Opinion
2d Civ. No. B294530
02-03-2020
Gary Forrest WILKIN, as Trustee, etc., Plaintiff and Appellant, v. William NELSON, Defendant and Respondent.
M. Jude Egan, Santa Maria, for Plaintiff and Appellant. Hoge, Fenton, Jones & Appel, Denise E. Chambliss, Pleasanton, for Defendant and Respondent.
Certified for Partial Publication.
The opinion in the above-entitled matter, filed on February 3, 2020, was not certified for publication in the Official Reports. For good cause, it now appears the opinion should be partially published in the Official Reports. The portions to be excluded from publication are Section II(B), entitled "Breach of Fiduciary Duty Claims," and Section II(C), entitled "Award of Attorney Fees on Expungement Motion."
M. Jude Egan, Santa Maria, for Plaintiff and Appellant.
Hoge, Fenton, Jones & Appel, Denise E. Chambliss, Pleasanton, for Defendant and Respondent.
PERREN, J. William and Hanako Nelson were married in 1981. In 2000, Hanako executed a trust leaving a separate property rental home to Gary and Jay Wilkin, her adult sons from a prior marriage. At that time, Hanako also executed a pour-over will granting "the residue of [her] estate" to the trustee for administration after her death. Hanako did not advise William of her estate plan, but he later discovered she had placed her rental home into a trust for the benefit of her sons.
For convenience and clarity, we refer to the various family members by their first names.
Hanako died in 2016. Gary, who became the successor trustee, filed a probate petition requesting that Hanako’s separate and community property assets be transferred to her trust. He claimed the pour-over will required that all of her real and personal property be declared trust assets.
William filed a petition seeking reformation of the pour-over will to confirm Hanako’s intent to transfer only the residue of her separate property estate into the trust. He cited Estate of Duke (2015) 61 Cal.4th 871, 190 Cal.Rptr.3d 295, 352 P.3d 863 ( Duke ), which held that "an unambiguous will may 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." ( Id. at p. 898, 190 Cal.Rptr.3d 295, 352 P.3d 863.)
Following a three-day evidentiary hearing, the probate court found that clear and convincing evidence supported equitable reformation of the will to provide for testamentary control and disposition of Hanako’s separate property only. The court denied Gary’s requests under Family Code section 1101 for a community property award against William and ordered Gary to reimburse William for the attorney fees incurred to expunge the lis pendens on one of William’s properties. Gary appeals each of these rulings. We dismiss the appeal from the attorney fees award because the order granting those fees is nonappealable. (See Code Civ. Proc., §§ 405.38, 405.39.) In all other respects, we affirm.
All statutory references are to the Family Code unless otherwise stated.
The appealability of the order awarding attorney fees under Code of Civil Procedure section 405.38 was not briefed by the parties. At our request, the parties submitted supplemental letter briefing on this issue.
I. FACTUAL AND PROCEDURAL BACKGROUND
William and Hanako each brought a separate property residence into the marriage. Hanako owned rental property located at 6155 Covington Way in Goleta (Goleta property). William had a residence in Castro Valley. Hanako and William, who were married for 34 years, had no prenuptial agreements or joint estate plans.
William has five adult children from a prior marriage, plus numerous grandchildren and great-grandchildren. Hanako and her sons, Gary and Jay, enjoyed a close relationship with William’s extended family. They spent holidays together and went on many trips, including a Hawaiian cruise arranged by Hanako.
In 2000, Hanako retained Stephen McKee, a certified specialist in trust estates and probate law, to prepare a trust. Hanako was friends with McKee’s sister, Mary (Mimi) Warga, who also is one of McKee’s legal assistants. McKee has a law office in Northern California, but spends most of his time in his Southern California office. Warga "was the primary contact for living trusts in the Northern California office."
Jay, who assisted his mother in obtaining the trust, told Warga that Hanako wanted "just trust for home" and was given a quote of $600. Jay’s handwritten notes on McKee’s standard intake questionnaire listed the Goleta property as the only asset to be controlled by Hanako’s estate plan. Jay wrote: "Since remarriage, the aforementioned real estate is to be willed to Gary and Jay Wilkin. Father’s wishes."
On March 28, 2000, Hanako and Jay met with Warga at her office to confirm and clarify Hanako’s testamentary request for "just trust for home." Jay assisted Hanako in describing her intent, which was to leave the Goleta property to her sons equally. The meeting lasted approximately an hour.
