Court Opinion

ID: 6114393
Source: CourtListenerOpinion
Date Created: 2022-02-01 18:02:37.360281+00
Date Added: 2024-06-11T08:13:35.435421
License: Public Domain

Filed 2/1/22 Farmers and Merchants Trust v. Kennedy CA2/6
     NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). Thi s opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                         DIVISION SIX

FARMERS AND MERCHANTS                                         2d Civ. No. B311559
TRUST COMPANY, as                                         (Super. Ct. No. 20PR00409)
Successor Trustee, etc.,                                    (Santa Barbara County)

     Plaintiff,

v.

SHARON KENNEDY, as
Conservator, etc.,

     Objector and Respondent;

ANNE PAULEY,

  Real Party in Interest and
Appellant.

      An alleged trustee of a testamentary trust petitioned the
probate court for instructions allowing it to recover funds
distributed by a predecessor trustee. The trial court denied the

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petition. We affirm but not for the reasons set forth by
respondent.
                                FACTS
       The Isabel Geis Testamentary Trust (hereafter Trust) was
established in 1972. Isabel had a daughter, Victoria. Victoria
was married to and divorced from Edwin Pauley. Victoria and
Edwin had three children, J., Anne, and E. J. and E. suffer from
developmental disabilities.1
       Victoria was a beneficiary of the Trust while she lived. She
is now deceased. J. has a separate trust. Anne and E. are
beneficiaries of separate subtrusts created under the Trust. This
litigation involves E.’s subtrust.
       The income from the subtrusts is paid to Anne and E.
during their lives. If Anne or E. die without issue, the deceased
sister’s share will be held in trust for the benefit of the surviving
sister. If both sisters die without issue, the remaining corpus will
be paid to named charities free of the Trust.
       The original trustee was the Bank of California. By virtue
of a merger, Union Bank succeeded as trustee.
       The Trust provides that when Anne or E. attain 35 years of
age, they may, by written demand to the trustee, require the
distribution of one-third of their entire share.
       At the time E. attained 35 years of age, she was under a
conservatorship. Sharon Kennedy is the conservator of E.’s
estate. In 2019, after E. had attained the age of 35, Kennedy
made demand on Union Bank for a distribution of one-third of
E.’s trust share. Union Bank distributed $914,378.25 to Kennedy

      1We refer to some parties by their first names, not from
disrespect, but to ease the reader’s task.

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for E.’s benefit. Since at least 2009, Union Bank had from time to
time made lesser distributions to Kennedy as E.’s conservator.
       A few months after the distribution, Anne unilaterally
removed Union Bank as trustee and named Farmers and
Merchants Trust Company (F&M) as successor trustee.
                       Petition for Instructions
       F&M petitioned for instructions claiming the distribution of
one-third of E.’s trust to Kennedy was not authorized and sought
return of the $914,378.25.
       F&M relied on two paragraphs of the Trust.
       Article X, paragraph E(6) (hereafter paragraph E(6))
provides: “At no time shall the Trustee make any distribution of
any income or principal of any trust hereunder to Edwin W.
Pauley, Jr., whether or not he is either legal or natural guardian
of the person or estate of any beneficiary and might, but for this
express prohibition, otherwise be entitled to receive and manage
amounts for such a beneficiary. At no time shall the Trustee
make any distribution of any income or principal of any trust
hereunder to any legal guardian of the estate of any beneficiary
hereunder other than the legal guardian hereinafter designated
and appointed. If distribution or application of funds for any
such beneficiary cannot be made by the Trustee or the legal
guardian designated hereunder, then no distribution shall be
made until that circumstance changes and during such time or
until the end of the trust, whichever first occurs, the income shall
be accumulated.” (Italics added.)
       Article XI paragraph B (hereafter paragraph B) provides:
       “If a distribution of income or principal is required or
permitted to any person who is under a legal disability and a
legal guardian of the estate of such person is required, then the

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Trustee hereof is hereby designated and appointed as the
guardian of the estate and property so to be distributed and it
shall act as such guardian without bond.”
       F&M argued that under the terms of the Trust any
distribution from E.’s trust must be made to F&M as guardian of
her estate. That guardian was Union Bank. Thus, it was error to
make the distribution to Kennedy.
       Kennedy objected. She claimed that F&M was
misconstruing the Trust. She argued that the purpose of
paragraph E(6) was simply to prevent Isabel Geis’s former son-in-
law, Edwin Pauley, from receiving Trust distributions on behalf
of his children. Kennedy noted that Union Bank had previously
made distributions to her for E.’s benefit. Anne received notice of
those distributions, and raised no objection.
       Kennedy also claimed F&M misinterpreted the terms of
paragraph B.
       That paragraph provides in part that if a legal guardian of
the estate is required, “then the trustee hereof is hereby
designated and appointed as the guardian of the estate.”
Kennedy argued no legal guardian is required because she was
appointed conservator.
                                Ruling
       The trial court ruled in Kennedy’s favor and against F&M.
The court found that Union Bank’s distribution to Kennedy was
authorized under the terms of the Trust.
       Anne appeals.

