Dudek v. Dudek ( 2019 )

Filed 4/10/19
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
DAVID DUDEK, as Trustee, etc., D073491
Appellant,
v. (Super. Ct. No. 37-2017-00023775-
PR-TR-CTL)
ANNE KEBISEK DUDEK, Individually and
as Trustee, etc., et al.,
Respondents.
APPEAL from a judgment of the Superior Court of San Diego County,
Robert C. Longstreth, Judge. Reversed.
The Stone Law Group, Kenneth H. Stone and Phillip J. Szachowicz for Appellant.
Green Bryant & French and Joel R. Bryant for Respondents.
I.
INTRODUCTION
Petitioner David Dudek (David)1 appeals from a judgment entered after the trial
court sustained the demurrer of respondents Anne Kebisek Dudek,2 Tiffany Guzman,
Jeanette M. Kebisek, Mary J. Kebisek, Guillermo Andrade, Maria Sanchez, Ora H. Day,
Tonya Courtney, and Michael Quinn (the respondents) to David's petition (the Petition),
filed pursuant to the Probate Code, to recover money distributed to the respondents in
accordance with the beneficiary designation of Genworth Life Insurance Policy
#5804946 (the Policy), which covered the life of J.D. Dudek (J.D.), the Petitioner's
brother.
According to David, in late 2009, J.D. created and executed the J.D. Dudek Life
Insurance Trust (the Trust), an irrevocable life insurance trust that named David as the
trustee. David asserts that the Policy is listed as an asset of the Trust, to be held and
administered in accordance with the Trust's terms. According to the Petition, the Trust
designates David and his sister, Sharon Van de Grift, as the residual beneficiaries of the
Trust who, pursuant to the terms of the Trust, would be entitled to the proceeds of the
Policy.
1 Because the Petitioner and other individuals to be referenced in this opinion share
the same last name, we will refer to the Petitioner and others, when necessary, by their
first names for the purpose of clarity.
2 Defendant Anne Kebisek Dudek was sued in her individual capacity, as well as in
her capacity as trustee of the Dudek Family Trust.
2
According to the allegations of the Petition, J.D. prepared and submitted to the life
insurance company the forms required by that company to change the ownership and
beneficiary designations on the Policy in order to establish David, as trustee, as the sole
owner and named beneficiary of the Policy.3 David was unaware that not long after J.D.
submitted the forms, the insurance company rejected the ownership and beneficiary
designation forms because J.D. had altered some of his entries without initialing the
changes. David was also unaware that J.D. had failed to file corrected forms with the life
insurance company after he was notified of the insurance company's rejection of his
submitted forms. Further, David did not know that approximately six years later, in
2016, J.D. submitted a new form to the life insurance company in which he purported to
alter the beneficiary designation on the Policy to name the respondents as the
beneficiaries of the Policy, instead of naming David, as trustee of the Trust, as the
beneficiary. The form that J.D. submitted in 2016 naming the respondents as
beneficiaries of the Policy was accepted by the life insurance company.
After J.D. died, David produced the Trust to the life insurance company and
sought to obtain the proceeds of the policy. However, the life insurance company
distributed the proceeds of the policy to the beneficiaries that it had on file, pursuant to
the beneficiary designations that J.D. submitted in 2016.
David subsequently filed the Petition in this case, seeking an order directing the
respondents to transfer the proceeds of the Policy to him as the trustee of the Trust. In
3 According to the allegations of the Petition, the original beneficiaries of the Policy
were David and one of the respondents, Ora H. Day.
3
ruling on the respondents' demurrer, the trial court concluded that the Trust had not been
funded, and therefore, had not become a valid trust, as a result of J.D.'s failure to file
documents with the life insurance company to change the ownership and beneficiary
designations to correspond with the terms of the Trust document. In other words, the trial
court concluded that no trust was ever created because J.D. never effectively placed the
Policy into the Trust.
On appeal, David contends that the trial court erred in concluding that the
allegations of the Petition cannot support a finding that a valid irrevocable trust was
created when J.D. executed the Trust document in 2009 and transferred ownership of the
Policy to David as trustee through that document. David further contends that the
allegations of the Petition support an order requiring the respondents to convey the life
insurance proceeds to him, as trustee of the Trust.