According to Warga, Hanako did not request the preparation of any instruments other than the trust and a grant deed transferring the Goleta property into the trust. Warga testified there was no discussion regarding community property or a possible will and noted that the section of the questionnaire designating the proposed executor of the will was left blank. Jay testified, however, that Warga brought up the issue of a pour-over will and that Hanako agreed to purchase one. Jay paid for McKee’s legal services with a $600 check. The memo line of the check contains the handwritten word "trust."
Jay testified that Warga told him what to write on the intake questionnaire, which lists only the Goleta property. In response to the question asking whether Hanako considered all her property to be community property, she answered "[n]o." The portions of the questionnaire seeking information about bank accounts, investments, retirement benefit plans, life insurance and any safe deposit boxes were either left blank or marked "N/A" (i.e., not applicable). The proposed successor trustees to Hanako’s trust were listed on the form, but there were no proposed executors of a will. Warga explained that if the will had been discussed, the section regarding the executors would have been completed.
Page 7 of the questionnaire asks about "[d]istribution of balance of property (residue) in estate." This section was marked inapplicable, but Warga recalled Hanako raising the possibility of future joint estate planning with her husband which would involve "the rest of [Hanako’s] property."
Warga sent the intake questionnaire to McKee, who then had a single phone call with Hanako. The only asset they discussed was the Goleta property. There was no conversation regarding the couple’s community property, bank accounts or investments. McKee believed Hanako’s sole testamentary intent was to place the Goleta property into a trust. Although he did not discuss this with Hanako, McKee’s general practice is to prepare a pour-over will with any trust.
McKee and his Southern California staff prepared the estate planning documents and sent them to Warga. On May 3, 2000, Hanako met with Warga at Hanako’s home to execute the trust and grant deed. The first page of the trust states: "The property transferred is the settlor’s separate property and shall be known as the ‘separate trust estate.’ " Warga also provided Hanako with a pour-over will, which states in Article 2: "Residue – Pour-Over to Living Trust, to Descendants: I give the residue of my estate to the trustee of the trust identified below, terms the ‘pour-over beneficiary,’ to be held and administered by the trustee according to the terms and conditions of that trust." This was the first time Hanako had seen the documents.
Hanako signed all three documents, but did not read the pour-over will. Warga notarized the trust and deed and served as a subscribing witness to the will. Warga also brought another witness to sign the will. Warga explained to Hanako that the will "would cover any assets in her case, separate property assets, ... that were only in her name" and "that [those] would be left to the trust." Once again, there was no discussion regarding any community property assets. Warga mailed the original trust and pour-over will to Jay. Hanako never saw the will again. William did not learn of its existence until after Hanako’s death.
In 2009, Hanako asked McKee to prepare a first amendment to the trust. That instrument nominated Gary as the new first successor trustee and moved Jay into second position. It also disinherited Jay from the trust, assuming Gary and his issue survived Jay. Jay had been experiencing substantial financial difficulties and Hanako wished to protect the Goleta property from any creditors. The pour-over will was not discussed, amended or republished.
Previously, in 2007, William and Hanako’s friend, Evelyn Moore, granted them a 50% interest in her San Leandro real property. That property was later sold and William and Hanako received half of the sale proceeds. Hanako spent her share on a Hawaiian cruise for 38 members of their extended families.
In 2012, William and his daughter, Mary Smith, jointly purchased a condominium in Maui. They each paid approximately half of the $100,000 purchase price. William’s half came from the San Leandro property sale proceeds. Hanako approved of the purchase, which was intended to be a family vacation home.
Hanako subsequently developed dementia. In 2014, William engaged an estate planning attorney, Steven Dimick, to prepare a trust for the couple. Hanako went with William to the appointment, but Dimick said he could not do a trust for her because of her dementia. He advised William to get his own trust.
William designated Hanako as the primary beneficiary in his trust, with the residue going to his children upon her death. Based upon Dimick’s advice, William funded the trust with $137,233.68 from the couple’s joint accounts, leaving the accounts with a $168,658.67 balance. Most of that money was generated by William’s employment and retirement accounts. William also transferred the Castro Valley residence and the Maui property into the trust. After Hanako’s death, Gary filed a probate petition seeking to confirm the validity of Hanako’s trust, the Goleta property’s status as a trust asset and Gary’s entitlement to all rents from that asset. He also sought a determination that Hanako’s remaining assets, whether community or separate property, were transferred to the trust through the pour-over will.
