A petition asking the trustee to exercise the power to adjust deemed to be a contest

A trust provided life annuities to the first set of beneficiaries, required “net income” to be paid to the children of the first beneficiaries for their lives, and finally for distribution to the issue of the income beneficiaries.  The trust expressly provided that allocation between income and principal would be governed by statutes “from time to time existing” and also contained a no contest clause requiring forfeiture by any beneficiary who seeks to “impair” the trust.

One of the income beneficiaries petitioned the court seeking a ruling that asking the court to instruct the trustee to use the power of adjustment under the California version of the Uniform Principal and Income Act to increase the amount paid to the beneficiary would not invoke the no contest clause.

The court held in McKenzie v. Vanderpoel, 61 Cal. Rptr. 3d 129 (Ct. App. 2007), that the request for instructions would violate the no contest clause because the use of the power to adjust would “impair” the trust by reallocating property from the remainder beneficiaries to the income beneficiary.