OTTO v. UNION NAT BANK OF PASADENA

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District Court of Appeal, Second District, Division 1, California.

OTTO v. UNION NAT. BANK OF PASADENA et al.

Civ. 17631.

Decided: January 23, 1951

George Penney, of Los Angeles, and Dunlap, Holmes, Ross & Woodson, of Pasadena, for appellant. Hahn & Hahn; Stanley L. Hahn, of Pasadena, for respondent Bank. Leon W. Delbridge and William Petersilge, both of Pasadena, for respondents Gordon, Scott and Stephanie Wheeler.

By this action plaintiff seeks to terminate a trust executed by her on April 11, 1941. At that time she was living apart and contemplating a divorce from her then husband, John E. Wheeler. She was in a distraught and emotionally upset condition, and was possessed of an estate in excess of $500,000 which she acquired as her separate property prior to 1934. She was advised by counsel to put her property ‘beyond her control, lest she be persuaded * * * to dissipate her assets before she regained her normal judgment and composure.’

The trust indenture contains a spendthrift clause in favor of trustor and a provision for the payment of the income to her for life.

Paragraph IV of the declaration of trust provides: ‘Upon the death of the Trustor, this Trust shall terminate and the entire Trust Estate, together with any income accrued * * * shall be * * * distributed * * * according to the Last Will and Testament of said Helen E. Wheeler, Trustor, and in the event that she should fail to exercise this power of appointment, then in equal shares to her issue per stirpes and if there be no issue to her heirs at law in accordance with the Statutes of Succession of the State of California then in effect. Should any child of Trustor be under the age of twenty-one (21) years upon the termination of this trust and, by reason of Trustor's exercise or failure to exercise her power of appointment herein provided be entitled to have distributed to him or her a portion of the then corpus of the Trust Estate and the undistributed income therefrom, said Trustees shall retain his or her share thereof until he or she becomes twenty-one (21) years of age, when the same shall be distributed to him or her, but said Trustee shall distribute the income of said share accruing after the death of Trustor to or for the benefit of said minor child until he or she becomes twenty-one (21) years of age.’

John E. Wheeler and a national banking institution were named cotrustees. In May, 1942, a final decree of divorce was entered in favor of trustor and against said John E. Wheeler. Thereafter both trustees were removed and defendant Union National Bank of Pasadena was named successor trustee.

When plaintiff filed the instant action on March 21, 1949, she was 43 years of age and the mother of two sons: defendants Evans Wheeler, aged 22 years, and Gordon Wheeler, 20 years of age. Gordon was then unmarried; and Evans was the father of the minor defendants Scott and Stephanie.

The default of defendant Evans Wheeler was entered October 14, 1949. The lower court sustained general demurrers interposed to the complaint by the trustee bank and the minor defendants. Plaintiff having failed to amend her complaint, judgment was entered decreeing that she take nothing by her complaint. This appeal followed.

The lower court in a memorandum opinion held that the last sentence of Paragraph IV of the Declaration of Trust, hereinabove quoted, was invalid as a suspension of the absolute power of alienation prohibited by section 715 of the Civil Code. But, said the court, ‘The invalid limitation is not so inseparably blended with the valid provisions that it may not be cut off and the balance permitted to stand.’

Appellant urges that the doctrine of severability does not apply and that the entire trust was void ab initio. Secs. 715, 716, 771, Civil Code. In this connection, it is asserted that the declaration amounts to ‘An attempted gift in trust of a future interest to a class, which may include children born after the execution and delivery of the trust instrument with a clear command in the trust instrument that the share of any minor child is to be retained in trust until he or she attains the age of 21 years; or more concisely stated, a trust by its terms designed to continue during the minorities of children born after the delivery of the trust instrument.’ (Emphasis included.)

In support of this theory, appellant cites Sheean v. Michel, 6 Cal.2d 324, 327, 57 P.2d 127, 128, where it is stated: ‘If the trust thus attempted to be created is by its terms designed to be continued during the minorities of children born after the delivery of the trust instrument, it is obvious that the instrument creates a suspension of the power of alienation in violation of the provisions of section 715 of the Civil Code * * * The possibility of the suspension of the power of alienation created by the contingency that all of the persons in being at the time of the creation of the trust may die before the youngest unborn child becomes 21 years of age, or the possibility of the suspension beyond the 25-year period, renders the trust void at its creation and title does not vest in the trustee. Sections 716, 749, 771, Civ.Code; In re Estate of Troy, 214 Cal. 53, 56, 3 P.2d 930.’

