Court Opinion

ID: 9552293
Source: CourtListenerOpinion
Date Created: 2023-08-07 19:08:18.899104+00
Date Added: 2024-06-11T15:26:06.096827
License: Public Domain

SULLIVAN, J.
I agree that the judgment should be affirmed insofar as it awards fees to the trustee and its counsel, reimburses the trustee for sums disbursed by it, and approves the actions of the trustee in distributing funds to the charitable institutions designated by the committee; I concur in the judgment and the opinion of the majority to that extent. In all other respects I dissent.
The fundamental issue before us can be simply stated: Are there any restraints on the power of the members of a trust advisory committee to select a successor member which preclude them from appointing a successor subject to the condition that he not participate in a matter as to which he has a direct financial interest? The majority, indiscriminately applying rules governing trustees to members of advisory committees, conclude that restraints do exist which render such a conditional appointment invalid. In so doing they needlessly frustrate the salutary attempt of the trustee to accommodate within trust purposes the desire of the trustor’s children to have Marie participate along with Thomas on the advisory committee and take part in the advancement of the charitable aims of the trust.
It is my view, after an examination of the Declaration of Trust and a review of relevant legal principles, that there are no restraints preventing the conditional appointment of Marie to the committee. I therefore conclude that Marie Eckstrom was validly appointed to the committee and is subject to the restrictions upon her authority to act imposed by the nomination agreement—the instrument by which her position on the committee was procured and to which she was a party.
I begin with a consideration of the Declaration of Trust. The trustor, rather than himself naming those who should succeed to vacancies on the committee, delegated this responsibility to the committee members themselves. There is nothing in the initial declaration or the later amendment which expressly places limitations upon the manner in which a successor is to be selected or upon the class from which the selection is to be made. The only express limits on this otherwise complete power to choose who should fill vacancies are those contained in article IX, paragraph 7, which requires that both remaining members agree on the replacement and *217provides that, in the absence of such agreement, the appointment be made by a court of competent jurisdiction.
Nor can I discover anything in the trustor’s general dispositive design indicating either expressly or by reasonable implication that the qualified appointment of Marie to the committee would be incompatible with the intention of the trustor. The trial court based its conclusion that the nomination agreement was in excess of the trustee’s and Thomas’ authority on two findings as to the trustor’s presumed intention. As set forth in the majority opinion these findings were first, that his primary purpose in creating the trust was charitable, and second, that he did not intend to vest control of the committee in his children, but in a disinterested majority. The first of these findings is in my view (and also in the view of the majority as I apprehend it) not supported by the evidence. The second lacks support in the evidence to the extent that it contemplates “control” for the purpose of carrying out the charitable aims of the trust, but it is in my view wholly supported to the extent that it contemplates “control” over applications under the distress clause.1 Thus, to the extent that the second finding is supported in the evidence it is fully consistent with the qualified appointment of Marie.
A fair reading of the Declaration of Trust and the amendment demonstrates that no single purpose was “primary” in the mind of the trustor. Rather, he had several objectives which he tried to effectuate through the single trust here involved. It is apparent that he desired to benefit two broad areas of charitable endeavor, leaving the periodic selection to the committee so as to insure that a worthy instiution would be selected. He also desired to provide for his children’s “reasonable support, care, and comfort” but not to subsidize an unduly luxurious or indulgent life style at the expense of the charitable remaindermen.2 To accommodate these *218somewhat antagonistic desires, he again relied upon the committee for a sympathetic but unbiased estimate of his children’s actual need for increased payments. That he desired a degree of objectivity in the assessment of need is manifest in the simple fact of his entrusting the responsibility to the committee as initially composed. Had he intended the trustee to act on solely the beneficiaries’ own idiosyncratic views of their financial status, there was no need for the committee at all. Thus, there is nothing in the trust documents themselves which either expressly or by implication prohibits the remaining committee members from conditioning the appointment of a new member upon his acceptance of a limited role when this condition is imposed in order to preserve a balanced membership and to prevent domination of the committee by the income beneficiaries in matters as to which they have a direct financial interest.
It remains to determine whether any legal principles preclude the appointment of a committee member with restricted powers. The parties have referred us to no cases deciding or discussing the precise question here presented and my own research has disclosed none.3 However, I am satis*219fied that there are neither specific rules nor general notions of public policy which prohibit the appointment of a committee member subject to the conditions in the nomination agreement which we here consider.
In spite of the strenuous efforts of the majority to obscure it,4 there nevertheless exists a clear distinction between (1) the members of a committee charged with providing advice to or making decisions binding upon a trustee and (2) the trustee himself.5 Title to the trust corpus reposes in the trustee but not in the committee members. Accordingly, no tenable analogy can be drawn to the rule in some jurisdictions that a successor trustee may not be appointed to serve as to less than all of the trust property or all of the trust functions.6 This rule reflects the need for a definite repository of the title to the trust property and, hence, does not apply to the appointment of committee members who are disqualified from acting as to certain matters. (Cf. Warner v. First National Bank of Minneapolis, supra, 236 F.2d 853, 860.)
