Burch v. George

• Decision Date: 07 February 1994
• Docket Number: No. S025369,S025369
• Citation: 27 Cal.Rptr.2d 165,866 P.2d 92,7 Cal.4th 246
• Court: California Supreme Court
• Parties: , 866 P.2d 92 Marlene BURCH, Petitioner and Appellant, v. Randall GEORGE, Objector and Respondent.

Page 165

27 Cal.Rptr.2d 165

7 Cal.4th 246, 866 P.2d 92

Marlene BURCH, Petitioner and Appellant, v. Randall GEORGE, Objector and Respondent.

No. S025369.

Supreme Court of California,

In Bank.

Feb. 7, 1994.

Hirschtick, Chenen, Cohen & Linden, Chenen, Cohen & Linden, Marvin M. Lager and C. Kelly McCourt, Marina Del Ray, for petitioner and appellant.

Mitchell, Silberberg & Knupp, Allan P. Cutrow, Kathleen L. McAchran, Los Angeles, Nordman, Cormany, Hair & Compton, Glen M. Reiser and Larry L. Hines, Oxnard, for objector and respondent.

BAXTER, Justice.

Marlene Burch (Marlene) became the fifth wife of Frank Burch (Frank) in December 1985. In 1988, Frank executed his integrated estate plan, which consisted of a will and an inter vivos trust. The beneficiaries of the trust included Marlene, Frank's elderly mother, his children from a prior marriage, and other relatives. Prior to his death in March 1989, Frank transferred substantial assets to the trust.

To discourage litigation over the trust and its distribution scheme, Frank inserted a "no contest clause" in the trust instrument.

After Frank's death, Marlene petitioned the probate court to determine whether she may, without violating the no contest clause, proceed with plans to litigate her rights as a surviving spouse to certain assets in the trust estate under California's community property laws and under the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1001 et seq.).

We conclude, based on the language of the trust instrument and the circumstances surrounding its execution, that Marlene's proposed actions would amount to a contest in violation of the instrument's no contest clause. We further conclude that enforcement of the clause against Marlene, in the event she decides to pursue her claims, is fully consistent with California law and is not preempted by the federal act. As we shall explain, such enforcement will in no way prevent or hinder Marlene from obtaining everything to which she may be entitled under

[866 P.2d 95] community property and federal laws, but will simply mean that if Marlene chooses to pursue those benefits she may not, at the same time, obtain in addition the portion of Frank's separate property that was conditionally left to her under his trust.

FACTS

Marlene and Frank married in December 1985. This was Frank's fifth marriage. Prior to the marriage, Frank was part owner of a successful car dealership called Pacific Coast Ford (Pacific Coast). During the marriage, Frank became sole owner of Pacific Coast and a participant in its pension plan.

In July and August of 1988, Frank met with his attorney and instructed him to create an integrated estate plan consisting of a will and an inter vivos trust known as the Frank Burch Family Trust. Pursuant to the trust instrument executed by Frank, the trust estate was to be divided into six separate subsidiary trusts upon Frank's death. Five of these subsidiary trusts were designated for the benefit of Frank's blood relatives, including his elderly mother, his children and a grandchild from a prior marriage. The sixth subsidiary trust was a marital trust in favor of Marlene. Prior to his death, Frank transferred various assets to the trust, including interests in his Pacific Coast stock, his Pacific Coast pension plan account, and six life insurance policies purchased by the pension plan.

To discourage litigation over his estate plan, Frank included a no contest clause in the trust instrument. ¹ Under the terms of the clause, any beneficiary who sought to contest or otherwise void, nullify or set aside the trust instrument or any of its provisions would forfeit all right to take under the instrument.

Frank died in March 1989. At the time of his death, the assets that allegedly belonged to Frank were valued at more than $7 million. Outside the trust, Marlene received nearly $800,000 in joint tenancy property and $200,000 in life insurance benefits. Under the trust, Marlene would be provided with substantial assets, consisting of Frank's Mercedes Benz automobile, a 53-foot yacht, a $1 million beach house still under construction, and life insurance proceeds of $60,000. In addition, Marlene would receive a life estate in the income of the marital trust that would pay $6,000 per month. The marital trust was to be funded with $1.6 million of the proceeds derived from the sale of the Pacific Coast stock. Also under the trust, the balance of approximately $4 million, including most of the proceeds from the sale of the Pacific Coast stock and the entire pension plan death benefit of $169,000, would pass to Frank's blood relatives.

