Case Review – Pena v. Dey – Formalities and Trust Amendments

I found this case to be tragic, but ultimately necessary. The formalities of the law prevented the trust amendment from becoming effective. However, as I always, such formalities are critical  for evidentiary and record-keeping purposes.  Following the formalities protects the trust estate, the settlor’s intent, the trustee(s), and the beneficiaries.

The full published decision is available online (Pena v. Dey, Cal. App. 3d Case No. C083266). The basic story is that settlor and trustee Anderson attempted to make a second amendment to the trust by following the following trust’s amendment directions, that the amendment must “be made by written instrument signed by the settlor and delivered to the trustee.” Anderson had made a few changes to the trust by interlineation (i.e., lining through) and asked an attorney to prepare the amendment. Unfortunately, before the amendment was prepared by the attorney, Anderson passed away.

So the question before the court was whether the interlineations and an accompanying Post-It note from Anderson were sufficient to constitute an amendment to the trust. The court looked at Cal. Probate Code § 15401-2 and determined that the instruction that the amendment must “be made by written instrument signed by the settlor and delivered to the trustee” to be binding.

The court easily found that Anderson’s interlineations were a “written instrument” and “delivered to the trustee”, leaving the sole issue of whether the amendment was “signed by the settlor.” The court found that the hand-written interlineations could not be found to be part of the original trust or preceding amendment because by doing so the signature requirements would become nugatory. The court additionally found that Anderson’s Post-It note with instructions to the attorney could not constitute a signature because it was simply a note identifying enclosed documents.

The overriding concern was the competing intentions and which one to give effect to. There was the original intent of Anderson that said all amendments had to be made by signed written instrument. And then there was the intent of Anderson to modify the trust and whether that could be accomplish by an unsigned written instrument. The court found that an unsigned writing simply could not amend the trust when the trust required a signed writing.

For me, this decision is important in many ways. First, it’s the Third Appellate District, so it covers Yolo and Sacramento Counties, my main practice area. Second, it provides strong guidance on why formalities are so important under the probate code. The overwhelming majority of questions under the probate code arise after someone’s death, so following formalities is of utmost importance.

It is quite possible here that the settlor never intentionally made the trust amendment requirement be by signed writing. It’s probably just what his attorney gave him. However, the settlor assumed that formality by making the trust effective.

One of the things I always try to impress upon my clients is that although a signed writing could be sufficient to amend a trust, you should not presume it to be the best way to amend the trust. First, as mentioned in this case, a no-contest or anti-dispute clause needs to be included in the amendment so as to apply to the amendment (Cory v. Toscano (2009) 174 Cal.App.4th 1039). You can’t just assume the original no-contest or anti-dispute clause would work – it won’t apply to the amendment. Second, always have the signatures notarized – don’t invite a question as to the identity of the signer! Notarization may seem like a burdensome extra step, but it’s an easy safeguard against later disputes.

In sum, formalities matter!

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