In California, a trustor (person who creates a trust) can confer a “power of appointment” on trust beneficiaries, empowering them to designate to whom they want to give their shares of the trust. The trustor can require trust beneficiaries to specifically exercise and refer to the power of appointment in any will they create to designate who should get their shares of the trust.
What happens if a trust beneficiary creates a will that gives away his or her trust shares without specifically referring to the power of appointment as required by the trust? Can a California probate court fix the defect by amending or reforming the will to include a specific reference to the power?
The California Court of Appeal answered this question in the negative in Estate of Eimers (2020) ___ Cal.App.5th ___. The court held that, although reforming a will is permissible if extrinsic evidence establishes a testator’s intent, a will cannot be reformed if it would achieve a work-around of the power of appointment requirements in the Probate Code. In short, a court cannot reform a will when the testator fails to follow the directions for exercising a power of appointment.
A Will That References the Trust but Not the Power
Timothy William Eimers was a beneficiary of the Norbert Theodore Eimers Family Trust, established by his parents on September 11, 1991. The Trust provided that when Timothy’s parents passed away, the trust assets would be divided equally among the children. The Trust included a testamentary power of appointment for the children to designate who would get their trust shares upon their parents’ deaths. The Trust instrument allowed Timothy to appoint his share of the Trust only by way of a will that specifically referred to and exercised the power of appointment.
Timothy’s dad died in 1992 and his mom died in 2011. Timothy died in 2013. Four months prior to his death, Timothy wrote out a holographic will that provided, in relevant part: “To Charles J. Saletta and Carayn Saletta I hereby leave my shares of the Norbert Theodore Eimers Family Trust.”
The trustee of the Trust filed a petition in Sonoma County, where the Trust was being administered, asking for instructions on whether he could distribute Timothy’s share of the Trust to the Salettas. The Sonoma County Superior Court found that the holographic will did not comply with the Trust’s requirement that the will specifically reference the power of appointment, and so the will did not qualify as a valid exercise of the power of appointment. The First District Court of Appeal subsequently affirmed that trial court’s order.
The Salettas petitioned the Los Angeles County Superior Court to amend and reform Timothy’s holographic will to reference the power of appointment. The Los Angeles County Superior Court held that Timothy’s will could not be amended. The Salettas appealed to the Second District Court of Appeal.
When Is the Power of Appointment Properly Exercised?
Probate Code Section 630(a) provides that if a trust (or any other document creating the power) specifies requirements as to the manner, time and condition of exercising a power of appointment, the power can be exercised only by complying with those requirements.
Probate Code Section 632 goes further in discussing the significance of a specific condition and states that if a trust expressly directs that the instrument exercising the power of appointment reference the power or instrument that created the power, then the power can be exercised only by an instrument containing the required reference.
A court is authorized under Probate Code Section 631 to excuse compliance with requirements for Probate Code section 630 and determine the exercise of a power of appointment was effective if certain requirements are satisfied. However, Section 631(b) states that a court cannot excuse compliance with a specific reference requirement under Section 632.
The California Supreme Court held in Estate of Duke (2015) 61 Cal.4th 871 that a will may be reformed to conform to the testator’s intent if clear and convincing evidence establishes that the will contains a mistake in the testator’s expression of intent at the time the will was drafted and also establishes the testator’s actual specific intent at the time the will was drafted. The Salettas relied on the reformation theory in petitioning the court to amend Timothy’s will.
The appellate court, however, concluded that the relevant question was not whether Timothy intended to give his trust shares to the Salettas, but rather whether the probate court could amend or reform the will to excuse Timothy’s failure to comply with Probate Code Section 632 by not specifically referencing the power of appointment in the Trust.
The court determined that the omission of a specific reference cannot be cured by amendment because to do so would undercut the express provisions of sections 630, 631 and 632.
The court explained that, under section 632, if a trust instrument requires a specific reference to the creating document, only a reference to the document is needed. In contrast, if the trust instrument requires a specific reference to the power of appointment itself, only a reference to the power will work. Since the Trust said the power of appointment can only be exercised by referring to the power of appointment, Timothy’s will was insufficient since it referenced the Trust and not the power.
A California probate court, generally speaking, has the power to amend or reform a will to conform with the testator’s intent. But the court will not reform a will to comply with the requirements for exercising a power of appointment if, in doing so, the express provisions of the Probate Code are circumvented.
Eimers is a reminder of the importance of following directions when it comes to exercising powers of appointment. When granted a power of appointment under a trust, the beneficiary must look at the trust and specifically follow the directions provided, including whether the power of appointment needs to be referenced or just the trust. Failing to follow directions and specifically reference the power or trust, as appropriate, will invalidate any attempt to exercise the power.
More broadly, Eimers is a cautionary tale for non-lawyers who attempt do-it-yourself estate planning. If Timothy had a lawyer draft his will, the lawyer should have included the “magic words” necessary to effectuate Timothy’s intent.