The residue, if any, was to be paid to the children of Corinne's nephew, or to their issue (who would include Kristen Price). Corinne died in 1971, and was survived by James. When James died in 1974, trust B had a value of about $ 178,000, and included an interest in a parcel of land that was the subject of several lawsuits. Upon a petition by the trustee for instructions, the court directed that the administration of trust B should continue pending resolution of the suits. Eighteen years passed until, in 1993, the trustee advised the court the suits had been concluded. By then, trust B had increased in value to nearly $ 900,000. The trustee petitioned the court for instructions directing it to pay this entire amount to the five charities proportionately. Price opposed the petition, claiming the charities were entitled only to $ 240,000, plus interest from 1974. The trial court agreed with Price, and the charities appealed.
The issue on appeal was whether the charities [*30] had acquired a vested interest in all the trust B assets (since the assets had not been sufficient in 1974 to fully meet Corinne's charitable gifts), or whether the charities had acquired a vested interest in no more than $ 240,000. The court held the first result was the correct one, and therefore reversed the trial court.
"Pursuant to ... section 15407, '(a) A trust terminates when any of the following occurs: [P] (1) The term of the trust expires. [P] (2) The trust purpose is fulfilled. [P] (3) The trust purpose becomes unlawful. [P] (4) The trust purpose becomes impossible to fulfill. [P] (5) The trust is revoked.' Upon termination of the trust, the trustee continues to have the powers reasonably necessary to wind up the trust's affairs. ( § 15407, subd. (b).)
"Section 15410, subdivision (c) provides, in relevant part, that upon termination of a trust which terminates under its own terms, the trust property shall be distributed 'as provided in the trust instrument or in a manner directed by the court that conforms as nearly as possible to the intention of the settlor as expressed in the trust instrument.' [Citation.]
"'When the objects of a trust have been fully [*31] performed the title of the trustee ceases and the legal as well as the equitable title vests in the beneficial owner unless the intention of the creator clearly appears that the legal title should continue in the trustee.' (Ball v. Mann (1948) 88 Cal. App. 2d 695, 699 ...; accord, [Newman, supra,] 230 Cal. App. 2d [at p.] 163 ....) Moreover, 'in the absence of any indication to the contrary a testator contemplates prompt distribution.' (Estate of Taylor[, supra,] 66 Cal.2d [at p.] 858 ....)
"In this case Trust B's purpose was to provide James with income during his lifetime, and Corinne's clear and stated intent was that the Trust B assets were to be distributed upon James's death. The parties do not dispute the probate court's finding that Trust B terminated upon James's death on November 11, 1974.
"We conclude, as a matter of law, that upon James's death, the trust terminated after having been fully performed, and the beneficiaries' rights vested. At the time of termination the Trust B assets had a value of approximately $ 178,000 and were insufficient to fully satisfy the $ 240,000 in specific pecuniary charitable [*32] bequests. Consequently, the specific charitable beneficiaries each received a vested beneficial share of the Trust B assets proportionate to their specific bequests. [The charities] are correct that because at the time the trust terminated and the beneficial interests vested there was no residue, the residuary beneficiaries' interests were extinguished. That actual physical distribution of the Trust B assets was postponed 20 years does not affect the earlier vesting of title upon the trust's termination. (See ... Newman, supra, 230 Cal. App. 2d at pp. 164-165.) Consequently, the court erred in determining that [the charities] were entitled only to $ 240,000 plus interest thereon and that [Price] and the other residuary beneficiaries were entitled to all remaining Trust B assets." (Salvation Army, supra, 36 Cal.App.4th at pp. 1624-1625, fn. omitted.)
Similarly, the purpose of the Rudnick Trust was to provide for Sophie during her lifetime. The trust terminated upon her death, whereupon the interests of the remainder beneficiaries vested indefeasibly, notwithstanding any intervening events between then and final distribution (i.e., delivery) of the trust assets [*33] to the beneficiaries. n14
n14 The Rudnicks argue an interpretation of Oscar's will holding that the remainder beneficiaries' rights vested indefeasibly upon termination of the trust would make the survivor clause redundant.
"If Oscar meant to require survival only to Sophie's death, he could have easily provided in [the survivor clause] that 'the share of any child of mine who predeceases me or Sophie shall go to such child's issue ....' But such language would make [the survivor clause] redundant, because [the distribution clause] requires Oscar's issue by Sophie and his children by Libbie to survive Sophie, with a gift over by right of representation. In [the survivor clause], Oscar added another express survival condition -- he required his children to survive 'distribution of the trusts.'"
