Price v. Box

Price v. Box

Filed 8/20/08 Price v. Box CA3

NOT TO BE PUBLISHED

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). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

THIRD APPELLATE DISTRICT

(Shasta)

MARGARET PRICE, as Trustee, etc., Plaintiff and Appellant, v. EDWARD ALLEN BOX et al., as Trustees, etc., Defendants and Respondents.

C056473 (Super. Ct. No. 25245)

In this case we decide that a no contest clause in a trust instrument is not violated by an attack on an amendment to the trust and a new will executed five years later.

Margaret Price appeals from a denial of her petition (Prob. Code,  17200)^[1]for a determination that her brothers, Edward Allen Box and Clifford Box, violated the no contest clause of their parents family trust instrument. The brothers had filed an action that alleges that an amendment to the trust instrument and an associated last will and testament by their mother are invalid as a result of forgery, incompetency, undue influence, and duress. The trial court determined that the brothers action did not violate the no contest clause. Price contends that the court erred in its construction of the no contest clause. Finding no merit in the contention of error, we shall affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Vern and Jean Box executed the instrument establishing the family trust on July 26, 2000. In general terms, it provides as follows: On the death of either grantor, the trust property will be divided into two separate trusts, trust A and trust B. The former is a revocable trust of the survivor; the latter an irrevocable trust with income payable to the survivor until death and the remainder then distributed equally to their children. The trust instrument has the following no contest clause:

In the event any beneficiary under this Trust shall, singly or in conjunction with any other person, contest in any court the validity of this Trust or of a Deceased Grantors Last Will and Testament, or shall seek to obtain an adjudication in any proceeding in any court that this Trust or any of its provisions or that such Last Will and Testament of a Grantor or any of its provisions is void, or to seek otherwise to void, nullify or set aside this Trust or any of its provisions, then in that event the rights of the person to take any beneficial interest given to him or her by this Trust shall be revoked and said beneficial interest is to be distributed as it would have been distributed had the contesting person or persons predeceased the execution of this Declaration of Revocable Living Trust.

Vern Box died on August 6, 2005. On October 18, 2005, Jean Box, or someone purporting to be Jean Box, executed an amendment to the trust, disinheriting Edward Box under trust A, and a pour-over will incorporating the terms of that amendment. Jean Box died on August 24, 2006.

On September 27, 2006, Edward and Clifford Box filed an action for cancellation of instruments and declaratory relief. The complaint alleges that the October 18, 2005 amendment to the trust, the pour-over will, and a deed transferring real property from the trust to Price and her husband were invalid as forgeries, or for lack of capacity, or because they were obtained by undue influence.

On December 13, 2006, Price filed the petition in this case seeking a determination that her brothers, in filing their action, violated the no contest clause of the July 26, 2000 trust instrument and had forfeited all beneficial interest under both trust A and trust B.

The hearing on Prices petition was on January 22, 2007. There is no reporters transcript in the record. After hearing argument, the court took the matter under submission. On April 25, 2007, the court issued a ruling that there had been no violation of the no contest clause. Price appeals from the ensuing judgment (order denying her petition).

DISCUSSION

Price contends the trial court erred in ruling there had been no violation of the no contest clause. She makes two arguments. Section 82 provides: Trust includes . . . [a]n express trust, private or charitable, with additions thereto, wherever and however created. ( 82, subd. (a)(1), italics added.) Price argues that in light of this statutory definition a challenge to any amendment to a trust is a contest under the no contest clause of the instrument establishing the trust. She also argues that, in any event, the challenge to the 2005 pour-over will must be viewed as a contest under the phrase a Deceased Grantors Last Will and Testament in the 2000 trust instruments no contest clause. The arguments are unpersuasive and the contention of error fails.

A no contest clause is a provision in an instrument that penalizes a beneficiary for filing an action identified therein as a violation. ( 21300.)^[2] In essence, a no contest clause conditions a beneficiarys right to take the share provided to that beneficiary under such an instrument upon the beneficiarys agreement to acquiesce to the terms of the instrument. (See Estate of Hite (1909) 155 Cal. 436, 441.) [] No contest clauses are valid in California and are favored by the public policies of discouraging litigation and giving effect to the purposes expressed by the testator. (Estate of Hite, supra, 155 Cal. at pp. 439-441; Estate of Black (1984) 160 Cal.App.3d 582, 586-587.) Because a no contest clause results in a forfeiture, however, a court is required to strictly construe it and may not extend it beyond what was plainly the testators intent. (Estate of Watson (1986) 177 Cal.App.3d 569, 572; Estate of Black, supra, 160 Cal.App.3d at p. 587; Estate of Kazian (1976) 59 Cal.App.3d 797, 802.) (Burch v. George (1994) 7 Cal.4th 246, 254 (Burch);  21303,^[3]21304.^[4])

Because the no contest device seeks to compel the beneficiary to accept the provision made under the instrument, it can apply both to direct and indirect contests. Direct contests include actions that would invalidate the instrument and indirect contests that would impair its provisions. (See Burch, supra, 7 Cal.4th at p. 265;  21300.) Thus, where the intent of the grantor is to include property in a trust as a part of an integrated estate plan, an action seeking to characterize the property in a way that would remove it from the trust can amount to a contest. (Burch, at pp. 260-261.)

In this case Price seeks to use the no contest clause in the 2000 trust instrument in an unusual manner. She would use it to condition her brothers rights to the share provided in the 2000 trust instrument upon their agreement to acquiesce to the terms of instruments executed in 2005. She cites no authority involving such a use of a no contest clause.

