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Date: 04-08-2020
Case Style:
Alexandra M. Tubbs, as Personal Representative, etc. v. Harry William Berkowitz
Case Number: G056951
Judge: Ikola, J
Court: California Court of Appeals Fourth Appellate District, Division Three on appeal from the Superior Court, County of Orange
Plaintiff's Attorney: FitzGerald Yap Kreditor, Eoin L. Kreditor and Eric P. Francisconi
Defendant's Attorney: Douglas Smith and Nathaniel J. Tarvin
Description:
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This appeal arises from a dispute between Janice Tubbs and her father,
Harry William Berkowitz, regarding certain trust assets that Berkowitz transferred to
himself after his wife passed away. Berkowitz and his wife, Janice Tubbs’s parents,
created The Berkowitz Family Trust (the Trust). The Trust provided for the allocation of
assets to a surviving spouse’s trust and a marital appointment trust (the Marital Trust)
upon the death of either Berkowitz or his wife. The surviving spouse’s trust and the
Marital Trust included a general power of appointment allowing the surviving spouse to
designate a person who would receive the Trust assets. Under that power of appointment,
the surviving spouse could designate himself or herself as the person who would receive
the assets. Berkowitz exercised this power of appointment after his wife passed away
and transferred all the Trust assets to himself, effectively divesting Janice Tubbs and her
children who were contingent beneficiaries.
Tubbs filed a petition requesting the court find that Berkowitz could not
exercise his power of appointment to transfer the assets to himself. According to Tubbs,
Berkowitz’s fiduciary duties as the successor trustee limited his exercise of the power of
appointment. Berkowitz filed a motion for summary judgment contending he had the
right to transfer all assets to himself pursuant to the general power of appointment
provisions, which allowed him to act in a nonfiduciary capacity.
The court granted Berkowitz’s motion for summary judgment and found
the general power of appointment provisions gave him unfettered discretion. Because the
power of appointment was given to the surviving spouse, and not the trustee, the court
rejected Tubbs’s contention that Berkowitz’s discretion was limited by his role as the
successor trustee.
Tubbs appeals from the judgment in favor of Berkowitz and contends the
court erred because Berkowitz was bound by his fiduciary duties as trustee when he
exercised the general power of appointment. She claims Berkowitz acted in violation of
those fiduciary duties by transferring all assets to himself and acted contrary to her
3
mother’s intent to have her separate property pass to her children and grandchildren. We
disagree because a general power of appointment enables the powerholder to act in a
nonfiduciary capacity. Regardless, Berkowitz could not have breached any fiduciary
duties by doing something that was expressly authorized under the terms of the trusts.
We accordingly affirm the judgment.1
FACTS
The Trust and General Power of Appointment
In 2005, Berkowitz and his wife created the Trust of which they were
trustees during their lifetimes. The Trust provided that, after the death of the first spouse,
the trustee (the surviving spouse) was required to allocate the Trust’s assets between the
surviving spouse’s trust and the Marital Trust. The surviving spouse’s trust would
include the surviving spouse’s separate trust estate and interest in the community trust
estate. The Marital Trust would include the deceased spouse’s separate trust estate and
interest in the community trust estate. While the surviving spouse’s trust was revocable
after the allocation, the Marital Trust was irrevocable and nonamendable. Both the
surviving spouse’s trust and the Marital Trust provided support for the surviving spouse
for life, and then on the surviving spouse’s death, the remaining assets of both trusts
would be distributed to the children’s trust and the grandchildren’s trust. Berkowitz and
his wife had two children, Tubbs and her brother, and three grandchildren (the children of
Tubbs).
1
This appeal was initially filed by Janice Tubbs. During the appeal’s
pendency, Janice Tubbs passed away. We thereafter granted a motion brought by
Alexandra M. Tubbs and Makenzie L. Tubbs, as the personal representatives of Janice
Tubbs, to substitute as the plaintiffs and appellants. For simplicity, we will refer to the
plaintiffs throughout this opinion as “Tubbs” or “Janice Tubbs,” with the understanding
that the current plaintiffs are the personal representatives of Janice Tubbs.
4
The Marital Trust also provided the surviving spouse with a general power
of appointment, which is the focus of this appeal. The relevant provision stated: “At any
time during the surviving spouse’s life, the trustee shall distribute all or any part of the
trust, including accrued income and undistributed income, to such one or more persons
and entities, including the surviving spouse or the surviving spouse’s estate, and on such
terms and conditions, outright, in trust, or by creating further powers of appointment, as
the surviving spouse shall request by an acknowledged document that specifically refers
to this power of appointment.” The surviving spouse’s trust included an identical
provision.