This argument is circular. The distribution clause says nothing about survival; it provides simply that the trust shall terminate on Sophie's death (assuming the trust estate has not yet been exhausted), and the trust assets "shall go and be distributed" to Oscar's children. It is the survivor clause that describes what should happen to "the share of any child of mine who predeceases me or the distribution of the trusts created herein." And "distribution," in turn, is what is to occur under the distribution clause upon the termination of the trust (i.e., Sophie's death). The problem here is not redundancy.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*34]
Did the Spendthrift Clause Survive Sophie's Death?
The Rudnicks attempt to distinguish Newman from the present case on several grounds. One "critical distinction," they claim, is that Newman's will did not contain a spendthrift provision. (Actually, the Newman decision does not say one way or the other whether the will had such a provision.) The Rudnicks contend the spendthrift clause in Oscar's will prohibited a remainder beneficiary, namely Rebecca, from transferring her interest in the trust assets prior to actually receiving them. They rely for this contention primarily on sections 15300 and 15301, whose provisions are set out below. n15 However, as appears, this prohibition applies (at least in section 15300) to a beneficiary's interest under the trust. This would appear to mean that a spendthrift clause applies only during the life of the trust, and ceases to have any effect once the trust is terminated (as it was in the present case, and in Newman, by the death of the life tenant).
n15 Section 15300 states in its entirety:
"Except as provided in Sections 15304 to 15307, inclusive, if the trust instrument provides that a beneficiary's interest in income is not subject to voluntary or involuntary transfer, the beneficiary's interest in income under the trust may not be transferred and is not subject to enforcement of a money judgment until paid to the beneficiary." (Italics added.)
Section 15301 contains similar provisions with respect to a beneficiary's interest in the trust principal, but adds:
"After an amount of principal has become due and payable to the beneficiary under the trust instrument, upon petition to the court under Section 709.010 of the Code of Civil Procedure by a judgment creditor, the court may make an order directing the trustee to satisfy the money judgment out of that principal amount. The court in its discretion may issue an order directing the trustee to satisfy all or part of the judgment out of that principal amount." ( § 15301, subd. (b).)
Thus this section recognizes the right of a creditor, notwithstanding a spendthrift provision, to assert a claim against a beneficiary's interest that has accrued but not yet been delivered to the beneficiary, i.e., to which he or she has yet to obtain legal title in the form of possession.
" ... The judgment debtor's interest in the trust may be applied to the satisfaction of the money judgment by such means as the court, in its discretion, determines are proper, including but not limited to imposition of a lien on or sale of the judgment debtor's interest, collection of trust income, and liquidation and transfer of trust property by the trustee." (Code Civ. Proc., § 709.010, subd. (b).)
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This interpretation finds support, in fact, in some of the cases upon which the Rudnicks rely for the contrary one. In Kelly v. Kelly (1938) 11 Cal.2d 356, for example, the court held that an assignment by the remainder beneficiary of a testamentary trust, made during the life of the trust, was ineffectual to convey any interest in the trust (but the assignee could sue the beneficiary for breach of the assignment contract). (Id. at pp. 363-364.)
Frazier v. Wasserman (1968) 263 Cal. App. 2d 120, 69 Cal. Rptr. 510 (Frazier), a decision by this court, also concerned the beneficiary of a testamentary spendthrift trust (Dempsey), who in that case was entitled upon termination of the trust to receive half the assets. However, in the five-week period between termination of the trust and the delivery to Dempsey of his share, some of Dempsey's creditors filed claims in the probate proceeding against his interest. Moreover, on the day before the trust was distributed, two other creditors filed an involuntary petition in bankruptcy against Dempsey. Nonetheless, the probate court, citing the trust's spendthrift provision, instructed [*36] the trustee to deliver Dempsey's entire share to him (i.e., it rejected the creditors' claims). Dempsey was adjudged a bankrupt some weeks later, but by then he had used the trust proceeds to pay off Wasserman and other creditors for debts incurred during the term of the trust. The bankruptcy trustee, Frazier, later sued Wasserman and these other creditors to recover the money paid them from Dempsey's share of the trust. The trial court entered judgment for Frazier, and the creditors appealed.