The probate court found that William "brought his Castro Valley residence into [the] marriage with Hanako, and at no time did Hanako express an intent to exert testamentary control over this real property." The court later confirmed the residence "as community property, with Hanako’s interest passing to [William] at her death."
William opposed Gary’s petition and filed his own petition seeking to invalidate Hanako’s trust as to any community property assets, to reform the pour-over will to include only Hanako’s separate property and to determine that the Goleta property was a community asset. Gary opposed that petition, claiming William had breached his fiduciary duties under sections 721 and 1101 and Probate Code section 859. William later withdrew his claim as to the Goleta property.
Following the evidentiary hearing, the probate court issued its findings and order for judgment. The court found "on the issue of equitable reformation of [Hanako’s] pour-over will [the evidence] satisfies the clear and convincing burden of proof" and ordered "that the residue clause of the will is equitably reformed and limited to apply only to disposition of [Hanako’s] separate property." That property included Hanako’s jewelry, 200 shares of PG&E stock, the master bedroom furniture and the Goleta property rent monies deposited in a Wells Fargo account. The court ordered William to return to Hanako’s trust the $17,000 he had withdrawn from that account after her death. It also confirmed the Goleta property as Hanako’s separate property.
The probate court determined the couple’s community property assets belong to William as the surviving spouse, and concluded that the Maui property is his separate property because it was purchased with his inheritance from Moore. It rejected Gary’s section 1101 claims regarding William’s division of the couple’s joint accounts. The court found that Gary lacked standing to pursue those claims and that they also are not supported by the evidence.
Finally, the probate court granted William’s motion to expunge the lis pendens on the Castro Valley residence and awarded him $4,500 in attorney fees pursuant to Code of Civil Procedure section 405.38. The court denied Gary’s requests for attorney fees. II. DISCUSSION
A. Equitable Reformation of the Pour-Over Will
Applying the clear and convincing evidence standard, the probate court found the residue clause in the pour-over will contains a mistake in Hanako’s expression of intent at the time the will was drafted and must be reformed to reflect her actual specific intent. The court concluded: "On the dispositive issue of Hanako’s intent, the evidence shows that Hanako had a simple and direct intent – she wanted ‘Just Trust for Home.’ The reasonable conclusion is that Hanako did not intend to fund her separate property trust with community property. The Residue Clause of Hanako’s Pour-Over Will is to be interpreted to comport with her express instructions and intent given to her estate planning attorney and his legal assistant for a trust for her separate property, not the Nelson community property." Gary contends substantial evidence does not support the court’s findings. We disagree.
1. Standard of Review
The interpretation of a will presents a question of law for our independent review when there is no conflict or question of credibility in the relevant extrinsic evidence. ( Johnson v. Greenelsh (2009) 47 Cal.4th 598, 604, 100 Cal.Rptr.3d 622, 217 P.3d 1194 ; Burch v. George (1994) 7 Cal.4th 246, 254, 27 Cal.Rptr.2d 165, 866 P.2d 92, superseded by statute on other grounds as stated in Estate of Rossi (2006) 138 Cal.App.4th 1325, 1331-1332, 1339, 42 Cal.Rptr.3d 244.) To the extent the probate court’s decision rests on its findings of fact, however, those findings are reviewed for substantial evidence. ( Crail v. Blakely (1973) 8 Cal.3d 744, 750, 106 Cal.Rptr. 187, 505 P.2d 1027 ; Ike v. Doolittle (1998) 61 Cal.App.4th 51, 87, 70 Cal.Rptr.2d 887 ( Ike ).) The clear and convincing standard, however, "applies only at the trial level. On appeal, it is assumed that the trial court applied the proper standard and the judgment will not be upset if there is substantial evidence to support it." ( Shupe v. Nelson (1967) 254 Cal.App.2d 693, 700, 62 Cal.Rptr. 352 ; see Sheila S. v. Superior Court (2000) 84 Cal.App.4th 872, 880-881, 101 Cal.Rptr.2d 187.) The parties agree the substantial evidence standard applies here. Under this standard, we "accept[ ] the evidence most favorable to the order as true and discard[ ] the unfavorable evidence as not having sufficient verity to be accepted by the trier of fact." ( In re Michael G. (2012) 203 Cal.App.4th 580, 595, 137 Cal.Rptr.3d 476.)
