Opinion
A148339
11-14-2018
JAMES N. EIMERS, Plaintiff and Respondent, v. CHARLES J. SALETTA, et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Sonoma County Super. Ct. No. 86254)
Probate Code section 632 provides, "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."
Further undesignated statutory references are to the Probate Code.
Here, a trust created by his father granted decedent Timothy Eimers (Timothy) a power of appointment to distribute his interest in the trust with the proviso that Timothy exercise the power of appointment "by will specifically referring to and exercising this power of appointment." The question on appeal is whether Timothy effectively exercised this power of appointment through his holographic will, in which he wrote he was leaving his "shares of" the trust to appellants Charles J. Saletta and Caryn Saletta, but he did not specifically refer to his "power of appointment."
The trial court found that Timothy's holographic will did not meet the specific-reference requirement of the trust created by Timothy's father, and instructed the trustee to make no distribution to Timothy's estate. This appeal is presented to us, in appellants' words, as "a pure issue of document and statutory and case law interpretation." We affirm.
We also grant appellants' unopposed "Motion for Order Taking Judicial Notice of Superior Court of CA, Los Angeles Co. Probate Pleadings and Orders in Related Case No. BP144326," filed on March 6, 2017. Thus, we take judicial notice of the four documents attached to the motion: (1) "Petition for Probate and for Letter of Administration with Will Annexed" for the estate of Timothy William Eimers filed August 15, 2013, (2) "Notice of Related Case" apparently filed August 1, 2014, (3) "Order for Probate" appointing administrator with will annexed filed November 4, 2014, and (4) "Letters of Administration with Will Annexed" filed November 18, 2014.
FACTUAL AND PROCEDURAL BACKGROUND
The Family Trust
Norbert Theodore Eimers and Mary Louise Eimers were married and had five children, Robert, James, Timothy, Anne, and Janet. On September 11, 1991, Norbert executed the "Norbert Theodore Eimers Family Trust" (Family Trust) designating himself trustor and trustee of the Family Trust. The Family Trust provided upon Norbert's death, if his spouse was still living, the trust was to be divided into two trusts (the "Exemption Trust" and the "Marital Trust"), and upon the surviving spouse's death, the remaining principal of these trusts was to be distributed to the "Children's Trust." Norbert died in 1992, and Mary Louise died in 2011.
Because many of the Eimers family members share the same last name, we refer to them by first name only. No disrespect is intended.
Article XII of the Family Trust provided that one share of the Children's Trust was to be allocated to each living Eimers child and to each group of living issue of a deceased child, except Robert was specifically disinherited and Timothy's daughter Amanda was to receive 10 percent of Timothy's share of the Children's Trust. Each living child allocated a share of the Children's Trust was entitled to have that share, in whole or part, "distributed free of trust" to the child "upon written request." If a child did not request distribution in writing, the trustee would continue to hold the child's share (or part of the share) in trust for the benefit of that child, and would "pay to or apply for the benefit of the child, quarter-annually or at more frequent intervals, the entire net income of that child's trust."
The Power of Appointment
Article XII, section 7.1, subpart a. "Shares for Trustor's Children" (at page 11 of the Family Trust) granted each child a general testamentary power of appointment as to his or her share of the Children's Trust with the requirement that the child specifically refer to the power of appointment in his or her will when exercising the power of appointment: "Upon the death of a child, any share held in trust for the child's benefit (including both principal and any accrued or undistributed income) 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. If or to the extent that said child shall have failed to exercise this power of appointment, or an attempted exercise of this power shall have been invalid or ineffective for any reason, or said child shall have released or renounced this power, the property subject to it shall be distributed to or retained in trust for the benefit of the issue of the child in accordance with the provisions of subparagraph 7.1 b. below. . . ." (Italics added.)
Timothy's Will
On February 8, 2013, Timothy executed a holographic will, in which he wrote in relevant part: "I Timothy William Eimers am writing this document as my Last Will and Testament. I am doing this of my own free will and of sound mind and body.
"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."
Probate of Timothy's Will
Timothy died on June 22, 2013. On August 15, 2013, appellants filed a petition for probate of will and for letters of administration with will annexed in Los Angeles County Superior Court, Estate of Timothy William Eimers, Case No. BP144326.
Appellants filed the petition in Los Angeles because Timothy had been a resident of Burbank, and they listed Timothy's address at the time of death as their own address.