In 2011, Berkowitz’s wife passed away, requiring Berkowitz to allocate the
Trust’s assets as described above. In April 2017, Berkowitz filed a petition to confirm
his proposed allocation of assets, among other things. After Tubbs filed objections to
Berkowitz’s petition, Berkowitz exercised his general power of appointment and
appointed all assets in the Trust to himself, effectively divesting the contingent
beneficiaries (which included Tubbs) of their right to distributions upon Berkowitz’s
death.
Tubbs’s Petition and Berkowitz’s Motion for Summary Judgment
In December 2017, Tubbs filed a petition alleging the general power of
appointment provisions were “not intended to provide [Berkowitz with] unlimited powers
to subvert the [T]rust.” She accordingly requested the court to “interpret the powers of
appointment . . . as provisions that were not intended to provide unlimited powers of
appointment such that . . . the remainder beneficiaries . . . have vested rights to property,
which are not subject to divestment.” She also requested the court to interpret the Trust
as requiring Berkowitz to act in a fiduciary capacity given his role as the successor
trustee.
5
In March 2018, Berkowitz filed a motion for summary judgment on
Tubbs’s petition. He argued he “had the right and power” under the general power of
appointment provisions to transfer all Trust assets to himself “for any reason or no
reason.” He claimed other provisions did not qualify or restrict his powers and “any
rights of the remainder beneficiaries were entirely subordinate to [his] rights as
powerholder.” He further argued his role as trustee did not limit his rights because he
“occupied two roles with regard to the Trust.” While he had certain fiduciary obligations
as a trustee, he claimed he “was also the donee of the powers of appointment, in which
role he had no duties whatsoever to other beneficiaries . . . .”
In support of his motion, Berkowitz also filed a declaration testifying that
the attorney who drafted the Trust “specifically discussed with [Berkowitz and his wife]
the powers of appointment, and that they would allow [them], whoever survived the
other, to do whatever he or she wished with the Trust’s assets, without any limitation.”
Berkowitz further testified that he and his wife “both wished the other to be able to use
[their] assets in any way he or she chose after the death of one of [them], without regard
to [their] children’s, grandchildren’s, or any other person’s wishes.” The lawyer who
drafted the Trust filed a declaration explaining that “[t]he powers of appointment were
drafted by me and were included in the Trust to provide to the surviving trustor . . . the
absolute power and discretion to appoint some or all of the assets of the Survivor’s Trust
and Marital Trust in any way which the survivor wished, including to themselves or their
respective estates, and without regard to any other beneficiaries’ interests in the Trust.”
Although the lawyer had no recollection of discussing the powers of appointment with
Berkowitz and his wife, he declared “[i]t has always been my custom and practice to
discuss specifically with the trustors the powers of appointment and the fact that they
permit the surviving spouse unlimited discretion to use or devise the Trust’s assets in any
way they choose. . . . I have no doubt that I had a similar discussion with [Berkowitz and
his wife] prior to their execution of the Trust.”
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Tubbs filed opposition to the summary judgment motion and argued
Berkowitz’s fiduciary duties as a trustee limited his rights to exercise his general power
of appointment. She accordingly claimed Berkowitz did not have the “absolute power”
to transfer all of the Trust’s assets to himself. She further argued Berkowitz breached an
implied covenant of good faith and fair dealing contained in the Trust and intended to
protect the beneficiaries. In support of her opposition, she also filed a declaration
testifying that her mother had made it clear that she wanted her separate property
distributed to her children and grandchildren and that the Marital Trust was irrevocable to
protect the children and grandchildren.
The Court’s Ruling
After a hearing, the court granted Berkowitz’s motion for summary
judgment. The court found the general power of appointment provision “gives the
surviving spouse as settlor essentially unfettered discretion to direct the trustee to
distribute ‘all or any part’ of the Surviving Spouse Trust and/or Marital Trust to ‘one or
more persons . . . including the surviving spouse . . . outright’ if such a request is made
‘by an acknowledged document that specifically refers to the power[s] of appointment.’”
According to the court, “the trustee has no discretion but to make the requested
distribution; the trustee ‘shall’ do so.”