A trial court’s exercise of its equitable powers is reviewed for abuse of discretion. ( City of Barstow v. Mojave Water Agency (2000) 23 Cal.4th 1224, 1256, 99 Cal.Rptr.2d 294, 5 P.3d 853 ; In re Marriage of Shimkus (2016) 244 Cal.App.4th 1262, 1272, 198 Cal.Rptr.3d 799.) Reformation of a will involves the exercise of the court’s equitable powers. ( Giammarrusco v. Simon (2009) 171 Cal.App.4th 1586, 1603, 91 Cal.Rptr.3d 50 ; Ike , supra , 61 Cal.App.4th at p. 84, 70 Cal.Rptr.2d 887.)
2. Substantial Evidence Supports the Probate Court’s Findings of Hanako’s Intent and the Mistake in Drafting the Pour-Over Will
The testator in Duke executed a holographic will devising his entire estate to his wife. The will stated that if the couple died at the same time, the estate would be divided between two charities. The will did not provide for disposition of the estate if the wife predeceased the testator, which she did. The testator’s intestate heirs and the charities both claimed the estate. ( Duke , supra , 61 Cal.4th at p. 876, 190 Cal.Rptr.3d 295, 352 P.3d 863.) The charities asserted that "at the time the testator wrote his will, he specifically intended to provide in his will that the charities would inherit his estate in the event his wife was not alive when he died." ( Id. at p. 875, 190 Cal.Rptr.3d 295, 352 P.3d 863.)
Because the will was unambiguous, the trial court excluded extrinsic evidence of the testator’s intent and ruled in favor of the intestate heirs. ( Duke , supra , 61 Cal.4th at p. 877, 190 Cal.Rptr.3d 295, 352 P.3d 863.) The Supreme Court reexamined and rejected the historic rule precluding the use of extrinsic evidence to correct a mistake in the expression of a testator’s intent in an unambiguous will. ( Id. at p. 879, 190 Cal.Rptr.3d 295, 352 P.3d 863.) It concluded that "[i]n cases in which clear and convincing evidence establishes both a mistake in the drafting of the will and the testator’s actual and specific intent at the time the will was drafted, it is plain that denying reformation would defeat the testator’s intent and result in unjust enrichment of unintended beneficiaries." ( Id. at p. 890, 190 Cal.Rptr.3d 295, 352 P.3d 863 ["[T]he paramount consideration in construing a will is to determine the subjective intent of the testator"]; see Placencia v. Strazicich (2019) 42 Cal.App.5th 730, 741, 255 Cal.Rptr.3d 729 ["[T]he modern trend [is] toward favoring the decedent’s intent over formalities"].)
Gary argues Duke does not apply here because the devise in the pour-over will is general and not specific. A specific devise is a "transfer of specifically identifiable property" ( Prob. Code, § 21117, subd. (a) ), while a general devise "is a transfer from the general assets of the transferor that does not give specific property." (Id ., subd. (b); see Ross & Cohen, Cal. Practice Guide: Probate (The Rutter Group 2019) ¶ 16:532, p. 16-182 [explaining the difference between specific and general devises].) The flaw in Gary’s argument is that the will in Duke "left all of [the testator’s] property" to his wife, which is a general devise. ( Duke , supra , 61 Cal.4th at p. 876, 190 Cal.Rptr.3d 295, 352 P.3d 863 ; Prob. Code, § 21117, subd. (b).) There is no suggestion the Supreme Court intended to limit its holding to specific devises. (See Duke , at p. 898, 190 Cal.Rptr.3d 295, 352 P.3d 863.) Applying Duke’s two-prong standard, we conclude substantial evidence supports the probate court’s decision to equitably reform the pour-over will. Specifically, there is substantial evidence of Hanako’s actual and specific intent at the time the trust and will were drafted. It is undisputed she wanted a trust to gift her separate property rental home, i.e., the Goleta property, to her two sons, and that she also "expressed some general desire to have a will to control the disposition ... of her separate property." The will as drafted contains a mistake in the expression of that intent. (See Duke , supra , 61 Cal.4th at pp. 890, 898, 190 Cal.Rptr.3d 295, 352 P.3d 863.)
"The [drafting] attorney’s testimony, although not conclusive, is entitled to much weight." ( Estate of Goetz (1967) 253 Cal.App.2d 107, 114, 61 Cal.Rptr. 181.) McKee testified it is fair to state that Hanako’s trust is a separate property trust. The instrument provides that "[t]he property transferred is the settlor’s separate property and shall be known as the ‘separate trust estate.’ " During his deposition, McKee confirmed the trust did not include any community assets. He also acknowledged that he and Hanako did not discuss the pour-over will or her community property assets during their phone call.
