In a February 2020 opinion, Roth v. Jelley, a California appellate court determined that appellant’s due process rights were violated when he received no notice and no opportunity to be heard with respect to a California probate judgment that eliminated his interest in a Trust.
The Facts of Roth v. Jelley
Mark Roth is the son of McKie, Jr., who is the son of McKie, Sr. McKie, Sr. was married to Yvonne.
McKie Sr.’s will created the FYR Trust. The trust was to terminate upon Yvonne’s death, and Yvonne was granted a testamentary power of appointment over the balance of the trust. If Yvonne did not exercise her testamentary power of appointment, a default scheme of distribution applied as follows:
Any portion of the principal and accrued and undistributed income of this trust not validly and effectively appointed by my said wife pursuant to subparagraph (c), shall, upon the death of my said wife, be distributed in equal portions to McKie W. Roth, Jr., Diane Roth Lauer, Joanne Roth Gibbons and James Barron, provided however if such persons should not be then living, but leave issue surviving them, then such issue shall take per stirpes, the portion that such individual would have taken if then living . . . .
McKie Sr. died in 1988, survived by Yvonne. Attorney Jelley was named as trustee of the FYR Trust. Jelley petitioned for probate of McKie Sr.’s Will and to be appointed executor of the estate.
Notice was served to McKie Jr. (Mark’s father) and several others. Mark was not served with notice of the California probate petition.
McKie’s adult children began inheritance litigation. The litigation was eventually settled. The settlement agreement did the following:
Paragraph 2.a.(i) of the agreement provided, “Claimants irrevocably disclaim and renounce all other interest in the Estate of McKie W. Roth, Sr., and the First Yvonne Roth Trust . . . .” The agreement also provided, “All of the terms and provisions contained herein shall inure to the benefit of and shall be binding upon Claimants and Respondents and their respective legal representatives, successors and assigns.
Mark (McKie Jr.’s son) was not a party to the settlement agreement. The settlement agreement was approved by the California probate court. There is no record evidence that the copy of the order approving the settlement agreement was formally served on Mark. Mark denies ever having been served with the order.
In 1991, a decree of final distribution was entered in McKie Sr.’s Estate, summarized by the appellate court as follows:
In 1991, the probate court issued a decree of final distribution of the McKie Sr.’s estate—the 1991 Decree—which included language changing the default distribution of the trust upon Yvonne’s death, ostensibly based on the terms of the settlement. The 1991 Decree specified that the remainder of the trust was to be distributed solely to Yvonne’s son or his surviving issue in case of default (i.e., failure of Yvonne to exercise her testamentary power of appointment). But McKie Sr.’s grandchildren (specifically, Mark and the other then-living issue of McKie Sr.’s three adult children) were not given prior notice of the 1991 decree, even though the decree eliminated their contingent interests in the remainder of the trust.
In the Final Account and Petition for Distribution, the settlement agreement was referenced but not included, nor were its terms. Mark was not named on the proof of service for the hearing on the Final Account and Petition for Distribution.
Yvonne died in 2016. McKie Jr. predeceased Yvonne.
Mark Petitions To Be Recognized As A Beneficiary Of The Trust
In 2017, after Yvonne’s death, Mark petitioned the California probate court to be recognized as a beneficiary of the FYR Trust created by his grandfather pursuant to the default distribution provision of his grandfather’s will. Mark alleged that his due process rights had been violated by receiving no notice of the California probate court proceedings.
The probate court determined that the 1991 Decree eliminated Mark’s interest and was binding on him, even though he received no notice of the court proceeding that resulted in the 1991 Decree.
The California probate court ruled:
- Mark’s future interest as a contingent remainder beneficiary came into existence when McKie Sr. died, and could not be defeated by McKie Jr.’s forfeiture of his intermediate or precedent interest.
- McKie Jr. received his interest in the Trust by way of the Settlement Agreement, and therefore Mark’s contingent remainder interest did not vest.
- Because Mark may have had a property right based on his future contingent remainder interest in the trust, Mark should have objected at the time the probate court approved the Settlement Agreement or before the issuance of the 1991 Decree.
- Mark was not statutorily entitled to personal notice of the hearing on the 1991 Decree under California Probate Code § 11000.
- Due process considerations did not entitle Mark to personal notice of the California probate court hearing.
The court concluded:
In these circumstances, although he may have had an abstract concern in obtaining an inheritance through McKie Jr., Mark did not have a property interest sufficient to require the trustee, other beneficiaries, or the Court to notice him of the hearing when the orders were issued approving the settlement agreement and distributing the estate’s funds, and more importantly, approving McKie Jr.’s actions as to his vested interest in the trust and estate at that time.
The California Appellate Court reversed the California probate court in a decision centering around due process rights of a contingent beneficiary.
Does A Contingent Beneficiary Have A Cognizable Property Interest In A Trust?
Yes. Mark had a cognizable property interest in the FYR Trust. Mark’s future interest as contingent remainder beneficiary came into existence when McKie Sr. died.