The issue on appeal was the validity of Frazier's claim under a provision of the Bankruptcy Act that gave a bankruptcy trustee (Frazier) title to all property that vested in the bankrupt (Dempsey) by bequest, devise or inheritance within six months after the date of the bankruptcy, and to property in which the bankrupt had an interest on the date of the bankruptcy if the property was transferable to the bankrupt within six months thereafter. Thus, it was not necessary for the court to decide whether Dempsey's interest in the trust property had vested in him upon the trust's termination, or later upon his actual receipt of the property, because the property belonged to the bankruptcy trustee [*37] in either event. The court then went on to say:
"Appellants argue that a donor 'has the right to give his property under any conditions he sees fit and that the beneficiary's creditor, whether prior or subsequent, has nothing of which to complain since the gift takes nothing from him to which he previously had the right to look for payment.' Be this as it may, the donor of a spendthrift trust can only protect his gift from the claims of the beneficiary's creditors during the life of the trust. Therefore, once the corpus of a spendthrift trust vests in the beneficiary and is placed in his hands, or under his direct control, it may not only be dissipated by the beneficiary contrary to what the donor may have wanted, but it may also be reached by the beneficiary's creditors through attachment or execution to satisfy his debts (antecedent or otherwise)." (Frazier, supra, 263 Cal. App. 2d at p. 127, italic added.)
The Rudnicks seize on the "and is placed in his hands" language to argue that a spendthrift clause continues to operate past the termination of a trust until the trust assets are actually delivered to the remainder beneficiaries. We disagree, at least in the present [*38] case. The spendthrift provision in Oscar's will applied by its terms to the income and principal of "the trust estates," and prohibited Oscar's beneficiaries from alienating their shares or interests "under these trusts." n16 (Italics added.) By the terms of the distribution clause, the trust terminated upon Sophie's death. It follows that the spendthrift provision did as well. n17
n16 Rebecca and the other remainder beneficiaries had no present interest in the trust during its existence except insofar as subdivision E of the will authorized the trustees, in their discretion, to distribute income to them if any remained after the required payments had been made to Sophie. It makes sense under these circumstances that a beneficiary should not be able to alienate an interest in a payment he or she might receive in the future. (See Rest.3d Trusts, § 60.)
n17 We note too that the statute at issue in Frazier gave a bankruptcy trustee title to property to which a bankrupt would acquire a transferable interest or right of possession (as opposed to actual possession) within six months after the bankruptcy was declared. There was no requirement that the bankrupt have the property "in his hands."
Frazier is cited in the reporter's notes on section 58 of the Restatement Third of Trusts, which states generally that spendthrift clauses are valid "subject to the rules in Comment b (ownership equivalence) and § 59 ...." Comment b includes the following:
" ... An intended spendthrift restraint is also invalid with respect to a nonsettlor's interests in trust property over which the beneficiary has the equivalent of ownership, entitling the beneficiary to demand immediate distribution of the property...." (Rest.3d Trusts, § 58, com. b(1), p. 356; see also id., com. d ["Spendthrift protection prevents anticipation of the beneficiary's rights but does not extend beyond the point of distribution"]; id., com. g ["The executor or administrator of a deceased beneficiary of a spendthrift trust is entitled to income or other distributions that have accrued but have not been paid at the time of the beneficiary's death to the same extent as if the trust were not a spendthrift trust"].) The corresponding reporter's notes to comment b state in part:
"[In support of the proposition that] a restraint on the alienation of the interest of a beneficiary, who was initially entitled to receive trust principal at a future time, ceases to be effective once that time has arrived even though the trustee has not yet made distribution, see [citing several non-California decisions]; and compare Frazier v. Wasserman ... (after death of life beneficiary, remainder beneficiary of spendthrift trust became bankrupt; bankruptcy estate includes his right to principal), and ... [citing additional non-California decisions]. Surprisingly, there is also contrary authority in similar contexts holding that a spendthrift restraint remains valid and effective until the beneficiary actually receives the trust property. [Citing additional non-California decisions.]" (Rest.3d Trusts, § 58, reporter's notes re: com. b-b(3), p. 382; see also id., reporter's notes re: coms. d-d(2), p. 387 [spendthrift clause does not preclude creditor's claims against delayed or overdue distributions of trust principal].)
We understand this reporter's note, including its citation to Frazier, to express support for the proposition set out in the first sentence in the passage quoted above, notwithstanding the "surprisingly" contrary authority cited in the last sentence.
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Neither of the two other, non-California cases cited by the Rudnicks leads us to a different conclusion. The first is In re Jennrich's Estate (1936) 197 Minn. 162, 266 N.W. 461 (Jennrich). There, Frank Jennrich's will provided that his residual estate remaining after certain gifts had been made was to be distributed to his nine children, subject to conditions dependent on whether they were his sons or his daughters. If one of his daughters died without issue after Frank's death but "before my estate is settled," her share of the estate was to pass to Frank's surviving children. (Id. at p. 462.) (A son's share would pass first to his widow, if any, then to his issue, if any, before passing to his surviving siblings.) There was also a spendthrift provision that prohibited Frank's children from alienating "any interest which they may have coming from my estate before they actually receive possession thereof." (Ibid.) Following Frank's death in 1933, but before final distribution of his estate by the probate court, his daughter Minnie died without issue, and her share was divided among her surviving brothers and sisters. The appellate court upheld this distribution [*40] against a challenge by Minnie's husband. "It seems clear from the entire instrument," the court said, "that the child's share in the residuary estate was not intended to vest until it was received by such child ...." (Id. at p. 463.)
