Trusts and Estates

Schwan v. Permann

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Cite as A151070 and A151073
Filed October 25, 2018
California Court of Appeal, First District

By Golnaz Yazdchi
Sheppard Mullin Richter & Hampton LLP

Walter C. Permann established a trust whereby he provided distributions to employees of his company, so long as each beneficiary remained “employed” by the company at Walter and his spouse’s death or else such gifts would lapse. The trust also included a gift to the drafting attorney, whom had obtained a certificate of independent review before Walter executed the trust. Walter sold the company before his death—something he did not anticipate at the time he established his trust. Following Walter’s death, the former employees brought a petition to determine their status as beneficiaries and to challenge the drafting attorney’s right to inherit because he was allegedly disqualified under Probate Code section 21380. The trial court found that the drafting attorney was disqualified, that one of the employee’s gifts lapsed because she retired before Walter sold the company, and that the gifts to two other named employees were valid and enforceable, but only if both survived the trustor’s spouse.

The Court of Appeal affirmed in part, and reversed and remanded in part. The employment condition in the trust was not a latent ambiguity, despite the fact that it failed to express clearly the trustor’s intent in the event of a sale. Nevertheless, the doctrine of impossibility continues to apply in California, and may excuse a condition precedent. To determine the question of impossibility, the court must look at the testator’s intent. Walter did not anticipate selling his company at the time he executed his trust, therefore the fact that he failed to modify his trust after the sale did not prove Walter’s intent for the gifts to lapse. The two employees named complied with the terms of the trust to the extent possible—they remained employed until the company was sold, therefore further performance was excused. The same was not true for the employee who retired before the sale. As to that gift, the court reversed and remanded for further factual findings regarding whether the beneficiary remained “employed” for Walter in other ways. Lastly, the drafting attorney’s gift was denied because the certificate of review failed to meet the requirements of Probate Code section 21384, which apply retroactively.

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