Opinion
NOT TO BE PUBLISHED
Appeal from an order of the Superior Court of Orange County No. A228299, Gerald G. Johnston, Judge. Affirmed.
Jonna Allison, in pro. per., for Plaintiff and Appellant.
Law Offices of Dean E. Daggett and Dean E. Daggett, for Defendants and Respondents.
SILLS, P. J.
We have seen this case before. Almost two years ago, we filed an opinion affirming the order of the trial court instructing the trustee of the Rosalie Givens Trust to sell trust property to Rosalie’s son and his wife, Dennis and Betty Givens (the Givens). (Givens v. Martin (June 27, 2008, G038299) [nonpub. opn.].) Jonna Allison, Rosalie’s granddaughter, filed a petition to enforce the no contest clause of her grandmother’s trust against her uncle, claiming that the Givens’ petition seeking an instruction to the trustee to sell them trust property constituted an attempt to set aside significant provisions of the trust and should result in the Givens’ disentitlement to their trust interests. The trial court denied Allison’s petition, finding the Givens’ petition was a challenge to the exercise of fiduciary power and thus exempted from the no contest clause. Allison appeals, and we affirm.
BACKGROUND
Rosalie established a revocable living trust in 2000 (the Trust), designated herself as trustee, and funded it with residential real property located in Orange, which was her home (the Property). She designated Brenda Martin, her daughter, as the successor trustee. At that time, Rosalie was living in the guest house on the Property, attended by round-the-clock caregivers, and Dennis and Betty lived in the main house. This living arrangement had existed for more than ten years when the Trust was executed.
The original Trust granted Dennis a life estate in the Property upon Rosalie’s death. Upon Dennis’s death, “or in the event that he should cease to occupy said real property as his principal residence for a continuous period in excess of six (6) months, or fail to maintain insurance, association dues, taxes, assessments, necessary improvements or repairs thereon, ” the Property was to be distributed outright in equal thirds to Rosalie’s grandchildren: Christine Shelton, Jonna Allison, and Cara Bender. Any remainder of the trust estate existing upon Rosalie’s death was to be distributed outright in equal shares to Dennis and Brenda. In April 2003, Rosalie amended the Trust to provide that Betty would have the right to reside in the residence on the Property for 12 months after Dennis’s death if she and Dennis were living there at the time.
In May 2003, Brenda obtained letters from two doctors stating that Rosalie was incapable of handling her own affairs. Brenda than assumed the position of successor trustee as provided in the Trust.
For reasons not fully explained in the record, bad blood exists between Brenda and Dennis. In September 2004, Brenda, as trustee, filed an unlawful detainer action against Dennis and Betty, seeking to have them removed from the Property. A few weeks later, Brenda on her own behalf and as trustee, filed two separate domestic violence petitions against Dennis, seeking to have him evicted from the Property and to prohibit him from having any contact with Rosalie. The requested relief was denied. Dennis and Betty began paying rent of $3000 per month to the trust in October 2004, and in November, they filed a petition to remove Brenda as successor trustee and to require an accounting.
In December 2004, Brenda petitioned to have herself appointed as conservator of Rosalie’s person and estate. Dennis filed a competing petition in March 2005, seeking to have himself appointed. The court appointed a professional conservator, Karen Dwyer, as temporary conservator of the person only in August 2005. It appointed attorney Ernest L. Hayward as counsel for Rosalie as conservatee. In November 2005, Dwyer was appointed temporary conservator of the estate. Rosalie fell and broke her hip in December 2005, resulting in her admission to Carehouse, a private skilled nursing facility, in January 2006. Dwyer was appointed as permanent conservator of the person, without medical powers, in August 2006; she continued as temporary conservator of the estate. Apparently, Dennis remained the healthcare agent under a durable power of attorney.
Dennis and Betty filed their petition to compel Brenda to sell them the Property in August 2006. The petition alleged that Rosalie had insufficient income to cover the costs of her medical care. Shortly after she assumed the position of successor trustee, Brenda obtained a line of credit in the amount of $250,000, secured by the property. Dennis claimed the entire amount has been used, some for Rosalie’s expenses and some to fund Brenda’s litigation against him. Dennis obtained an order restraining Brenda from further encumbering the property until his petition could be heard. Although the property was appraised at $1,440,000 in July 2006, Dennis proposed buying the property for $965,958. Using methodology suggested by a certified public accountant, Dennis reduced the appraised value by $474,042, which is the result of subtracting the present value of Rosalie’s life estate in the property from the present value of Dennis’s life estate in the property. Dennis offered to allow Rosalie to reside rent-free in the guesthouse for as long as she lives, and he pointed out the sale would not involve a real estate broker’s commission. But “[t]he main benefit of the enclosed offer to the Trust estate and to Rosalie is that an immediate sale of the Property provides a large amount of cash proceeds (over [$]700, 000 after the payment of the line of credit Loan), which can then earn interest to insure that there are sufficient liquid assets available to pay for any needed medical expenses and/or round-the-clock caregiver services which Rosalie may require.”