The Rudnicks would attribute this result to the presence of the spendthrift clause in Frank's will. However, the court's conclusion was based on its reading of the entire will, including the requirement his children survive the settlement of his estate, which the court noted can only occur when the probate court issues its final decree of distribution. Of the spendthrift clause, the court said: "While paragraph 10, standing alone, may not be effective as a limitation, it is indicative of [Frank's] intention to postpone the vesting of a child's interest in the residuary estate until the time of the rendition of the final decree." (Jennrich, supra, 266 N.W. at p. 463.) If anything, rather than supporting the Rudnicks' position, Jennrich illustrates the type of language Oscar should have used in his will if he had intended that his remainder beneficiaries should be required to survive actual delivery of their shares of the trust. [*41] (See Estate of Rankin, supra, 118 Cal. App. 2d at p. 186 [distribution of an estate and distribution of corpus of a trust upon termination of the trust refer to different events].)
The other "spendthrift" decision cited by the Rudnicks is Danning v. Lederer (7th Cir. 1956) 232 F.2d 610 (Danning). Sarah Danning, trustee of the bankruptcy estate of Ruth Lederer, sued to establish title to Ruth's interests in four trusts of which she was a beneficiary. Danning's claim was founded on a provision of the Bankruptcy Act giving the trustee title to any property interest the bankrupt could transfer by any means. The issue then was whether Ruth possessed the power to transfer her interests in the trusts in light of their spendthrift provisions. The lower court ruled she did not, and the appellate court agreed.
The Rudnicks rely in particular on the court's decision with respect to one of the four trusts, which included a provision under which the trustees previously should have, but had not, distributed a portion of the trust assets to the beneficiaries (including Ruth). Danning claimed title to Ruth's undistributed portion of this trust [*42] on the ground she had the power to force the distribution. The trustees had not made the distribution because it would have required them to divide and sell a valuable parcel of real property, with the result that the property would have lost much of its value. The court held under these circumstances that the sale would have defeated the purposes of the trust, and so had not been required. Consequently, the court held that Ruth had no transferable interest in this portion of the trust. (Danning, supra, 232 F.2d at pp. 614-615.)
According to the Rudnicks, the Danning court concluded the property need not have been distributed "because it was protected by the spendthrift clause." By this they seem to be saying that Ruth Lederer (and by extension, Rebecca Rudnick), whatever right of possession she might have had in the abstract, could not have acquired a transferable interest in the trust assets except by actual possession of them. This, plainly, is not what the court said in Danning. It was not the spendthrift clause that defeated the bankruptcy trustee's claim in Danning, but the rule (in Illinois) that "the time fixed by the settlor for the termination of [*43] a trust [may] be regarded as merely directory if termination at that time would tend to defeat the purpose for which the trust was established." (Danning, supra, 232 F.2d at p. 615.) The decision leaves little doubt that, but for the application of this rule, the claim by the bankruptcy trustee would have been granted without regard to the spendthrift clause. Consequently, if anything, Danning supports the conclusion that it is a beneficiary's present right to possession, not his or her actual possession, that creates in him or her a transferable interest in trust assets.
For the first time in their reply brief, the Rudnicks cite a third out-of-state decision they claim supports their interpretation of Oscar's will, and indeed it appears to. But we decline to follow it insofar as it conflicts with Newman and Salvation Army. In Natl. City Bank v. Beyer (Ohio 2000) 89 Ohio St. 3d 152, 729 N.E.2d 711 (Beyer), the Supreme Court of Ohio held, in the case of a trust beneficiary who died after termination of the trust but before her share was delivered to her, that the share should go to the other, surviving beneficiaries rather than to [*44] the deceased beneficiary's estate. Elizabeth Beyer and her two sisters were the beneficiaries of testamentary trusts established by their grandfather to provide for their support until they reached the age of 25, at which point the assets were to be distributed to them free of the trust. The will provided, however, that if any of the granddaughters died before the trust assets had been "fully distributed" to her, the undistributed portion should go to her issue or, if there were none, to her sisters. Katherine was committed to a psychiatric hospital when she was about 23, and remained there until her death intestate some seven years later. She was unmarried and had no children. The trustee petitioned the court for instructions on whether to pay Elizabeth's undistributed share of the trust to her sisters or to her estate (i.e., to the hospital for her care). Had Elizabeth been required simply to survive until her 25th birthday (when the trust terminated), or also to survive the actual delivery of the trust assets to her?