We agree with David that the trial court erred in sustaining the respondents'
demurrer to the Petition; the Petition alleges facts that could support a finding that the
execution of the Trust document created an irrevocable trust and constituted an effective
inter vivos donative transfer of the Policy to David as trustee of the Trust. Given the
irrevocable nature of the Trust and the language in the Trust document demonstrating
J.D.'s intention to immediately transfer ownership of the Policy to David, upon execution
of the Trust document, the Policy irrevocably became Trust property. As a result, J.D.
would have had no ability to effectuate any further transfer of the trust property to other
parties. Thus, David, as trustee, may petition the court for, and be entitled to, an order
4
requiring the respondents to transfer the proceeds of the Policy to him in his capacity as
trustee of the irrevocable Trust. We therefore reverse the judgment.
II.
FACTUAL AND PROCEDURAL BACKGROUND4
On July 5, 2001, J.D. initiated coverage under a life insurance policy for a
$1,000,000 death benefit. At that time, J.D. designated David and Ora H. Day, in their
individual capacities, as beneficiaries of the life insurance policy.5
In 2003, J.D. was diagnosed with acute lymphoblastic leukemia. According to the
petition, "[i]n an effort to aid in Decedent's treatment, Petitioner agreed to act as a donor
in two separate bone marrow transplants[,] which prolonged Decedent's life."
On December 31, 2009, J.D. executed the J.D. Dudek Life Insurance Trust,
naming David as trustee and beneficiary.6 The operative terms of the Trust included the
following relevant provisions:
"A. . . . It is the Grantor's intent in creating this trust that all gifts
made to this trust be both complete and gifts of present interests for
federal gift tax purposes, and that the assets of this trust, including
any life insurance proceeds, be excluded from his gross estate for
federal estate tax purposes. All provisions of this trust shall be
construed in such a manner as best to affect [sic] these intents.
4 Because this appeal arises from a judgment entered after the sustaining of a
demurrer, we take the relevant factual background from the allegations of the petition.
5 J.D. specified that 85 percent of the proceeds of the policy was to go to David and
15 percent was to go to Day.
6 The Petition alleges that J.D. executed the Trust "in appreciation of the emotional
support and medical support provided by [David]."
5
"B. The Grantor transfers to the Trustee the property listed in
Schedule A, to be held and administered according to the terms of
this trust. . . . The Grantor retains no right, title, or interest in any
trust property.
"[¶] . . . [¶]
"This trust and all interests in it are irrevocable, and the Grantor has
no power to alter, amend, revoke, or terminate any trust provision or
interest."
Schedule A of the Trust lists two assets to be held in the Trust: (1) one hundred
dollars, and (2) the Policy.
David signed the Trust, with a notary verifying his signature, on January 20, 2010.
Approximately one month after executing the Trust documents, on January 29,
2010, J.D. "executed a 'Certification of trustee powers' and 'Ownership, beneficiary and
payee designation request,' " which he submitted to the insurance company, requesting
that the owner and beneficiary of the Policy be changed to David, as trustee of the Trust.
These forms were signed not only by J.D., but also by David as the trustee and new
owner of the Policy.
In completing the forms, J.D. handwrote the information requested on the forms.
In doing so, he made two errors, which he sought to correct by interlineating his original
responses and then writing his corrected responses next to the interlineations.7 A copy of
7 The forms demonstrate that the items for which J.D. had crossed out his original
responses and wrote in new responses without initialing the corrections involved one
correction in the location where he was asked to write the "Social Security/Tax ID
Number" for the new owner (i.e., the Trust), as well as one correction in the location
where he was asked to write the Policy number.
6
the forms attached to the Petition demonstrates that J.D. did not initial next to either of
his corrected responses.
According to the Petition, J.D.'s insurance agent faxed to Genworth Life Insurance
Company (Genworth) the forms that J.D. had completed. However, on February 16,
2010, "Genworth rejected Decedent's change of ownership form, stating that the form
was altered and that changes must be initialed by the policyholder."8
The Petition alleges that J.D. failed to resubmit to Genworth the change of
ownership forms with the changes initialed.
Six years later, J.D. executed new beneficiary change forms and submitted them to
Genworth. The Petition attaches a letter dated November 11, 2016, in which Genworth
notified J.D. that it had "received [his] request to change the beneficiary on this
8 A letter written by a member of Genworth's claims department to David after
David attempted to make a claim on the Policy indicated that Genworth had indeed
rejected J.D.'s 2010 attempt to change the ownership and beneficiary designation of the
Policy:
"The policy file records show that an attempt to change the owner
and beneficiary on the policy to the J D Dudek Life Insurance Trust
dated 12/31/2009 was received in our office via fax on 02/01/2010.
The request was not in good order due to alterations to the form that
were not initialed by the policy owner. The policy owner was
notified in writing on 02/17/2010 (copy enclosed) and given the
opportunity to submit a new form. While subsequent beneficiary
change requests were received for the policy, records do not show
that another request to change the beneficiary to the trust was ever
received."