Second, there appears to be several good reasons for the insistence by the trustee-committeeman that any determinations of distress be made by a committee the majority of whose members are relatively impartial as between the income beneficiaries and the charitable remaindermen.7
*220Those who have some degree of advisory or directive power over a trustee may be cotrustees, beneficiaries or independent third parties. If they are trustees or third parties, they hold these powers as fiduciaries, owing a fiduciary’s responsibility to the trust beneficiaries in the exercise of the power. If, however, the power holders are themselves beneficiaries they usually, though not necessarily, hold it for their own benefit. (See 2 Scott, Trusts, supra, § 185, pp. 1474-1479.) When the holder of the power is a fiduciary, the trustee may properly refuse to act upon his direction if the trustee knows that the power holder is violating his duty to the beneficiaries in giving that direction. (2 Scott, Trusts, supra, pp. 1481-1484.)
Prior to Marie’s appointment it was clear that Thomas held his power to join in declaring the distress of Marie or himself as a fiduciary since he held it for Marie’s benefit as well as for his own. Were Marie to have been appointed without the conditions imposed by the nomination agreement, it is far from clear that the power would have continued to be held by Thomas and Marie in a fiduciary capacity. Since the committee would have been then composed of a majority apparently holding their power solely for their own benefit, the trustee would have become subject to a less qualified obligation to act upon its declarations.8 Under those circumstances, the trustee could refuse to act upon a declaration of need only were it convinced it was made in bad faith. In so doing it would almost certainly provoke a lawsuit by Thomas or Marie charging it with abuse of discretion.
On the other hand, were the trustee to have acquiesced in the appointment of a committee member who used that office for her own financial benefit and thereby depleted the corpus to an extent greater than would otherwise have occurred, it would risk liability to the charitable beneficiaries represented by the Attorney General.9
*221To some extent this dilemma was built into the trust by the imprecision and elaborateness of the decision-making mechanism; a three-member committee to determine, in its discretion, the children’s need for additional payments, and a residual discretion lodged in the trustee to determine how much it was “proper and necessary” to pay out. Acting in the best interests of the trust, the trustee (or a committee member who was not the trustee) could sensibly refuse to accept an appointment to the committee which could only aggravate the risk of dispute and expensive litigation.
Finally, the only parties whose interests could be adversely affected by the conditional appointment (Thomas and Marie) freely assented to it. Absent either some dishonesty on the part of the trustee in inducing their assent, or some conflict between the agreement itself and the trustor’s intention or an extrinsic rule of law, I see no reason to strike down the appointment.
For the foregoing reasons I am of the view that Marie was validly appointed to the committee and is now a member of it; that she has been and remains subject to the terms, conditions and restrictions of the nomination agreement; that pursuant thereto she is disqualified to act as a member of the committee with regard to the present, and any future, requests for additional payments under the distress clause; and that therefore a temporary vacancy now exists on the committee which should be filled by the trustee and Thomas Eckstrom and, if they are unable to agree, by the Los Angeles County Superior Court.
I feel it is my duty to make some brief observations concerning the practical result of the decision reached by the majority. It is asserted that the conditional appointment of Marie has caused litigation, delay, and expense—and that if it remained in effect more of the same would be forthcoming because every application under the distress clause would cause a temporary vacancy to be filled in an atmosphere of dispute and litigation. It is manifest, however, that past litigation, delay, and expense has been caused wholly by the wilful refusal of Thomas and Marie to abide by the terms of the agreement10 which as long ago as August 1958 *222they executed with the trustee so as to provide for the appointment of Marie to the committee subject to the conditions heretofore discussed.11 It is also manifest that if Marie’s appointment were upheld all incentive for future litigation would be removed because the possibility of family domination of the committee would be negated. It is not at all difficult to perceive behind all of this the expertise of a careful and conscientious trustee which sought to accommodate itself to the wishes of the children without frustrating the basic objectives of the trustor.
Compare with this the situation which the majority by their decision now bring about. The parties are told that although Marie’s conditional appointment is invalid, her unconditional appointment would be valid “[sjince neither the trust nor general principles of law prohibit Marie from serving as a trust adviser or from holding and exercising trust powers. . . .” In addition the trustee is told (in fn. 4 óf the majority opinion and accompanying text) that its concern to preserve a disinterested majority on the committee has been misguided and that Marie’s status as a beneficiary under the distress clause in no way disqualifies her from serving on the committee. The next step is clear: Marie will be nominated by Thomas for unconditional appointment, and the trustee—if in the face of the majority opinion it should nevertheless conclude that refusal to consent still lies within the province of its discretion—will be obliged to support that conviction in the superior court. That, of course, is only the beginning, for if Marie is finally appointed the trustee will find itself in the uncomfortable position which I have suggested above in the' text accompanying footnotes 8 and 9. The prospect of interminable litigation looms large indeed.
I would uphold the conditional appointment of Marie to the trust advisory committee.
Peters, J., and Wood, J.,* concurred.

