Friday, April 24, 2015

Sefton v. Sefton (Cal. Ct. App. - April 24, 2015)

I never took Trusts & Estates.  And because I never studied for the bar exam, I never actually learned the stuff either.

But I've picked up bits and pieces of this area over the subsequent decades by reading the California appellate cases and through various work.  The same may be true for other people as well.

I nonetheless concede that the following hypothetical would have completely stumped me until today:

Grandfather writes a will that creates a testamentary trust in favor of his son ("Father").  The trust says that upon Father's death, the trust terminates and its assets get distributed.  The trust also says that Father gets a big say as to how those assets get distributed, stating that "[t]hree quarters (3/4) [of the Trust estate] shall be distributed to [Father's] then living issue as [Father] shall by his Last Will and Testament appoint, and in default of appointment, to his then living issue on the principle of representation."

My nonlegal mind reads that as saying that the bulk of the trust goes to whomever Father lists in his will, and if there's no such will, then an equal share goes to each of Father's kids (or at least that's the way it works if they're all still alive).

Okay so far?

So, under this hypo, Father then has three kids:  Son 1, Son 2, and Daughter.  Son 1 doesn't have any kids, Son 2 has three kids, and Daughter has one kid.

Father writes a will that says that (1) Son 2 and his kids get 2/3 of the Trust, (2) Daughter and her kid get 1/3 of the Trust, and (3) Son 1 gets $25,000 (not from the Trust, but from other assets).

Don't be thinking this is generous to Son 1.  Yeah, he gets $25,000.  But Son 2 and his kids got $37.8 million, and Daughter and her kid got almost $18.8 million.

Apparently what Son 1 got is called a "testamentary snub".  In common parlance, a "F**k You."

Son 1 sues.  (Or, more accurately, files a petition in probate.)

What does Son 1 receive?

(A)  Nothing.
(B) $25,000.
(C) $565,350.
(D) $18.8 million.
(E) It depends on when Grandfather's will was written.


Were I to have attempted to answer this question yesterday, my answer would have been a total guess.

The trial court thought that the answer was (B).  But then the Court of Appeal reversed and remanded.  At which point the trial court, following the Court of Appeal's instructions, thought that the answer was (C).  But the Court of Appeal reversed again.  Admitting that its prior instructions were -- and this is a nice way of putting it -- "ambiguous".  Holding that the right answer in the present case is (D).

Though, truthfully, the correct answer to my hypothetical is (E).  The common law says -- at least according to today's opinion -- that the answer is (D), since Father was empowered to split the Trust as he saw fit but was not capable of excluding someone entirely, and since that's what he did, Son 1 gets the default apportionment, one-third.  But in 1970, California passed a statute that changed the law, so that the answer would now be (B).  That statute, however, postdated Grandfather's will, so the answer remains (D).

The theory, I take it, is that the law presumes that Grandfather loved -- or thought he'd love -- all his grandkids, but wanted Father to be able to tinker with the allocations (based on need, etc.) if Father felt like it, but didn't want Father to be able to totally screw one of the grandkids.  So even though Father here didn't like (or want to give money to) the childless Son 1, Son 1 nonetheless gets his nearly $20 million.

So now you know.  As do I.  At least if I've gotten the facts and law right.

As my daughter would say:  "Rich people's problems."  But a problem for courts and lawyers as well.

A problem that it took multiple rounds in the trial court, and two in the Court of Appeal, to solve.