Ammerman, et al. v. Callender, et al.

Filed March 23, 2016, Fourth District, Div. Three Cite as G049880

Beneficiary Cathe Callender appealed orders concerning the interpretation and administration of a trust which included licensing agreements for use of the Marie Callender name. The beneficiaries disputed the division of the trust residue by the so-called changing fraction method, whereby the beneficiaries’ interests are revalued with each non-pro rata distribution payment, such as estate tax payments. Cathe also disputed her responsibility to pay estate taxes on property specifically gifted to her, free of estate taxes. The trial court ruled the trust residue should be divided based on the changing fraction method, based on its interpretation of the trust and the settlor’s intent, and on extrinsic evidence. The court also ruled that Cathe was responsible for a portion of the estate taxes on the specific gift of real property.

The appellate court reversed and remanded, holding that the trial court erred in applying the changing fraction method to the trust residue, and charging estate tax to Cathe’s gift. There was no language in the trust, no evidence of the settlor’s intent, and no basis in California law or equity to support the use of the changing fraction method. Instead, the appellate court utilized the fixed fraction method, whereby non-pro rata charges to principal have no effect upon the fractional interests of the beneficiaries. Further, based on the language of the trust, Cathe was not responsible to pay any estate taxes on her specific gift.

http://www.courts.ca.gov/opinions/documents/G049880.PDF