(Super. Ct. No. P82080) APPEAL from a judgment of the Superior Court of San Diego County, Julia C. Kelety, Judge. Reversed and remanded, with directions.
The opinion of the court was delivered by: Nares, J.
CERTIFIED FOR PUBLICATION
In this case of first impression we are asked to interpret provisions of the California Powers of Appointment Act (CPAA), specifically Probate Code sections 652 and 601 (all further undesignated statutory references are to the Probate Code).
J.W. Sefton, Jr. (Grandfather) executed his will in 1955 (Grandfather's Will). He later passed away in 1966, giving his son, Thomas W. Sefton (Father), a lifetime estate, with a portion of the remainder estate going to Father's "then living issue," identified in the will as his daughter, Laurie M. Sefton (Laurie) (here represented by Wells Fargo, N.A., as trustee), his son, Harley K. Sefton (Harley) (here represented by Harley K. Sefton as trustee of the Harley K. Sefton trust), and petitioner and appellant Thomas W. Sefton, Jr. (Thomas Jr.).*fn1
Under the common law existing at the time Grandfather executed his will and when he passed away, the language "then living issue" was considered as giving Father a "non-exclusive power of appointment," meaning every one of Father's children that survived him must a receive at least a "substantial" part of the remainder estate. However, prior to Father's death, the Legislature enacted section 652, effective in 1970, which changed the presumption of such a power of appointment to "exclusive," meaning Father could exclude one or more of his "then living issue," unless Grandfather's Will specified a minimum or maximum amount to be distributed to each such heir (which in this case it did not).
When Father died in 2006, his will (Father's Will) gave portions of his estate to his children Laurie and Harley, but completely excluded Thomas Jr. from any inheritance.
The issue raised by this appeal is whether the law in effect at the time Grandfather executed his will, and at the time he passed away, controls, requiring that Father give each of his living issue, including Thomas Jr., at least a "substantial" share of his estate or is the law in effect at the time Father executed his will and passed away controlling, thus allowing Father to completely exclude one or more of his living issue.
We conclude that under the paramount rule regarding interpretation of wills that is to give effect to the intent of the testator, the language of section 601 that "[n]othing in this section makes invalid a power of appointment created before July 1, 1970, that was valid under the law in existence at the time it was created," and concerns over the constitutionality of applying section 652 retroactively, under Grandfather's will the power of appointment was "nonexclusive" and Father could not exclude Thomas Jr. from at least a "substantial" portion of the estate.
FACTUAL AND PROCEDURAL BACKGROUND
A. Factual Background*fn2
In Grandfather's Will executed September 7, 1955, Grandfather created a trust (the Trust). The Trust estate included Grandfather's controlling stock position in San Diego Trust & Savings Bank, which control position Grandfather requested the trustee to retain in the Trust estate.
Joseph W. Sefton, Sr., opened the bank on May 15, 1889. When he died in 1908, his only son, Joseph W. Sefton, Jr. (Joseph, Jr.) then 26 years old, chose to become vice president, leaving the presidency for the bank's original employee. Joseph, Jr., became president in 1935 when the original employee became president emeritus. (Davie, A City. A Bank, A Family (Spring 1989) The Journal of San Diego History .) Thomas Jr. asserts that shares providing a controlling interest in San Diego Trust & Savings Bank at the time of Grandfather's death would now be worth at least hundreds of millions of dollars.
The contents of Grandfather's Will and the terms of the Trust are undisputed. Grandfather designated his son the lifetime beneficiary of income from the Trust estate. Upon Father's death, the Trust terminated and its assets were to be distributed.
Grandfather's Will further stated, "I have three grandchildren, children of my said son, Thomas Wolcott Sefton, namely, THOMAS W. SEFTON, JR., LAURIE MARILYN SEFTON and HARLEY KNOX SEFTON." If Father died leaving any issue (which he did, as Thomas Jr., Laurie and Harley all survived him), then Grandfather's Will provided in the language at issue in this case that:
"[T]hree quarters (3/4) [of the Trust Estate] shall be distributed to his then living issue as my said son shall by his Last Will and Testament appoint, and in default of appointment, to his then living issue on the principle of representation." (Italics added.)
