Copley v. Copley (126 Cal. App. 3d 248, 1981)

Opinion

COLOGNE, J.—

THE SYLLABUS

Here is the perplexing dilemma facing the trustees of an inter vivos trust when they are given broad powers but must exercise them in an atmosphere heavily laden with conflicting interests. The trustees are given voting control of substantially all the stock of Copley Press, Inc., a large newspaper which had been operated by the trustor as a one-man business. Helen Copley, widow of the trustor and co-trustee, is given broad powers of discretion and by the lead of her husband and counsel elected to continue the business as a family enterprise. The inter vivos trust, with the usual marital and nonmarital trust features, burdened the nonmarital trust with the obligation to pay all death taxes and administration expenses. It was required to sell certain of the stock to raise these funds. Opting for a stock redemption plan under the provisions of Internal Revenue Code section 303, 19 months after the trustor’s death, the trustees were able to achieve a tax-free sale to the Copley Press of enough stock to pay the death taxes on an installment plan. About a year and a half later, the redemption price was set at $35, which was the same value the Internal Revenue Service determined after extensive negotiations was the value at the date of death. Since that sales price would be the basis of the stock for'income taxes, there would be no income tax assessed on the sale. After the stock sale but before the valuation was set, the trustees petitioned the court for approval of their acts. The children of the trustor by his first wife, two of the four beneficiaries under the nonmarital trust, complain the trustees should have sold the stock at a higher price per share and, if they had tried to sell to third persons, they would have known that the basis used for the redemption agreement was grossly below fair market value.

Underlying all these transactions is the trustees’ effort to keep death taxes low and avoid heavy income tax burdens on the trust. The trial court found the trustees committed no fraud; under Helen Copley’s management, Copley Press prospered and the value of the stock improved markedly; the accounting of the trustees was correct in every detail except the stock value and litigation fees. It found the stock redemption price was in fact low and should have been effected at $58 per share rather than the $35 figure. The trial court adjusted the stock holdings and dividends to reflect what the respective holdings of the marital and nonmarital trust would have been had the sale been effected at the proper figure. We approve this part of the superior court’s order.

The court also held, however, while Helen Copley committed no fraud nor violated the provisions of the trust agreement, the trustees performed their functions facing known conflicting interests and were guilty of a breach of their fiduciary duty to the beneficiaries of the non-marital trust and should be replaced by a corporate trustee. We hold this portion of the judgment unsupported. The positions with obvious conflicting interests were created by the trustor and intended by him to serve the interests of all the beneficiaries. Helen Copley’s actions as administratrix with the will annexed, trustee, beneficiary and Copley Press’ principal officer were directed toward the best interests of the beneficiaries and in accordance with the intent of the trustor. The beneficiaries have not been prejudiced. The trustees’ acts were reasonable in light of the duties imposed under the terms of the trust and did not justify their discharge. We reverse that portion of the order removing them as trustees.

We adjust the trial court’s award of attorneys’ fees to conform to the result of this opinion.

Procedural Background

Helen K. Copley and Joseph P. Kinney, individually and as co-trustees of two trusts (designated the marital trust and the nonmarital trust) created by the late James S. Copley, brought the original action (super, ct. No. 381314) in declaratory relief to determine the propriety of their action as trustees in selling certain of the nonmarital trust’s shares of stock of The Copley Press, Inc. to the corporation. They also sought substantially the same relief in a separate proceeding under Probate Code section 1138.1 (super, ct, No. 111584 consolidated with 115984). Michael Copley and Janice Copley, beneficiaries under the nonmarital trust, moved to dismiss the probate petition. The motion was denied, and on appeal to this court we reversed the order with directions to consolidate the Probate Code section 1138.1 proceeding with the declaratory relief action and cross-actions and to try the latter action first (Copley v. Copley (1978) 80 Cal.App.3d 97, 109-110 [145 Cal.Rptr. 437]).

Michael Copley and Janice Copley (objectors) filed objections to the petitions and cross-complained asserting, among other contentions, the stock was sold for a price below the market value 19 months after James Copley’s death and this was a breach of the trustees’ fiduciary duties. They sought a rescission of this sales agreement or, in the alternative, payment of the higher price to the nonmarital trust, as well as an accounting and surcharge against the trustees, imposition of a constructive trust, removal of the trustees, receivership, injunctive relief, attorneys’ fees and general and punitive damages.

