Trusts and Estates

Dae v. Traver

Cite as B305834
Filed September 27, 2021, Second District, Div. Two

By Golnaz Yazdchi
Sheppard Mullin Richter & Hampton LLP
https://www.sheppardmullin.com

Headnote: Litigation – Anti-SLAPP Motions – No Contest Petitions

Summary: Trustee provided sufficient evidence that his no contest petition had minimal merit to defeat beneficiary’s anti-SLAPP motion because under the former no contest law a petition challenging a trustee’s investment decisions can amount to a contest since it seeks to impair provisions in the trust giving the trustee discretion to manage trust assets. 

Traver, the trustee of an irrevocable Residuary Trust filed a petition to declare that once-residual beneficiary Dae—the trustors’ grandchild—violated the trust’s no contest clause by filing a petition challenging the investment decisions of Traver and his co-trustee.  At issue was the co-trustees’ decision, with expert advice and counsel, to enter into a series of “split dollar” arrangements that ultimately gave the Residuary Trust an interest in life insurance policies in return for the Residuary Trust’s financing of the premiums for those policies.  As part of the split dollar arrangement, the co-trustees established new trusts that entered into a series of transactions with the Residuary Trust, the net effect being that the new trusts held the bulk of the assets of the Residuary Trust.  The new trusts gave the lifetime beneficiary a power of appointment to designate the remainder beneficiaries.  Dae’s mother, the lifetime beneficiary of one of the new trusts, exercised her power of appointment and removed Dae as a beneficiary.  Dae filed a petition challenging Traver’s conduct in connection with the split dollar arrangement, as well as his removal as a beneficiary.  Traver claimed that the investments were done to avoid estate taxes.  Dae brought an anti-SLAPP motion to Traver’s no contest petition.  The anti-SLAPP motion was denied.

The appellate court affirmed.  Analysis of an anti-SLAPP motion involves a two-prong test: (1) the moving party must make a threshold showing that the challenged claims arise from protected activity; and (2) if so, the burden shifts to the responding party to establish that his or her claims have minimal merit.  There was no dispute that Traver’s no contest petition fell within the first prong.  As to the second prong, the no contest law prior to 2010 applied because the Residuary Trust became irrevocable before 2001.  Traver established minimal merit to defeat the anti-SLAPP motion because by attacking the co-trustees’ decision to establish the split dollar arrangement, Dae’s petition arguably sought to “impair” trust provisions that expressly granted powers that the co-trustees exercised when making the investment.  Dae’s specific allegations concerning his removal as a beneficiary could also be read to subvert the trustor’s intent and thus could amount to a contest. 

https://www.courts.ca.gov/opinions/documents/B305834.PDF

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