The court also rejected the notion that Berkowitz’s discretion was limited
given his role as trustee because “the powers of appointment at issue [were] not given to
the Trustee, but to the surviving settlor.” The court explained: “If faced with the
exercise of a power of appointment by Harry-as-Settlor . . . , Harry-as-Trustee has no
discretion but to follow those directions.” Finally, the court held the implied covenant of
good faith and fair dealing could “not be invoked to limit or prohibit the apparently
unfettered right reserved to the surviving spouse (i.e. Harry-as Settlor) to direct the
7
distribution of any or all of the Trust assets to anyone, including himself.” The court
entered judgment in Berkowitz’s favor, and Tubbs appeals from that judgment.
DISCUSSION
Tubbs contends Berkowitz could not exercise his general power of
appointment to transfer the Marital Trust assets to himself.2
Her main argument is that
Berkowitz violated his fiduciary duties as a trustee by transferring the assets to himself.
In other words, she suggests Berkowitz could never exercise his general power of
appointment to transfer assets to himself given his role as a trustee of the Marital Trust,
which was irrevocable and nonamendable. She also claims Berkowitz acted contrary to
her mother’s intent, which was to have her separate property pass to her children and
grandchildren. Because a power of appointment enables the powerholder to act in a
nonfiduciary capacity and Berkowitz could not possibly have breached any fiduciary
duties by doing something that was expressly authorized by the Marital Trust, we
conclude the court did not err.
Standard of Review
A party is entitled to summary judgment “if all the papers submitted show
that there is no triable issue as to any material fact and that the moving party is entitled to
a judgment as a matter of law.” (Code Civ. Proc., § 437c, subd. (c).) A triable issue of
material fact exists only if “the evidence would allow a reasonable trier of fact to find the
underlying fact in favor of the party opposing the motion in accordance with the
applicable standard of proof.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826,
2
Tubbs does not dispute Berkowitz could transfer the assets in the surviving
spouse’s trust to himself. She acknowledges that trust was revocable and amendable and
included Berkowitz’s separate property and community property share.
8
845.) We review de novo the court’s grant of summary judgment. (ABCO, LLC v.
Eversley (2013) 213 Cal.App.4th 1092, 1098.) Although we conduct a de novo review,
we “must presume the judgment is correct, and the appellant bears the burden of
demonstrating error.” (Jones v. Department of Corrections & Rehabilitation (2007) 152
Cal.App.4th 1367, 1376.)
The Court Did Not Err
“‘“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.”’”
[Citations.] Such a power can be general—exercisable in favor of anyone, including the
holder of the power or that person’s estate—or limited—exercisable only in favor of the
person or class specified in the instrument creating the power. [Citation.] A trust can be
the ‘creating instrument’ that ‘creates or reserves the power of appointment.’” (Estate of
O’Connor (2018) 26 Cal.App.5th 871, 879, fn. omitted, italics added.)
Here, the power of appointment provision in the Marital Trust provided that
“the trustee shall distribute all or any part of the trust . . . to such one or more persons . . .
including the surviving spouse . . . as the surviving spouse shall request by an
acknowledged document that specifically refers to this power of appointment.” (Italics
added.) Tubbs concedes that this provision conferred a general power of appointment,
and she does not suggest Berkowitz failed to follow the proper procedures for exercising
his power of appointment. Berkowitz accordingly had the “equivalent to a grant of
absolute ownership.” (Estate of Daily (1982) 130 Cal.App.3d 993, 998; see Estate of
Kuttler (1958) 160 Cal.App.2d 332, 338 [same].) He could exercise the power in his own
favor and had “the same freedom of disposition that [he would have] over his . . . own
property.” (12 Witkin, Summary of Cal. Law (11th ed. 2019) Real Property, § 169.)
9
Despite the general power of appointment, Tubbs contends Berkowitz
could not transfer the Marital Trust assets to himself because a trustee must comply with
his fiduciary duties even if he has “‘absolute,’ ‘sole,’ or ‘uncontrolled’ discretion . . . .”
(Prob. Code 16081, subd. (a).)3
According to Tubbs, Berkowitz could not “violate his
fiduciary duties through an artifice that gives him a supposedly different role” as the
donee of the power of appointment. She suggests Berkowitz violated his “duty to
administer the trust solely in the interest of the beneficiaries” (§ 16002, subd. (a)) and his
“duty not to use or deal with trust property for [his] own profit [and to not] take part in
any transaction in which [he] has an interest adverse to the beneficiary” (§ 16004, subd.