The copy of the letter sent to J.D. in February 2010 indicated that Genworth
notified him that they had been "unable to process [his] request" because they were
"unable to accept altered forms. All changes must be initialed by the policyowner."
7
contract(s)," and said that its "records now show" that the respondents were the primary
beneficiaries of the Policy.
J.D. died on December 7, 2016.
Between December 7, 2016 and January 12, 2017, David was informed via
telephone that another beneficiary claim had been made on the Policy. David sent a letter
to Genworth informing them of his contention that he was entitled to the proceeds of the
Policy pursuant to the Trust. In a separate letter sent January 14, 2017, David again
informed Genworth of the existence of the Trust, notified Genworth of his intent to
contest the November 11, 2016 beneficiary designation based on the execution of the
irrevocable trust document, and requested that Genworth not make any distributions from
the Policy at that time.
On February 7, 2017, Genworth notified David that it would not withhold
distribution of the proceeds of the Policy, and that it intended to distribute the proceeds to
the respondents.
On April 8, 2017, David sent letters to the respondents notifying them that they
had received the proceeds from the Policy to which they were not legally entitled because
those proceeds were the property of the Trust. David asked the respondents to deliver to
him, as trustee of the Trust, the Policy's death benefits. David did not receive payment
from any of the respondents.
On June 30, 2017, David filed his Petition in the trial court, seeking the following:
(1) an order directing the transfer of Trust property from respondents to David, as trustee,
pursuant to Probate Code section 850; (2) an order determining the proper beneficiaries
8
of the Trust's assets pursuant to Probate Code section 17200; (3) a determination that the
respondents had acted in bad faith in wrongfully taking, concealing, or disposing of
property belonging to the Trust; and (4) a determination that J.D. had acted in bad faith in
wrongfully taking, concealing, or disposing of the property of the Trust.
Approximately three months after David filed the Petition, the respondents
demurred, arguing that David had failed to state a cause of action against them and that
David's claim should have been brought against J.D., alone. The respondents argued that
they "have no liability to the Trust" because they "are not signator[ies] to the Trust, are
not bound by the Trust and owe no duty or obligations to the Trust." According to the
respondents, the terms of the Trust obligated J.D. to change the beneficiary designation
on the Policy to David, as trustee, and "[w]hatever obligations JD had to the Trust, if any,
would be based on the terms of the Trust itself and are between him and the Trust."
(Italics added.) They argued that because the only obligations to do anything belonged to
J.D., such obligations "do not bind either Genworth or the individual Respondents, none
of whom are parties to the Trust." The respondents repeated that the "alleged wrong
[that] forms the basis of Petitioner's Petition is JD Dudek's failure to name the Trust as
beneficiary of the Genworth Policy," and claimed that they cannot be "somehow liable
for JD Dudek's conduct in that regard."
After full briefing on the issue and a hearing, the trial court sustained the
respondents' demurrer on a ground raised tangentially by the respondents' demurrer.
Specifically, the court concluded that it was "evident from the face of the Petition that
[the] claims [of the Petition] arise from Decedent's alleged failure to complete the
9
creation of the Trust as to the policy by transferring the policy into the Trust as required
by Probate Code § 15200(b)." According to the trial court, David erred in choosing not
to assert a claim "against the Decedent," but "instead to assert a claim against
beneficiaries who were paid by the insurance company according to the terms of the
policy, rather than the terms of a purported trust as to the policy that the Decedent failed
to create." The court therefore sustained the demurrer as to all of the respondents,
without permitting David an opportunity to amend.
The trial court entered a judgment of dismissal with prejudice on December 14,
2017. David filed a timely notice of appeal.
III.
DISCUSSION
David asserts that the trial court erred in sustaining the respondents' demurrer to
the Petition without leave to amend. Specifically, he contends that the trial court erred in
concluding that J.D. "failed to complete the steps necessary to create the Trust as required
by Probate Code § 15200(b)." According to David, when J.D. executed the Trust, he
"forfeited his interest in and control of the Trust and its assets, so that [J.D.] did not have
the right to change the beneficiary designation in November 2016," and that because J.D.
lost the right to change the beneficiary designation, David, "as trustee of the Trust, may
properly pursue a claim against Respondents for recovery of the Trust's assets that
Respondents received, but [to] which they were not entitled."