Warga corroborated McKee’s testimony. She testified that Hanako’s exclusive intent when she signed the trust was to leave the Goleta property to her sons. Warga explained to Hanako the effect the trust and pour-over will would have on her separate property assets, but there was no discussion regarding her community property assets. To the contrary, Warga and Hanako discussed the possibility of a joint estate plan with William, which would take care of "[t]he rest of her property."
In addition, Hanako’s simultaneous execution of the trust, the pour-over will and the grant deed transferring the Goleta property, as her separate property, into the trust further evidences her intent to control only her separate property through the estate plan. (See Estate of O’Connell (1972) 29 Cal.App.3d 526, 531-532, 105 Cal.Rptr. 590 ["Once the testamentary scheme or general intention [of a trust or will] is discovered, the meaning of particular words and phrases is to be subordinated to this scheme, plan or dominant purpose"]; Estate of Goyette (2004) 123 Cal.App.4th 67, 73, 19 Cal.Rptr.3d 760 [same].)
Carl Tucker Cheadle, an expert on the attorney standard of care in drafting estate planning instruments, testified that Hanako’s trust is a separate property trust and, as such, should only hold separate property assets. He opined that if Hanako’s intent was to transfer community property assets into the trust, the trust should have been amended to permit that transfer. He also agreed with the probate court that Gary’s interpretation of Hanako’s estate plan is illogical because the purpose of having a trust is to bypass probate. Jay testified that Hanako wanted to avoid a probate proceeding. At the time of Hanako’s death, however, a pour-over will was exempt from probate only if the value of the assets totaled less than $150,000. (Former Prob. Code, § 13100.) Hanako’s share of the community estate was significantly more than that. As the probate court aptly noted, "if it was your intention to have property passed by a nonprobate mechanism, you wouldn’t depend on the probate of a will to transfer the properties there."
Moreover, Jay testified that at the time of the March 28, 2000 meeting with Hanako and Warga, he did not understand that Hanako’s portion of the community property would go into the will. It is evident that Hanako also had no such understanding, to the extent a will was even discussed at that meeting. As the probate court observed, it is unclear whether Hanako knew she had any community property assets, let alone whether she intended to gift those assets through the trust and pour-over will. William testified that he and Hanako never discussed the concept of community property, and neither McKee nor Warga explained that concept to her. Jay and Gary also "testified (against their own interests) that Hanako never even used the term ‘community property’ in discussing her estate plans or testamentary intent before, during, or after the execution of the 2000 estate plans." The court noted that Hanako "was treated badly by those who should have advised her in the process" and that "had they respected her intelligence and ability to understand, ... they would have discussed these things with her."
In the absence of any evidence showing Hanako’s intent to include community property assets in her estate plan, it was reasonable for the probate court to interpret the evidence of her intent as it did. (See, e.g., Multani v. Knight (2018) 23 Cal.App.5th 837, 857, 233 Cal.Rptr.3d 537.) Where, as here, there is "a mistake in expression [of] the testator’s actual and specific intent at the time the will was drafted," the will should be reformed to express that actual intent. ( Duke , supra , 61 Cal.4th at p. 896, 190 Cal.Rptr.3d 295, 352 P.3d 863.) It is true that "[p]reference is to be given to an interpretation of an instrument that will prevent intestacy" ( Prob. Code, § 21120 ), but "no policy underlying the statute of wills supports a rule that would ignore the testator’s intent and unjustly enrich those who would inherit as a result of a mistake." ( Duke, at p. 896, 190 Cal.Rptr.3d 295, 352 P.3d 863.)
3. The Probate Court Did Not Abuse Its Discretion In Reforming the Pour-Over Will
Given the probate court’s finding that Hanako intended at the time the trust and pour-over will were drafted to provide for testamentary control and disposition of only her separate property, the decision to reform the pour-over will to conform to that actual and specific intent was well within the court’s discretion. (See Duke , supra , 61 Cal.4th at pp. 890, 898, 190 Cal.Rptr.3d 295, 352 P.3d 863.) Gary has not demonstrated an abuse of that discretion.
See footnote *, ante .
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III. DISPOSITION
The appeal from the order awarding attorney fees to William with respect to his motion to expunge the lis pendens is dismissed. In all other respects, the probate court’s findings and order for judgment are affirmed. William shall recover his costs on appeal.
We concur:
GILBERT, P. J.
TANGEMAN, J.