No Child Left Behind
California Court Refuses to Allow Trust No Contest Clause to Disinherit Minor Child Who Challenges Conduct of TrusteesIt is a shame when probate courts apply the law in a manner that hurts children. I applaud a recent decision from California that refused to apply a no-contest provision contained in a trust instrument that could have resulted in a minor child being disinerhited simply by virtue of the child’s guardian asking the court to examine the conduct of the trustees. The case Safai v. Safai, 164 Cal.App.4th 233, 78 Cal.Rptr.3d 759 (2008) is a great example of a court’s careful application of the law in order to protect a child from disinheritance. The facts of the case are as follows:
Mansour Safai and Susanne Gahnstedt were married for approximately eight years and had one child, Nicolai, before their marriage deteriorated into divorce. Pursuant to the marital settlement agreement regarding property and spousal support, Mansour agreed to pay child support for Nicolai. Mansour was diagnosed with a terminal illness in 2004, and on or about January 24, 2006, executed the Trust and a Last Will and Testament. Mansour succumbed to his illness on February 9, 2006, and was survived by his brother, Max Safai; his sister, Massoumeh Safai; and his mother, Parvaneh Assefi.
The Trust named Max and Massoumeh as successor trustees of his Trust and executors of his Will. Pursuant to the terms of the Trust, after paying Mansour’s debt and taxes, the Trustees are to divide the remaining trust estate into three separate trusts, as follows: (a) 40 percent into the Safai Family Trust for the benefit of Assefi and the Trustees; (b) 50 percent into the Nicolai Safai Trust for the benefit of Nicolai; and (c) 10 percent into the Farnad Fakoor Trust. To the extent that Assefi or the Trustees do not exercise his or her right to withdraw income from the Safai Family Trust, upon his or her death, his or her share of the Safai Family Trust will be added to the Nicolai Safai Trust.
Under the terms of the Nicolai Safai Trust, the Trustees are to pay to or apply as much of the net income and principal as they consider necessary for Nicolai’s support, health, maintenance and education until Nicolai turns 30 years old or graduates from a four-year college or university and begins full-time employment, whichever occurs first. Upon graduating from a four-year college or university, Nicolai is to receive a lump-sum distribution of $ 50,000 from the Nicolai Safai Trust. Finally, the principal of the Nicolai Safai Trust is to be distributed to Nicolai in four increments, the timing of which depends on if and when he graduates from a four-year college or university. Regardless of whether or not he does so graduate, Nicolai is to receive his final distribution from the Nicolai Safai Trust at age 40.
Gahnstedt was expressly excluded and received nothing under either the Trust or the Will. The Trust and the Will both included no contest clauses, with the Trust’s clause stating, as follows: “Any beneficiary who directly or indirectly voluntarily participates in any proceeding or action in which such person seeks to void, nullify, or set aside (1) any provision of this instrument; (2) any provision of the Settlor’s will; or (3) any amendment of this instrument or codicil of the Settlor’s Will shall be considered to have predeceased the execution of this instrument without surviving descendants … . The provisions of this paragraph shall not apply to any disclaimer by any person of any benefit under this instrument. The Trustee is authorized to defend any contest or other attack of any nature on this instrument or any of its provisions.”
On January 8, 2007, Gahnstedt filed an ex parte petition and application for appointment of guardian ad litem, seeking to be appointed Nicolai’s guardian ad litem in order to pursue claims on his behalf against the Trust. The trial court approved the ex parte petition and appointed Gahnstedt as Nicolai’s guardian ad litem on January 8, 2007.
On February 9, 2007, Nicolai, by and through his guardian ad litem, filed two petitions in the probate court: (1) a petition to determine validity and to set aside a declaration of Trust on grounds of forgery, and (2) a petition for declaratory relief that proposed claims will not violate a trust no contest clause. On June 25, 2007, the trial court issued a written order finding that the “claims for relief set forth in the proposed petition would not constitute a violation by Nicolai of the … no-contest clause,” because Nicolai was not ” ‘voluntarily participat[ing]‘ in the action.”
As expected, the trustees appealed and the case worked its way through the appellate court process. The appeals court found that because Nicolai was a minor, he could not have voluntarily “contested” the trust: ” The interpretation of a trust instrument presents a question of law unless the interpretation turns upon the credibility of extrinsic evidence or a conflict in the evidence. .. Although a no contest clause is strictly construed to avoid forfeiture, the trustor’s intention controls…In ascertaining the trustor’s intent, we look first to the terms of the trust, though extrinsic evidence is admissible to ascertain the meaning of the trust and the intent of the trustor. The words of an instrument are to be given their ordinary and grammatical meaning unless the intention to use them in another sense is clear and their intended meaning can be ascertained. Furthermore, “[t]he words of an instrument are to receive an interpretation that will give every expression some effect, rather than one that will render any of the expressions inoperative.”
“The salient question is whether or not Nicolai, who is appearing by and through his guardian ad litem, can be deemed to be “voluntarily” participating in the contest of the Trust…minors lack capacity to sue in their own names. Instead, litigation must be conducted by a guardian or conservator of the estate or by a guardian ad litem.
The appellate court reasoned that as a minor, Nicolai is incapable of initiating a trust contest or any other legal proceeding. The only way in which he can initiate, let alone participate, in such a proceeding is through a guardian ad litem. Since Nicolai could not, even if he wished to, bring a probate action contesting the Trust, of his own volition, his participation in the Trust contest cannot be said to be voluntary. Turning to the question of Mansour’s intent, the appellate court found it unlikely that Mansour intended to disinherit his only son in the event that Nicolai contested the Trust while still a minor.
Hats off to the California appeals court for protecting the minor child from being disinherited simply by asking the court to examine the conduct of the trustees who were supposed to be acting for the benefit of the minor child by refusing to enforce the egregious no contest clause of the trust. Perhaps more states will follow Florida’s lead and make no contest clauses unenforceable in trust matters.
Tags: breach of trust, no contest clause, Trust Litigation