According to Thomas Jr., "[u]nder the law in effect at the time Grandfather's Will was executed in 1955 and at the time he died on March 3, 1966, the creation of such a power of appointment [that did not state a minimum or maximum amount to be appointed to one or more permissible heirs was considered 'nonexclusive' and] required that the person exercising the power [(i.e., Father)] give at least a 'substantial' distribution to each member of the class of appointees identified by the creator." (Estate of Sloan (1935) 7 Cal.App.2d 319, 340.)
Father survived Grandfather by some 40 years, dying on November 7, 2006. Father left a will that he had executed on August 26, 1994 (Father's Will).
Father's Will acknowledged that he had children Laurie and Harley of his current marriage and Thomas Jr. of his prior marriage. In Article Three, Father's Will exercised the power of appointment by splitting the property subject to appointment into three shares, two of which he allocated to a trust for which Harley was the beneficiary (and is now trustee), and the other one of which he allocated to a trust for which Laurie was the beneficiary (and for which defendant Wells Fargo is trustee). Father's Will gave Thomas Jr. nothing. At the time of father's exercise of his power of appointment, the law had been changed, effective in 1970, to make the power of appointment considered "exclusive," meaning Father could exclude one or more of his living issue if Grandfather's Will did not specify that he was to give one or more of them a minimum or maximum share of the estate. (§ 652.)
Thomas Jr. filed a petition on June 10, 2010, alleging that Father's attempted exercise of the power of appointment by excluding him from any share of the appointed property exceeded the scope of authority Grandfather gave Father. The petition further requested that the probate court determine that Thomas Jr. was entitled to a portion of the trust estate and that a constructive trust be imposed on that portion.
Wells Fargo responded to the petition by filing a demurrer. Wells Fargo asserted that, because of the provisions of the CPAA that became effective July 1, 1970 (four years after Grandfather's death), Father was permitted to completely exclude Thomas Jr. from the appointed property. The demurrer further contended that, among other things, Thomas Jr.'s petition was barred by the statute of limitations contained in Code of Civil Procedure section 366.2.
On July 9, 2010, Harley filed a response and objection to petition for order ascertaining beneficiaries of trust. In that pleading, Harley also raised the statute of limitations and CPAA arguments that Wells Fargo raised in its demurrer.
The court sustained Wells Fargo's demurrer without leave to amend and dismissed the petition. In so doing, the court found: "Although Grandfather's will created the power, it was not exercised until [Father] died in 2006. The parties appear to agree that the law governing powers of appointment changed from the time of creation to the time of its exercise. Thus, according to [section] 601, this court is obliged to apply the law in existence at the time of the exercise, i.e, in 2006. [¶] Accordingly, [section] 652[, subdivision] (a) permitted [Father] to exclude petitioner when he exercised the power. Further, because the power of appointment did not specify a maximum or minimum amount to be appointed to one or more of the permissible appointees, [section] 652[, subdivision] (b) does not apply."
Based upon its ruling, the court found the statute of limitations defense moot.
I. APPLICABLE LEGAL PRINCIPLES
"Powers of appointment have been aptly described as one of the most useful and versatile devices available in estate planning." (Recommendation and a Study Relating to Powers of Appointment) (Oct. 1968) 9 Cal. Law Revision Com. Rep. (1969) pp. 301, 307 (hereafter 9 CLRC).) "A power of appointment is a power conferred by the owner of property (the 'donor') upon another person (the 'donee') to designate the persons ('appointees') who will receive the property ['appointive property'] at some time in the future." (Ibid.) Often, a trustor creates a trust "for the benefit of a designated person during his lifetime with a provision that, upon the death of the life beneficiary, the remaining property shall be distributed in accordance with an 'appointment' made by the life beneficiary." (9 CLRC, supra, at p. 307.) "Apart from their usefulness in minimizing death taxes, powers make possible a disposition reaching into the future but with a flexibility that can be achieved in no other way. . . . [The donor] has ...