December 16, 2015
Doolittle v. Exchange Bank
California has watered down the application of no-contest clauses through recent legislation. Still, there are alternative methods to dissuade a beneficiary from challenging a trust. For example, shifting the burden of cost as reflected in the recent appellate decision.
Doolittle v. Exchange Bank, __ Cal.App.4th __ (2015)
In Doolittle, the settlor, a very wealthy individual, was concerned about her children challenging an amendment to her trust. The trust amendment provided for a substantial distribution to her gardener. On the same day she amended her trust, she executed a document entitled "Instructions to Successor Trustee and to Agent." This document provided, in pertinent part:
"I, Constance Doolittle, as the Trustor of the Constance Doolittle Trust UTD November 5, 1999 ('Trust'), as amended, and on behalf of myself as an individual, hereby instruct the successor trustee of the Trust and my agent under a durable power of attorney, that in the event any one or more of my attorney, my accountant, my investment counsel, my trustee, my agent, any doctor or psychologist, or any other representative of mine . . . is called upon to testify on my behalf as to my intentions or my circumstances with respect to my inter vivos gifts and estate planning documents, I hereby instruct my said successor trustee and my agent to compensate such representative at his or her regular, usual and customary rate for all time expended by such representatives with regard to such testimony."
The consequence of this document is that associated parties with Ms. Doolittle would be compensated for their time if they became involved in litigation. As anticipated by Ms. Doolittle, her children challenged the trust and objected to the validity of this cost-shifting provision. The rationale for the objection was to preserve trust funds. If the trustee had to compensate highly-paid professionals such as an attorney, accountant and doctor for their involvement in the case, their naturally would be less trust funds available for the beneficiaries. Ultimately, the appellate court found the document to be a valid trust amendment.
Naturally the attorneys for each side viewed the decision differently.
The bank's attorney said "if a parent truly wants to leave something to someone who is not their natural heir, they can provide for the defense of that gift in the event the heirs attack it." Payne, Paul. "Battle over Marin County woman's inheritance spills into Sonoma County court." Press Democrat. Santa Rosa, CA. October 22, 2015.
Conversely, the children's attorney said the ruling was the "Full Employment Act for counsel.” Id.