It is the view of the majority that this second finding is unsupported even as it relates to the distress clause. (See fn. 4, ante, and accompanying text.) I address myself to this view in the next paragraph.

In 1951, when the power to invade the principal on behalf of the income beneficiaries was added to the trust, there was substantial uncertainty as to the effect such a provision would have upon the deduction from the settlor’s gross estate of the charitable remainder under Internal Revenue Code section 812(d) (now I.R.C. § 2055). (See Ithaca Trust Co. v. United States (1929) 279 U.S. 151 [73 L.Ed. 647, 49 S.Ct. 291): Merchants Bank v. Commissioner (1943) 320 U.S. 256 [88 L.Ed. 35, 64 S.Ct. 108]; Henslee v. Union Planters Bank (1949) 335 U.S. 595 [93 L.Ed. 259, 69 S.Ct. 290].) In addition, the possession of some power to direct the invasion of principal by the beneficiary raised the specter of inclusion of the trust corpus in the beneficiaries’ gross estate. (See Brown, Tax Hazards in Hidden Powers of Appointment (1953) 28 L.A. Bar Bull. 323.) The operative phrase “reasonable support, care, and comfort” may well have been an attempt to avoid these tax consequences by providing an external ascertainable standard by which the discretion of the trustee was to be controlled. The use of the committee device may have been intended to insulate the bene*218ficiary, Thomas, from “direct” possession of a power to direct invasion of the principal for his own benefit. In any event, the trustor was obviously sensitive to the risks of adverse tax treatment and endeavored to minimize them while still obtaining the additional flexibility a discretionary power to invade afforded in his provisions for the welfare of his children. While certainly not controlling, this is some evidence that the exclusion of Marie from participating in the determination of her own or her brother’s need for principal payments was entirely compatible with the trustor’s intentions.

The cases cited by the parties are not particularly helpful. The Eckstroms rely upon Estate of Bodger (1955) 130 Cal.App.2d 416 [279 P.2d 61] for the proposition that a trust is a contract, the terms of which cannot be modified by the unilateral action of the trustee or of a court. The other parties do not dispute that the trustee is bound by the Declaration of Trust, but this sheds little light upon the question of whether the action of the trustee and Thomas as committee members should be considered such a “unilateral alteration.” In addition, the Eckstroms refer us to 49 Cal.Jur.2d 32 for the proposition that “Trustees are bound to comply strictly with the directions contained in the trust instrument defining the extent and limits of their authority and the nature of their powers and duties.” No authority is cited for their contention that this “rule of law” is “likewise applicable to members of a trust committee.”
The Attorney General cites Duncan v. Dormer (1928) 94 Cal.App. 218 [270 P. 1003] and Huntoon v. Southern T. & C. Bank (1930) 107 Cal.App. 121 [290 P. 86] in support of the proposition that the trust instrument is the sole source of the committee members’ authority and that in appointing Marie to a limited-status membership, Thomas and the trustee were acting contrary to it. Neither case is persuasive authority. Duncan stands for the principle that a trustee is personally liable on contracts which are not authorized by the trust instrument. Huntoon holds simply that a trustee receives his authority to sell the trust res from the trust instrument. It is unquestioned that the primary source of power of the trustee qua trustee and as committee member is the Declaration of Trust; the question, however, is whether the particular action here involved is consistent with that document’s abbreviated delegation of authority to appoint new committee members. That is, in the absence of clear authorization or *219prohibtion, are there general principles which indicate that the action is or is not appropriate?
Finally, the trustee relies on Gilbert v. Penfield (1899) 124 Cal. 234 [56 P. 1107] and Craven v. Dominguez Estate Co. (1925) 72 Cal.App. 713 [237 P. 821] for the rule that a trustee has ail the authority necessary to carry out the purposes of the trust and may adopt measures and do acts which are reasonable and proper to effectuate the instrument even though not directly conferred on him, if they are implied in its general directions. No distinction is made between the trustee’s role as trustee and as committeeman.