The Supreme Court held Elizabeth's undistributed share should go to her sisters. It reasoned that Elizabeth's interest in the trust had vested when she turned 25, [*45] but that the requirement she survive "full distribution" was a condition subsequent, the occurrence of which had divested her interest in any assets she had yet to receive. The court also found support for this result in the gift-over and spendthrift provisions of the will, which it said showed the grandfather's intention to keep the trust property within his family. (Beyer, supra, 729 N.E.2d at pp. 715-717.)
The present case is similar, but by no means identical to Beyer. The testator in Beyer plainly had contemplated the possibility one of his beneficiaries would die before her share of the trust assets had been "fully distributed" to her (i.e., that distribution might take some time following termination of the trust), and had made specific provisions for the "undistributed portion" of the trust should that occur. Oscar Rudnick, by contrast, simply required that his beneficiaries survive "distribution of the trust[]," all or nothing. It is not so easy here as it was in Beyer to discern what the testator meant by distribution. In any event, as we have said, we choose to follow Newman and Salvation Army.
When Did Title Pass to Rebecca?
The [*46] Rudnicks also fault the Newman court for what they claim was its failure to take account of the rule expressed now in section 15407, subdivision (b) as follows: "On termination of the trust, the trustee continues to have the powers reasonably necessary under the circumstances to wind up the affairs of the trust." Their point seems to be that title does not pass from the trustees to the beneficiaries, and so the beneficiaries acquire no transferable interest, until the trustees have fulfilled their responsibilities in winding up the affairs of the trust and have delivered the trust assets to the beneficiaries. As Newman and Salvation Army make clear however, the fact the trustee's responsibilities continue past the termination of the trust does not affect the date upon which the interests of the remainder beneficiaries become vested, unless of course the settlor so provided in the "most explicit and positive language." (Newman, supra, 230 Cal. App. 2d at p. 165.) In the present case, under the express terms of Oscar's will, the trust terminated when Sophie died.
Botsford v. Haskins & Sells (1978) 81 Cal. App. 3d 780, 146 Cal. Rptr. 752 (Botsford [*47] ), cited by the Rudnicks, does not convince us otherwise. In Botsford, two corporations in the process of liquidating their affairs put their assets into a trust, and gave the trustee (Botsford) all the rights and privileges of an owner, including the right to sue. In 1974, after the time for termination of the trust had passed, but before the administration was completed, the corporations and Botsford filed a suit for damages against Haskins & Sells on a cause of action previously owned by the corporations. The trial court granted summary judgment for Haskins & Sells on the ground neither plaintiff had standing to sue: the corporations did not because they had irrevocably assigned their rights to the trustee, and the trustee did not because the trust had terminated prior to commencement of the suit.
On appeal, the court affirmed the judgment as to the corporations, but reversed as to the trustee. Citing section 344 of the Restatement Second of Trusts, the court stated the familiar rule that the administration of a trust may continue past its termination, and then said:
"We are of the opinion that a reasonable continued function of the trustee [*48] Botsford was to liquidate, if possible, the plaintiff corporations' erstwhile claims against defendant which had been assigned to him. It would have been wholly unreasonable for the trustee, upon the trusts' termination, to distribute that cause of action to the 500-odd shareholders of the plaintiff corporations, as their individual interests might appear. Indeed such a distribution would patently have frustrated the purpose of the trusts...
" ... Under the rule which we here adopt and follow, plaintiff Botsford, as trustee of express trusts was, and is, the legal owner of the asserted claims against defendant. As such, he, and not the shareholder beneficiaries, is the proper real party in interest in an action to enforce them. [Citations.]" (Botsford, supra, 81 Cal. App. 3d at p. 788; see also Estate of Nicholas (1986) 177 Cal. App. 3d 1071, 1082, 223 Cal. Rptr. 410 (Nicholas) [trust administration continues after termination for purpose of winding up].)
