Opinion ID: 891653
Heading Depth: 1
Heading Rank: 4

Heading: Community Property Concerns

Text: {31} Finally, we address specifically the community property concerns addressed by Gary. While we respect the values inherent in our community property laws and of the community property principles expressed in the trust documents, they do not call for a different interpretation of this trust instrument for several reasons. First, community property default rules do not override a grantor's intent as manifested in the trust. Second, Gary's citations to out-of-state cases are distinguishable from and inapplicable to this case. Finally, Lowell's amendments to the trust were within the spirit of our community property principles because his proposed distribution mathematically affected only his half of the community property. {32} We start our community property analysis with a review of the relevant default rules set forth in the New Mexico statutes. The UTC provides the default rule for the amendability of a revocable community property trust: B. If a revocable trust is created or funded by more than one settlor: (1) to the extent the trust consists of community property, the trust may be revoked by either spouse acting alone but may be amended only by joint action of both spouses[.] Section 46A-6-602(B). The Restatement of the Law of Trusts bolsters the UTC's restriction on community property trust amendments. The general rule in the Restatement for multiple settlor trusts is that unless the terms of the trust provide otherwise, each settlor ordinarily ... may revoke or amend the trust with regard to that portion of the trust property attributable to the settlor's contribution. Restatement (Third) of Trusts § 63 cmt. k. However, the Restatement lists an exception for trusts established by spouses and consisting of community property, which states: In the absence of a contrary provision in the terms of the trust, the trust may be amended only by the joint action of both spouses during their joint lifetime; but it may be revoked by either spouse acting alone, thereby terminating the trust and causing the property to be restored to the spouses, free of trust, as their community property. Id. {33} Both the UTC and the Restatement are careful to note that this default rule does not govern when the terms of the trust provide otherwise. Section 46A-1-105 (stating that [e]xcept as otherwise provided in the terms of the trust, the [UTC] governs ... [and] [t]he terms of a trust [generally] prevail over any provision of the Uniform Trust Code); Restatement (Third) of Trusts § 63 cmt. k (The trust terms, of course, may make contrary provision[.]). As we have noted, Lowell and Martha did make contrary provisions in the trust they jointly created. {34} In their trust agreement, Lowell and Martha manifested their desire to protect their respective community property interests while both were alive. Sections 2.1 ( Both Grantors Alive and Competent ) and 2.2 ( Incapacity of Grantor ) required written approval of both to dispose of community property and further provided that if one became incompetent or incapacitated, the other could dispose of only his or her own half of any community property. Section 9.1 specifically provided that amendments or revocations would not affect the community or separate nature of the property they had placed in the trust. This is consistent with the default rules expressed in the New Mexico statutes, that with respect to community property the trust may be revoked by either spouse acting alone but may be amended only by joint action of both spouses. Section 46A-6-602(B)(1). {35} After the death of the first spouse, however, Section 2.3 ( Death of First Grantor to Die ) provided that Sections 2.1 and 2.2, dealing with revocations and amendments while both were alive, were no longer applicable. Lowell and Martha, through creation of their trust, chose to retain their community property interests while both were alive but also chose to leave their respective shares of their community property to the other after the death of the first. See Bell v. Estate of Bell, 2008-NMCA-045, ¶ 23, 143 N.M. 716, 181 P.3d 708 (After funding the Trust, Decedent no longer owned those assets because they became the property of the Trust and because the title to the assets was thus in the Trustee.). They each chose upon death to leave all community property in the trust, rather than make a separate testamentary disposition, which either would have had the power to do in the absence of the trust. NMSA 1978, § 45-2-805(A) (1993) (Upon the death of either spouse, one-half of the community property belongs to the surviving spouse, and the other half is subject to the testamentary disposition of the decedent....). {36} In affirming the