Brenda opposed the petition, claiming she, as trustee, has the sole discretion to retain or sell trust property and that she has determined the proposed sale is not in the best interests of Rosalie or the Trust. She claimed the value of Dennis’s life estate should be zero because it is contingent on (1) whether the trustee decides to sell the property during Rosalie’s lifetime, and (2) whether Dennis fails to live there for more than six months or fails to pay property expenses. Brenda argued Rosalie appointed her, not Dennis, as trustee to manage the Property in the event of her incapacity and that Dennis’s actions “in direct contravention of Rosalie’s wishes, ” violate the no contest clause of the Trust. Brenda claimed the better plan would be to refinance the Property and pay off the existing loan, which would leave $100,000 in cash for Rosalie’s care. She also claimed the Property should be rented at its fair rental value, which the parties stipulated was $5440, and Rosalie should be moved to a more economical care facility. The granddaughters joined in Brenda’s opposition to the petition.
A few days after she filed her opposition to the petition, Brenda filed a motion to remove Hayward, alleging he had a conflict of interest because he previously represented Dwyer and he commissioned the appraisal report used by Dennis and Betty to support their petition. Brenda claimed Hayward “has now taken a position contrary to the best interests of his client, Rosalie....” On the same day, Rosalie’s granddaughter Allison filed a petition to remove Dwyer as temporary conservator and an objection to her appointment as permanent conservator. Allison alleged Dwyer had neglected Rosalie’s health and mismanaged her money. Both Brenda’s motion and Allison’s petition were extensively briefed by all parties.
Dennis and Betty later “clarified” their offer to buy the property. They proposed to buy the property for its full appraised value of $1,440,000, payable in cash in the amount of $965,958 and a promissory note, secured by a deed of trust, in the amount of $474,042 (the value of Dennis’s life estate). The promissory note “would become due and payable only upon the depletion of Rosalie Givens’ funds (from all other sources) and only in increments necessary to pay on-going monthly expenses necessary to provide for the proper care and support of Rosalie in the discretion of Rosalie’s Conservator and/or the Court. If Rosalie dies prior to the depletion of her other funds, the Note and Deed of Trust would be forgiven.”
The trial court held a hearing on the Givens’ petition in January 2007. Hayward argued in favor of granting the petition based on the clarified offer: “There’s so many things that are going to be tapping into the loan availability that the several hundred thousand dollars that was obtained on a line of credit is going to be undoubtedly inadequate to cover all those expenses and also give my client prospective care. [¶] The only amounts coming in besides the meager amount of retirement money from the social security is the rent money, and [those] combined at present are not going to pay a care bill..., so we just keep borrowing and borrowing until we run out of a line of credit and we don’t have a final solution.” Hayward explained Rosalie did not qualify for a reverse mortgage because she was not living in her home, and she could not get conventional refinancing because there was no money to repay a loan. “We don’t have any money. It’s all being consumed for her monthly care and cost of administration, so I don’t see how this is a lose situation to sell the property to the person that my client intended to be vested with the property for the remainder of his natural life and to carve out the value of his life estate and save that amount.”
Allison argued the better course would be to increase the rent and reduce Rosalie’s monthly costs. “In my response to your last request for our papers, I’ve presented two other facilities which are capable of addressing both my grandmother’s dementia and her health care needs with the feeding tube, ... and they, because of their staff-to-client ratio, would not require any additional bedside attendants, which, according to this last bill, were $6,900 a month.... [¶] [T]he common sense approach is one of getting the income that she deserves out of her property. [The appraiser] had indicated that that would be $5,400 a month.”
The court granted the Givens’ petition, finding the Property is the “major asset of the Trust, ” Dennis was given a life estate upon Rosalie’s death, Rosalie needed funds for her care, and “it is in the best interests of conservatee, Ms. Rosalie Givens, that the real property be sold.” The court ordered Brenda to sell the Property on the terms set forth in the Petition.
In March 2007, Allison filed a petition requesting an order that the Givens violated the no contest clause of the Trust by “having sought to nullify or set aside provisions of the Rosalie Givens Trust with their petitions and/or their actions in this court, ” listing three petitions that she claimed were in violation. In June 2008, this court filed its unpublished opinion in Givens v. Martin (June 27, 2008, G038229), affirming the order instructing Brenda to sell the property to the Givens. Subsequently, Allison filed a supplemental petition limiting her no contest claim to the Givens’ petition to instruct the trustee to sell the real property that was filed in August 2006 and the supplement to the petition that was filed in November 2006. Allison’s petition was heard on January 14, 2009
The trial court denied Allison’s petition, finding the Givens’ petition “did not seek to reform, modify or revoke the trust, rather it challenged the exercise of Brenda Martin’s fiduciary power as Successor Trustee” and was thus exempted as a trust contest under former Probate Code section 21305, subdivisions (b)(6) and (d).
