187 Cal. Rptr. 3d 421 (Cal. Ct. App. 2015)
Joseph W. Sefton, Jr. executed his will on September 7, 1955.1 The will created a testamentary trust for the benefit of his son Thomas W. Sefton during the son's lifetime.2 Upon the son's death the trust was to terminate and its assets were to be distributed according to the will's terms.3 Three quarters of the trust estate was to be distributed to the son's then living issue as the son should appoint by his last will and testament, or in default of appointment to the issue on the principle of representation.4 Joseph died in 1966.5
Thomas W. Sefton died in 2006 after executing a will on August 26, 1994.6 At the time of his death his then living issue included Thomas Jr. from his first marriage, Harley K. Sefton and Laurie Sefton from his second marriage, and several grandchildren.7 His will allocated the appointive property to two irrevocable trusts, one benefiting Harley and his children and the other benefiting Laurie and her child, with no allocation to Thomas Jr.8
The trustee distributed approximately $37.8 million in cash, securities, and related income to the Harley Family Trust and $18.8 million to the Laurie Family Trust, along with loss carryovers, but made no distribution to Thomas Jr.9
In 2010 Thomas Jr. filed a petition in the probate court challenging the distribution from his grandfather's trust.10 Harley as trustee of the Harley Family Trust filed a response and objection to the petition.11 Wells Fargo as trustee of the Laurie Family Trust filed a demurrer.12 The probate court sustained the demurrer and dismissed the petition.13 Thomas Jr. appealed the dismissal.14 This court issued its opinion in Sefton I in 2012, concluding that Father's power of appointment was nonexclusive.15 On remand the parties stipulated to allow Thomas Jr. to file a supplement to his petition and Harley and Wells Fargo to file supplements to their responses.16 Thomas Jr. sought one third of the appointive property as a taker in default.17 After a trial the probate court awarded Thomas Jr. $565,350 plus interest representing seven percent of a one seventh share and directed that one third of the award be paid from the Laurie Family Trust and two thirds from the Harley Family Trust.18 Thomas Jr. appealed the judgment.19
Whether the probate court correctly interpreted the remand direction in Sefton I as requiring an award of a "substantial" share of the appointive property to Thomas Jr.?20
The remand direction in Sefton I was ambiguous.21 The common law remedy under Sloan for an invalid exercise of a nonexclusive power of appointment is to set aside the appointment entirely.22 The property must be distributed according to the donor's default provision rather than awarding a substantial share.23
No. The probate court misinterpreted the remand direction in Sefton I.24 The established facts show that Grandfather executed his will in 1955 creating a testamentary trust with a nonexclusive power of appointment governed by common law as later confirmed in Sefton I.25 Father died in 2006 and exercised the power by allocating all appointive property to trusts for Harley and Laurie while excluding Thomas Jr. entirely.26 Under the common law rule from Sloan the exclusion rendered the appointment invalid so the property must pass according to Grandfather's default clause on the principle of representation.27
The concept of a substantial share serves only to identify whether exclusion occurred and supplies no remedy once invalidity is established.28
The probate court erred in limiting the award to a substantial share of $565,350 plus interest.29
Whether the proper remedy for Father's exclusion of Thomas Jr. requires distribution of one-third of the appointive property to Thomas Jr. as a taker in default under Grandfather's will?30
Yes. Applying the rule to the established facts Grandfather's 1955 will directed that in default of appointment three quarters of the trust estate pass to Father's then living issue on the principle of representation.33 Father had three living issue at his death in 2006 so Thomas Jr. is entitled to one third.34 Father's 1994 will allocated the entire appointive property to the Harley Family Trust and the Laurie Family Trust.35
The trustee distributed approximately $37.8 million in cash, securities, and related income to the Harley Family Trust and $18.8 million to the Laurie Family Trust, along with loss carryovers, but made no distribution to Thomas Jr. Because the appointment excluded a permissible appointee it is void under the common law rule from Sloan and the property must be distributed according to the default provision.36
Thomas Jr. is entitled to one third of the appointive property as a taker in default under Grandfather's will.37