A key feature of a California revocable trust is that it can be amended. Revising a trust can, however, seem like an irksome chore so it’s common for creators of trusts (i.e., “settlors” or “trustors”) to shrug off an amendment until it becomes clear they have limited time to settle their affairs.
Such procrastination invites mistakes, including failure to comply with a trust’s built-in procedure for amendments. Indeed, while many trust instruments do not specifically prescribe how they may be amended, others do – often requiring “delivery” of the amendment to the trustees or settlors, that the amendment be signed, or both.
What happens when a settlor does not fully comply with the trust instrument’s modification procedure, even though it’s achingly obvious that he intended to amend his trust? Should a court rigidly bind him to the modification procedure or should it follow what seem to be his dying wishes? The California Court of Appeal faced this conundrum recently in Pena v. Dey (2019) 39 Cal.App.5th 546. The court required strict compliance with the trust’s modification procedure, rejecting a Post-it® note as satisfying a signature requirement.
An Ailing Artist Tries to Amend His Trust
James Robert Anderson, an artist and art teacher, created a trust in 2004, designating himself as settlor and trustee. Paragraph 3.2 of the trust prescribed a method for modification, providing in relevant part that any amendment “shall be made by written instrument signed by the settlor and delivered to the trustee.”
In 2010, after executing a first amendment to his trust, James was diagnosed with cancer. Grey Dey, a friend, moved in with James in 2011 to care for him. In February 2014, James called an attorney to amend his trust so as to add Grey as a beneficiary. The attorney, who was not involved with drafting the existing trust documents, asked James to send copies of them and to “put in writing the proposed changes he was considering.”
James therefore made substantial interlineations to the first amendment, modifying the beneficiaries and the distributions each would receive. James’ attorney received the interlineations in March 2014 with a Post-it note, on which James wrote: “Hi Scott, Here they are. First one is 2004. Second is 2008. Enjoy! Best, Rob.”
Unfortunately, James died in May 2014 before he could review and sign the second amendment. Margaret Pena, the successor trustee, thereafter petitioned the trial court for instructions as to whether the interlineations constituted a valid amendment. A Sacramento County Superior Court judge, Steven M. Gevercer, granted her motion for summary judgment, finding that the interlineations did not validly amend the trust.
Appellate Court Rejects Post-it, Holding Firm to Formality Requirement
The Third District Court of Appeal, in Sacramento, upheld the trial court’s ruling, reaffirming the importance of trust amendment formality requirements.
The appellate court first observed that where a trust instrument specifies how a trust must be modified, that method must be followed pursuant to California Probate Code section 15402. Such an observation was, of course, nothing new. In 2012, the court in King v. Lynch (2012) 204 Cal.App.4th 1186 also held that a trust’s modification procedure must be followed. But never before had a court arguably drawn such a deep line in the sand to require that a trust’s modification procedure be followed – no ifs, ands, or buts.
In reaching its decision, the court analyzed whether or not James complied with Paragraph 3.2 of the trust, which, again, required that a valid amendment be: (1) a written instrument; (2) signed by the settlor; and (3) delivered to the trustee. It had no problem finding that the interlineations on the first amendment constituted a “written instrument” and that they were “delivered to the trustee,” since James delivered them to himself when he made them.
While the court seemingly gave wide latitude to the “written instrument” and “delivery” requirements, however, it held firm on the signature requirement. The court found that James had not signed the interlineations, rejecting the assertion that his Post-it® note supplied the missing signature. While the court’s decision was certainly predicated on James’ intent, it was based on his intent when he originally created the trust in 2004, not his intent a decade and a half later.
There are several takeaways from Pena. When it comes to trusts, the fine print does matter. Formality requirements in trusts are beneficial in that they clarify when a person’s written note rises to the level of an amendment and thus help courts discern a settlor’s true intent. As observed in Hibernia Bank v. Wells Fargo Bank (1977) 66 Cal.App.3d 399, amendment procedures protect settlors from their own “whim, caprice, momentary indecision, or of undue influence by other persons.”
Accordingly, when a trust specifies how it is to be amended, the steps must be carefully followed. Do it yourself amendments may fall short.
If you want to amend your trust, don’t procrastinate! Waiting until the end of life to modify a trust increases the risk that the steps may not be completed before the settlor dies, leaving a settlor’s intended beneficiary without any benefit.