Even after the lawyer of Erin Brockovich fame was dead, he managed to win a case.
This win was against his widow (no less) and it’s an abject lesson for lawyers everywhere in why, when drafting documents, they must define as precisely as possible what is and is not permissible.
More specifically, Masry v. Masry, 2008 WL 4075309 (Sept. 4, 2008), is a warning of a potential pitfall in joint and single settlor trusts. No matter what the state in which you practice, if you want there to be only one way for a settlor to revoke or amend a trust, you’d better make sure to draft the trust document so it explicitly provides that the method for revocation or amendment set forth in the trust document is exclusive.
You don’t want what happened to Joette Masry to happen to your client.
On Sept. 4, 2008, the California Second District Court of Appeal held that a husband’s revocation of his interest in a joint trust created with his wife was effective, even though the trust’s terms stipulated that each spouse had the power to revoke his or her interest in the trust by giving written notice to the other spouse and the wife did not receive notice of the revocation until after her husband had died.
The joint trust at issue in Masry was created by Edward L. and Joette Masry in 2004 to hold property acquired during their marriage. They’d married in 1992.
Edward was a California trial attorney who, with the help of a legal assistant by the name of Erin Brockovich, filed a class action lawsuit against Pacific Gas & Electric Company in the early 1990s for groundwater contamination in California’s high desert.
The landmark environmental case settled in 1997 for $333 million. Edward’s San Fernando Valley law firm received a check for about $40 million.
But the suit’s real fame came from being depicted in the movie, Erin Brockovich. For playing Erin in the film, actress Julia Roberts won the 2001 Oscar for best actress. British actor Albert Finney portrayed Edward and was nominated for a best supporting actor Oscar for the role.
Edward also was known for being an agent for several National Football League players, including Hall of Famer Merlin Olsen of the Los Angeles Rams. Other clients included Baywatch star Pamela Lee, the band Steppenwolf and televangelist Gene Scott.
Shortly before Edward died in 2005 at the age of 73 (reportedly due to complications from diabetes), he revoked his interest in his joint trust with Joette and transferred his portion of the assets from that trust to a new trust controlled by two of his children from his first marriage. He had a total of five children; two were Joette’s from a previous marriage. (Several months after Edward’s death, Joette married yet again.)
According to attorney Mark Rochefort, who represented the two Masry children controlling the new trust, this second trust would pay support to Joette for the rest of her life, but it isolated and preserved Edward’s half of the principal for distribution to all five of Masry's children after Joette’s death, Rochefort said.
Thing is, Edward didn’t tell Joette about the new trust. She wasn’t notified until after he was dead.
Edward’s maneuver would seem to violate the terms of their joint trust. After all, the joint trust provided Edward or Joette, each of whom was a settlor and trustee, with the power to revoke the trust during their joint lifetimes by written direction delivered to the other settlor and to the trustee. Joette filed suit and naturally argued that Edward’s revocation was invalid because she was not given notice during his lifetime.
But the trial court saw a bigger picture.
Whoops!
The trial court found that—under the explicit terms of the joint trust—delivery of the revocation to the other settlor during Edward’s lifetime was not the only way to revoke this trust. Indeed, the court found, Edward’s delivery of the revocation to himself as trustee complied with the governing provision of the California Probate Code.
The appellate court agreed with this assessment. The court noted that California Probate Code Section 15041(a) provides that a revocable trust may be revoked by (1) any revocation method set forth in the trust; or (2) by written notice (other than a will) delivered to the trustee by the settlor during his or her lifetime, unless the trust explicitly provides that the revocation method set forth therein is exclusive.
And here’s the rub: According to the appellate court, for the revocation procedure specified in the trust to be explicitly exclusive, the trust must ambiguously state that the procedure is exclusive. So long as the trust does not provide that its method of revocation is the only one, the settlor may revoke the trust using the method provided in Section 15401(a)(2).
Alas for Joette, her joint trust with Edward did not provide that its revocation method was exclusive. Therefore, Edward was entirely within his legal rights to revoke the trust by delivering notice to himself as trustee under Section 15401(a)(2).
The court also remarked that the fact that there were two trustees of the joint trust (Edward and Joette) does not affect its conclusion, because Edward’s notice to himself was sufficient as notice to “the trustee.”
The court was not persuaded by Joette’s argument that such an interpretation of Section 15401 is contrary to public policy, because it permits a “secret” revocation of a joint trust by one spouse, allowing one spouse to take advantage of the other.
Writing for the court, Presiding Justice Arthur Gilbert said that under California laws, "married parties are permitted to dispose of their share of the community without the consent of the other spouse."
Moreover, the court said, any public policy determination should be made by the state legislature, which can amend the probate code if it determines such method of revocation does in fact violate public policy.
Unless and until the legislature does take up the matter, practitioners in California are well-advised to keep this issue in mind when drafting joint trusts.