After Frank's death, Marlene petitioned the probate court pursuant to former Probate Code section 21305 ² to determine whether she could, without violating the no contest clause, proceed with a proposed state action against the trust to litigate her community property rights in the trust estate and a proposed federal action against the administrators of the Pacific Coast pension plan to litigate her rights under the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1001 et seq.). Relying on the language of the trust instrument, and the uncontroverted declarations of Frank's attorney and one of the trustees of the trust, the probate court ruled, among other things, that both of the proposed actions would trigger the trust instrument's no contest clause because they were "designed to thwart the basic intent of [Frank's] estate plan."

The Court of Appeal affirmed this portion of the judgment. ³ Additionally, the

[866 P.2d 96] court rejected Marlene's argument that the passive operation of California's no contest law interferes with her rights under the federal act and is therefore preempted. We granted review to consider the important issues presented herein. ⁴

DISCUSSION

This case presents essentially three questions. First, would Marlene's proposed state and federal complaints trigger the no contest clause contained in the trust instrument? Second, if the clause would be triggered, does California law provide a basis for not enforcing the clause against Marlene with respect to the claims based on her community property rights? Third, if the clause is enforceable against Marlene under California law, then does the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1001 et seq.) otherwise preclude its operation to the extent pension benefits are at issue? We shall address these questions in order.

A. Would the No Contest Clause Be Triggered?

The interpretation of a will or trust instrument presents a question of law unless interpretation turns on the credibility of extrinsic evidence or a conflict therein. (Estate of Dodge (1971) 6 Cal.3d 311, 318, 98 Cal.Rptr. 801, 491 P.2d 385; Estate of Russell (1968) 69 Cal.2d 200, 213, 70 Cal.Rptr. 561, 444 P.2d 353; Poag v. Winston (1987) 195 Cal.App.3d 1161, 1173, 241 Cal.Rptr. 330.) ⁵ Since the record in the present case discloses no conflict in the extrinsic evidence, and the parties have identified no issues of credibility, it is our duty to independently construe the trust instrument.

An in terrorem or no contest clause in a will or trust instrument creates a condition upon gifts and dispositions provided therein. (See Estate of Lindstrom (1987) 191 Cal.App.3d 375, 381, 236 Cal.Rptr. 376.) In essence, a no contest clause conditions a beneficiary's right to take the share provided to that beneficiary under such an instrument upon the beneficiary's agreement to acquiesce to the terms of the instrument. (See Estate of Hite (1909) 155 Cal. 436, 441, 101 P. 443.)

No contest clauses are valid in California and are favored by the public policies of discouraging litigation and giving effect to the purposes expressed by the testator. (Estate of Hite, supra, 155 Cal. at pp. 439-441, 101 P. 443; Estate of Black (1984) 160 Cal.App.3d 582, 586-587, 206 Cal.Rptr. 663.) Because a no contest clause results in a forfeiture, however, a court is required to strictly construe it and may not extend it beyond what was plainly the testator's intent. (Estate of Watson (1986) 177 Cal.App.3d 569, 572, 223 Cal.Rptr. 14; Estate of Black, supra, 160 Cal.App.3d at p. 587, 206 Cal.Rptr. 663; Estate of Kazian (1976) 59 Cal.App.3d 797, 802, 130 Cal.Rptr. 908.) ⁶

"Whether there has been a 'contest' within the meaning of a particular no-contest clause depends upon the circumstances of the With these principles to guide us, we must determine whether the filing of the proposed state complaint or the proposed federal complaint would constitute a contest within the meaning of the no contest clause contained in the Frank Burch Family Trust instrument. These complaints are described in further detail below.

                [866 P.2d 97] particular case [7 Cal.4th 255] and the language used."  (Estate of Watson, supra, 177 Cal.App.3d at p. 572, 223 Cal.Rptr. 14;  Estate of Lindstrom, supra, 191 Cal.App.3d at p. 381, 236 Cal.Rptr. 376;  Estate of Black, supra, 160 Cal.App.3d at p. 587, 206 Cal.Rptr. 663.)  "[T]he answer cannot be sought in a vacuum, but must be gleaned from a consideration of the purposes that the [testator] sought to attain by the provisions of [his] will."  (Estate of Kazian, supra, 59 Cal.App.3d at p. 802, 130 Cal.Rptr. 908.)   Therefore, even though a no contest clause is strictly construed to avoid forfeiture, it is the testator's intentions that control, and a court "must not rewrite the [testator's] will in such a way as to immunize legal proceedings plainly intended to frustrate [the testator's] unequivocally expressed intent from the reach of the no-contest clause."  (Ibid.)
                

Marlene's proposed state complaint names as defendants the trustees and beneficiaries of the Frank Burch Family Trust and its subsidiary trusts. This complaint alleges in relevant part that 100 percent of the stock in Pacific Coast and 100 percent of the proceeds of various life insurance policies purchased by...