Appellate ruling shows trust’s modification method must be followed

Some estate planning lawyers probably believe one or both of the following: (1) if Mom and Dad create a joint "living" trust, they can amend or revoke it as they see fit; and (2) the Probate Court's duty is to implement the testator's intent. Balistreri v. Balistreri, 2022 DJDAR 1898 (Feb. 24, 2022), suggests both of those propositions are not necessarily true when the testators do not manifest their intent in a manner consistent with the terms of the trust they previously enacted.

Mary and Sal created the "living" trust at issue on September 6, 2017. They were the trustors and trustees and contributed community property to the trust. The property was to be distributed upon Sal's death to Sal's two children (Sal Jr. and Christina) and Mary and Sal's child, Julia. The trust instrument stated that any amendment, revocation or termination must have the trustors' signatures notarized. In February 2020, Mary and Sal executed a First Amendment to the trust to eliminate the distribution to the three children and require the property to "remain in the trust." Sal's signature was not notarized and he died the next day.

Mary filed a petition to confirm the amendment's validity despite the lack of notarization because the trust did not specify an exclusive amendment procedure. As a result, she argued, the trust could be amended using Probate Code Section 15401(a)(2), which provides: "(a) A trust that is revocable by the settlor or any other person may be revoked in whole or in part by any of the following methods: ... (2) By 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. If the trust instrument explicitly makes the method of revocation provided in the trust instrument the exclusive method of revocation, the trust may not be revoked pursuant to this paragraph."

Unsurprisingly, Sal Jr. objected and included allegations of incapacity and undue influence.

The 1st District Court of Appeal began by contrasting Probate Code Section 15401's rules for trust revocation and with Section 15402's rules for modification. Section 15402 provides: "Unless the trust instrument provides otherwise, if a trust is revocable by the settlor, the settlor may modify the trust by the procedure for revocation." The court cited a 5th District Court of Appeal decision for the proposition that, when the trust instrument "specifies how the trust is to be modified," that "method must be used to amend the trust." King v. Lynch, 204 Cal. App. 4th 1186 (2012) (emphasis added). In other words, the "trustor may bind himself or herself to a specific method of ... amendment of a trust by including that specific method in the trust agreement."

Mary argued she and Sal were free to ignore the trust's amendment procedure in favor of the Section 15401(a)(2) revocation procedure. The court noted this same argument was made and rejected in King. The King appellant argued the trust could be modified using the statutory revocation procedure "because the trust did not explicitly make the method of modification exclusive." The King court noted that allowing a trust to be modified by the Section 15401 revocation procedures unless the trust explicitly provides the stated modification method is exclusive would make Section 15402 surplusage; the Legislature could have combined the two provisions.

The Balistreri court acknowledged a recent contrary decision by the 4th District Court of Appeal in Haggerty v. Thornton, 68 Cal. App. 5th 1003 (2021). In that case the settlor signed an unnotarized amendment. The instrument provided the settlor "may" amend or revoke the trust by a notarized writing. The settlor's niece argued for the amendment's invalidity due to the lack of a notarization. The Haggerty court held the settlor could amend the trust pursuant to the Section 15401 revocation procedures because the trust's procedures were not explicitly exclusive. The court reasoned that because the trust did not distinguish between revocation and modification it does not provide otherwise than the general rule and, under Section 15402, the trust may be modified by any valid revocation method.

The Balistreri court disagreed with the Haggerty court's conclusion that the Section 15402 phrase "[u]nless the trust instrument provides otherwise" means that unless the trust instrument explicitly states that the provided for method of amendment is exclusive, the statutory method of revocation may be used to modify. It said the best reading of the Section 15402 phrase "[u]nless the trust ... provides otherwise" is that when a trust provides for the use of a specific modification method, that method must be used.

Mary's final argument was that by jointly executing the amendment she and Sal expressed their intent to change the trust and the court should give effect to their intent. The court indicated it could not view the amendment on its own but must determine intent from the entire trust instrument, which included the explicit amendment procedure.

The concurring opinion agreed that the trust instrument required the amendment to be notarized and the one proffered by Mary was not. However, the concurrence felt it was unnecessary to address a situation where a trust instrument sets forth a method for amending the trust in permissive, rather than mandatory terms.

Balistreri is a helpful caution that the modification provisions of a trust must be carefully followed and that there is a limit on a court's implementation of the settlor's intent. When one or more settlors specify that a trust may be modified by a particular method, the law requires that the settlors must follow that particular procedure or the attempt to amend will not be effective. Of course, the last word has not been written on the specific statutory construction. 