Otto v. Union National Bank

238 P.2d 961, 38 Cal. 2d 233, 1951 Cal. LEXIS 203
CourtCalifornia Supreme Court
DecidedDecember 21, 1951
DocketL. A. 21377
StatusPublished
Cited by5 cases

This text of 238 P.2d 961 (Otto v. Union National Bank) is published on Counsel Stack Legal Research, covering California Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Otto v. Union National Bank, 238 P.2d 961, 38 Cal. 2d 233, 1951 Cal. LEXIS 203 (Cal. 1951).

Opinions

EDMONDS, J.

By this action, Helen Otto seeks to terminate an inter vivos trust created by her. The appeal is from a judgment which followed an order sustaining general demurrers to her complaint which she failed to amend.

In 1941, Helen Otto, then Helen Wheeler, created an inter vivos trust with a corpus consisting of assets in excess of $500,000, which was her separate property. The trust indenture includes a spendthrift provision in favor of the trustor and requires the payment of the income to her for life. Paragraph IV of the declaration of trust provides that upon the death of the trustor, the trust shall terminate, and the [235]*235entire trust estate shall be distributed according to the trustor’s will. If Mrs. Otto “should fail to exercise this power of appointment,” according to the terms of the trust, the corpus shall go “in equal shares to her issue per stirpes and if there be no issue to her heirs at law in accordance with the Statutes of Succession of the State of California then in effect. Should any child of Trustor be under the age of twenty-one (21) years upon the termination of this trust and, by reason of Trustor’s exercise or failure to exercise her power of appointment herein provided be entitled to have distributed to him or her a portion of the then corpus of the Trust Estate and the undistributed income therefrom, said Trustees shall retain his or her share thereof until he or she becomes twenty-one (21) years of age, when the same shall be distributed to him or her, but said Trustees shall distribute the income of said share accruing after the death of Trustor to or for the benefit of said minor child until he or she becomes twenty-one (21) years of age.”

Following the trustor’s divorce from John Wheeler, the trustees named in the indenture were removed and the Union National Bank of Pasadena was named successor trustee.

When the present action for declaratory relief and termination of the trust was filed, the trustor was 43 years of age and had two sons, Evans Wheeler, age 22 years, and Gordon Wheeler, age 20 years. Gordon was then unmarried. Evans was married and the father of two minor children, Scott and Stephanie. In her complaint, Mrs. Otto asks for a judgment that she is the sole and absolute owner of all assets of the trust, that the trustee be ordered to transfer and convey to her all assets of the trust, and that it be adjudged that the trust was never valid, or that she has full power of revocation, or that it has terminated by reason of the accomplishment of its purposes.

Upon his failure to appear, the default of Evans Wheeler was entered. The general demurrers of the trustee and the minor children were sustained with leave to amend. Upon the trustor’s failure to do so, judgment was entered accordingly.

Helen Otto now argues that the trust was void in its inception because Paragraph IV creates a suspension of the absolute power of alienation in violation of sections 715 and 771 of the Civil Code. Assuming that the trust so suspends the power of alienation, the void portion is not severable from the balance of the trust. But in any event, she argues, [236]*236she is the sole beneficiary of the trust and entitled to terminate it.

Insofar as pertinent to the issues of this case, section 715 of the Civil Code provides that the absolute power of alienation cannot be suspended by any limitation or conditiion for a longer period than “during the continuance of the lives of persons in being at the creation of the limitation or condition. ...” Section 716 declares: “Every future interest is void in its creation which, by any possibility, may suspend the absolute power of alienation for a longer period than is prescribed in this chapter. Such power of alienation is suspended when there are no persons in being by whom an absolute interest in possession can be conveyed.”

In the present case, the trustor has created a future interest in a class, designated as “issue per stirpes,” which includes all of her children in being at her death and the lineal descendants of any deceased child. It is clear, from the language of the trust indenture, that the class may include children born after the execution and delivery of the trust instrument. Unquestionably, therefore, the clause requiring the share of a minor child to be retained in trust until he attains hi's majority suspends the absolute power of alienation beyond the continuance of “. . . lives in being at the creation of the limitation or condition. ...” (Civ. Code, § 715.) As this court firmly stated in Sheean v. Michel, 6 Cal.2d 324, 327 [57 P.2d 127], “If the trust thus attempted to be created is by its terms designed to be continued during the minorities of children born after the delivery of the trust instrument, it is obvious that the instrument creates a suspension of the power of alienation in violation of the provisions of section 715 of the Civil Code.” (To the same effect is Estate of Troy, 214 Cal. 53, 56 [3 P.2d 930], and see the cases cited therein.)

To avoid the rule of these decisions, the respondents argue that the rule against the suspension of the power of alienation is not violated if, at the expiration of a life in being at the creation of the trust, there are persons in being by whom an absolute interest in possession can be conveyed. Under the terms of the trust here being considered, say the respondents, at the death of the trustor, and in the absence of a testamentary disposition by her, there will be ascertainable persons in being who may unite to convey an absolute interest in possession although such persons may be minor children [237]*237of the appellant for whose benefit the trust is to continue until they reach majority.

However, contrary to the position taken by the respondents, the power of the trustee to sell the trust property and reinvest the proceeds would not have the effect of relieving the trust from the inhibitions of the Civil Code. As stated in Estate of Maltman, 395 Cal. 643, 652 [234 P. 898], their argument is fully met by the provisions of section 771 of the Civil Code, which read as follows: “The suspension of all power to alienate the subject of a trust, other than a power to exchange it for other property to be held upon the same trust, or to sell it and reinvest the proceeds to be held upon the same trust, is a suspension of the power of alienation, within the meaning of section seven hundred and fifteen.” The absolute power of alienation is equivalent to the power of conveying an absolute fee. (Civ. Code, § 716; In re Walkerly, 108 Cal. 627, 647 [41 P. 772, 49 Am.St.Rep. 97].)

The respondents erroneously assume that the minor beneficiaries of the trust might convey their present rights to income and compel the trustee to convey the corpus as directed by them. This, however, they could not do until they attained majority (Estate of Yates, 170 Cal. 254 [149 P. 555]), and the principles stated in the Walkerly case, supra, at pp. 648, 649, 658, are controlling. Applying the rule of-that decision, the clause of the trust indenture establishing a trust for the minority of the trustor’s children is void as creating a suspension of the absolute power of alienation beyond the time permitted by section 715 of the Civil Code.

In a memorandum opinion, the trial court also reached this conclusion.

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Otto v. Union National Bank
238 P.2d 961 (California Supreme Court, 1951)

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Bluebook (online)
238 P.2d 961, 38 Cal. 2d 233, 1951 Cal. LEXIS 203, Counsel Stack Legal Research, https://law.counselstack.com/opinion/otto-v-union-national-bank-cal-1951.