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                           DISCUSSION
                                  I
                        Standard of Review
      The parties presented no extrinsic evidence to aid in the
interpretation of the Trust instrument. Thus, we independently
interpret the document. (Estate of Cairns (2010) 188 Cal.App.4th
937, 944.)
      At the time the Trust was created, the terms “guardian”
and “guardianship” were used for both children and adults. In
1990, the Legislature changed the terms to “conservator” and
“conservatorship” for adults. (Prob. Code, § 1490; Stats. 1990, ch.
79.)
      The parties do not dispute that as used in the Trust the
terms guardian and guardianship include conservator and
conservatorship.
                                 II
                 Proper Distribution of Trust Funds
      Anne contends the trial court erred in concluding that
Union Bank properly distributed one-third of the funds in E.’s
trust to Kennedy.
      Anne argues the funds should have continued to have been
held by the trustee, Union Bank, who is also the guardian under
the terms of the Trust.
      Paragraph E(6) prohibits the trustee from making any
distribution to “any legal guardian of the estate of any beneficiary
hereunder other than the legal guardian hereinafter designated
and appointed.” Paragraph B provides that the designated and
appointed legal guardian is the trustee of the Trust.
      The words of the Trust are clear. No distribution can be
made to a legal guardian except the legal guardian designated by

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the Trust. Kennedy was not a legal guardian designated by the
Trust. This leaves open the question whether Union Bank erred
when it distributed E.’s funds to Kennedy.
       Kennedy relies on article XI, paragraph E of the Trust,
which states: “The primary purpose of the trust shall be to
provide for the income beneficiaries, and the rights and interests
of remaindermen are subordinate and incidental to that purpose.
To that end all the provisions governing the trust shall be
construed liberally in the interest of and for the benefit of the
income beneficiaries.”
       Kennedy accuses Anne of viewing E.’s subtrust as a benefit
to her instead of E. Kennedy believes Anne is motivated by the
benefit she will receive from E.’s subtrust should E. predecease
her.
       Whatever Kennedy’s speculation concerning Anne’s views
or motivation, our task is to interpret the Trust to fulfill Isabel
Geis’s intent as expressed in the words of the Trust. That intent
is not to make distributions to any guardian not designated by
the Trust. There is no inconsistency between that intent and the
stated primary purpose of the Trust to provide for E. as an
income beneficiary. That Anne might incidentally benefit from
the Trust plan is no reason to depart from the clearly stated
intent of the trustor.
       Kennedy argues Anne misinterprets paragraph E(6) to say
that when a beneficiary is under a disability the trustee cannot
make a distribution to anyone except the guardian designated by
the Trust. It is true paragraph E(6) does not mention disability.
Paragraph E(6) bars a distribution to any guardian not appointed
by the Trust. Anne argues that bar includes a distribution to
Kennedy.

                                6
       Kennedy argues that the focus of paragraph E(6) is to
prevent Edwin Pauley from gaining access or control of funds
intended to benefit Isabel Geis’s grandchildren. Kennedy claims
it is obvious that when the second sentence of the paragraph says
that no distribution shall be made to any guardian other than the
guardian designated in the Trust, it was referring to the legal
guardian of Edwin Pauley’s minor children.
       But it is not at all obvious that the second sentence of
paragraph E(6) was intended to apply only to the legal guardian
of Edwin Pauley’s minor children. The Trust does not say that.
Instead, by its terms, it applies to “any legal guardian.”
       Kennedy relies on the language of paragraph B, stating
that if a distribution is required or permitted to a person who is
under a legal disability, “and a legal guardian of the estate of
such person is required,” the trustee is designated as the legal
guardian.
       Kennedy argues that no legal guardian of the estate is
required for E. because she already has a conservatorship. That
interpretation ignores the express language of paragraph E(6)
that prohibits a distribution to any guardian who is not
appointed by the Trust. The words “and a legal guardian of the
estate is required” simply recognize that not all persons under a
legal disability require a guardian.
       Kennedy claims that article XI, paragraph F of the Trust
explicitly authorizes distribution to a beneficiary under a legal
disability. That paragraph provides, in part: “If a beneficiary is
under legal disability the Trustee may either apply funds
otherwise distributable hereunder for the account of the
beneficiary or may make distributions to the legal guardian of the
beneficiary.”

                                7
       Finally, Kennedy argues that if Anne’s interpretation of the
Trust is correct, no one except the trustee and the taxing
authorities will benefit; then on E.’s death, Anne will benefit.
       We disagree with these arguments. The trustee is the
guardian of the distributed funds and must apply them for E.’s
benefit. It is not a question of whether the funds must be applied
for E.’s benefit; it is simply a question of who shall be the
guardian or conservator of such funds.
       The trustee Union Bank had the sole authority to make
distribution for the benefit of E. Any such trustee would
presumably consult with a court-ordered conservator in fulfilling
its responsibility to a beneficiary with a developmental disability.
       The parties request we simply interpret the Trust
according to its terms. A literal interpretation of the Trust
requires the distribution be made by the trustee. To so interpret
the Trust would require the conservator, Kennedy, to return to
the trustee $914,378.25. We could end it there as appellant
requests.
       But, like the trial court, we are mindful that E. is under the
care of a court-appointed conservator. Absent unusual
circumstances, it is inconceivable that a trustee of an established
financial institution would deny the request of E.’s court-
appointed conservator for funds for the benefit of E.
       We agree with the trial court’s observation that the view of
Anne is “myopic.” The trial judge opined that what is “critically
important . . . is the fact that this whole situation is geared
toward the benefit of [E.].” We agree with the trial court that
“common sense . . . does come into play.” Common sense dictates
that we affirm the trial court’s order approving the distribution to

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Kennedy, the person appointed by the court to administer funds
for E.’s benefit.
                        DISPOSITION
       The judgment (order) is affirmed. Costs on appeal are
awarded to respondent.
       NOT TO BE PUBLISHED.

                                   GILBERT, P. J.

We concur:

             YEGAN, J.

             PERREN, J.

                               9
                   Colleen K. Sterne, Judge

            Superior Court County of Santa Barbara

                ______________________________

      Law Office of Robert M. Baskin, Robert M. Baskin for Real
Party in Interest and Appellant.
      No response by Plaintiff.
      Miller & Berryhill, Mary Jane Miller; Ferguson Case Orr
Paterson, Wendy C. Lascher for Objector and Respondent.

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