10
A. Standards of review on demurrer
"A demurrer tests the legal sufficiency of the complaint." (Hamilton v. Greenwich
Investors XXVI, LLC (2011) 195 Cal.App.4th 1602, 1608.) On appeal, an appellate court
"review[s] the complaint de novo to determine whether it alleges facts sufficient to state a
cause of action. For purposes of review, we accept as true all material facts alleged in the
complaint, but not contentions, deductions or conclusions of fact or law. We also
consider matters that may be judicially noticed. [Citation.] When a demurrer is sustained
without leave to amend, 'we decide whether there is a reasonable possibility that the
defect can be cured by amendment: if it can be, the trial court has abused its discretion
and we reverse; if not, there has been no abuse of discretion and we affirm.' [Citation.]
Plaintiff has the burden to show a reasonable possibility the complaint can be amended to
state a cause of action." (Id. at pp. 1608–1609, fn. omitted.)
Further, in considering the trial court's order sustaining a demurrer without leave
to amend, " 'we review the trial court's result for error, and not its legal reasoning.' "
(Bains v. Moores (2009) 172 Cal.App.4th 445, 478.) In other words, if the judgment is
correct on any theory, even one not provided by the trial court, we affirm. (Hendy v.
Losse (1991) 54 Cal.3d 723, 742.)
B. Analysis
The trial court concluded that, based on the allegations of the Petition, David
could not establish that a valid trust had been created. According to the trial court, the
claims in the petition "arise from [J.D.'s] alleged failure to complete the creation of the
Trust as to the policy by transferring the policy into the Trust as required by Probate
11
Code § 15200(b)." Essentially, the court determined that the allegations of the Petition
demonstrate that the trust "was never created because the property at issue was never
transferred into the Trust." We disagree with the trial court's understanding of what was
required to create a trust and to transfer the property into the trust, and its conclusion that
such requirements were not met by what is alleged to have occurred, according to the
factual allegations in the Petition.
Under the Probate Code, a trust may be created in one of five ways: "(a) A
declaration by the owner of property that the owner holds the property as trustee. [¶]
(b) A transfer of property by the owner during the owner's lifetime to another person as
trustee. [¶] (c) A transfer of property by the owner, by will or by other instrument taking
effect upon the death of the owner, to another person as trustee. [¶] (d) An exercise of a
power of appointment to another person as trustee. [¶] (e) An enforceable promise to
create a trust." (Prob. Code,9 § 15200.) As the trial court recognized, the Petition here
alleged that J.D. sought to create the Trust pursuant to subdivision (b) of section 15200—
through the "transfer of property by the owner during the owner's lifetime to another
person as trustee."
The essential necessary elements of a valid trust are (1) a trust intent (§ 15201);
(2) trust property (§ 15202); (3) trust purpose (§ 15203); and (4) a beneficiary (§ 15205).
(See 13 Witkin, Summary of Cal. Law (11th Ed. 2017) Trusts, § 33, p. 644.) The trial
court focused on the requirement that in order to create a trust, there must be "trust
9 Further statutory references are to the Probate Code unless otherwise indicated.
12
property." (§ 15202.) The trial court apparently believed that because J.D. never
submitted corrected change of ownership and beneficiary forms to Genworth, the Policy
was never transferred to David, as trustee, and it was therefore never placed into the
Trust. Essentially, the trial court concluded that the facts as alleged amounted to an
ineffective inter vivos transfer of the Policy. We disagree.
According to the Restatement, "[e]xcept for trusts that are created by declaration
[citation] or by contract [citation], a transfer of the intended trust property is required for
the creation of an express trust, whether during life or at death." (Rest.3d Trusts, § 16,
com. a.)10 The effectiveness of a transfer for the purposes of establishing an inter vivos
trust, however, is determined by the rules that govern the making of gifts. (See Rest.3d
Trusts, § 16 ["The effectiveness of a transfer for these purposes, that is, to establish an
inter vivos or testamentary trust, respectively, is determined either by rules that govern
the making of gifts or by those governing devises"].) Thus, we look to the rules of
property law—and in particular to the law of donative transfers or gifts—to determine
whether an effective transfer of personal property has been made.
"A gift is a transfer of personal property, made voluntarily, and without
consideration." (Civ. Code, § 1146; 13 Witkin, Summary of Cal. Law (11th ed. 2017)
Personal Property, § 134, p. 142; Bounds v. Superior Court (2014) 229 Cal.App.4th 468,
10 " 'California trust law is essentially derived from the Restatement Second of
Trusts. Over a number of years, the Restatement Second of Trusts has been superseded
by the Restatement Third of Trusts. [Citation.] As a result, we may look to the
Restatement Third of Trusts for guidance.' " (Carne v. Worthington (2016) 246
Cal.App.4th 548, 557 (Carne), citing Lonely Maiden Productions, LLC v. GoldenTree
Asset Management, LP (2011) 201 Cal.App.4th 368, 379.)