Current Action
On December 12, 2013, James, as trustee of the "Norbert Theodore Eimers Children's Trust," filed a petition for construction of trust and instructions to trustee in Sonoma County, the principal place of administration of the Children's Trust. In the petition, James alleged he mailed Timothy a copy of the Family Trust on October 3, 2011, so Timothy knew or should have known his rights and obligations under the Children's Trust. James took the position that Timothy "did not exercise his general testamentary discretionary power of appointment in this purported holographic will to distribute his share of the Children's Trust after his death because he failed to refer to this power in his purported will as required by the express terms of the Children's Trust." The petition asked the court for instruction on whether the trustee of the Children's Trust should distribute Timothy's share of the trust as provided in the event an attempted exercise of the power of appointment is invalid or ineffective.
James attached to his petition a proof of service dated October 3, 2011, that showed he mailed a "Notification by Trustee Under Probate Code Section 16061.7" and a copy of the Family Trust to Timothy at appellants' address in Burbank.
In response to the petition, appellants asserted equitable estoppel as an affirmative defense, alleging that James violated various provisions of the Probate Code and failed to keep Timothy informed about the Family Trust. Appellants asked the court to find James estopped from claiming Timothy's will failed to comply with the terms of the power of appointment contained in the Family Trust.
Court Trial and Ruling
After a two-day court trial on the petition, the court heard counsels' arguments. Appellants' counsel argued, "I don't believe that the Probate Code is so draconian or the Probate Court, which is the Court sitting in equity, [to] say that's too bad, even if you never received a copy of the trust you should have known somehow by telepathy, you should have known that there was this power of appointment, that you needed to include such language." James's counsel argued the Family Trust required specific reference to the power of appointment for Timothy to effectively exercise the power, and the trial court had no authority to excuse Timothy's noncompliance. He further argued appellants had failed to show James misrepresented or concealed any material fact, and therefore their affirmative defense of equitable estoppel failed.
After a recess, the trial court returned with its decision. The court found Timothy's holographic will did not comply with the Family Trust's specific-reference requirement and, therefore, did not accomplish a valid exercise of the power of appointment pursuant to sections 630, 631, subdivision (b), and 632. The court also determined that the noncompliance was not excused by equitable estoppel.
The trial court granted James's petition, and instructed James "to make no distribution whatsoever from the Norbert Theodore Eimers Children's Trust to the estate of Timothy William Eimers as the holographic will of Timothy William Eimers dated February 8, 2013 failed to make a specific reference to the power of appointment contained on page 11 of the Norbert Theodore Eimers Family Trust dated September 11, 1991."
DISCUSSION
" 'A power of appointment is a power conferred by the owner of property (the "donor") upon another person (the "donee" [or "powerholder"]) to designate the persons ("appointees") who will receive the property . . . at some time in the future.' " (Sefton v. Sefton (2012) 206 Cal.App.4th 875, 882.)
Appellants contend Timothy's will substantially complied with all reasonable requirements to assign his share in the Family Trust, and the trial court erred in failing to effect Timothy's intent. The Probate Code, however, does not allow for substantial compliance when a donor requires a powerholder to specifically refer to the power of appointment as a condition of exercising the power.
On appeal, appellants do not argue equitable estoppel should apply to excuse Timothy's will from compliance with the specific-reference requirement.
As we mentioned at the outset, section 632 mandates that if a "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, [then] the power can be exercised only by an instrument containing the required reference." The creating instrument in this case, the Family Trust, stated that Timothy could distribute his "share held in trust" "by will specifically referring to and exercising this power of appointment." (Italics added.) Thus, the Family Trust "expressly direct[ed] that a power of appointment be exercised by an instrument that makes a specific reference to the power." (§ 632.) Under section 632, an attempted exercise of the power of appointment could only be effective if done "by an instrument containing the required reference." Timothy's holographic will does not contain a specific reference to the power of appointment and, as a result, does not effectively exercise the power of appointment granted by the Family Trust. A. Timothy's Will Does Not Comply With Section 632
Appellants claim Timothy's will meets the requirements of section 632. They interpret section 632 as requiring a powerholder to exercise a power of appointment by either (1) an instrument that makes specific reference to the power of appointment, or (2) an instrument that makes specific reference to the instrument that created the power, without regard to which of these two requirements the donor specified. They argue that Timothy's will is sufficient because he specifically referred to the instrument that created the power of appointment, the Family Trust.