Among other things, the trial court found the trustees were guilty of no actual fraud, but committed a constructive fraud on the beneficiaries of the nonmarital trust. It ordered the trustees to transfer certain stock and pay certain sums from the marital trust as a means of restoring the parties to the position they would have held had the sale been properly consummated. The court also ordered the removal of Helen K. Copley and Joseph P. Kinney as trustees of the nonmarital trust and appointed Bank of America National Trust and Savings Association as trustee of the nonmarital trust, ordering all assets delivered to the bank with a proper accounting. The court ordered the nonmarital trust to pay the attorneys for the objectors for services rendered in prosecuting this case together with sums for extraordinary costs. It ordered the accountings approved as rendered except in certain respects which were detailed in the judgment and, among other things, disallowed attorneys’ fees and other compensation from the nonmarital trust for the co-trustees in pursuing this action. It also ordered the assets be redefined as amended by this judgment. Finally, in order to protect the rights of all beneficiaries of the nonmarital trust, the court ordered the new trustee to notify all beneficiaries of any intention to sell the shares of the corporation held in the nonmarital trust.

Following the rendition of judgment in this matter, David C. Copley and John L. Satterlee, potential beneficiaries of the remainder under the trusts, filed a notice of motion to vacate judgment pursuant to Code of Civil Procedure sections 473 and 663. They also filed an objection to the hearing of this matter by Judge Todd pursuant to Code of Civil Procedure section 170.6. Judge Todd refused to disqualify himself and found the court was without jurisdiction to rule on the motion to vacate the judgment. David Copley and John Satterlee appeal these orders of the court.

The matters were consolidated for purposes of this appeal.

The trustees contend the stock redemption agreement was fully proper, representing the exercise of sound judgment accorded them under the authority of the trust instrument and serving the best interests of the nonmarital trust. The trustees contend further the trial court substituted its judgment for the terms of the trust instrument which committed trust property transfer decisions to the sole discretion of the trustees and thus the court ignored James Copley’s intent. They also contend the trial court erred in refusing to consider evidence of James Copley’s intent, denying the trustees’ request for findings on specific issues, failing to require the joinder of indispensable parties and granting remedies, all providing additional grounds for reversal of the judgment.

The Persons Involved

Helen Copley is the surviving spouse of James Copley who died October 6, 1973, and after that date she was a named co-trustee of the inter vivos trust executed by James Copley in 1959 and amended from time to time. She was appointed administratrix with-the-will-annexed of James Copley’s probate estate on the resignation of Thomas C. Ackerman, Jr., who briefly served as the executor named in James Copley’s will. Following the death of James Copley, she became the chief executive officer and chairperson of the board of directors of the corporation. Helen Copley is the sole income beneficiary of the marital trust over the corpus of which she has a general power of appointment, and is one of the four permissible distributees of the income of the nonmarital trust.

Joseph P. Kinney is the brother of Helen Copley and has no beneficial interest in either trust. Joseph Kinney succeeded to the co-trustee position when Thomas C. Ackerman, Jr., resigned.

Michael Copley and Janice Copley are the adopted children of James Copley by his first marriage and two of the permissible distributees of the income from the nonmarital trust. They are defendants in the declaratory relief action, objectors to the petitions and cross-complainants below.

David Copley is the natural son of Helen Copley and the adopted son of James Copley. He is also one of the permissible distributees of the income from the nonmarital trust and the primary remaindermen of that trust. He was not a party to this action during any of the prejudgment proceedings.

John L. Satterlee is the brother of James Copley and one of the contingent remaindermen of the nonmarital trust. He joined David Copley in the motion to vacate the judgment in this matter.

Thomas Ackerman was James Copley’s attorney and was designated executor of James Copley’s estate and original surviving co-trustee in the inter vivos trust. He resigned both positions on December 6, 1973.

The Copley Press, Inc. is a publishing business owning six newspapers and attendant facilities. James Copley succeeded to the controlling shares of the corporation primarily from his father’s estate. James Copley controlled the corporation as sole trustee and income beneficiary of his inter vivos trust which held virtually all the shares of the corporation.

The Facts

James Copley created a revocable inter vivos trust in 1959. The trust was amended from time to time and, on May 24, 1973, with knowledge he was terminally ill, James Copley executed a final amendment to this trust which is the subject of these proceedings. At the time of execution of this amendment, Mr. Copley also executed a last codicil to his will designating the inter vivos trust as the residuary beneficiary of his estate. At his death, James Copley was sole trustee, and the trust agreement provides that after his death, when the trust becomes irrevocable, there are to be two individual successor trustees at all times. It names Helen Copley and Thomas Ackerman as the successor co-trustees. They are given power to designate their successors and on the same date the trust agreement was last amended, May 24, 1973, they designated Joseph P. Kinney to serve as successor individual trustee if either Helen Copley or Thomas Ackerman became unwilling, unable or ceased to serve as original successor individual trustee. Differences between the two developed and Ackerman resigned as co-trustee. Joseph Kinney then filled in as his designated replacement co-trustee.