13
481–482 ["A donative transfer is a gratuitous transaction. It can be inter vivos or
testamentary"], citing 13 Witkin, Summary of Cal. Law (10th ed. 2005) Personal
Property, §§ 124–137, pp. 139–150.) "Three things are necessary for a valid gift:
(a) There must be an intent, on the part of a donor having capacity to contract, to make an
unconditional gift. [Citation.] (b) There must be an actual or symbolical delivery, such
as to relinquish all control by the donor. [Citation.] (c) The donee must signify
acceptance, except where it may be presumed. [Citation.]" (13 Witkin, Summary of Cal.
Law (11th ed. 2017) Personal Property, § 134, p.142.)
With respect to personal property, it is clear that a donative transfer that is
intended to be completed during the donor's lifetime may be completed in one of two
ways: either by the actual delivery of the personal property at issue to the intended donee
or through the use of a document of donative transfer. (Rest.3d Property, Wills and
Other Donative Transfers, § 6.2, com. ["The transfer of personal property, necessary to
perfect a gift, may be made [¶] (1) by delivering the property to the donee or [¶] (2) by
inter vivos donative document"].)
The Petition clearly alleges that J.D. attempted to make a donative transfer of the
Policy into the Trust, such that the Policy would be owned by David as Trustee, through
the use of a document of donative transfer. "An inter vivos donative document may
transfer any type of personal property, whether tangible or intangible, including contract
rights such as those embodied in a life-insurance policy . . . ." (Rest.3d Property, Wills
and Other Donative Transfers, § 6.2., com. t.) Witkin and the Restatement Third of
Property, section 6.2 concur with respect to what is meant by a document of transfer
14
sufficient to make an inter vivos gift of personal property: "An inter vivos donative
document is a writing signed by the donor that (a) identifies the donor and donee,
(b) describes the subject matter of the gift, and (c) specifies the nature of the interest
given. [Citation.] The terms of an inter vivos donative document must be in writing and
the document must be signed by the donor. [Citation.] The document may transfer any
type of tangible or intangible personal property, including contract rights, shares of stock,
a bond, or a promissory note. [Citation.]" (13 Witkin, Summary of Cal. Law (11th ed.
2017) Personal Property § 142, p. 147, citing Rest.3d Property, Wills and Other Donative
Transfers, § 6.2, coms. q, r, s, & t.)11
The Trust document attached to the Petition appears to meet all of the necessary
elements of a donative transfer document. Specifically, the Trust document evidences
that J.D. had the intent to effectuate an immediate, complete and irrevocable transfer of
ownership of the Policy to David, as trustee. For example, the Trust states: "The Grantor
transfers to the Trustee the property listed in Schedule A, to be held and administered
according to the terms of this trust. . . . The Grantor retains no right, title, or interest in
any trust property." (Italics added.) The only property listed in Schedule A is $100 and
the Policy; the document thus establishes that J.D. intended to transfer $100 and the
Policy to David, as trustee, to be effective immediately upon execution of the document.
The Trust also includes the following language: "It is the Grantor's intent in creating this
11 Again, the Restatement Third of Property specifies that a transferring document
may be used to transfer contract rights such as those at issue here—i.e., "contract rights
such as those embodied in a life-insurance policy." (Rest.3d Property, Wills and Other
Donative Transfers, § 6.2., com. t, italics added.)
15
trust that all gifts made to this trust be both complete and gifts of present interests for
federal gift tax purposes, and that the assets of this trust, including any life insurance
proceeds, be excluded from his gross estate for federal estate tax purposes" (italics
added), thereby indicating J.D.'s intention to transfer all of his rights to ownership of the
Policy immediately and irrevocably to David. The Trust document was signed by J.D.
Thus, in addition to creating the Trust, the Trust document also constituted a donative
transfer document.
The Petition alleges that J.D. delivered the donative transfer document to David.
"The delivery of the document by the donor to the donee is an act manifesting that the
donor intends the document to be presently operative, unless there is evidence that the
delivery was made for some other purpose." (Rest.3d Property, Wills and Other
Donative Transfers, § 6.2, com. u.) Further, the act of delivering the document is
sufficient to meet the requirement of delivery of the subject matter of a donative transfer,
given that delivery of a document of transfer constitutes symbolic delivery of the gift
itself: "The traditional understanding of symbolic delivery is that it is one in which the
donor gives the donee an object or item that symbolizes the subject of the gift. The
classic example of a symbolic delivery is delivery of an inter vivos donative document to
the donee." (Rest.3d Property, Wills and Other Donative Transfers, § 6.2, com. g; and
see Lefrooth v. Prentice (1927) 202 Cal. 215, 224 ["There is likewise no question but that
delivery may be symbolical such as delivery of a written instrument without physical
delivery of the securities themselves so long as the instrument is one upon which delivery
might be compelled"].)