Section 715 Civil Code, prohibits the suspension of the absolute power of alienation for a period longer than (1) during lives in being at the creation of the limitation or condition; or (2) for a period not to exceed twenty-five years from the time of the creation of the suspension.

Section 716, Civil Code, declares every future interest void in its creation which, by any possibility, may suspend such power of alienation for a longer period than prescribed.

The possibility referred to in said section ‘is to be determined by the conditions existing at the time of the creation of the limitation or future interest, and if at that time there is a possibility that the power of alienation may be suspended beyond the prescribed period, the rule is violated even though there is a probability that events may so transpire that no suspension results.’ 20 Cal.Jur. 1042, section 9, citing In re Estate of Maltman, 195 Cal. 643, 234 P. 898; In re Estate of Whitney, 176 Cal. 12, 167 P. 399; In re Estate of Steel, 124 Cal. 533, 57 P. 564; Estate of Walkerly, 108 Cal. 627, 41 P. 772.

By the instant declaration, trustor (1) reserved a life estate in herself; (2) reserved the right to make a testamentary disposition of the trust property; (3) provided that upon failure to so dispose, the corpus should be transferred ‘in equal shares to her issue per stirpes'; and in the absence of such issue, to her ‘heirs at law’.

When trustor executed the trust instrument, she was about thirty-five years of age, and her only children were two minor sons. Nonetheless, she provided for continuation of the trust after her death and during the minority of any child of hers; provided for the distribution of the corpus to him or her at majority, and for the distribution of the income for the benefit of such minor child until he or she reached majority. And this regardless of the ‘exercise or failure to exercise her power of appointment.’

From the language employed, it is clear that trustor intended to create a future interest in a class composed of all her children in being at her death, including any sons or daughters who might be born to her after the creation of the trust; and also the then living lineal descendants of any deceased child.

The stated desire of appellant that the trust should terminate upon her death and the corpus be distributed in accordance with her last will, and if no will, to her issue per stirpes; and if no issue, to her heirs at law, is clearly valid, even though some of the distributees be minors.

The right to acquire and enjoy property belongs to minors, as well as adults, but the management and control of estates of minors is the subject of guardianships. (14 Cal.Jur. 115, § 5.)

However, it is readily apparent that the clause requiring the shares of minors to be retained in trust until they reach majority is void as a suspension of the power of alienation beyond continuance of lives in being or 25 years. Sec. 715, supra; Sheean v. Michel, supra.

It is the contention of respondents that the application of the doctrine of severability would properly sever from the trust the secondary portion of the trust last above mentioned.

As a result of the application of such doctrine the trust would provide (a) income to trustor for life; (b) disposition as provided by trustor's last will; and (c) in the event of her failure to exercise such power of appointment, distribution to her issue per stirpes. Such interpretation would not change the persons to benefit under the trust, but would eliminate retention of any property in trust for such of trustor's children under twenty-one years of age at the time of her death.

In Re Estate of Willey, 128 Cal. 1, 11, 60 P. 471, 474, frequently referred to as the ‘leading case’ on the subject of severability, it was said: ‘* * * courts have firmly established the principle that valid trusts should not be disregarded because in the instrument creating them one particular invalid trust is declared, unless the latter is so inseparably blended with the others that it cannot be eliminated without destroying the main intent of the trustor, or working manifest injustice to other beneficiaries.’ This principle has become a settled rule of decision in this court. Estate of Micheletti, 24 Cal.2d 904, 909, 910, 151 P.2d 833, 836, wherein it is also stated: ‘The statutory rules against restraints on alienation have a beneficial purpose, but they are not punitive. Testamentary dispositions that are otherwise valid are not necessarily invalidated by illegal limitations, and the testator's purpose must control so far as it reasonably can.’ See, also, Estate of Troy, 214 Cal. 53, 3 P.2d 930; and In re Estate of Sahlender, 89 Cal.App.2d 329, 201 P.2d 69.

In the instant cause, the invalid clause is not so inseparately blended with the valid clauses that it cannot be eliminated without destroying the main intent of trustor.

Appellant further urges that she is the sole beneficiary under the trust and therefore entitled to terminate it.

The most casual examination of the trust instrument discloses that appellant created the trust not only for her own benefit, but for that of her issue per stirpes.

For the reasons stated, the judgment appealed from is affirmed.

DRAPEAU, Justice.

WHITE, P. J., and DORAN, J., concur.

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