Friday, March 25, 2016
Restaurateur’s Daughter Wins Appeal in Trust Dispute
Marie Callender’s Founder Intended Equal Distribution Among Beneficiaries—C.A.
By KENNETH OFGANG, Staff Writer
The daughter of the founder of the Marie Callender’s restaurant chain is entitled to a full share of the residuary of his testamentary trust, the Fourth District Court of Appeal ruled yesterday.
Div. Three overturned a contrary ruling by Orange Superior Court Judge Kirk Nakamura, who ruled that distributions from the trust should be made according to a “changing fractions” method that would have effectively increased the shares of Donald W. Callender’s widow and son at Cathleen Callender’s expense.
Donald W. Callender, commonly known as Don, founded the chain and is recognized as one of the country’s first restaurant franchisors. He named the business after his mother, after having worked from an early age in his parents’ wholesale bakery business.
He sold the business in 1986, for a reported $80 million, and created a trust, whose assets included cash, real estate, and the right to royalties for the use of the Marie Callender’s name on foods sold in grocery stores. When he died in 2009 at the age of 81, the trust was divided into three subtrusts, one for each of three beneficiaries—Cathleen Callender, known as Cathe, the trustor’s daughter from his first marriage; Don Callender’s widow, Catherine T. Callender, known as Katy; and Donald L. Callender, a minor, known as Lucky and the son of Don and Katy Callender.
The total value of the trust at the time of his death was approximately $143 million. The largest asset, Justice David Thompson noted in his opinion for the Court of Appeal, was the right to the royalty payments, valued at $37 million on the estate’s tax return in 2009, and potentially worth far more today.
Don Callender provided in the trust document that estate taxes would be allocated to the children, but not to his widow. Under Nakamura’s ruling, the distributions would have been altered to account for this, effectively reducing the children’s shared to under 27 percent each, and increasing the widow’s to 47 percent.
The judge described as a fiction the daughter’s argument that the children’s payments of the taxes were properly characterized as advances or loans. He also said it would be “counterintuitive and illogical” and contrary to the terms of the trust to wait until the final accounting to charge estate taxes to the children.
The trustee ad litem representing Lucky’s interests reportedly did not challenge the reduction of his distribution, because his mother has promised to leave all of her estate to him upon her death.
Thompson, however, said there was “simply no basis for applying the changing-fraction method to the Trust,” noting that neither the trust language nor the extrinsic evidence of Don Callender’s intent supported it. “In fact,” the justice wrote, “the trust and the circumstances surrounding its execution show just the opposite.”
Based on the terms of the trust, the beneficiaries’ percentage interests remain fixed, and there is no indication that Callender intended to leave his widow the bulk of the royalty rights to the Callender name, he said.
Katy Callender, Thompson acknowledged, testified to a conversation in which her husband told her she would inherit 50 percent of his estate after he died. But he also noted that the attorney who drafted the trust, Jack Barcal, testified that “Don really wanted a third to each,” and did not intend that the one-third division would change due to taxes.
Thompson also cited testimony from the successor trustees that Katy Callender had never told them about any such conversation. And even if it did take place, he said, it doesn’t change the result, because nobody claims there was any reference to the changing-fractions method, nor could Don Callender have known how estate taxes would affect the distribution because he didn’t know when he would die or what the tax rates were going to be at the time.
The panel also ruled for Cathe Callender on her claim the trial judge erred in ruling that she had to pay a share of the estate taxes on a piece of real property left to her outright. The court said this violate the trust provision stating she was to receive the property “free from any federal estate taxes, inheritance or succession taxes, generation skipping transfer taxes, or any other taxes payable upon or resulting from or by reason of the death of the settlor.”
Katy Callender’s claim that the trial court erred in excluding more than $2.5 million from her life estate in several pieces of residential property from the value of the residual assets is moot now that the trust allocation must be revisited, the panel found.
The case is Ammerman v. Callender, 16 S.O.S. 1492.
Copyright 2016, Metropolitan News Company