On this basis, the Rudnicks contend legal title to the assets in the Rudnick Trust continued to be held by the trustees during the three-year liquidation period, such that Rebecca, lacking such [*49] title, could not have passed her beneficial interest in the assets to her husband. But, as we have already explained, Rebecca's right to receive those assets in the future vested indefeasibly upon Sophie's death and the trustees' function thereafter was simply to put them into a form in which they could be delivered to each beneficiary free from the other beneficiaries' interests. (See Salvation Army, supra, 36 Cal.App.4th 1619; Botsford, supra, 81 Cal. App. 3d 780.) Neither a delay in delivering legal title (i.e., actual possession) during the liquidation period, nor the death of a beneficiary prior to delivery, divests beneficial title. (Salvation Army, supra, 36 Cal.App.4th at p. 1624 [on trust termination, the remainder beneficiaries acquire vested beneficial interest in trust]; Newman, supra, 230 Cal. App. 2d at pp. 163, 164 [rights of remaindermen vest absolutely on death of life tenant and, absent explicit language to the contrary, "distribution" of the trust also occurs notwithstanding "all of the sundry mechanical problems involved in the transfer of record title"]; see also 11 Witkin, Summary of Cal. Law (9th ed. 1990) Trusts, § 159 [*50] , p. 1012 [trust beneficiary has equitable title to trust property].) n18
n18 The Rudnicks quarrel at some length with the following quotation from Ball v. Mann, supra, 88 Cal. App. 2d 695, which appears in both Newman and Salvation Army: "When the objects of a trust have been fully performed the title of the trustee ceases and the legal as well as the equitable title vests in the beneficial owner unless the intention of the creator clearly appears that the legal title should continue in the trustee." (Ball v. Mann, supra, 88 Cal. App. 2d at p. 699, appearing in Salvation Army, supra, 36 Cal.App.4th at p. 1624 and in Newman, supra, 230 Cal. App. 2d at p. 163.)
Immediately following this statement, the Ball decision says: "When a minor for whose benefit a trust has been created attains his majority the trust becomes passive and by operation of law the trust is thereupon executed and the legal and equitable title is united in him." (Ball v. Mann, supra, 88 Cal. App. 2d at p. 699, citing Hinds v. Hinds (1928) 126 Me. 521, 140 A. 189, 192 (Hinds).) The Rudnicks claim this statement in Hinds was based, in turn, on the common law statute of uses, which has never been applied in California. (McCurdy v. Otto (1903) 140 Cal. 48, 53.)
We find it unnecessary to address this argument in any depth. As should appear from the preceding discussion, it does not matter for our present purposes when Rebecca did, or would have acquired legal title to (i.e., possession of) her share of the assets in the Rudnick Trust, because she acquired beneficial or equitable title upon Sophie's death.
In summary, the Rudnicks advocate a literal interpretation of Oscar's will that comports with neither existing case law nor with the practicalities of trust administration. They maintain in effect that "distribution" of the trust refers to the actual delivery to the beneficiaries of title to and/or possession of the trust assets, and that "termination" of the trust occurs only when the trustees have completed the distribution. However, as should be clear by now, termination refers not to the time when the trustees have nothing more to do, but to the time when the precedent estate (e.g., Sophie's life tenancy) ends and the rights of the remainder beneficiaries (i.e., their rights to distribution of the trust) accrue.
Of course, when the terminating event of a trust is the death of a life tenant, it will seldom happen that the trust will terminate and the trust assets will be delivered to the remainder beneficiaries at the same time. The difference may be measured in months or even years, especially in cases like this one where the trust property cannot be divided easily among several beneficiaries unless it is converted first into another form. The law assumes the testator was aware [*52] of this likely difference in time between the accrual of the right to distribution and the actual delivery of the trust property. Therefore, if the testator intends that the beneficiaries' rights to distribution of the trust should accrue at some time other than at the termination of the trust, or should be divested by the occurrence of some event (a condition subsequent) in the interim between accrual and delivery, they must say so in the "most explicit and positive language." (Newman, supra, 230 Cal. App. 2d at p. 165.) No such language appears in Oscar's will.
Did the Court's Liquidation Order
Postpone Termination of the Trust?
Finally, the Rudnicks seek to distinguish Newman insofar as the Rudnick Trust, unlike the trust in Newman, was "extended" or "continued" to permit the liquidation of assets. The "continuation" in this case, they maintain, did not simply extend the period for winding up the affairs of the trust but actually postponed the termination of the trust, with the result that the spendthrift clause remained in effect. And, as we have said, the Rudnicks contend the spendthrift clause prohibited Rebecca from transferring her interest [*53] in the trust to Anthoine. However, the court's liquidation order did not purport to change the termination date of the trust, only the means of distribution of the trust assets and the time within which it was to be performed. Indeed, it is disingenuous for the Rudnicks to rely for their position on the court's validation order, which plainly contemplated that Sophie's death had terminated the trust and fixed Rebecca's right to her share of the trust assets.
