Platt v. Wells Fargo Bank Am. Trust Co.

• Decision Date: 27 November 1963
• Citation: 222 Cal.App.2d 658,35 Cal.Rptr. 377
• Court: California Court of Appeals Court of Appeals
• Parties: Howard C. PLATT, Robert C. Platt, a minor, and Marilyn A. Platt, a minor, by his and her Guardian ad Litem, Howard C. Platt, Plaintiffs and Respondents, v. WELLS FARGO BANK AMERICAN TRUST COMPANY, a corporation, and A. B. Neil, Jr., executors of the Estate of Louis L. Pendleton, deceased, Defendants and Appellants. Civ. 20938.

Page 377

35 Cal.Rptr. 377

222 Cal.App.2d 658

Howard C. PLATT, Robert C. Platt, a minor, and Marilyn A. Platt, a minor, by his and her Guardian ad Litem, Howard C. Platt, Plaintiffs and Respondents, v. WELLS FARGO BANK AMERICAN TRUST COMPANY, a corporation, and A. B. Neil, Jr., executors of the Estate of Louis L. Pendleton, deceased, Defendants and Appellants.

Civ. 20938.

District Court of Appeal, First District, Division 2, California.

Nov. 27, 1963.

Rehearing Denied Dec. 17, 1963.

Hearing Denied Jan. 22, 1964.

Paul I. Myers, Jr., San Francisco, David C. Dunlap, Pillsbury & Dunlap, San Francisco, for appellants.

Bronson, Bronson & McKinnon, San Francisco, Ropers, Majeski & Phelps, Redwood City, for respondents.

AGEE, Justice.

The trial court impressed a trust in favor of plaintiffs upon certain corporate stock. Defendants have appealed, contending that such relief is barred by the defense of illegality and unclean hands. The facts will be stated in the light most favorable to respondents.

Gladys Platt Pendleton executed her last will on October 15, 1949. After providing for certain specific bequests, the residue was left to her husband, Louis L. Pendleton, and her nephew, Howard C. Platt, in equal shares.

The residue consisted almost entirely of stock in the Folger Coffee Company, which had come to Mrs. Pendleton by inheritance. She wanted all of it to go to her nephew and his children, thus keeping it in what she referred to as the 'Platt Blood Line.' The will did not express this wish. The reason therefor follows.

In 1949, Mrs. Pendleton had directed her attorney, Herbert E. Wenig, to prepare a new will. While Wenig was in the process of doing so, Pendleton happened to receive a pamphlet distributed by a New York bank. It discussed the new marital tax deduction provided for in the Federal Revenue Act of 1948. He took this to Wenig's office and asked him about the advisability of drafting the will with this deduction in mind. Wenig told him that he would look into the matter.

Under the provision in question, up to one-half of a deceased spouse's estate is exempt from federal estate tax if it is left to the surviving spouse either outright or, if such portion is left in trust, the surviving spouse is entitled to all the income for life and has an unrestricted power of appointment.

Wenig reached the conclusion that, so long as any limitations or restrictions on the bequest of the Folger stock to Pendleton did not emanate from Mrs. Pendleton Platt and Pendleton could make any agreement that they wanted to as between themselves with respect to the property being bequeathed to them, and that such an agreement would not affect the right to the marital deduction.

Wenig so advised all of the parties and Mrs. Pendleton expressed herself as being willing to rely upon Pendleton to carry out her wishes. Pendleton assured her that he would do so. Pendleton and Platt both knew what these wishes were, having discussed them with her on many occasions.

Mrs. Pendleton then executed the will of October 15, 1949, naming Pendleton and Platt as executors. Later, on the same day, Pendleton and Platt made a written agreement between themselves that all of the residue distributed to them would be placed in an irrevocable trust with themselves as trustees; that two-thirds of the net annual income from the trust estate would go to Pendleton and one-third to Platt; that on Pendleton's death, the trust would terminate as to two-thirds of the corpus, which would then go to Platt, and the other one-third of the corpus would remain in trust, with Platt's two children as the beneficiaries.

This agreement is sometimes referred to herein as the 'trust agreement.' Wenig had prepared the will and the agreement and had advised Pendleton and Platt that the arrangement provided for therein was perfectly legal and proper and would still allow Pendleton to claim the marital deduction for the purpose of the estate tax. Pendleton and Platt both accepted this advice and relied upon it in good faith.

Pendleton and Platt also made another agreement at the same time. This referred to a parcel of commercial realty held in joint tenancy by Mrs. Pendleton and Pendleton. This property had been purchased with Mrs. Pendleton's funds and Pendleton agreed that, upon her death, he would convey a one-third interest therein (except a designated portion of the southwest corner) to Platt.

