Mind Your Notice in California – Even Remote Contingent Beneficiaries May Need to Be Served
By JD Supra
It’s unremarkable that California courts require that notice be given to affected beneficiaries in trust and probate proceedings. After all, the Fourteenth Amendment guarantees that no person will be deprived of life, liberty, or property without due process. While contingent beneficiaries may not have received an inheritance yet, they may someday and so should know if someone’s trying to tamper with their potential payday. But how far do notice requirements really go? Must notice be given to beneficiaries who likely won’t ever get a nickel?
The California Court of Appeal wrestled with this issue in Roth v. Jelley (2020) ___ Cal.App.5th___, and held that beneficiaries who will only receive an inheritance upon the happening of an event (i.e., contingent beneficiaries) have a property interest in an inheritance and are therefore entitled to notice under constitutional due process requirements.
Contingent Beneficiaries, if Reasonably Ascertainable, Are Entitled to Notice
McKie Roth Sr. created a testamentary trust in his will for his wife, Yvonne, and granted her a right to change the beneficiaries of the trust’s remainder, i.e., a power of appointment. In the event Yvonne didn’t exercise that power, McKie Sr. provided a default distribution scheme, under which his three adult children from a prior marriage and Yvonne’s one adult son from a prior marriage would each inherit a one-quarter share of the trust’s remainder. Significantly, if any of McKie Sr. or Yvonne’s adult children died before Yvonne, then that adult child’s children would then split the one-quarter share equally.
McKie Sr. and Yvonne’s grandchildren were therefore “contingent beneficiaries” who would only receive an inheritance if: (1) Yvonne never elected to change the trust’s beneficiaries; (2) the grandchild’s parent died; (3) Yvonne was still living at the time of that death; (4) the grandchild survived both the adult child and Yvonne; and (5) assets still remained in the trust for distribution after the first four contingencies happened. This was quite a set of hurdles!
When McKie Sr. died in 1988, his three adult children raised claims unrelated to the trust. They eventually settled their claims with the estate, its executor, and Yvonne. Under the settlement, the executor of McKie Sr.’s estate paid out $2.25 million and the three adult children disclaimed any interest in the trust. A Contra Costa County Superior Court judge issued a decree of final distribution (referred to as the “1991 Decree”) based on the settlement terms, which changed McKie Sr.’s default distribution scheme such that none of his children would receive an inheritance under the trust.
McKie Jr. (son of McKie Sr.) died and then Yvonne died without having exercised her power of appointment over the remainder of the trust.
McKie Jr.’s son, Mark, petitioned the court to be recognized as a beneficiary of the trust, asserting the 1991 Decree (entered over two decades earlier) was void because he never received formal notice of the proceeding that led to that decree.
A Contra Costa County Superior Court judge determined that the 1991 Decree was binding, finding among other things that Mark was not statutorily entitled to personal notice under Probate Code section 11000. Section 11000 provides in part that notice of a hearing “shall” be given to “[e]ach known devisee whose interest in the estate would be affected by the account.” The court reasoned that Mark’s interest in an inheritance was so far removed that while it “could” be affected by the account, it “would” not necessarily be affected, as required under section 11000.
The First District Court of Appeal disagreed, finding that due process required that Mark be given notice of the proceeding that resulted in the 1991 Decree. It recounted how the U.S. Supreme Court recognized in Mullane v. Central Hanover Bank & Trust Co. (1950) 339 U.S. 306 that beneficiaries of a trust were entitled to more than just notice by publication under the Due Process Clause, and how the Supreme Court later ruled in Mennonite Board of Missions v. Adams (1983) 462 U.S. 791 that notice by mail, to persons whose names and addresses are reasonably ascertainable, is a “minimum constitutional precondition” to a proceeding that will adversely affect their property interests.
While Mark’s interest at the time of the 1991 Decree may have been highly contingent, due process required that he be given notice by mail of trust or probate proceedings that might impact his interest. It was undisputed that Mark’s existence and whereabouts were either known or reasonably ascertainable, such that he could have been given notice of the petition that led to the 1991 Decree.
The appellate court cautioned that just because state statutory requirements for notice are followed does not mean that the federal due process requirements are also satisfied. The court therefore determined that the 1991 Decree was void, no doubt a startling result for McKie Sr.’s surviving children who apparently benefited from the $2.25 million payment.
The Takeaway: Better to Give Notice Broadly
Roth calls for caution when serving documents that impact the rights of contingent beneficiaries. It’s not up to the noticing party to prophesize who will receive an inheritance and then notify only them. Rather, the noticing party should attempt to provide notice to persons who are potential beneficiaries. When a will or trust does not identify contingent beneficiaries by name, the noticing party should try to identify, locate, and serve them. The question is whether a person’s name and address are reasonably ascertainable.
Such contingent beneficiaries, upon receiving notice, may come forward to oppose a petition that could adversely affect them, thus perhaps making it harder to resolve disputes and move forward with administration.
Bigger picture, while trust and estate practitioners generally focus on state law requirements, federal constitutional law still reigns supreme. Although California’s Probate Code strives for clarity in notice provisions, the U.S. Constitution’s Due Process Clause may broaden notice requirements.
See original article at: https://www.jdsupra.com/legalnews/mind-your-notice-in-california-even-26769/