Nicholas, supra, 177 Cal. App. 3d 1071, cited by the Rudnicks, is not helpful to their position. That case concerned the operation of a cattle ranch left in trust by William Nicholas for the benefit of his three children (Nicoli, Eugenie, and Maria) until the youngest of them (Maria) reached the age of 40, whereupon the trust was to terminate and be distributed to the children in equal shares. William directed that the trustee, Bank of America, should operate the ranch during the life of the trust and employ Nicoli as ranch manager. Sixteen years later, shortly before her 40th birthday in 1982, Maria filed a petition for partition of the ranch. Nicoli and Eugenie opposed the petition. Since the trust was about to terminate, [*54] the three beneficiaries agreed it should continue under the supervision and control of the trustee until further order of the court. A year later, the trustee filed a petition for instructions seeking authority to sell a herd of cattle belonging to the ranch. Eugenie and Maria supported the sale. Nicoli opposed it. He also claimed he would be entitled, upon a sale of the herd, to compensation for the increase in its value attributable to a special breeding program he had undertaken. The trial court granted the trustee's sale petition, and denied Nicoli's claim for compensation. Nicoli appealed, claiming among other things the court's order authorizing the sale was not supported by substantial evidence.
In addressing this issue, it was necessary for the appellate court first to determine the extent of the trustee's authority. "The first question is," the court said, "substantial evidence of what?" (Nicholas, supra, 177 Cal. App. 3d at p. 1081.) Was the trustee's decision required to be supported by substantial evidence, or was it one over which the trustee exercised absolute discretion? This question, in turn, required the court to decide the status of the trust, since [*55] the powers of a trustee are often different, and more limited, during the period of winding it up than they were before the trust was terminated. This inquiry led the court to say:
"Here the trust had terminated by its own terms in 1982 and was in the process of winding up at the time the court heard and determined the questions before us. The powers of a trustee during winding up are not always the same as those powers before termination. However, if the beneficiaries consent to the trustee's holding and administering the trust property after the expiration of the trust term, the life of the trust will be deemed extended and the powers and duties of the trustee continue unchanged. [Citation.] Here, as Nicoli acknowledges in his brief, all beneficiaries expressly agreed that the trustee could continue administration of the trust after termination. No party has contended any special rules of winding up apply. We shall therefore measure the trustee's powers by rules applicable to the duties of the trustee managing an active trust before termination. [Citation.]" (Nicholas, supra, 177 Cal. App. 3d at p. 1082, fn. omitted, italics added.)
The court went on to conclude [*56] the trustee's power to sell the herd had been subject to a requirement of reasonableness, and that the evidence failed to show the requirement had been met. (Nicholas, supra, 177 Cal. App. 3d at p. 1091.)
The Rudnicks, referring to the italicized language in the passage quoted above, contend the beneficiaries in this case likewise consented, in connection with the court's June 28, 2000 liquidation order, to continue the trustees' administration of the Rudnick Trust on the same terms as had applied prior to Sophie's death, i.e., to effectively defer termination of the trust until the assets were liquidated and distributed. This means, they assert, that the trust's spendthrift clause continued to apply during the liquidation period and prevented the remainder beneficiaries from alienating their shares of the trust, except insofar as they had taken actual possession of them.
We do not agree. The purpose of the three-year liquidation period was to give the trustees time to sell the trust property and distribute the proceeds to the beneficiaries, and so to avoid problems that might have arisen if instead the trustees had simply delivered undivided interests in the property [*57] itself. The court's liquidation order did not state that the accrual of the beneficiaries' rights in the property was deferred until the sales were completed and the proceeds delivered to them, or that the rights, once accrued, would be divested by the death of a beneficiary prior to delivery. To the contrary, the court inferred, if not actually decided, quite the opposite; it confirmed the beneficiaries' rights to distribution and set out their relative shares of the trust property. It would have made no sense to do this if these matters could not have been finally determined until three or more years into the future. n19
n19 Back in December of 1999, after Rebecca withdrew her consent to the original liquidation petition, the trustees (Rebecca and Wells Fargo Bank) called a meeting of the beneficiaries to discuss alternative proposals for liquidating the trust property. These proposals, including the three-year plan approved by the court a few months later, were set out in a written document sent to the beneficiaries prior to the meeting. In advocating the three-year plan, the document noted that one of its advantages was that "it continues the spendthrift provisions of the Trust for all beneficiaries." The Rudnicks point to this as further evidence that the plan, as approved, did just that.
Whatever they meant, the plan approved by the court plainly fixed the rights of the beneficiaries as of the time of Sophie's death, not when they would take delivery of their shares, and so was inconsistent with the Rudnicks' claim that the plan postponed termination of the trust.
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The present case is more like Salvation Army than Nicholas. In Salvation Army, the court, upon the death of the life tenant, deferred distribution of the trust property -- a parcel of real estate that was the subject of several lawsuits -- until the lawsuits could be resolved. Deferred distribution was found to be in the best interests of the beneficiaries, who otherwise would become parties to the suits as defendants. (Salvation Army, supra, 36 Cal.App.4th at p. 1622.) Similarly, in this case the court deferred distribution of the trust property (not the accrual of the beneficiaries' right to distribution) in order to avoid what the liquidation petition described as "a high likelihood of partition litigation among beneficiaries with dramatically different interests should a distribution in undivided interests be made for the real property surface assets."
