I’ve been disinherited; see you in Court!

When California’s District Courts of Appeal do not agree with each other on how to apply law, the Supreme Court steps in. On February 8, 2024, the California Supreme Court did just that when it issued its opinion resolving split decisions between the Fourth District Court of Appeal on the one hand, and the First, Second, Third, and Fifth District Courts of Appeal on the other hand, regarding what seems like a boring topic to most people: available methods for trust revocation and modification (amendment). 

The Supreme Court granted review in Haggerty because these four different California Courts of Appeals issued varying and conflicting opinions on various aspects of the same issue. Granted, there are moving parts involved and it is a little messy. Therefore, California’s highest state court agreed to step in, settle the split, and lay down the law.

The Underlying Issue – Ambiguity 

Let’s start at the beginning.
Nearly all trust instruments will specify the powers retained by the trustmaker to revoke the trust instrument. (A power of revocation implies and subsumes the power of modification. It may seem like splitting hairs, but this distinction becomes important later.) The trust will further state how the trustmaker is to exercise a power of revocation in order for it to take effect, such as “by a signed, written instrument, delivered to the trustee.” 

Many trusts, though certainly not all, will distinguish between powers to revoke and those to modify. This distinction, or lack thereof, is part of the legal issue in Haggerty. Regardless, some version of revocation/modification powers is a necessary trust term for revocable trusts so that trustmaker(s), and the attorneys they hire, can properly revoke or modify trusts in conformity with its formal requirements.

Alas, not all trusts are perfect, (or even complete). In those cases, attorneys and judges look to California’s Probate Code to backfill trust terms left unaddressed or partially unaddressed. Generally, the Probate Code is highly deferential to trust instruments, because the presumption is that the trust document contains the trustmaker’s express intentions. 

So, when it comes to trust revocation or modification, the Probate Code only has two statutes addressing the topic, California Probate Code Sections § 15401 and 15402. These statutes were front and center in Haggerty and all the other cases bundled with it even though they appear uncomplicated. Let’s take a look at each.  

Under § 15401, generally, a revocable trust can be revoked, in whole or in part, in any manner provided in the trust instrument. (§ 15401, subd. (a)(1).) In addition, the trust may be revoked by writing, other than a will, signed by the trustor and delivered to the trustee, unless the method of revocation provided in the trust instrument is explicitly exclusive. (§ 15401, subd. (a)(2).)

As you can see, the statute defers to the trust but then offers an alternative way to revoke or modify that can not be used if the trust instrument claims its method is exclusive and orders the Probate Code to stay out of it. 

Section § 15402 is even shorter, “unless the trust instrument provides otherwise, a revocable trust may be modified by the procedure for revocation.”

That’s it. 

Why are we having this discussion?

The language seems straightforward, so why did this become such a big issue that the Supreme Court had to step in? Well, having written, revoked, and modified more trusts than I can count, I can attest to the fact that when a trust is changed, it is almost always to change the gifts or trusteeship (person in charge). 

As you can imagine, when someone expects to inherit, and later finds out the trust was modified to cut them out, they will do something (or ANYTHING) they can to get the inheritance back. Such as, challenging the offending document and seeking to invalidate it. 

The cases from all these District Courts of Appeal are primarily concerned with document validity. Did the document at issue follow the trust rules and/or the Probate Code requirements for modification? The trustmaker may have expressed their intent through a defective document, but is that failure fatal to the validity of the document? This was the question before the court; a legal question having little to do with the facts.

What happens next in these cases? The disinherited/adversely affected person seeks out legal representation. The next thing you know you’re being deposed about a trust you wrote, requiring only a notarized signature for a revocation or modification, but the client attempted a last minute modification, did not notarize it, and now its fate is to be decided by the Supreme Court. (Oh wait, no, sorry, that was just me…)

Attorneys zealously advocate to get a win for their clients; that’s their job. So, naturally, these seemingly innocuous statutes came under many microscopes as attorneys searched for ways to wiggle free of a trustmaker’s perhaps clunky or inexpert attempt to change their trust and make someone else their beneficiary. It sounds violating. But, not so fast. The legal requirements for revocation or modification that attorneys set forth in a trust are actually there to protect the trustmaker, as the First District Court of Appeal has stated, from “whim, caprice, momentary indecision, or of undue include by other persons.” True, sometimes it backfires.

Invalidating an instrument purely on legal grounds cuts both ways. On the one hand, did a restrictive revocation or modification term prevent injustice from happening, such as a caregiver inserting him/herself in the life of a vulnerable elder and attempting to secure a modification to direct the trust estate to themselves? Or, does it needlessly hamstring a trustmaker from exercising their right to give their assets to whomever they choose?

Let’s say a trustmaker tries to cut out a beneficiary last minute and then dies thinking their intent will be carried out. Let’s also say they did not follow the trust’s exclusive rules for modification. Then post-death, the disinherited beneficiary finds out, sues to invalidate, and wins. They get the inheritance anyway. Who’s laughing now? 

We’ve covered how we got here and the importance of adhering to formal requirements for trust revocation and modification. In Part II, we’ll discuss exactly what the Supreme Court did in Haggerty, why you should care, and what you can do about it.

The article was written by Ann Eberts, Esquire –  illuminote 

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