Guest author Karina Stanhope, a former Downey Brand associate, contributes today’s post.
Trust documents should be customized to serve the estate planning objectives of those who create them. While Parent One may want all of her assets to be distributed in equal shares to her children, Parent Two may want to exclude a child from receiving anything or tie up his share until he obtains a college degree or reaches a certain age. Experienced attorneys can draft trust documents that effectuate client wishes using clear and consistent language. However, many times, inexperienced or incautious drafters will leave language that is conflicting or incomplete, and many clients are unable to spot the ambiguity.
California trust litigation often arises from murky trust language, as varying interpretations of trust documents may favor one beneficiary over another. Judges and commissioners of the Superior Court of California are the arbiters of what disputed trust language means. Fortunately, there are code sections and appellate cases to guide the way.
Rules of Construction
A single hazy sentence in the midst of a 40-page declaration of trust may become the source of great controversy. For example, a trust document may allow an adult child to “continue to occupy” a certain beach house in the Sea Ranch community in Sonoma County until she moves out, leaving unresolved who will pay for the ongoing expenses of that property and whether the favored child who moves east to Placer County “continues to occupy” the house by staying there during summer vacations. If the trust document does not address these scenarios, the siblings may find themselves in a bonfire of controversy over the house with the trustee (often one of the siblings) caught in the middle. Unfortunately, in the context of trust interpretation, obscurity may result in volatility.
In such scenarios, the trustee can work to facilitate a compromise that preserves family harmony, but has a fiduciary duty of impartiality under California Probate Code section 16002 that may preclude him from taking sides. Thus, if the parties are unable to work out a compromise, a judge becomes the official interpreter of the trust.
Just as with contract interpretation, a judge is subject to a set of rules, known as “rules of construction,” as to how he or she should interpret the trust’s terms. Because of the importance of these rules, the Legislature has devoted a set of code sections to them, commencing with California Probate Code section 21101. Besides the rules set forth in the Probate Code, judges also look to case law (i.e., published decisions from the Supreme Court and Courts of Appeal) and general rules of construction in other legal contexts, such as contract law, for guidance. While there are many California cases discussing trust interpretation, Ike v. Doolittle 61 Cal.App.4th 51 (1998) provides a good starting point.
Settlor’s Intent Controls
A person who creates a trust is known as the “settlor” (or sometimes “trustor” or “grantor”). The cardinal rule of interpreting trusts, as stated in Probate Code section 21102, is that the judge must, if possible, determine what the settlor’s true intent was, and effectuate that intention. This makes logical sense. What matters is how Mom intended to pass her property when she died. It is not son Johnny’s, or daughter Mary’s, intent that should carry the day.
To ascertain the settlor’s intent, a judge will first look to the express language of the trust for guidance. When the trust’s language is ambiguous or uncertain, the judge may be unable to determine the settlor’s intent based on the trust’s express language. In these circumstances, the judge will need to look elsewhere for guidance on how to interpret the unclear language to best achieve the settlor’s intent. This is where Division 11 of the California Probate Code, noted previously, and relevant appellate decisions come in.
How Courts Interpret Ambiguous Language
Before interjecting his or her own interpretation of trust terms, the judge must conclude that an ambiguity actually exists. To do this, the judge may consider the circumstances under which the trust was created or amended as extrinsic evidence. The goal is for the judge to essentially step into the shoes of the settlor who created the trust. If the judge feels that, based on the circumstances, the trust’s language is clear and definite, the analysis ends there.
However, instead of sturdy shoes, the judge may find flip flops. If the judge finds the trust’s language fairly susceptible to two or more meanings, he or she may determine that the language is ambiguous. To resolve that ambiguity, the judge may admit additional extrinsic evidence to resolve the ambiguity. This may include the drafting attorney’s testimony about the circumstances surrounding the preparation and execution of the trust, among other things.
When the parties have conflicting evidence, the judge (not a jury) will conduct a trial as to the meaning of the trust document. It may take a year or more to get to trial with tens of thousands of dollars of legal expense along the way.
The best way to avoid litigation over trust interpretation is to review documents and fix ambiguities during the settlor’s lifetime. Yet, ambiguities that can spark conflict are not always easy to spot. Once the settlor is incapacitated or deceased, the only way to resolve disagreements over the meaning of trust documents is through discussion and compromise, or a court judgment.
It can be unnerving to leave interpretation of trust documents in the hands of a judge who never knew the settlor. However, beneficiaries may rest more easily knowing that the Probate Code has guiding rules in place, and the judge’s focus is always on effectuating the settlor’s intent.