Wills and Trusts

Wyatt, Tarrant & Combs, LLP

Power to Amend is Not Power to Revoke

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Power to Amend is Not Power to Revoke

In Nederlander v. Papiano, 2012 WL 733888 (Cal.App. 2 Dist. 2012), the settlor of a revocable trust retained a power to amend the trust unilaterally but could only revoke the trust with the consent of non-adverse trustees.  As he needed or wanted money over the years he amended the trust to take money out.  The court concluded that amendments were really revocations and held the trustee liable.  The opinion states:

But we find it unnecessary to determine whether Scott needed to obtain the trustees’ consent for amendments generally or whether the drafting error would have necessitated a modification of the express terms of the trusts. Rather, we only decide whether Scott could use the amendment provision to effectuate a revocation without the trustees’ consent. We conclude that the eight purported amendments functioned as partial revocations because the only purpose they served was to allow Scott to withdraw funds, and their only effect was on the corpus of each trust. (See Rest.3d Trusts, § 63, com. e, p. 446 [power to revoke in part allows settlor to withdraw some rather than all property from trust].) These amendments did not modify any of the terms of the trust documents and did not delete the consent requirement for full or partial revocation. Since the trust instruments expressly require that the trustees consent to revocation, it follows that amendments used solely to revoke the trusts required the trustees’ consent. Any other interpretation would render the limitation placed on the settlor’s power to revoke meaningless and would defeat the settlor’s expressed intent.

We disagree with appellant that the drafter’s chosen nomenclature determines the effect of the amendments. The trust instruments do not state that a writing is effective as an amendment or a revocation only if it is appropriately titled. Nor do we agree that exempting each withdrawal from all trust provisions to the contrary can properly be characterized as amending the trusts. The settlor has a right to borrow funds with interest or security, and he also has the right to withdraw funds by partially revoking the trusts, but only with the trustees’ consent. (Art. 4, ¶ CC; Art. 6, ¶ A) Each trust amendment purported to suspend all trust provisions, so that Scott could withdraw funds. Each then provided that, except for that withdrawal, all terms and provisions “shall remain intact and in full force and effect.” The amendments did not change the beneficiaries’ rights or the trustees’ duties. (Cf. Heifetz v. Bank of America (1957) 147 Cal.App.2d 776, 783 ( Heifetz) [settlor amended trust to eliminate all beneficiaries except her daughter and with daughter’s consent revoked trust].) Thus, by their own terms, they did not change the trusts in any way, aside from reducing the corpus.

In the petition for rehearing, appellant argues that Heifetz, supra, 147 Cal.App.2d 776 mandates a contrary result. We do not agree. The trust instrument in that case allowed the settlor to revoke the trust but did not expressly reserve a right to amend. ( Id. at p. 778.) A later amendment made irrevocable a trust corpus of up to $150,000. ( Id. at p. 779.) The appellate court implied the settlor’s power to amend from her reserved power to revoke the trust. ( Id. at p. 782.) The court held the amendment that made the trust irrevocable up to $150,000 left the settlor free to revoke the trust in other respects, such as by subsequently eliminating all beneficiaries except her daughter. ( Id. at p. 785.) She was then free to revoke the trust with the consent of the sole remaining beneficiary. ( Ibid.)

It is important to point out not only what Heifetz involved, but also what it did not. The case did not involve a conditionally revocable trust that required the trustee’s consent to revocation as a protection against the settlor’s subsequent improvident change of mind. The Heifetz court’s reasoning about the settlor’s freedom to change her mind applied to a trust revocable in all respects other than the corpus amount. ( Heifetz, supra, 147 Cal.App.2d at p. 785.) The implied power to amend was coextensive with that partial power to revoke. ( Ibid.) In contrast, Scott did not have an unfettered right to change his mind if the change would result in a full or partial revocation.

Additionally, appellant assumes that, like the settlor in Heifetz, Scott first amended the trusts to deprive the beneficiaries of their rights and then drew down the trust corpus. But as we have explained, the amendments, as drafted, did not change the beneficiaries’ rights or the trustees’ duties. Rather, they allowed Scott to withdraw funds, notwithstanding the beneficiaries’ unaltered rights, the trustees’ unaltered duties to the beneficiaries, and the requirement that the trustees consent to any full or partial revocation. They affected the corpus of the trusts and nothing else. It is important to recall that the provision requiring the trustees’ consent for any revocation was included for the express purpose of protecting the beneficiaries from the kind of action Scott took against their interests.

In the two other cases appellant cites, the courts declined to imply a general power to amend or revoke expressly irrevocable trusts from either the settlor’s right to withdraw trust assets or from the settlor’s subsequent conduct. (See Crook v. Contreras (2002) 95 Cal.App.4th 1194, 1209; Laycock v. Hammer (2006) 141 Cal.App.4th 25, 30–31.) Like Heifetz, these cases do not involve conditionally revocable trusts, and their reasoning does not support appellant’s position. Because they partially revoked the trust’s corpus, the purported amendments required the trustees’ consent.

Turney P. Berry

Louisville, Kentucky

Leave a reply. Please note that although this blog may be helpful in informing clients and others who have an interest in information privacy and security, it is not intended to be legal advice. The information on this blog also should not be relied upon to form an attorney-client relationship.

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