(a).) But Tubbs ignores a key feature of a general power of appointment—it enables the
donee to act “in a nonfiduciary capacity” unlike a trustee. (§ 610, subd. (f), italics
added.) “The holder of a presently exercisable general power of appointment or power to
withdraw property from a trust [also] has the rights of a person holding the power to
revoke the trust . . . .” (§ 15803.) Tubbs cites no authority, nor has our research
uncovered any, which holds that a donee cannot exercise a general power of appointment
in his favor if he also is the trustee of an irrevocable trust.
Tubbs argues the Trust is “invalid and illusory” if “the roles of trustee and
donee under a general power of appointment” are combined with “no fiduciary
obligations owed by the trustee . . . .” She contends that “by designating the same person
as the trustee and donee under a general power of appointment without any concomitant
fiduciary duties owed by that person to the beneficiaries, the legal and equitable title to
the trust property would merge and the trust would be extinguished.” But here, the mere
existence of a power of appointment did not effect a merger because until the power of
appointment was exercised by removing all of the assets from the Trust, Tubbs and her
children retained their contingent rights as beneficiaries. Those rights would continue to
3
All further statutory references are to the Probate Code.
10
exist had the power of appointment been exercised as to fewer than all the assets. And,
as explained above, as a matter of law Berkowitz had the same rights as one who could
revoke the Trust. (§ 15803.) Berkowitz’s exercise of the power did just that. The
revocation of the Trust did not render it “invalid or illusory.” It merely implemented a
right given to the surviving spouse by the express language of the Trust.
To support her argument that “Berkowitz was bound by his fiduciary duties
at all times when interacting with the Trust,” Tubbs also points to the following Trust
provision: “The Trustee shall exercise all of the powers in the Trustee’s fiduciary
capacity and only in such capacity.” She claims this language means Berkowitz “could
not act as a donee without the strictures of his duties as trustee . . . .” We do not interpret
this provision so broadly. The provision appears in a section titled “Trust Administration
Provisions” and merely states that the trustee must exercise his powers in his fiduciary
capacity. It does not impose any restrictions on the separate role of a donee who
exercises the general power of appointment. The law governing general powers of
appointment clearly contemplates that the power can be exercised to the detriment of
other beneficiaries. (§ 610, subd. (f) [“‘Power of appointment’ means a power that
enables a powerholder acting in a nonfiduciary capacity to designate a recipient of an
ownership interest in or another power of appointment over the appointive property”
(italics added); Rest.2nd Property, Donatire Transfers (1986) § 11.4, com. a, p. 18 [“A
general power of appointment gives the donee of the power the authority to confer on
himself or herself the full benefit of the appointive assets to the exclusion of others”].)
And, as explained below, Berkowitz could not have breached his fiduciary duties by
carrying out what was explicitly required by the Marital Trust.
11
A trustee “has a duty to administer the trust according to the trust
instrument . . . .” (§ 16000.) A trustee also only has the powers conferred by the trust
instrument and the powers conferred by statute, unless limited by the trust instrument.
(§ 16200.) Here, the very language of the Marital Trust allowed Berkowitz to act in his
capacity as the surviving spouse (not the trustee) and designate himself as the recipient of
the Trust assets. The Marital Trust then required the trustee to distribute the assets to any
person designated by the surviving spouse, including the surviving spouse himself. Thus,
under the plain terms of the Marital Trust, Berkowitz (acting as the trustee) was required
to transfer the assets once he exercised the power of appointment in his favor. He could
not possibly have breached any fiduciary duties by doing something that was expressly
authorized and required under the terms of the Marital Trust. (Hearst v. Ganzi (2006)
145 Cal.App.4th 1195, 1207-1208 [trustees did not breach their fiduciary duties where
their actions were explicitly authorized by the trust].)
Finally, we note that Berkowitz’s exercise of his power of appointment
would have been unobjectionable if he had resigned as trustee before exercising the
power. In that scenario, the successor trustee (Tubbs) would have been required to
transfer the assets to Berkowitz once he exercised the power of appointment in his favor.
Tubbs claims “those are not the facts before this Court,” but we see no reason why the
result should be different where Berkowitz was both the donee and the trustee who had
no discretion but to follow the terms of the power of appointment.
Outcome: The judgment is affirmed. Berkowitz shall recover his costs incurred on
appeal.
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