16
Further, David signed the Trust, which included the necessary transferring
language, thereby signifying his acceptance of the gift. (See 13 Witkin, Summary of Cal.
Law (11th Ed. 2017) Personal Property, § 134, p.142 [elements of an effective gift are
(1) intent to make a gift, (2) delivery of subject matter or document of transfer,
(3) acceptance by donee unless acceptance may be inferred].)
The allegations of the Petition thus set forth all of the elements necessary to
constitute an effective donative transfer of the Policy as between J.D. and David. As a
result, upon the execution, delivery, and acceptance of the Trust document, a valid and
enforceable gift of the Policy was made to David, as trustee of the Trust. Once this gift
was made, J.D. no longer owned the Policy; instead, it was owned in trust by David.
If the allegations of the Petition are true, as must be assumed on demurrer, then
J.D. no longer owned the Policy as of 2010. Consequently, his attempts to effectuate
changes to the named beneficiaries of the Policy after that time were futile. In addition, it
is of no legal consequence, at least with respect to the creation of the Trust and the issue
of the donative transfer of the Policy to David in trust, that J.D. failed to subsequently
modify the change of owner and beneficiary forms that he submitted to Genworth after
his attempt to change the owner and beneficiary to David, as trustee, was initially rejected
by Genworth. Essentially, whether J.D. followed through with his duty to inform
Genworth of the change in ownership is of no legal significance, at least as far as the
transfer ownership of Policy as between J.D. and David is concerned. Indeed, the
commentary to the Restatement Third of Property discusses this precise issue. In a
situation involving the transfer of ownership of intangible personal property of which
17
evidence of a claim of right is used to identify ownership (i.e., intangible property such as
a life insurance policy or stock), the Restatement Third of Property explains that a donor's
failure to transfer his or her claim to the intangible property in the manner provided by
the requirements set forth by the instrument that provides evidence of the claim (for
example, by the manner provided for on a stock certificate or with respect to a life
insurance policy) does not prevent a transfer from being accomplished as between the
donor and the donee if the necessary elements of a donative transfer are otherwise met:
"A donor may make a gift of intangible personal property by
delivering the instrument evidencing the claim that constitutes the
intangible personal property. Such instruments include bonds,
shares of stock, insurance policies, and bank passbooks. [¶] If the
instrument provides that a transfer of the claim can be made only in
a specified manner, the preferred method of making a gift of such
property is to follow the specified procedure. If the specified
procedure is not followed, however, delivery of the instrument with
donative intent constitutes a gift as between the donor and the
donee. The attempted restriction on transfer is for the protection of
the one against whom the claim can be asserted." (Rest.3d Property,
Wills and Other Donative Transfers, § 6.2, com. h, italics added.)12
12 The Restatement Second of Property states the same rule in a slightly different,
and arguably more clear, manner:
"If intangible personal property is involved, the delivery will
necessarily relate to the evidence of the claim that is the intangible
personal property. The evidence of the claim may be in the form of
shares of stock, an insurance policy, a bank passbook, or any other
evidence of the claim. The evidence of the claim may provide that a
transfer of the claim shall be made only in some specified manner.
Such attempted restriction on the transfer of the claim is for the
protection of the one against whom the claim can be asserted. A
delivery of the evidence of the claim by the owner thereof to another
person with the intention that such other person succeed by gift to
the ownership of the claim accomplishes a transfer of the ownership
as between the donor and the donee." (Rest.2d Property, Donative
Transfers, § 31.1, com. b, italics added.)
18
Thus, although J.D.'s failure to complete the forms according to Genworth's
requirements protected Genworth from claims made against it by individuals other than
those who were identified on the forms that it had on file, the failure to properly complete
the forms could not invalidate or revoke the irrevocable gift that J.D. had previously
effectuated to David, as trustee of the Trust. Once J.D. made a donative transfer of the
policy to David, J.D. no longer owned the Policy, even if Genworth was unaware of this.
Thus, although J.D.'s later decision to name the respondents as beneficiaries through the
change of beneficiary forms provided by Genworth may have protected Genworth from
claims for damages made by individuals or entities not identified on the forms on the
ground that it had wrongfully distributed the proceeds, David's naming the respondents as
beneficiaries on the Genworth documents did nothing to alter David's legal right to
possess the Policy, and, ultimately, its proceeds, as trustee of the Trust.