Probate Code sections 21300 through 21308 and sections 21320 through 21322 were repealed as of January 1, 2010. “[I]n 2008, the Legislature enacted a thoroughgoing revision of the statutory scheme governing no contest clauses. Operative January 1, 2010, ... the new scheme generally limits the enforceability of no contest clauses to (1) direct contests brought without probable cause; (2) challenges to the transferor’s ownership of property at the time of the transfer, if expressly included in the no contest clause; and (3) creditor’s claims and actions based on them, if expressly included in the no contest clause. The provisions of section 21320 are discontinued. (Stats.2008, ch. 174, § 2, adding § 21310 et seq.; see §§ 21311, subd. (a)(1)-(3), 21314; Recommendation on Revision of No Contest Clause Statute (Jan.2008) 37 Cal. Law Revision Com. Rep. (2007) p. 359; Sen. Com. on Judiciary, Analysis of Sen. Bill No. 1264 (2007-2008 Reg. Sess.) as amended Mar. 24, 2008.)” (Johnson v. Greenelsh (2009) 47 Cal.4th 598, 601, fn. 2.)
DISCUSSION
Allison points out that the Trust provides for its net income (after the payment of administration expenses) and principal, if necessary, to be used for Rosalie’s benefit during her lifetime. At her death, the Trust provides for a life estate in the Property for Dennis, which shall terminate if he stops using it as his principal residence; or on his death, if he is not survived by Betty; or 12 months after his death, if Betty continues to live there. After the termination of the life estate, the Property shall be distributed in thirds to Rosalie’s three granddaughters. The remainder of the Trust assets shall be distributed equally to Dennis and Brenda. Allison contends that the Givens’ petition violates the no contest clause because it materially modifies the trust and thwarts Rosalie’s intent by disinheriting the granddaughters from their future interest in the Property, changing Dennis’s life estate to full ownership, and disinheriting Brenda from the remainder assets.
The no contest clause in the Trust provides in relevant part: “In the event any beneficiary under this trust shall, singularly or in conjunction with any other person or persons, contest in any court the validity of this trust.., or shall seek to obtain an adjudication in any proceeding in any court that this trust or any of its provisions... is void, or seek otherwise to void, nullify or set aside this trust or any of its provisions, ... then the right of that person to take any interest given to him or her by this trust shall be determined as it would have been determined had the person died without issue before the establishment of this trust and before becoming entitled to receive any portion of the Trust Estate.”
There is no conflict or question of credibility in the trust document or the Givens’ petition. Accordingly, their interpretation is a question of law for our independent review. (Johnson v. Greenelsh, supra, 47 Cal.4th 598, 604.) “Although no contest clauses are enforceable and favored by the public policies of discouraging litigation and preserving the transferor’s intent, they are nevertheless strictly construed and may not be extended beyond their plainly intended function. [Citations.] ‘“‘Whether there has been a “contest” within the meaning of a particular no-contest clause depends upon the circumstances of the particular case and the language used.’” [Citations.]’ [Citation.]” (Ibid.)
Former Probate Code section 21300, subdivision (a), defines a “contest” as “any action identified in a ‘no contest clause’ as a violation of the clause. The term includes both direct and indirect contests.” With respect to instruments becoming irrevocable after January 1, 2001, “[a] pleading challenging the exercise of a fiduciary power” does “not violate a no contest clause as a matter of public policy” notwithstanding anything to the contrary in the instrument. (Former § 21305, subds. (b)(6) & (d).)
In our previous opinion, we pointed out that Rosalie reserved the right to revoke or modify the Trust to herself, “[w]hile living and competent.” When Rosalie was declared incompetent in May 2003, the Trust could no longer be changed, thus becoming irrevocable. Accordingly, former Probate Code section 21305, subdivision (b)(6) applies.
In Bradley v. Gilbert (2009) 172 Cal.App.4th 1058, the court stated, “‘[I]n 2001, the Legislature chose to greatly restrict the reach of no contest clauses by declaring that certain actions can never constitute a contest no matter what the no contest clause says. Section 21305, subdivision (b) provides, among other things, that “notwithstanding anything to the contrary in any instrument, the following proceedings do not violate a no contest clause as a matter of public policy:... (6) A pleading challenging the exercise of a fiduciary power....” [¶] As a Senate Judiciary Committee bill analysis indicated at the time, section 21305 was enacted to protect certain actions, including challenges to fiduciary misconduct, from the scope of no contest clauses in response to a consensus that no contest clauses had been applied overbroadly and inconsistently by the courts.’” (Id. at pp. 1069-1070.) The court concluded that public policy required that “a beneficiary should be able to question the actions of a faithless fiduciary without being subject to the restrictions of [a no contest clause].” (Id. at p. 1071.)
The Givens’ petition did not seek to modify or nullify terms of the Trust. Brenda, as the successor trustee, had the power to sell or retain trust property “to carry out the purposes of [the] trust....” The primary purpose of the Trust during Rosalie’s lifetime is to use the income and principal for her benefit. The Givens’ petition challenged Brenda’s exercise of her power to retain, rather than sell, the Property. As such, it was a challenge to her exercise of a fiduciary power and exempt from the no contest clause.
DISPOSITION
The judgment is affirmed. The Givens are entitled to costs on appeal.
WE CONCUR: RYLAARSDAM, J., O’LEARY, J.