At the time of James Copley’s death, the inter vivos trust was fully funded. Its corpus consisted of 1,725,000 shares of the corporation’s common stock which represented all of the outstanding common stock shares, and 8,501.25 shares of Copley Press preferred stock which represented 17.59 percent of the outstanding preferred stock of the corporation. The remaining preferred stock was held by a retirement fund and various charities. All stock, common and preferred, was vpting stock.

Pursuant to the terms of the trust agreement, on James Copley’s death the corpus of the inter vivos trust was equally divided between two separate trusts, a marital deduction trust and a nonmarital trust, so that each of the trusts held 862,500 shares of common stock and 4,250.625 shares of the preferred stock. Each trust originally held a voting interest in the corporation of 48.877 percent, the remaining voting interest being in the retirement fund and charities. The nonmarital trust was also the named residual beneficiary of the Copley probate estate. The assets which poured over from the probate estate consisted of a significant but very small part of Copley’s total wealth.

Helen Copley was the sole income beneficiary of the marital trust and had a general power of appointment over its corpus. In the event there was a failure of disposition of any portion of the marital trust by Helen Copley, then on her death the corpus of the trust, including the income then accrued and undistributed, is to be added to the nonmarital trust and administered as a part of that trust.

The nomarital trust is to be administered as a separate trust, the income to be divided among (1) Janice Copley, (2) Michael Copley, (3) David Copley, and (4) Helen Copley herself. Subject to a superior obligation to pay a fixed sum annually to James Copley’s former spouse pursuant to a property settlement agreement, the trustees were given sole and absolute discretion in the distribution of all the income annually among the four beneficiaries as the trustees may deem appropriate and to the best interests of the beneficiaries. However, Helen Copley was not allowed to participate in any such decision. The sole benefit of Janice Copley and Michael Copley expressed in the trust is the right to income for their respective lives. On Helen Copley’s demise, the non-marital trust is to be divided into three equal shares with the entire income from each share to be paid annually to each of the children. When Janice Copley and Michael Copley, respectively, die and are survived by David Copley or his issue, the share held in trust for the deceased child is added to David Copley’s share and either held in trust for him (or his issue) or distributed outright to him (or his issue) according to his age. Thus, by the trust’s terms, the entire corpus of the nonmarital trust eventually is to pass to David Copley, after Helen Copley’s death, in increments according to his age (or if he is deceased, to his issue), provided he (or his issue) survives Helen, Janiqe and Michael. John Satterlee or his issue, and certain named charities have a contingent remainder interest.

The nonmarital trust is burdened with two obligations: (1) to pay all death taxes due the federal and state governments as a result of James Copley’s demise, as well as all debts and expenses of administration of his estate, and (2) to pay James Copley’s first wife, Jean Erdman, $100,000 per year for the remainder of her life. The payment to Ms. Erdman is to be made from the income of the nonmarital trust before any other income is distributed to the discretionary income beneficiaries and if the income is inadequate, the payment to her shall be made from the principal.

The trust agreement gives the trustees power to vote in person or by proxy any shares held by the trust.

There is no provision in the trust requiring the trustees to retain ownership in the corporation or mandating the stock of the corporation be closely held within the family. The trust, however, authorizes the trustees, in their sole discretion, to retain for any length of time and under any circumstances any securities or other property received from James Copley, his estate or any trust he established, among other sources mentioned, “whether or not such securities or other property are of a type or quality or constitute a diversification considered proper for trust investments and the trustees shall not be liable for any such retention.” (Trust Art. XII, par. 3.) Other trust provisions authorize acquisition of property from the executor, administrator or testamentary trustee of James Copley’s estate, “although the acquisition of such property may result in a large percentage of the trust estate of any trust hereunder being invested in one class of property.” (Art. XII, par. 3.) The trust specifically mentions Copley Press stock and securities as assets which may be retained for as long as the trustees deem advisable. Further, to fulfill James Copley’s desire, so far as is practical, to assure Janice and Michael will receive substantial income from their shares of the trust, and reciting awareness the common stock of The Copley Press, Inc. may not meet this goal, the trust authorizes the trustees, if on Helen Copley’s death a major portion of the trust estate consists of stock in that corporation, to allocate such stock to the extent possible to the share of David Copley and other assets to the shares of Janice and Michael, or to recapitalize Copley Press to create a class of stock with reasonable preference as to dividends for allocation to the shares for Janice and Michael.

