Mark J. Phillips

Shareholder, Lewitt Hackman

Email: mphillips@lewitthackman.com

Mark is a certified specialist in estate planning, trust & probate law by the State Bar of California.

Jake V. Phillips

Associate, Sheppard Mullin

In these pages we have previously explored the conflicting cases leaving unclear the statutory methods for settlors to modify their revocable trusts, the most prevalent form of estate planning for Californians seeking to put their affairs in order, particularly for larger estates where the costs and delays of a formal probate are prohibitive. With the recent decision in Diaz v. Zuniga, (2nd App Dist., May 19, 2023), these rules are even more uncertain.

With the exception of specific estate tax devices that require irrevocability, trusts used by individuals to estate plan are generally revocable and amendable by their settlors, and even where trusts are silent on their face as to their revocability California law presumes them to be revocable and amendable. Probate Code §§ 15400 and 15402. So the methodology for revocation and amendment is key to the construction of a trust, causing practitioners to both experiment with the procedure for making those changes when drafting trusts and grapple with how to exercise those powers in trusts drafted by others.

In 1986, California replaced existing Civil Code §2280, dealing with trust revocation, with the current law found in Probate Code §§ 15401 and 15402, which govern trust revocation and modification respectively. Revocation procedure is set forth in Probate Code § 15401, which provides that a trust may be revoked either by any method provided in the trust instrument itself (the “stated method”) or “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” (the “statutory method”). Either method is acceptable unless the trust explicitly states that the instrument’s stated method is mandatory. § 15401(a)(2). By contrast, for modification of a trust Probate Code § 15402 states simply: “Unless a trust instrument provides otherwise, if a trust is revocable by the settlor, the settlor may modify the trust by the procedure for revocation.”

While the process of revocation is better understood, the rules for modification under § 15402 continue to be the subject of litigation, and decisions have left ongoing uncertainty. In the Fifth District case of King v. Lynch, 204 Cal. App. 4th 1186 (Ct. App. 2012), the dispute involved a trust created by settlors Zoel and Edna Lynch, the terms of which called for different methods for trust revocation and modification respectively. While the trust could be revoked by either settlor without the signature of the other, it could only be amended by written instrument signed by both of them. After Edna was incapacitated following a head injury, Zoel attempted several amendments to the trust on his own, resulting in the dilution of the inheritances of several beneficiaries. After the death of both Zoel and Edna, these beneficiaries sued, alleging that the modifications signed by just Zoel were ineffective under the trust terms as not signed by both settlors. The parties defending the amendments responded that § 15402 states that unless the trust instrument provides otherwise the procedure provided for revocation were also valid for modification. Thus, they argued, since the trust authorized revocation by one settlor alone, modification by one settlor was also authorized.

The court sided with the beneficiaries. Citing the plain language of § 15402, the court reasoned that where a trust instrument provides a specific method for modification that differs from the method for revocation, that constitutes providing “otherwise,” and makes the revocation methods not available for modification. Any other reasoning, the court stated, would render § 15402 “mere surplusage.” Id. at 1193.

A forceful dissent, written by Judge Detsen, focused on the original legislative purpose for § 15402: codifying the common law rule that the greater power to revoke includes within it the lesser power to modify. Read in this light, any method available for revocation is also available for modification – unless the trust instrument explicitly stated otherwise. Simply stating a different method for modification does not automatically make it exclusive.

The fact pattern of King is anything but uncommon; Trusts frequently provide for revocation in writing by either settlor but modification in writing signed by both settlors. Yet where neither are described as exclusive, it is easy to mistakenly conclude that the trust can also be modified either by the stated method set forth for revocation, or by the statutory method of a writing signed by the settlor and delivered to the trustee as permitted in § 15401(c)(2), a reasoning the majority decision in King rejects.

On Sept. 16, 2021, the California Fourth District decided Haggerty v. Thornton, 68 Cal. App. 5th 1003 (Ct. App. 2021), which concerned a 2015 revocable trust created by settlor Jeane M. Bertsch. Unlike the trust in King, the trust agreement in Haggerty called for the same procedure for both revocation and modification, stating that it could be either revoked or amended “by an acknowledged instrument in writing.” Before her death in 2018, Bertsch drafted three additional documents. The first was signed and acknowledged by a notary public. The two subsequent amendments were signed but not notarized.

