by John T. Anderson, Chairman
Certified Specialist in Estate Planning, Trust
and Probate Law by the State Bar of California,
Board of Legal Specialization
NOTE: Darciann Horton, our Long Beach Probate Attorney, has changed her office hours in Long Beach. They will now be Wednesday from 10-12 and Thursday from 1-3.
Donald D. Cook, Jr., as Trustee, etc . . .vs. Daniel W. Cook, Defendant and Appellant (2009 Second District No. B205793) involved the integrated estate plan of parents Donald and Nancy Cook. Donald and Nancy executed their estate plan in 1997. They had four children and distribution was to be equally between the four, taking into account any outstanding debts owed to the Settlors. The Trust contained a no contest clause against direct or indirect contests, opposing, objecting or seeking to invalidate . . ., or seeking to succeed to any part of estate other than in the manner specified.
At the same time as they executed the estate plan the Settlors executed a writing, prepared by Donald, Jr., who would become their successor Trustee, at the request of Settlors, that they desired that their children be treated equally. That they “would like for there to be no misunderstanding regarding certain debts owed by children who are beneficiaries. We would like any and all debts to be offset against any and all assets which is bequeathed, prior to distribution of the assets to the beneficiaries. The writing referred specifically to funds “lent to help Daniel during a difficult time with his business.” The amounts lent were set forth. The court went through a discussion of no-contest clauses; public-policy; and strict construction to avoid forfeiture. Citing Miller’s Estate (1963) 212 Cal.App.2d 284 and Burch v. George (1994) 7 Cal.4th 246 among others.
After the death of the Settlors, Donald Jr., as Trustee, filed a §17200(b)(6) Petition requesting instructions from the court regarding the application of the provision to various debts including over $900,000 from son Daniel.
Daniel responded, in propria persona, that the debts were satisfied; barred by the Statute of Limitations; were oral; and were not pursued in his bankruptcy. Two other children “responded that Daniel’s assertions and his request for ruling violated the Trust’s no contest provision.”
After hearing, the trial court ruled that Daniel’s pleadings were a direct attack on the intended distribution in the document and violated the no-contest clause causing his disinheritance. On appeal, Daniel contends that his pleadings were protected by P.C. §21305(b)(9) and “merely advocated a Trust interpretation.” Further, that his pleadings were sheltered by P.C. §21305(b)(6) and (8) as a challenge to “the exercise of fiduciary power and to accountings of a fiduciary.” Daniel alleged that time barred debts are not debts owed, citing Estate of Schaeffer (1921) 53 Cal.App. 493.
The Appellate Court found that Daniel’s pleadings sought “to frustrate his parents’ unequivocal expressed intent.” Estate of Strader (2003) 107 Cal.App.4th 996. The Settlors did not qualify the debts by stating that the Trustee must offset only enforceable debts (Estate of Tompkins (1901) 132 Cal 173.) “The term ‘owing’ does not necessarily imply an enforceable obligation.” In fact, when Settlors executed the writing, many of the debts were barred by the Statute of Limitations.
Daniel “went beyond seeking an interpretation . . . or challenging the exercise of the Trustee’s power or his accounting.” What Daniel sought was a determination that his debts were time-barred and should not be deductions from his share.
Daniel was not protected by P.C. §21307 since he did not allege facts supporting probably cause that a no-contest clause is unenforceable against a beneficiary contesting a provision benefitting a person who drafted it.
Estate of Schaeffer, supra, did not apply to support Daniel as it did not involve a “Settlor or testator’s expressed intent to offset debts . . . to treat each beneficiary equally.”
Though P.C. §21320's safe harbor provision remains in effect through 2009, Daniel did not avail himself of its protections in this proceeding.
A reminder that a challenge that affects settlor’s express intentions as to distribution is very risky. Obviously Daniel’s share was not completely offset by the 900,000 time-barred (and apparently bankrupted) debt. Had it not been so, he had little to risk except the expense of litigation (guess $50,000 to $100,000?). But he lost it all.
John T. Anderson, Section Chair
Certified Specialist in Probate, Trust and Estate Planning
By the California State Bar Board of Legal Specialization