We do not agree with appellants' reading of section 632. The statute describes two different requirements a creating instrument may contain, and then provides that "the power can be exercised by an instrument containing the required reference." (Italics added.) A reasonable interpretation of the statute is that if the creating instrument requires specific reference to the "power of appointment," then the powerholder's instrument must contain a specific reference to the power of appointment, and if the creating instrument requires a specific reference to the "instrument that created the power," then the powerholder's instrument must contain a specific reference to the creating instrument.
But it is not reasonable to read section 632 to mean if the creating instrument requires a specific reference to the power of appointment, then a powerholder may exercise the power by either a specific reference to the power of appointment or a specific reference to the creating instrument. To read the statute as appellants suggest "would fail 'to recognize a distinction between a requirement for a reference to the instrument creating the power and a reference to the power itself, a distinction expressly made in the statutory provisions.' [Citation.] The Legislature's use of the disjunctive 'or' indicates that specific reference to the power or to the instrument are independent means by which a donor can restrict a [powerholder]'s exercise." (Estate of O'Connor (2018) 26 Cal.App.5th 871, 884, quoting Estate of Eddy (1982) 134 Cal.App.3d 292, 299 (Eddy).)
The legislative history of section 632 further supports our conclusion that a requirement of specific reference to the "power of appointment" cannot be satisfied by a reference to the creating instrument alone. The Law Revision Commission Comments to the statute explain, "This section permits a donor to require an express reference to the power of appointment to ensure a conscious exercise by the [powerholder]. In such a case, the specific reference to the power is a condition to its exercise. This condition precludes the use of form wills with 'blanket' clauses exercising all powers of appointment owned by the testator." (Cal. Law Revision Com. com., 52 West's Ann. Prob. Code (2002 ed.) foll. § 632, italics added.) The Law Revision Commission's description of a requirement of "specific reference to the power" of appointment indicates that the Legislature intended such a donor-imposed requirement to be strictly enforced. B. Judicial Relief is Not Available Under Section 631
"Explanatory comments by a law revision commission are persuasive evidence of the intent of the Legislature in subsequently enacting its recommendations into law." (Brian W. v. Superior Court (1978) 20 Cal.3d 618, 623.)
Appellants next argue, "slavish adherence to formalities is relieved by Probate Code section 631." (Capitalization and bolding omitted.) They are correct to a certain extent, but do not take into account the express exception in this section for the specific-reference requirement.
Section 631 provides, in full: "(a) Where an appointment does not satisfy the formal requirements specified in the creating instrument as provided in subdivision (a) of Section 630, the court may excuse compliance with the formal requirements and determine that exercise of the appointment was effective if both of the following requirements are satisfied: [¶] (1) The appointment approximates the manner of appointment prescribed by the donor. [¶] (2) The failure to satisfy the formal requirements does not defeat the accomplishment of a significant purpose of the donor.
"(b) This section does not permit a court to excuse compliance with a specific reference requirement under Section 632 ." (Italics added.)
Appellants' argument fails to acknowledge the express carve-out for the specific-reference requirement of section 632. "Subdivision (b) [of section 631] makes clear that the donor's requirement that the [powerholder] specifically refer to the power of appointment or the instrument creating it, as provided in Section 632, is not subject to equitable relief under this section. [21 Cal.L.Rev.Comm.Reports 91 (1991)]." (Cal. Law Revision Com. com., 52 West's Ann. Prob. Code (2002 ed.) foll. § 631.) Appellants' reliance on section 631 is misplaced. C. Remaining Arguments
Appellants' other arguments are unavailing. They assert Timothy sufficiently manifested his intent to exercise the power of appointment under section 640, which states, "The exercise of a power of appointment requires a manifestation of the powerholder's intent to exercise the power." (§ 640, subd. (a).) We agree that, by writing he was leaving his shares in the Family Trust to appellants, Timothy appears to have manifested an intent to exercise his power of appointment over his share of the Family Trust. But section 640 merely sets forth one requirement for the valid exercise of a power of appointment (manifestation of intent). It does not negate, nor excuse noncompliance with, the specific-reference requirement imposed by the Family Trust. (See Eddy, supra, 134 Cal.App.3d 292.)
In Eddy, a husband provided in his will that if his wife survived him, she was granted a power of appointment over a trust. The power of appointment could be exercised "only if by specific reference thereto in her Will or Codicil." (134 Cal.App.3d at p. 295.) The wife's will provided a disposition of "any property over which I have a power of appointment." (Ibid.) The Court of Appeal held the wife's will was not a valid exercise of her power of appointment over the trust because it did not contain a specific reference to the power of appointment given by her husband. (Id. at pp. 300-301.)