In a conventional case a no contest clause puts the potential direct contest challenger of the grantors instrument to a test. If you challenge and lose, you lose whatever you would have received under the instrument. On the other hand, if you challenge and win, you void the instrument and recover as you would under the status quo ante. Prices claim is more expansive. If she is correct, challengers of the 2005 instruments lose if their challenge is unsuccessful‑‑and they also lose if their challenge is successful, because they still forfeit under the original 2000 trust instrument. Even if her brothers are correct and the later executed instruments are invalidated, they would nonetheless lose under the no contest clause of the earlier, valid instrument.^[5]

We see no evident reason why a grantor should intend such a result. A grantor cannot know the circumstances attending a future amendment or will. If a court finds, e.g., that such an instrument is invalid for lack of capacity, that determination advances the present interest of the grantor. Moreover, a no contest clause in an amendment or other documents in a subsequent integrated estate plan established after the original trust would provide appropriate protection for the subsequent plan, if desired.

As related, Price argues that disinheritance under the original instrument is required because section 82 says trust includes [a]n express trust . . . with additions thereto . . . . ( 82, subd. (a)(1).) She suggests, elliptically, that this is a definition which applies to the term trust in the 2000 no contest clause and that the phrase with additions thereto means it applies to a contest to any amendment to the trust instrument. We cannot follow this argument. An addition to a trust is an addition of property to a trust. (See, e.g.,  6300-6303.) Price fails to show how the language concerning additions has any bearing on the meaning or effect of an amendment to a trust instrument for purposes of the no contest clause.

In this case there is no extrinsic evidence bearing on the interpretation of the 2000 trust instrument. Therefore, the question of the meaning of the no contest clause is a question of law for this court. (E.g., Burch, supra, 7 Cal.4th at p. 254.) The language of the clause, which we are constrained to strictly construe ( 21304), shows no intent that it is to be applied to contests to amendments to the trust. That is not the ordinary purpose or effect of a no contest clause and, for reasons already given, is unlikely to have been the intent of the grantors at the time the instrument was executed. (Scharlin v. Superior Court (1992) 9 Cal.App.4th 162, 170-171; see also, e.g., McIndoe v. Olivos (2005) 132 Cal.App.4th 483, 487; see generally  21305, subd. (a)(3).)

For similar reasons, we find unpersuasive Prices argument that, in any event, the challenge to the 2005 pour-over will must be viewed as a contest under the phrase a Deceased Grantors Last Will and Testament as used in the 2000 trust instruments no contest clause. The normal purpose of including the grantors wills in the no contest clause of a family trust instrument is to protect against a challenge to contemporaneous wills. Such a challenge could disrupt the decedents contemporaneous integrated estate plan. (Cf. Burch, supra, 7 Cal.4th at pp. 258-260.) However, in light of the peculiar and unnecessary effects of applying the 2000 no contest clause to future instruments, related above, it is unlikely Prices parents intended it to apply to contests to future instruments, including future wills.

The trial court did not err in concluding that the challenge of Edward and Clifford Box to the instruments executed in 2005 did not violate the no contest clause in the 2000 instrument establishing the family trust.

DISPOSITION

The judgment is affirmed. Respondents Edward and Clifford Box shall recover their costs of this appeal. (Cal. Rules of Court, rule 8.278(a)(2).)

BUTZ , J.

We concur:

BLEASE , Acting P.J.

RAYE , J.

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^[1] Undesignated statutory references are to the Probate Code.

^[2] Section 21300 provides:

As used in this part:

(a) Contest means any action identified in a no contest clause as a violation of the clause. The term includes both direct and indirect contests.

(b) Direct contest in an instrument or in this chapter means a pleading in a proceeding in any court alleging the invalidity of an instrument or one or more of its terms based on one or more of the following grounds:

(1) Revocation. [] (2) Lack of capacity. [] (3) Fraud. [] (4) Misrepresentation. [] (5) Menace. [] (6) Duress. [] (7) Undue influence. [] (8) Mistake. [] (9) Lack of due execution. [] (10) Forgery.

(c) Indirect contest means a pleading in a proceeding in any court that indirectly challenges the validity of an instrument or one or more of its terms based on any other ground not contained in subdivision (b), and that does not contain any of those grounds.

(d) No contest clause means a provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary if the beneficiary files a contest with the court.

^[3] Section 21303 provides: Except to the extent otherwise provided in this part, a no contest clause is enforceable against a beneficiary who brings a contest within the terms of the no contest clause.

^[4] Section 21304 provides: In determining the intent of the transferor, a no contest clause shall be strictly construed.

^[5] The vice of such use of a no contest clause is explained in 1 California Trust and Probate Litigation Practice (Cont.Ed.Bar Supp. Mar. 2008) section 5.5A, pages 85-86: PRACTICE TIP: Estate planning counsel should avoid expressly providing in the initial plan that a challenge to an amendment would be a contest of the initial plan. Such a clause is extremely dangerous because it immunizes all potential future amendments from challenge by the intended beneficiaries under the initial plan, without regard to the circumstances of the amendment, e.g., egregious fraud, undue influence, or duress. Given that estate planning counsel cannot know nor control the circumstances of a future amendment, counsel should advise against including such a clause in the initial plan as it is highly unlikely that it will be in the best interests of the settlor or the settlors intended beneficiaries.