Trusts and Estates

Roth v. Jelley

Cite as A155742
Filed February 24, 2020, First District, Div. Two

By Matt Owens
Withers Bergman LLP
www.withersworldwide.com

Headnote: Due Process – Notice – Rights of Remainder Beneficiary with Contingent Future Property Interest

Summary: Where a trust beneficiary held a contingent future interest in the trust’s residue, he was entitled to notice and an opportunity to be heard on a petition eliminating that interest.  

McKie Sr. created a testamentary trust through his will for the benefit of his wife, Yvonne.  The trust gave Yvonne a testamentary power of appointment and provided a default distribution scheme in the event she did not use it.  Under that scheme, the residue would pass in four equal shares to McKie Sr.’s three children from a prior marriage and Yvonne’s son from a prior marriage, with the share of any child who predeceased Yvonne passing to that child’s issue.  When McKie Sr. died in 1988, his estate was embroiled in litigation that ultimately resulted in his three children, including McKie Jr., signing a settlement agreement disclaiming their respective interests in the trust.  The executor of McKie Sr.’s estate petitioned for final distribution and obtained an order in 1991 that followed the terms of the will as altered by the settlement agreement, leaving the trust’s residue to Yvonne’s son, James, subject to Yvonne not exercising her power of appointment.  Yvonne died in 2016, predeceased by McKie Jr. and having never exercised her power of appointment.  McKie Jr.’s son, Mark,  filed a petition contending the 1991 order was void for lack of notice and did not eliminate him as a beneficiary of the trust.  Jelley, the trustee, contended Mark was not entitled to notice of the proceeding resulting in the 1991 order because he never had a property interest in the trust.  The probate court denied Mark’s petition and he appealed.  

The court of appeal reversed.  Mark had a property interest in the trust that was adversely affected by the 1991 order, and he was therefore entitled to notice of the proceeding and an opportunity to object.  Although Mark’s interest in the trust was contingent (not vested), future (not present), and subject to divestiture if Yvonne exercised her testamentary power of appointment, it was an actual property interest that came into existence upon McKie Sr.’s death.  Further, McKie Jr.’s signature on the settlement agreement disclaiming his own interest in the trust had no impact on Mark’s interest.  Mark was not a party to the settlement agreement and did not consent to it.  Mark’s interest was derived from the will, not the settlement agreement.  The probate court erroneously believed that under the settlement agreement McKie Jr. bargained for the immediate vesting and release of his interest in the trust such that there was nothing left of that interest for Mark to inherit.  But McKie Jr.’s interest had not vested at the time he signed the settlement agreement because it could only vest, if at all, upon Yvonne’s death in the event she had declined to exercise her power of appointment.  Finally, Mark, whose existence and address were reasonably ascertainable, was entitled to mail notice, not constructive notice through publication.

http://www.courts.ca.gov/opinions/documents/A155742.PDF

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