The recent opinion in Carne, supra, 246 Cal.App.4th at pp. 563–564 is illustrative
on this point, although Carne involved the transfer of real property into a trust, whereas
this case involves the transfer of intangible personal property into a trust. In Carne, the
decedent was the settlor and trustee of an original trust, which was revocable during his
lifetime. (Id. at p. 552.) However, the decedent later executed a second trust that named
someone other than the decedent as trustee. (Id. at p. 560.) The decedent stated in the
second trust that he was transferring the property listed on an attached schedule to the
trustee of that trust, and the property listed on the attached schedule included the parcel of
real property that was at issue in the case. (Id. at pp. 551–552.)
19
In considering the claim of a successor trustee to the second trust who was
attempting to confirm that the real property described in a schedule attached to the trust
had in fact been transferred into the second trust, the trial court concluded that the
decedent's conduct had failed to effectuate any actual transfer of the property into the
second trust because the decedent had failed to execute a separate deed transferring the
property from the first trust to the second trust at the time he executed the second trust.
(Carne, supra, 246 Cal.App.4th at pp. 554–555.) The appellate court in Carne reversed,
concluding that the second trust was itself a document of transfer sufficient to effectuate a
valid transfer of property from the decedent to the trustee of the second trust. (Id. at pp.
558–559, 563–564.) The appellate court reasoned that because the first trust was a
revocable living trust, the decedent owned the property as the sole trustee of the first trust
at the time he executed the second trust. As a result, at the time the decedent executed
the second trust, he had the power to transfer the property, and his signature on the
second trust, which included the necessary transferring language to establish his intent to
immediately transfer title to the trustee of the second trust, was sufficient to convey good
title from the earlier trust to the later trust, despite the absence of a separate deed of
20
transfer or other formalities typically associated with the conveyance of real property.
(Id. at p. 564.) The appellate court in Carne thus concluded that a trust document that
included transferring language demonstrating an intent to convey property to another
individual, as trustee, was sufficient, as between the decedent and the trustee identified in
the second trust, to effectuate a transfer of real property, despite the fact that the
decedent had failed to execute a separate deed transferring ownership of the land.
If a trust document can be sufficient to effectuate the valid transfer of real
property from a settlor to a trustee, despite the failure of the decedent to complete the
usual formalities required to transfer title to land, it seems clear that a trust document can
similarly effectuate the valid transfer of intangible personal property in the form of a life
insurance policy from a settlor to a trustee, even absent the settlor's completion of the
otherwise usual formalities associated with transferring ownership of a life insurance
policy vis-à-vis a life insurance company's records.13
Because the allegations of the Petition can support a finding that a valid,
irrevocable trust was created and that J.D. completed a donative transfer of his personal
property (i.e., the Policy) by the "transferring" language in the Trust document and his
13 We recognize that this result may seem surprising to some who are unfamiliar
with trust law and the law of donative transfers of personal property. However, it must
be stressed that there are substantial and significant consequences that flow from the
creation of an irrevocable trust, such as the one that J.D. created here. Once such a trust
is created and a valid transfer of property is made to the trust, the settlor no longer has
any right to possess or otherwise dispose of the property placed in an irrevocable trust,
such that that individual has no ability to reverse course or change his or her mind later.
21
delivery of that document to David, the next question that we must address is whether
David may bring an action against the respondents to recover Trust property. Although
the trial court appeared to believe that David was limited to a claim against J.D. (or his
estate, given that he is now deceased), for J.D.'s failure to complete the necessary
paperwork with respect to Genworth, once it is clear that the allegations of the Petition
can support a finding that a valid transfer of the property was made on December 31,
2009, it also becomes clear that David may bring an action to recover Trust property
against third parties who wrongfully possess that property.
There is no doubt that a trustee may file a petition seeking the transfer of trust
property. (§ 850.) Section 850 provides in relevant part: "(a) The following persons
may file a petition requesting that the court make an order under this part: [¶] . . . [¶]
(3) The trustee or any interested person in any of the following cases: [¶] (A) Where the
trustee is in possession of, or holds title to, real or personal property, and the property, or
some interest, is claimed to belong to another. [¶] (B) Where the trustee has a claim to
real or personal property, title to or possession of which is held by another. [¶]
(C) Where the property of the trust is claimed to be subject to a creditor of the settlor of
the trust." (Italics added.) Section 850 specifically contemplates that a trustee may bring
an action to recover trust property that is held by anyone other than the trustee; it does not
limit recovery to a certain class of people, nor does it purport to prevent a trustee from
recovering trust assets from third parties who wrongfully possess them. Rather, "[t]he
statutory scheme's purpose is to effect a conveyance or transfer of property belonging to a
22
decedent or a trust or another person under specified circumstances, to grant any
appropriate relief to carry out the decedent's [or settlor's] intent, and to prevent looting
of . . . estates. [Citations.] It provides the probate court with a mechanism to determine
rights in property belonging to a decedent or to someone else. [Citation.]" (Estate of
Kraus (2010) 184 Cal.App.4th 103, 117–118.)