In the course of pursuing its analogy between cotrustees and committee members the majority quotes from a well-written Note on the subject of trust advisers. (Note, Trust Advisers (1965) 78 Harv.L.Rev. 1230, 1231.) However, the majority fails to point out that in the same paragraph of the Note from which it quotes the author goes on to observe: “However, courts have recognized that advisers are not cotrustees when such a classification would have undesirable substantive effects [citing Warner v. First National Bank of Minneapolis (8th Cir. 1956) 236 F.2d 853, cert. den. 352 U.S. 927 [1 L.Ed.2d 162, 77 S.Ct. 226], where it was held that an adviser was not a trustee for the purpose of beginning the running of the statute of limitations].”

The literature regarding such committee is not extensive. For a discussion of the trust committee in the context of providing investment direction see Note, Trust Advisers, supra, 78 Harv.L.Rev. 1230.

In any event, this does not appear to be the general rule. See 2 Scott, Trusts (3d ed. 1967) § 185, p. 1488.

A trustee, of course, owes a duty of impartiality to all who have an interest in the trust and must deal impartially among the several beneficiaries. (See 2 Scott Trusts, supra, § 183, pp. 1471-1472; 1 Nossaman, Trust Administration and Taxation (2d ed. rev.) § 27.12.)

Nor could the trustee avoid this duty because it had discretion as to the amount of payments to be made. (The amendment provides: “. . . if said payments . . . shall be insufficient in the discretion of the Committee ... to provide for the reasonable support, care, and comfort of either of them, the Trustee may pay to such beneficiary, or apply for his or her benefit, so much of the principal as the Trustee may deem proper or necessary for that purpose.”) (Italics added.) This language does not confer on the trustee an absolute discretion, even though article IV, paragraph 15 of the Declaration of Trust provides that “[ujnless specifically limited, all discretions conferred upon the Trustee shall be absolute, . . .” The actions of the Trustee remain subject to review by the court for abuse of discretion. (Civ. Code, § 2269; 1 Nossaman, supra, § 28.18; 3 Scott, Trusts, supra, § 187.2, pp. 1514-1515; Estate of Ferrall (1953) 41 Cal.2d 166, 173-174 [258 P.2d 1009].)

See Government Code sections 12580-12597. These statutes “were enacted in recognition of the problem of providing adequate supervision and enforcement of charitable trusts [fn. omitted]. Beneficiaries of a charitable trust, unlike beneficiaries *221of a private trust, are ordinarily indefinite and therefore unable to enforce the trust in their own behalf [citations]. Since there is usually no one willing to assume the burdens of a legal action, or who could properly represent the interests of the trust or the public, the Attorney General has been empowered to oversee charities as the representative of the public, a practice having its origin in the early common law. [Citation.]” (Holt v. College of Osteopathic Physicians & Surgeons (1964) 61 Cal.2d 750, 754 [40 Cal.Rptr. 244, 394 P.2d 932]. See also Howland. The History of the Supervision of Charitable Trusts and Corporations in California (1966) 13 U.C.L.A. L.Rev. 1029.)

No claim is made that this was not the free and voluntary act of two mature individuals who were desirous of placing Marie on the committee but were nevertheless sensitive to the conflict of interest with which she might be otherwise faced.

Until 1966, for over eight years, Thomas and Marie abided by the agreement. They then called a meeting of the trustee’s advisory committee to pass upon their applications under the distress clause for a payment to each of them of $50,000, and for future annual payments of $20,000, in addition to all other sums payable to them. The implications of conflict of interest which Marie thus faced are obvious. Her violation of her obligations under the agreement wherein she “recognizes that she would be disqualified to sit or act” is clear. Quite properly the trustee refused to participate in such an arrangement which presented the grave danger that such control of the committee might inordinately invade the trust to the prejudice of the remaindermen —the very danger the agreement had sought to avoid.

Assigned by the Chairman of the Judicial Council.