Mark’s property interest in the FYR trust was contingent, not vested, because Mark would only take a share of the remainder if certain conditions precedent had to occur: McKie Jr. had to predecease Yvonne, and Mark had to survive McKie Jr. There had to be some balance left in the trust, and Yvonne had to refrain from using her power of appointment. The California appellate court determined that Mark had an actual property interest in the trust.
First, “[t]he law has long recognized that a contingent future interest is property [citation] no matter how improbable the contingency”
Second, takers in default (i.e., persons specified by a donor of a power of appointment to take property in default of the appointment) hold property interests even though “their interests are subject to complete divestment” through exercise of a power of appointment.
What Constitutes Due Process in California Probate Proceedings?
If a California probate proceeding will “adversely affect” a person’s property interest, due process requires that the person be given notice by mail of the proceeding and an opportunity to be heard when the person’s name and address are reasonably ascertainable.
The California appellate court cited to the U.S. Supreme Court case Mullane v. Central Hanover Bank & Trust Co. (1950), in which the Court:
“recognized that prior to an action which will affect an interest in life, liberty, or property protected by the Due Process Clause of the Fourteenth Amendment, a State must provide ‘notice reasonably calculated, under all circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’
The due process mandate of Mullane has been applied to California probate matters.
“The United States Supreme Court has now made it clear that blind labeling of probate proceedings as ‘in rem’ does not satisfy constitutional requirements of due process. Those requirements mandate that ‘notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. . . .’ is necessary to meet constitutional standards.”
What is Statutory Notice In A California Probate Proceeding?
Compliance with statutory notice requirements under the California probate code sometimes is simply not enough.
California Probate Code § 11000 provides that notice of a hearing on an account of an estate “shall” be given to “[e]ach known heir whose interest in the estate would be affected by the account” and “[e]ach known devisee whose interest in the estate would be affected by the account.”
Here, the probate court reasoned, “Mark’s contingent remainder interest in the estate, however, was so far removed from McKie Sr. that his interest could be affected only by the account, potentially, and did not amount to an heir whose interest would be affected by the account, certainly, as the Legislature intended.”
The probate court further found that, as a contingent remainder beneficiary, Mark was not statutorily entitled to personal notice under sections 1201, 1202, and 1206.
Statutory Notice in a California Probate Proceeding Does Not Equal Due Process
Here, following the statutory requirements for notice of California probate proceedings was not enough to satisfy due process. The court stated that this will not create uncertainty for probate practitioners, because:
The reason Mark is entitled to notice of the proceeding that resulted in the 1991 Decree is that the executor of McKie Sr.’s estate used this final order of distribution as a vehicle to change the terms of the FYR trust in a manner that eliminated Mark’s property interest. If a reasonably ascertainable person has a property interest in a testamentary trust, it is not unreasonable or onerous to require the executor to give notice to that person when the executor seeks a court order in the testator’s probate case that would change the terms of the trust from those specified in the testator’s will in a manner that adversely affects the person’s property interest.
In this case, Mark was entitled to notice of the proceeding that resulted in the 1991 decree as a matter of due process because the decree affected Mark’s property interest in the FYR Trust.
Under the Settlement Agreement, Yvonne and McKie Jr. could not agree to “vest” McKie Jr.’s contingent interest in the FYR Trust in a manner that would destroy Mark’s contingent remainder interest. McKie Jr. could not sign away Mark’s property interest in the FYR Trust.
The California appellate court determined that the 1991 Decree was void. Mark received no notice and had no opportunity to object ot the elimination of his property interest in the FYR Trust.
The court quoted Mark’s response to Jelley’s claims that such a result was inequitable:
[T]he equities are clearly not in Respondents’ favor. On the one hand is Mark, a person whose grandfather gave him an interest in the FYR Trust residue and which interest was taken from him without his knowledge and without him having any opportunity to object. There was no evidence before the probate court, and there is none before this Court, that Mark knew anything about the 1991 Decree of Distribution or its purported effect on his interest until he inquired of Respondent Jelley about that interest after Yvonne’s death. . . . On the other hand is Respondent Jelley, whose law firm represented Yvonne at least when she filed the Declination of Exercise of Power of Appointment, whose law firm represents James now, and who was the petitioner for the original probate proceeding, the petitioner for approval of the Settlement Agreement in 1990, and the petitioner for the 1991 Decree of Distribution. He is the person who did not give Mark notice of the Petition for Final Distribution or the 1991 Decree of Distribution and thereby created whatever inequity he claims were thereafter visited upon his clients. It is Mr. Jelley who, through the auspices of the probate court, wrongfully took the interest that McKie Sr. had given Mark and did so without bothering to give notice to Mark and an opportunity to be heard. It is hardly unfair to charge him and his clients with the consequences and not reward them for wrongfully taking Mark’s interest and then hiding such action from him for the remainder of Yvonne’s life.