The Eddy court rejected the same argument appellants now make that a mere showing of the powerholder's manifestation of intent to exercise the power of appointment is sufficient to exercise the power even if the powerholder fails to meet the specific-reference requirement imposed by the donor. In Eddy, the respondent relied on the predecessor statute to 640 (former Civ. Code, § 1386.1) to argue that the wife's will evidenced her intent to exercise the power of appointment. (Eddy, supra, 134 Cal.App.3d at p. 299; see Cal. Law Revision Com. com., 52 West's Ann. Prob. Code (2002 ed.) foll. § 640 ["Section 640 continues former Civil Code Section 1386.1 without substantive change."].) The Court of Appeal rejected the argument, observing that the predecessor statute to section 632 (former Civ. Code, § 1385.2) made it clear "that if the creating instrument requires a specific reference to the power, the power may be exercised only by such specific reference to the power." (Eddy, supra, at p. 300; see Cal. Law Revision Com. com., 52 West's Ann. Prob. Code (2002 ed.) foll. § 632 ["Section 632 continues former Civil Code Section 1385.2 without substantive change."].)
They also argue Timothy's will satisfies section 630, which states in part, "if 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. (§ 630, subd. (a).) Even if this were so, this argument fails for the same reason the previous argument fails. Section 630 does not excuse the will's failure to specifically refer to the power of appointment as required by the Family Trust. Nor does the statute negate section 632's strict enforcement of the Family Trust's specific-reference requirement.
Finally, appellants urge us to consider that California's policy is to interpret trusts and wills "to substantially effect the intent of the trustors and testators . . . and to avoid a failure of the transfer intended." (Bolding omitted.) Certainly, if this case involved a donor-imposed formal requirement for exercising the power of appointment other than the specific-reference requirement, appellants could try to seek judicial relief under section 631, subdivision (a). But our Legislature has decided that a donor-imposed specific-reference requirement must be strictly enforced (§ 632), and that a powerholder's failure to comply with the specific-reference requirement may not be excused by a showing of substantial compliance (§ 631, subd. (b)).
We recognize there are different approaches to enforcing specific-reference requirements for powers of appointment. The Restatement Third of Property, section 19.10, for example, provides, "Substantial compliance with formal requirements of an appointment imposed by the donor, including a requirement that the instrument of exercise make reference or specific reference to the power, is sufficient if (i) the donee [i.e., powerholder] knew of and intended to exercise the power, and (ii) the donee's manner of attempted exercise did not impair a material purpose of the donor in imposing the requirement."
Comment d to this section of the Restatement Third of Property explains that specific-reference requirements "were a pre-1942 invention to prevent an inadvertent exercise of a general power." (Rest.3d Property, § 19.10, com. d.) At that time, an unintended exercise of power of appointment could lead to adverse tax consequences, and the purpose of a specific-reference requirement was to avoid unintended tax consequences. But federal estate-tax law changed in 1942, and "inadvertent exercise of a general power created after October 21, 1942, no longer has adverse estate-tax consequences." (Ibid.) Comment d continues, "Nevertheless, donors continue to impose a specific-reference requirement. Because the original purpose of the specific-reference requirement was to prevent an inadvertent exercise of the power, it seems reasonable to presume that that was the donor's purpose in doing so." (Ibid.)
If the Restatement Third of Property were the law of California, appellants could argue Timothy's holographic will is sufficient because his specific reference to the Family Trust dispels any concern that his attempted exercise of the power of appointment was inadvertent. But the Restatement Third of Property is not the law of the State. To the contrary, the Reporter's Note to Restatement Third of Property, section 19.10 states, "Comment d is inconsistent with the following California statute," citing section 632. (Rest.3d Property, § 19.10, com. d, italics added.)
Section 632, read in conjunction with section 631, subdivision (b), requires strict enforcement of the Family Trust's requirement that the power of appointment be exercised "by will specifically referring to and exercising this power of appointment." Timothy's holographic will does not specifically refer to the power of appointment created by the Family Trust. Accordingly, we affirm the trial court's order.
In their reply, appellants report they have filed a petition to amend Timothy's holographic will to insert the words "exercise my power of appointment and" so that the will, as reformed, would read, "To [appellants] I hereby exercise my power of appointment and leave my shares of the Norbert Eimers Family Trust." That petition is not before us, and we express no opinion on its potential merit.
DISPOSITION
The order granting James's petition, filed February 26, 2016, is affirmed.
/s/_________
Miller, J. We concur: /s/_________
Kline, P.J. /s/_________
Stewart, J.