district court's grant of summary judgment in favor of trustee Wells Fargo, the Court of Appeals relied solely on the theory that Section 2.4's recognition of the survivor's power to withdraw all assets and do with them as he or she wished necessarily included the power to amend, because it would serve no substantive purpose to permit revocation and creation of a new trust with the same corpus but not allow amendment of the original trust. Cable, 2008-NMCA-005, ¶ 16, 143 N.M. 269, 175 P.3d 937 (internal quotation marks and citation omitted). The opinion relied for that proposition on Kimberlin v. Dull, 218 S.W.3d 613, 617 (Mo.Ct.App.2007) (holding that a power to revoke necessarily includes a power to amend), and Suzan Tantleff Trusts v. FDIC, 938 F.Supp. 14, 17-19 (D.D.C.1996) (holding that a power to withdraw assets necessarily includes a power to revoke the trust entirely). {37} Gary challenges the Court of Appeals' reliance on precedents from non-community property jurisdictions and cites instead two cases from intermediate appellate courts in California, a community property jurisdiction. Those cases, however, construe different trust language reflecting different donative intent. Parker v. Powell (In re Estate of Powell), 83 Cal.App.4th 1434, 100 Cal.Rptr.2d 501, 505 (2000), held that a surviving spouse's trust revocation was only effective as to half of the trust corpus because California's probate code transmuted the trust property from community [property] to separate property upon [the wife's] death. Powell is distinguishable in several important respects: The Powell trust, unlike the Cable Family Trust, did not grant an unrestricted power to withdraw to the surviving spouse, it did not allow surviving spouse amendments through a will, it did not contain a provision that favored a construction in the surviving spouse's interests, and it did not contain other provisions expressing the grantors' intent to give the surviving spouse the power to amend. The Powell court appropriately recognized that the controlling question was one of interpretation of the trust instrument. Id. at 504 (In interpreting the trust instrument, we seek the intent of the trustors as revealed in the document considered as a whole.). The simple difference between outcomes is that the Cable Family Trust contains many provisions clarifying that the surviving spouse has unrestricted amendment power, while the Powell trust was sufficiently ambiguous as to the scope of revocation to require that default rules be employed. {38} Crook v. Contreras (In re Estate of Kouba), 95 Cal.App.4th 1194, 116 Cal.Rptr.2d 319 (2002), is also distinguishable. In Crook, a married couple executed a trust that by its express terms was expressly revocable and amendable only during the joint lives of the Trustors, but became irrevocable upon the death of one. Id. at 321 (emphasis added) (internal quotation marks omitted). The trust also provided that upon the death of the first grantor, it would be divided into two separate trusts: Trust A would contain the surviving spouse's interest and Trust B would contain the remainder. The surviving spouse could not touch Trust B, but had substantial control over Trust A. The issue in the case only concerned the surviving spouse's control over Trust A. While Trust A gave the surviving spouse an unrestricted power to withdraw and allowed amendment through last will and testament, its express terms provided that [e]xcept as otherwise expressly provided in this Declaration, on the death of either Trustor the trusts created by this Declaration shall become irrevocable and not subject to amendment or modification.  Id. at 322 (emphasis added) (internal quotation marks omitted). While the disputed beneficiary argued that an unrestricted power to withdraw implied the power to amend, the Crook court decided that, [s]ince the trust instrument expressly deprived [the surviving spouse] of the power to revoke, modify or amend the trusts, she also lacked any implied power to do so. Id. at 331. The Cable Family Trust, on the other hand, has no provision denying the survivor the power to amend, and in fact contains clear grants of control to the survivor. {39} In addition to the fact that Powell and Crook are distinguishable, we note that both have been criticized for their reasoning and results in a judicial opinion and in the Estate Planning & California Probate Reporter. See Papich v. Papich, No. PR060208, 2007 WL 4181927, at  (Cal.Ct. App. Nov. 28, 2007) ([T]he court's reasoning in Powell is faulty.); Continuing Educ. of the Bar, Validity of Wills; Revocation of Trusts, 23 Est. Plan. & Cal. Prob. Rep. 108 cmt. (Feb. 2002) ([I]t is difficult not to be concerned about a conclusion [in Crook ] that results in a triumph of form over substance.).