In Nicholas, the testator's three children were both the present beneficiaries of a trust (for the operation of a cattle ranch), and the remainder beneficiaries when the trust terminated (upon the youngest child reaching the age of 40). There the court deferred termination of the trust (i. [*59] e., it maintained the status quo under the administration of the trustees) to give the beneficiaries time to decide how the ranch should be divided among them. The issue in Nicholas concerned the powers of the trustees during this period of extended administration, not the time of accrual of the beneficiaries' rights to the trust property. Unlike Salvation Army and the present case, the delay in Nicholas did not have the potential to alter the rights of the beneficiaries relative to one another.
We conclude the trial court's June 28, 2000 liquidation order served only to defer distribution of the Rudnick Trust, not its termination.
Anthoine's Appointment as Successor Trustee
The Rudnicks raise two objections to the trial court's order granting Anthoine's petition to be appointed successor trustee. First, they claim Anthoine lacked standing to bring the petition because only a trustee or beneficiary was entitled to do so. ( § 17200.) Since we will affirm the court's determination that Anthoine had succeeded to Rebecca's share of the trust, and therefore was a beneficiary, we need not consider this claim any further.
Second, the Rudnicks maintain the court, [*60] instead of granting Anthoine's petition, should have accepted Libbie Mahan's nomination of Joshua Rudnick to be the successor trustee. Since Anthoine does not question the Rudnicks' standing to challenge the court's inaction with respect to Mahan's nomination, we will assume standing exists for the sake of this argument.
By the terms of Oscar's will (see fn. , if one of the trustees became unable or unwilling to serve, the two other trustees (in this case, Libbie Mahan and Wells Fargo Bank) were authorized, "if they so elect," to designate someone to fill the vacancy "by written appointment filed with the probate court." The will provided further that "[a] decision of the majority of the trustees shall be binding upon the trust in the event of a disagreement between them."
Anthoine filed his petition for appointment on January 16, 2003 (some 18 months after Rebecca's death). The Rudnicks filed an opposition on February 24. They attached a declaration by Mahan, signed the same date, in which she stated that: (a) she objected to Anthoine's appointment, and (b) she "nominated" Joshua Rudnick to serve as trustee. Anthoine's petition came to a hearing on February 27, but was continued [*61] until March 18. On March 13, Mahan filed a petition asking the court: (a) to confirm her "designation" of Joshua Rudnick as successor trustee, or (b) to appoint him to the position. Mahan also filed a separate pleading again objecting to Anthoine's petition, and asking the court to continue the March 18 hearing until April 1, in order to consider both petitions (hers and Anthoine's) at the same time.
Anthoine and Mahan both appeared at the March 18 hearing, through counsel and in person. The Rudnicks did not appear.
The court denied Mahan's request for a continuance, and turned to consideration of Anthoine's petition. The court heard testimony from Anthoine and others, including Owen Hunter, a trust officer for Wells Fargo Bank who testified the bank was not taking a position for or against either candidate (Anthoine or Joshua Rudnick), but would have no objection to Anthoine's appointment. The court granted Anthoine's petition.
The Rudnicks contend, in light of this "abstention" from voting by Wells Fargo Bank, that Mahan represented a majority of the existing trustees and so was empowered by Oscar's will to appoint the third trustee. However, they neglect to take the next step [*62] in the argument and provide some plausible scenario under which, assuming Mahan had the power to appoint Joshua Rudnick, she actually exercised it properly.
Oscar's will required Mahan to file a "written appointment" with the court. This requirement arguably was met by her declaration, attached to the Rudnicks' opposition to Anthoine's appointment petition, in which Mahan "nominated" Joshua Rudnick to act as the third trustee. Section 17200, subdivision (b)(10) (see fn. 4) authorizes a trustee to file a petition with the court regarding "appointing or removing a trustee." Mahan evidently had this section in mind when she filed her March 13 petition requesting an order either "confirming [her] nomination and designation of Joshua Rudnick," or appointing him as the successor trustee. It was for the purpose of hearing this petition that Mahan asked the court to continue the hearing on Anthoine's petition. The court refused to grant Mahan's request. Consequently, it neither confirmed nor refused to confirm Mahan's nomination of Joshua Rednick, because the merits of Mahan's nomination petition were never before the court. Mahan, and the Rudnicks, therefore have no basis upon which to [*63] complain that the court "disregarded" the nomination.
The judgment is affirmed. Costs are awarded to defendant and respondent Anthoine.