Wednesday, July 1, 2020
In California, a truster (person who creates a trust) can confer a "power of appointment" on trust beneficiaries, empowering them to designate to whom they want to give their shares of the trust. Further, the truster can require trust beneficiaries to specifically exercise and refer to the power of appointment in any will they create to designate who should get their shares of the trust.
What would happen if a trust beneficiary creates a will that gives away his or her shares without first referring to the power of appointment as required by the trust? Can a California probate court address and fix the the defect by amending or reforming the will?
In Estate of Elmers (2020), the California Court of Appeal answered this question in the negative. The Court held that, although reforming a will is permissible if extrinsic evidence establishes a testator's intent, a will cannot be reformed if it acted as a loophole to get around the power of appointment requirements in the Probate Code. Essentially, a court cannot reform a will when the testator fails to follow directions exercising a power of appointment.
The main take away is that a California Probate Court, generally speaking, has the power to amend or reform a will to conform with the testator's intent. However, the court will not reform a will to comply with requirements for exercising a power of appointment if, in doing so, the express provisions of the Probate Code are circumvented.
Elmers, is a perfect example of why it is important to follow directions when it comes to exercising powers of appointment. When granted a power of appointment under a trust, the beneficiary must look at the trust and specifically follow the directions provided, including whether the power of appointment needs to be referenced or just the trust. Failing to follow directions and specifically reference the power or trust, as appropriate, will invalidate any attempt to exercise the power.
See N. Aaron Johnson, California Powers of Appointment: Follow Instructions When Exercising, Trust on Trial, June 8, 2020.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.