David, as trustee, is claiming entitlement to personal property that was distributed
to respondents by Genworth pursuant to the later beneficiary designation that J.D.
submitted. Because David, in his capacity as trustee, is making a claim to the proceeds of
the Policy on the ground that they belong to the Trust, he may bring this action to request
that the court order those to whom the proceeds of the Policy were distributed convey or
transfer those proceeds to him. (See § 856 ["Except as provided in Sections 853 and 854,
if the court is satisfied that a conveyance, transfer, or other order should be made, the
court shall make an order authorizing and directing the personal representative or other
fiduciary, or the person having title to or possession of the property, to execute a
conveyance or transfer to the person entitled thereto, or granting other appropriate
relief"].)
In addition, David's Petition relies on section 17200, which also clearly authorizes
his action. Subdivision (a) of section 17200 provides that "[e]xcept as provided in
Section 15800, a trustee or beneficiary of a trust may petition the court under this chapter
23
concerning the internal affairs of the trust or to determine the existence of the trust."14
(Italics added.) David is clearly seeking a determination that the Trust exists; as we have
already stated, assuming that the allegations of the Petition are true, he would be entitled
to a determination that the Trust does indeed exist. Further, his Petition seeks the
assistance of the court "concerning the internal affairs of the trust," given that section
17200, subdivision (b) specifically provides that "[p]roceedings concerning the internal
affairs of a trust include, but are not limited to, proceedings for any of the following
purposes: [¶] . . . [¶] (16) Authorizing or directing transfer of a trust or trust property to
or from another jurisdiction." It is possible that at least some of the proceeds belonging
to the trust were directed to respondents who live outside of the court's jurisdiction, and
that therefore, the court would have to direct a transfer of that trust property from another
jurisdiction.15
Finally, David seeks a penalty to be imposed against the respondents pursuant to
section 859. Section 859 provides: "If a court finds that a person has in bad faith
wrongfully taken, concealed, or disposed of property belonging to a conservatee, a minor,
an elder, a dependent adult, a trust, or the estate of a decedent, or has taken, concealed, or
disposed of the property by the use of undue influence in bad faith or through the
14 Section 15800 generally provides that for revocable trusts, unless the instrument
provides otherwise, during the time that the trust is revocable, the person holding the
power to revoke, and not the beneficiaries, "has the rights afforded beneficiaries under
this division," and the duties of the trustee are owed to the person holding the power to
revoke, not the beneficiaries.
15 Specifically, the Petition lists the names and addresses of the respondents, some of
whom are alleged to live outside of California.
24
commission of elder or dependent adult financial abuse, as defined in Section 15610.30
of the Welfare and Institutions Code, the person shall be liable for twice the value of the
property recovered by an action under this part." When it is established that property is
recoverable under section 850 and that the party who took the property acted in bad faith,
a section 859 penalty may be imposed. (Estate of Young (2008) 160 Cal.App.4th 62, 89.)
Thus, in the event that David were to prevail on his claim to recover the proceeds of the
Policy on behalf of the Trust, we see nothing that would prevent David from requesting a
court determination as to whether the respondents took those proceeds wrongfully and in
bad faith.
It is therefore clear that David may name the respondents in his Petition, and that
the respondents are proper parties to this action brought pursuant to the Probate Code. If
David can establish the facts alleged in the Petition, then it would be clear that J.D.
created an irrevocable trust, and properly funded it, when he delivered to David the
transferring document (i.e., the Trust document itself, which included the transferring
language). If the Trust was created, then David's entitlement to the proceeds of the life
insurance policy that was an asset of the Trust would be established, and he would be
able to seek the court's assistance in having those proceeds conveyed to him in his
capacity as trustee. The trial court therefore should not have sustained the respondents'
demurrer to David's Petition.
25
IV.
DISPOSITION
The judgment is reversed. David is entitled to costs on appeal.
AARON, J.
WE CONCUR:
NARES, Acting P. J.
GUERRERO, J.
26