Later, Mrs. Pendleton expressed the wish that, upon Pendleton's death, this entire parcel (less the excepted portion) should go to Platt. Pendleton agreed to this but it was not put in writing until January 6, 1950, shortly after Mrs. Pendleton's death. This agreement provided that, when Pendleton received the property as the surviving joint tenant, he would convey it (less the excepted portion) to Platt in trust, Platt to pay him two-thirds of the net annual income therefrom and the trust to terminate upon Pendleton's death. On November 1, 1951, Pendleton executed and delivered a deed of said property to Platt.

The agreements and the deed were intended by Pendleton and Platt to carry out the desires of Mrs. Pendleton with respect to the Folger stock and the commercial real property.

Mrs. Pendleton died on January 3, 1950. Pendleton and Platt employed Wenig as the attorney for the estate and the will of October 15, 1949 was admitted to probate on February 3, 1950.

During the course of administration, Wenig prepared the federal estate tax return. Schedule M of the return related to the claim of marital deduction. Question 5 thereof reads as follows: 'According to the information and belief of such person or persons, has any person other than the surviving spouse asserted (or is such assertion contemplated) a right to any property interest listed on this schedule, other than as indicated under questions (1) and (4)?'

Wenig inserted the answer 'No' to this question. He testified that he did so because the agreement between Pendleton and Platt 'in no way reduced the interest which Colonel Pendleton received from Mrs. Pendleton's estate. The agreement, in my opinion, created no interest which would be subject to the probate of the estate. I had given careful consideration to the matter at the time of drafting the agreement and checked the authorities and, in my opinion, it created an interest in both Howard [Platt] and the Colonel [Pendleton] only after distribution but * * * it did not create any interest at the time or during the course of probate.'

Wenig executed the 'Affidavit of Attorney' attached to the return, in which he avers that the return 'is a true, correct, and complete statement of all the information respecting the estate tax liability of this estate of which I have any knowledge.' Pendleton and Platt thereafter signed the return as executors, relying upon Wenig for its accuracy.

The estate was distributed on January 9, 1952, and Pendleton and Platt received the Folger stock in equal shares. Wenig had advised them that the execution of any formal trust agreement would have to await actual distribution. Such an agreement was never executed. While the record is replete with the causes for the many delays, it is unnecessary to go into detail here. Appellants concede that they 'do not question the ultimate decision of the trial court on the issue of limitations and laches.'

Pendleton and Platt worked out an interim arrangement for the disbursement of income, payment of taxes, etc., and Platt rendered annual statements to Pendleton for the years 1952 through 1958.

However, the whole matter was brought to a head by a letter from Pendleton's attorney to Wenig, dated May 5, 1959, denying any legal obligation on the part of Pendleton to carry out the trust agreement. The letter states that Pendleton was willing to maintain his will bequeating the Folger stock which he had received from his wife's estate to Platt and his children 'on the condition that Howard Platt agrees to maintain his income payments to Col. Pendleton and that Mr. Platt cease trying to force Col. Pendleton to place his property in a trust.' (Italics added.)

Platt thereupon retained present counsel who, on September 28, 1959, wrote to Pendleton's attorney as follows: 'Unless a trust agreement in substantially the form set forth in the enclosure is executed on or before the 2nd day of November, 1959, we will commence litigation to enforce the rights of Mr. Platt and his two minor children.' The agreement was not executed.

On November 4, 1959, Platt and his two children commenced this action to impress a trust upon the stock. They also sought to impress a trust upon the Pendleton home property.

On May 3, 1960, Pendleton filed an answer, affirmatively alleging that the agreement between himself and Platt was illegal and unenforceable since the sole purpose thereof was the unlawful and fraudulent evasion of federal estate taxes. By way of cross-complaint, Pendleton sought to cancel his deed of the commercial property to Platt on the ground of undue influence by Platt.

Pendleton died on November 23, 1960, and the executors of his estate were substituted for him. His deposition was read at the (nonjury) trial.

Judgment was rendered in favor of respondents as to the stock but against them as to the home property. Appellants were denied a cancellation of the deed to the commercial property. The home property is not included in this appeal, respondents not having cross-appealed.

Appellants' main contention on appeal is that the trust agreement is illegal and therefore unenforceable because it was entered into with the intent and for the purpose of defrauding the federal government of a portion of the federal estate taxes.

There is no doubt that the objective of the parties in entering into the agreement was to obtain the marital tax deduction, while still carrying out Mrs. Pendleton's wishes with respect to the disposition of the Folger stock. As an abstract matter, this is not...