Many California will and trust disputes arise from ambiguity in the document with respect to who is entitled to an asset.  Maybe the document was hazy from the start or perhaps circumstances have changed such that the rightful recipient is no longer clear.

Two cases decided in the California Court of Appeal last year illustrate the conflicts that surface over interpreting wills and trusts.  In both cases, coincidentally involving 35 percent shares, the appellate courts overruled the trial courts, nicely illustrating the complexities of will and trust interpretation.  California Probate Code sections 21101-21118, though obscure, can be pivotal in the analysis.

California Law Disfavors Intestacy

In Estate of Stockird (2018) 30 Cal.App.5th 558, Cheryl Stockird wrote a holographic (handwritten) will, leaving 65 percent of her property to her longtime partner, John Aguirre, and the remaining 35 percent to Patricia Ambrose, who had been married to Stockird’s uncle.  Ambrose died before Stockird.

When Stockird passed, Aguirre claimed that he was entitled to the 35 percent of her estate that was to go to Ambrose in addition to the 65 percent allocated to him.  Stockird’s half-brother, Bruce Ramsden, argued that he was entitled to the 35 percent as Stockird’s next of kin.

California Probate Code section 21110, known as the anti-lapse statute, allows gifts to pass to heirs of the named recipient if the recipient is a blood relative of the transferor.  Hence, if Alice leaves property to daughter Betty, but Betty predeceases Alice, then Betty’s children will receive the property in equal shares when Alice dies, i.e., the gift does not lapse because the law presumes that Alice would have wanted to provide for her grandchildren.

But the anti-lapse statute did not apply to the failed gift to Ambrose because she was not a blood relative of Stockird.

The allocation of the 35 percent share therefore turned on the rules set forth in California Probate Code section 21111.

The trial judge in Contra Costa County Superior Court found that the gift to Ambrose failed and resulted in a partial intestacy, such that the 35 percent would be distributable to Stockird’s heirs at law, i.e., the half-brother to whom she gave nothing in her will.

The Court of Appeal ruled that the trial judge had misinterpreted section 21111(b).  Under that subsection, if a residuary gift is transferred to two or more persons and the gift to one of them fails without an alternative disposition, then the share passes to the other remainder beneficiary or beneficiaries in proportion to their respect interests.  In construing the statute, the court relied on a legislative intent to avoid partial intestacy (by abolishing the “no residue of a residue” rule), as well as the Uniform Probate Code and the Restatement Third of Property.

Accordingly, the will should have been interpreted to favor Aguirre as the recipient of the 35 percent share.  However, the Court of Appeal sent the case back to the Contra Costa court for further proceedings because Ambrose’s heirs (her children and grandchildren) had petitioned to reform the will to reflect Stockird’s supposed intent for the failed residuary gift to pass to them.

Under Estate of Duke (2015) 61 Cal.4th 871, a California court may reform an unambiguous will if “clear and convincing evidence establishes that the will contains a mistake in the expression of the testator’s intent at the time the will was drafted and also establishes the testator’s actual specific intent at the time the will was drafted.”  This is not an easy hill to climb, but Ambrose’s heirs will have their day in court as the litigation continues.

Settlor Can Direct Particular Asset to Remainder Share Without Making a “Specific Gift”

While Stockird involved a handwritten will, lawyer-drafted estate plans are also susceptible to litigation over interpretation.  Blech v. Blech (2018) 25 Cal.App.5th 989 provides an example.

Arthur Blech died in 2011 with an estate worth more than $65 million – most of it left to his four children in unequal shares.  The Blech Ranch in San Luis Obispo County was worth $7.2 million when Arthur died, but (with California’s surging real estate market) was sold less than three years later for $14 million, leading to $2.3 million in capital gains tax.

The issue on appeal was whether the Ranch was a specific gift to Arthur’s son, Raymond Blech, or whether it was part of the remainder (or residue).

The Los Angeles County Superior Court deemed the Ranch a specific gift.  Based on that ruling, Raymond claimed that he should have received the entire net appreciation on the sale of the Ranch, which would be about a $4.5 million swing in his favor.

Whoa, said the Court of Appeal.  It looked to California Probate Code section 21117 for the categorization of “at-death transfers.”  Under this section, a “residuary gift is a transfer of property that remains after all specific and general gifts have been satisfied.”

Construing the trust instrument as a whole, the appellate court found that Arthur intended for Raymond to receive 35 percent of the entire trust remainder, including the Ranch if it happened to be part of the trust estate at the time of distribution.  This was consistent with Raymond’s historical involvement in the Ranch’s operations.  Hence, the gift of the Ranch was an instruction to the trustee as to how to fund Raymond’s 35 percent share of the remainder, not a specific gift to him that preceded allocation of the remainder.

This is a case where the trial judge reached the correct outcome for the wrong reason.  Despite the mischaracterization of the Ranch as a specific gift, the trial court’s ruling denying Raymond the full appreciation on the sale of the Ranch was correct.  Once again, the analysis required application of the “rules of interpretation” in the Probate Code.