No Excuse for Noncompliance: No Specific Reference To Trust’s Power Of Appointment Results In Invalid Gift Under Holographic Will in California

In the Estate of Eimers, the California Court of Appeal, Second District, answered the question: Where a trust beneficiary creates a will that gives away his trust shares without also specifically referring to the power of appointment as required by the trust, may the court amend or reform that will to include a “specific reference” phrase so as to preserve the validity of the gift?  The answer: no.

The Facts of Estate of Eimers

The Family Trust

Norbert Eimers established a Family Trust.  The Family Trust provided that after both Norbert and his wife died, the trust assets would be divided equally among their living children.  The Family Trust also contained restrictions on how the children could designate who would get their trust shares at their deaths.  The Family Trust stated:

Upon the death of a child, any share held in trust for the child’s benefit . . . shall be distributed to or for the benefit of such one or more persons or entities, and on such terms and conditions, either outright or in trust, as said child may provide and appoint by will specifically referring to and exercising this power of appointment.

Decedent’s Holographic Will

Timothy Eimers, decedent, was one of Norbert’s children, and a beneficiary of the Family Trust.

Timothy died with a holographic will.  The holographic will stated, in pertinent part:

To Charles J. Saletta  and Caryn Saletta I hereby leave my shares of the Norbert Theodore Eimers Family Trust. I also leave all my other property and any funds I have.” (Italics added.)

The Salettas filed a petition to probate decedent’s holographic will in Los Angeles Superior Court.  The court admitted the holographic will to probate in September 2014.

The Trustee of The Family Trust Petitions For Instructions

Meanwhile, the trustee of the Family Trust filed a petition in Sonoma County, where the Family Trust was administered.  The trustee asked the California court for instructions on whether he could distribute decedent’s share of the Family Trust to the Salettas.

The trustee took the position that decedent had not validly exercised the power of appointment in the holographic will, because he failed to specifically refer to this power in the will as required by the terms of the Family Trust.  The trustee remarked to the court:  “I think that we all could see what he was trying to do, he just didn’t do it correctly. And by law, there’s no excuse for his non-compliance.”

The Sonoma County superior court found that the holographic will did not comply with the Family Trust’s specific reference requirement for exercise of the power of appointment.  Therefore, the holographic will was not a valid exercise of the power of appointment pursuant to sections 630, 631(b), and 632.  The court instructed the trustee not to distribute decedent’s shares to the Salettas.  The Salettas appealed the ruling.  The First District Court of Appeal affirmed.

The Salettas Petition to Amend Holographic Will

The Salettas then filed a petition in the Los Angeles probate to amend the holographic will to “clarify the intended testamentary directive” by adding what they called a “technical phrase” as follows:

“To Charles J. Saletta and Caryn Saletta I hereby leave my shares of the Norbert Theodore Eimers’ Family Trust under the power of appointment. I also leave all my other property and any funds I have.”

The trustee filed a demurrer to the petition, alleging that the California Probate Code prohibited the addition of the requested phrase.  The trial court sustained the demurrer.  The Salettas appealed.

Powers of Appointment in California Trusts

Powers of appointment in a California trust “allow a trustor to control to whom and how the trust property can be further devised after the trustor’s death.” We have written about powers of appointment in California trusts before, here.

Section 630 of the California Probate Code provides that:

[I]f the creating instrument specifies requirements as to the manner, time, and conditions of the exercise of a power of appointment, the power can be exercised only by complying with those requirements.

Section 632 of the California Probate Code provides that:

If the creating instrument expressly directs that a power of appointment be exercised by an instrument that makes a specific reference to the power or to the instrument that created the power, the power can be exercised only by an instrument containing the required reference.

Section 631 of the California Probate Code addresses when a court can and cannot excuse compliance with the terms of a power of appointment.  A court can excuse compliance with the formal requirements of a power of appointment if (1) the appointment approximates the manner of appointment prescribed by the donor; and (2) the failure to satisfy the formal requirements does not defeat the accomplishment of a significant purpose of the donor.  A court cannot excuse compliance with the formal requirements of a power of appointment with a specific reference requirement under section 632.  This was important here.

Failure To Comply With The Specific Reference Requirement of the Power of Appointment Results In A Failed Gift, Not Reformation

Under California law, a will can be reformed to conform to the testator’s intent if “clear and convincing evidence establishes that the will contains a mistake in the testator’s expression of intent at the time the will was drafted and also establishes the testator’s actual specific intent at the time the will was drafted.”  The Salettas argued that decedent obviously intended to give his trust shares to them, and that the trial court focused on the decedent’s “imperfect attempt” to express that intent, instead of the decedent’s actual intent.

The appeals court stated that the issue was not one of intent.  Decedent clearly intended to give his trust shares to the Salettas.  The issue, however, was whether the trial court could amend or reform a will to excuse the testator’s failure to comply with the provisions of the California Probate Code that expressly prohibit the court from validating gifts that require a specific reference to the power of appointment.

As stated by the California Appeals Court, “a donor’s intent alone cannot trump the requirements of the law.”  The court went on to state:

Here, the creating trust instrument expressly empowers decedent to devise his trust shares in only one way: via an instrument that makes a specific reference to the power of appointment. Indeed, as set out above, the trust specifically invalidates gifts not made by a specific reference and in that event sets out those persons to whom the invalid gifts may be given. The “specific reference” condition places the Family Trust outside the exceptions carved out by section 631 and within the restriction set out by section 632, i.e., that the power of appointment “can be exercised only by an instrument containing the required reference.” (§ 632.) Decedent’s holographic will fails to satisfy this condition.

The flexibility provided by section 631 of the California Probate Code was not available here, because subsection (b) expressly limits the exercise of powers of appointment requiring “specific reference,” evidencing the legislature’s intent that noncompliance is inexcusable.

In addition, the reference to the Family Trust in the holographic will is not the same as a specific reference to the power of appointment, and does not suffice under California law.

In this case, reforming the will would achieve a work-around of the requirements of Probate Code sections 630, 631, and 632, effectively nullifying them. These sections, taken together, do not excuse noncompliance in the holographic will.  The gift of decedent’s shares in the Family Trust was invalid for because the will did not comply with the specific reference requirement of the power of appointment in the Family Trust.

 

San Diego County

Merwyn J. Miller

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