California Court of Appeal, Zahnleuter v. Mueller, Docket No. C093909

Family Trust

 

No Contest Clause

 

A Trustee Is Bound to Deal Impartially with All Beneficiaries, Unless the Trust Document Provides Otherwise

 

California Law

 

 

 

The successor trustee named in the third amendment to the trust appeals from the order surcharging him for the trust assets he expended to defend against a beneficiary’s contest to the validity of that amendment. Finding no error, we shall affirm.

 

 

Establishment of the Trust 

In August 2004, the settlors created the Richard J. & Joan R. Mueller Living Trust. Under the terms of that document, Katherine and Amy were equal residual beneficiaries of the trust estate after the payment of certain expenses and gifts, including a $10,000 gift to their half-sister, Julie. Amy and then Katherine were named as the successor trustees upon the death of both settlors.

 

 

The trust document authorized the trustee, in his or her discretion, to initiate or defend, at the expense of the trust estate, any litigation the trustee considered advisable related to the trust or any property of the trust. The trust document also authorized the trustee to employ, at the expense of the trust estate, agents (e.g., attorney, accountant) to assist in the administration of the trust.

 

 

The trust document included a no contest clause.

 

 

A no contest clause is statutorily defined as “a provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary for filing a pleading in any court.” (Prob. Code, § 21310, subd. (c); see Donkin v. Donkin (2013) 58 Cal.4th 412, 422 [a no contest clause “‘essentially acts as a disinheritance device, i.e., if a beneficiary contests or seeks to impair or invalidate the trust instrument or its provisions, the beneficiary will be disinherited and thus may not take the gift or devise provided under the instrument’”].) A “direct contest” includes a pleading filed by a beneficiary that alleges the invalidity of a trust document, or one or more of the terms of such a document, based on certain grounds, including lack of due execution or undue influence. (Prob. Code, § 21310, subd. (b).)

 

 

“On acceptance of the trust, the trustee has a duty to administer the trust according to the trust instrument and, except to the extent the trust instrument provides otherwise, according to this division.” (Prob. Code, § 16000.) Under the Probate Code, a trustee is entitled to reimbursement by the trust for “expenditures that were properly incurred in the administration of the trust,” and “to the extent that they benefitted the trust, expenditures that were not properly incurred in the administration of the trust.” (§ 15684, subds. (a), (b).) “Among the ordinary powers and duties of a trustee of a private trust are those of doing all acts necessary and expedient to collect, conserve and protect the property of the trust, to maintain and defend the integrity of the trust for the benefit of the beneficiaries and to employ such assistants as may be necessary for said purposes.” (Evans v. Superior Court (1939) 14 Cal.2d 563, 574.) “Where litigation is necessary for the preservation of the trust, it is both the right and duty of the trustee to employ counsel in the prosecution or defense thereof, and the trustee is entitled to reimbursement for his expenditures out of the trust fund.” (Metzenbaum v. Metzenbaum (1953) 115 Cal.App.2d 395, 399.) “If the trustee acts in good faith, he has the power to employ such assistants and to compensate such assistants out of the assets of the trust even though he may not ultimately succeed in establishing the position taken by him as such trustee.” (Evans v. Superior Court, supra, 14 Cal.2d at p. 574.) “The foregoing rules, of course, presuppose that the litigation was for the benefit of the trust estate. [Citation.] For example, the defense of a lawsuit that has the potential for depleting trust assets would be for the benefit of the trust, justifying the employment of counsel. However, litigation seeking to remove or surcharge a trustee for mismanagement of trust assets would not warrant the trustee to hire counsel at the expense of the trust. Such litigation would be for the benefit of the trustee, not the trust.” (Whittlesey v. Aiello (2002) 104 Cal.App.4th 1221, 1227 (Whittlesey).)

 

 

(…) “When a dispute arises as to who is the rightful beneficiary under a trust, involving no attack upon the validity or assets of the trust itself, the trustee ordinarily must remain impartial, and may not use trust assets to defend the claim of one party against the other.” (Doolittle v. Exchange Bank (2015) 241 Cal.App.4th 529, 537 (Doolittle).) However, a trustee may defend against a contest by a beneficiary, even if the beneficiary’s contest will have no other effect on the trust except for modifying the dispositive provisions for the trust estate, when the authority granted by the trust document directs the trustee to defend against any contest brought by a beneficiary. (Id. at pp. 537-538, 544; see Hearst v. Ganzi (2006) 145 Cal.App.4th 1195, 1208 [a trustee is bound to deal impartially with all beneficiaries, unless the trust document provides otherwise; if the terms of the trust give the trustee discretion to favor one beneficiary over the other, the court will not “ ‘control the exercise of such discretion, except to prevent the trustee from abusing it’ ”].)

 

 

Finally, we reject Thomas’s contention that the no contest clause in the third amendment should be construed as directing (i.e., requiring) the trustee to defend against any contest to that amendment. As Thomas acknowledges, the clause (which appears in both versions of the third amendment and contains identical language) does not include express language supporting such an interpretation. The text of the clause is not ambiguous, and it neither directs nor authorizes the trustee to defend the third amendment at the expense of the trust estate. Indeed, the clause only applies to contests by beneficiaries, and it makes no mention of any duty or obligation on the part of the trustee to defend against such contests. Further, there is nothing in either version of the third amendment indicating an intent on the part of Richard to modify the language of the trust document, which (as noted ante) explicitly did not authorize the trustee to defend, at the expense of the trust estate, any contest to an amendment of the trust. In short, because there is no ambiguity in the relevant language of the no contest clause in the third amendment, the plain meaning controls. (Trolan, supra, 31 Cal.App.5th at p. 949.)

 

 

 

 

(California Court of Appeal, Feb. 9, 2023, Zahnleuter v. Mueller, Docket No. C093909, Certified for Publication)