Beneficiary Haggerty contested the two later documents, arguing that unacknowledged documents did not satisfy the method for modification set forth in the trust, and when the court determined that the documents were valid, he appealed.

On appeal, Haggerty argued two things. First, that the trust agreement’s language required that any modifications be acknowledged, which she interpreted to mean that they needed to be notarized. Second, citing the majority position in King for the proposition that where specific methodology is provided for modification, that constitutes providing “otherwise,” and thus the alternative methods of § 15401 unavailable. Therefore, according to the appellant, although the documents complied with the statutory method for revocation in § 15401, the documents were nonetheless invalid under § 15402 because they were not “acknowledged instrument[s] in writing,” as “otherwise required” by the trust agreement.

In response, Thornton, the original successor trustee in the event of Bertsch’s death, argued that the trust’s stated method of amendment by acknowledged instrument was not explicitly exclusive, so the trust could be modified either by acknowledged instrument or by any method available for revocation. Because the trust agreement contained no explicit statement of exclusivity, revocation and modification could be accomplished by the statutory method found in § 15401(a)(2), notwithstanding the holding in King.

Although declining to comment on whether King was wrongfully decided on its facts, the appellate court in Haggerty decided that the King dissent “more accurately captures the meaning of §15402.” In doing so, the court returned to the purpose behind the statute: to codify the common law rule that the power to revoke includes the power to modify, and thus the procedure for modification is the same as that of revocation “unless the trust agreement instrument distinguishes between revocation and modification.” Because there is no such differentiation, all methods available for revocation are available for modification, including the statutory method.

Haggerty, unfortunately, did not settle the issue. In 2022, the Fourth District came to the opposite conclusion from Haggerty, agreeing with the King majority. Balistreri v. Balistreri (2022) 75 Cal. App. 5th 511. Then, this last month, in Diaz v. Zuniga (filed May 19, 2023, Second District, Div. Four, Cite as 2023 S.O.S. 1669) the Second District also rejected the argument of Haggerty, finding the majority in King persuasive.

Diaz addressed the trust of Matteo Diaz, which contained separate articles addressing revocation and modification. Article IX stated that the trust was revocable in whole or in part during the trustor’s lifetime, but did not articulate a method. By contrast, Article X stated that the trust was amendable by the trustor “by an instrument in writing signed by the Trustor and delivered by certified mail to the Trustee.

Following Diaz’s death in 2018, a purported trust amendment dated in 2007 was found in his home inside a stamped envelope addressed to his attorney. Although during his life Diaz was both the trustor and trustee, there is no indication Diaz sent the amendment to himself via certified mail, and therefore did not comply with the trust’s stated method for trust modification. The purported amendment made significant reallocations of the trust beneficiary’s shares in two real properties parcels, and the successor trustees filed separate petitions requesting instructions about the validity of the 2007 amendment.

After a thorough discussion of the divided authorities in King, Balistreri, and Haggery, the court ultimately adopted the King approach. Relying on the plain language of § 15402, which the Diaz court called “clear and unambiguous,” the court held that a trust does not need to contain an explicit exclusivity provision for the stated method to “displace the statutory modification provisions.” In doing so, the court emphasized the probate code’s interest in protecting the intention of the trustor. Given that the stated modification procedure was “substantially more detailed and cumbersome” than the statutory revocation procedure, the court inferred an “intent to ensure the bona fides of any such amendments.” Protecting the trustor’s interests therefore requires satisfaction of those more cumbersome procedures.

Although the Diaz court rejected Haggerty’s approach to §§ 15401 and 15402, the court notes in a footnote that its decision is not inconsistent with that approach. Because Diaz’s trust contained two separate articles addressing revocation and modification, the court has sufficiently distinguished between the two, triggering the qualifying provision in § 15402 as “providing otherwise.”

As the Diaz court notes, in December 2021 Haggerty was granted review by the California Supreme Court and its decision is currently pending, meaning Diaz will not be the last word on the issue of acceptable modification procedures. In the meantime, estate planners must be cautious of both potential ambiguities in drafting trust modification procedures and compliance with those procedures in effectuating amendments. As Diaz suggests, especially where trustors require modification procedures that are more rigorous or cumbersome than the default statutory method, protection of their interests requires careful conformity with those procedures.