July 27, 2016

Settlement Agreement in a Trust Dispute

Santa Clara Co. Superior Court
Gregge v. Hugill (2016) ___ Cal.App.4th _____
In Santa Clara County Superior Court, a disgruntled beneficiary challenged the validity of a trust amendment citing a lack of testamentary capacity and undue influence. The trust provided for multiple beneficiaries but there is only 1 contestant, the disgruntled beneficiary. Just prior to trial, another trust beneficiary agreed to file a disclaimer, conditioned upon the case being dismissed, that arguably undercut the remedy available to the disgruntled beneficiary. The trial court was agreeable to this, citing the importance of familial harmony, and dismisses the matter.

The disgruntled beneficiary then appeals and the appellate court finds reversible error, principally because the disclaimant was a non-party. The opinion noted "a settlement is an agreement among adverse parties, and Bennett did not agree to settle the case." Thus, it was improper for the trial court to dismiss the matter as it deprived the disgruntled beneficiary of the right to litigate the validity of the trust amendment.    

The opinion also notes how the settlor amended his survivor's trust multiple times. 

"In 1997, William amended the survivor’s trust, designating a fixed $900,000 to fund the grandchildren’s trust, to be distributed as stated in the 1990 trust instrument."

"In 2000, William amended the survivor’s trust by eliminating Michael’s five percent residual share and increasing Patrick’s share to 35 percent."

"In 2001, William removed Michael’s children Kathleen and Cameron as beneficiaries of the grandchildren’s trust, but he restored their status one year later."

"In 2005 William again removed Cameron as a grandchildren’s trust beneficiary."

"William executed a final amendment to the survivor’s trust on June 5, 2008, two weeks after he underwent surgery to remove a subdural hematoma. The 2008 amendment restored Michael as a trust beneficiary on equal footing with his siblings, and it restored Cameron as a grandchildren’s trust beneficiary on equal footing with his sister and cousins." 

I would not advise a client to amend their trust this many times unless they agree to a restatement of their trust. The reason being is that if a trust is amended, the heirs and beneficiaries are entitled to a copy of the trust and all the amendments. They could then see how the trust changed over time, possibly because of independent decision-making or the result of an interloper. If a restatement was used, only the restatement would need to be given to heirs and beneficiaries. Hence the heirs and beneficiaries could not piece together how the trust changed over time.