On February 8, 2024, the California Supreme Court released its decision in Haggerty v. Thornton (CA 2024) S271483, addressing the methods for modifying a revocable trust.
General Rule: a California trust can be modified the same way it can be revoked.
Section 15402 of the California Probate Code states that “[u]nless the trust instrument provides otherwise, if a trust is revocable by the settlor, the settlor may modify the trust by the procedure for revocation.” (Prob. Code, § 15402)
Section 15401 sets out the procedures for revocation: Trusts may be revoked by complying with any method provided in the trust instrument. (§ 15401, subd. (a)(1).) If the trust instrument explicitly makes that method exclusive, then the trust may be revoked only in that manner. (§ 15401, subd. (a)(2).) If the trust instrument is not explicit the trust may also be revoked by the statutory method — “a writing, other than a will, signed by the settlor or any other person holding the power of revocation and delivered to the trustee during the lifetime of the settlor or the person holding the power of revocation.” (Ibid.)
“It is undisputed that if the trust instrument is silent on modification, the trust may be modified in the same manner in which it could be revoked, either via the statutory method or via any revocation method provided in the trust instrument.” (Haggerty at p.1) The question the Court addressed in Haggerty was under what circumstances is the statutory method outlined in Section 15401(a)(2) available when the trust instrument specifies a method for modification.
What happens if a California trust provides a specific method for amendment?
In Haggerty, the “trust agreement included a provision reserving ‘[t]he right by an acknowledged instrument in writing to revoke or amend this Agreement or any trust hereunder.’” (id. at p.2) In 2016, the settlor, Jeane Bertsch, amended the trust to include her niece, Brianna Haggerty, as a beneficiary. The 2016 amendment was signed by Bertsch and notarized (thus “acknowledged”) as provided for in the trust. In 2018, Bertsch drafted another amendment that did not include Haggerty as a beneficiary. The 2018 amendment was signed by Bertsch but not notarized. Thus, as the Court noted, “the 2018 amendment was compliant with the statutory method but not with the method of modification specified in the trust instrument.” (id.)
Haggerty filed a petition arguing that because the 2018 amendment was not notarized, it was not an “acknowledged instrument” and so was an invalid modification under the trust. The trial court held that the 2018 amendment was valid, and the Court of Appeal affirmed.What does “provides otherwise” mean in Section 15402 of the California Probate Code?
The Supreme Court recognized that there was disagreement among the Courts of Appeal regarding Section 15402, zeroing in on two words from the statute: “[A] revocable trust may not be modified ‘by a procedure for revocation’ where the trust instrument ‘provides otherwise.’ (§ 15402.) This case turns on the meaning of ‘provides otherwise.’” (Haggerty, at p.5)
The Court identified three interpretations used by various Courts of Appeal. One interpretation, advanced by King v. Lynch (2012) 204 Cal.App.4th 1186, 1193, is that “’[u]nless the trust instrument provides otherwise’ indicates that if any modification method is specified in the trust, that method must be used to amend the trust.” (id.) Under the King interpretation, therefore, Bertsch’s 2018 amendment would be invalid because the trust provided for a specific method to amend – an acknowledged writing.
A second interpretation, put forward in Huscher v. Wells Fargo Bank (2004) 121 Cal.App.4th 956, 967, and adopted by the Court of Appeal in the Haggerty case, “is that ‘unless the trust instrument provides otherwise’ means ‘unless the trust provides a modification procedure and explicitly makes that method exclusive.’” (id.) This interpretation validates the 2018 amendment, since the trust did not state that the “acknowledged writing” method of amendment was exclusive and Bertsch’s 2018 writing met the statutory requirements of Section 15401(a)(2).
A third interpretation, advanced by the Court of Appeal in the Haggerty case, said that the words also mean “unless the trust instrument distinguishes between revocation and modification.’” This interpretation would also invalidate the 2018 amendment since the trust did not distinguish between the methods for revocation and modification.
In adopting the second interpretation as law in California, the Court began with the text of Section 15402:
As noted, the phrase “[u]nless the trust instrument provides otherwise” qualifies the provision that follows it, i.e., that the settlor of a revocable trust “may modify the trust by the procedure for revocation.” (§ 15402.) The most natural reading of this sentence is that the settlor may modify the trust using any procedure for revocation unless the trust instrument says that the settlor may not (i.e., “provides otherwise”). This is supported by the plain meaning of the term “otherwise.” [citations omitted] A trust term would be contrary to the authorization provided in section 15402 if it were to preclude the use of any of the section 15401 revocation procedures for modification. It could do so by specifying an exclusive method of modification in the trust instrument [citations omitted] or by otherwise precluding modification via the revocation procedures provided in section 15401. But a trust instrument that merely specifies a method of modification without limiting settlors to the use of that method does not preclude the use of the revocation procedures and therefore does not “provide[] otherwise” from the general rule. (Haggerty, at p. 6)
Under Section 15402, the trust must explicitly state that the method for modification is exclusive.
The Court went on to discuss the legislative history of the sections of the California Probate Code addressing revocation and modification, as well as the counterarguments advanced by the appellant. In dismissing Ms. Haggerty’s arguments, the Court acknowledged that there are valid “policy arguments regarding whether modifications should be treated more restrictively than revocations” but ultimately held that such arguments “are best directed to the Legislature, which may amend the trust laws if it chooses. Our task is to give effect to the statute as we find it. Under the statute, the procedures for revocation can be used for modification unless the trust instrument provides a method of modification and makes it exclusive, or otherwise expressly precludes the use of revocation procedures for modification.” (Haggerty, at p. 14)
The Court rejected the first and third interpretations outlined above, and explicitly disapproved of the decision in King and other cases “to the extent they are inconsistent with this holding.” (Haggerty, at p. 15)