In this connection, the trust also provides: “The Trustees are expressly authorized to take or not take any such action in their sole and absolute discretion, provided the fair value of the assets allocated to each share is equal. The decision of the Trustees as to any action of the type described in this paragraph, and as to fixing of the value of assets for purposes of allocation, shall be conclusive and binding on all parties interested in the trust.” (Trust Art. V, par. (a).)

The trust instrument gives the trustees broad powers, stating: “The Trustees are hereby authorized and empowered from time to time to sell at public or private sale, assign, pledge, mortgage, exchange, contract with respect to [szc] option, lease .. . protect, partition, dispose of [s/c] transfer, or deliver any and all property, real and personal, held by them in any trust hereunder, upon such terms as the trustees, in their sole discretion, may deem advisable for the best interests of said trust.” (Trust Art. XII, par. 3.)

In imposing upon the trustees the duty to pay all death and other taxes on account of the trust if the residue of James Copley’s estate does not pay these sums, and to pay all his debts and administrative expenses as well as taxes to the extent funds are not available in his estate or cannot be obtained by his estate without sacrifice, the trust confers on the trustees “complete discretion in determining the amount of such taxes, debts and expenses payable by the trusts hereunder, and the Trustees shall be fully protected in paying out of such trusts any such sums for said purposes as shall be requested in writing by such Executors or Administrators.” (Art. XII, par. 13.)

On this subject, the trust provides, in addition: “The Trustees shall, upon written request of the Executors or Administrators, advance to or reimburse the Executors or Administrators for such sums or any portion thereof, except that the Trustees may, in their discretion, pay any portion or all of any taxes direct to the taxing authority. All such sums shall be charged against and paid from the various trusts provided for herein in proportion to the values of their assets on the date of the payment, except that no inheritance, estate or succession taxes payable by reason of the Grantor’s death, or debts or expenses or advances or reimbursements to the Grantor’s Executors or Administrators for payment of such taxes, debts or expenses, shall be paid from or charged against the Marital Trust. The Trustees shall be fully protected in any action taken or omitted to be taken by said Executors or Administrators in contesting or failing to contest the legality, propriety, or amount of any such debt, expense or tax.” (Art. XII, par. 13.) The trust agreement further states: “The Trustees shall at all times exercise the powers and discretions granted to them by this agreement, or by law, subject to their fiduciary duties, and all such discretions and powers shall be exercised in a reasonable manner.” (Art. XII, last par.)

During Mr. Copley’s lifetime, Helen Copley was neither an officer nor a director of the corporation, but after his death, she assumed the position of chairman of the board of directors and chief executive officer of the corporation. Upon taking control of Copley Press, Helen Copley quickly moved to restructure the board of directors, the executive committee of the board and the top management of the corporation. Her working relationship with Michael and Janice Copley deteriorated. Her ability in managing the corporate affairs was markedly high. The court’s memorandum opinion states: “Events which had transpired in the operation of Copley Press in those nineteen months [following James Copley’s death] should have made it obvious to the Trustees that the business had appreciated in value even beyond optimistic earlier projections. .. .

“Trustees have performed admirably with regard to their management of Copley Press, Inc. Trustee Helen K. Copley has demonstrated outstanding executive ability in placing Copley Press in a sound, profitable position today with a remarkable potential for future success.” No contrary opinion is voided in regard to Helen Copley’s admirable management of Copley Press.

It should be noted, too, that the dividends paid to the nonmarital trust since Helen Copley took control have been sufficient to meet the obligations of the nonmarital trust to pay $100,000 annually to Jean Erdman and also to provide reasonable support for the children. No contest is made on this issue.

As admihistratrix, Helen Copley obtained the maximum extension for filing the federal estate tax return which was filed on January 6, 1975, and made the following declaration of tax liability:

Gross estate $33,733,380 Funeral and administration expenses (350,118) Debts, mortgages and liens (1,260,466) Marital deduction (15,942,498) Charitable deduction (11,000) Exemption (60,000) Taxable estate $16,109,298 Federal estate tax before credits 10,792,360 State death tax credit (2,053,888) Net federal estate tax $ 8,738,472

Helen Copley employed the appraisal firm of Marshall and Stevens to fix the value of the corporation. On the basis of this December 1974 appraisal, on the January 1975 estate tax return Helen Copley showed the 1,725,000 shares of Copley Press held in the inter vivos trust to be valued at $17.50 per share, or a total value of $30,187,500 and the 8,501.25 shares of preferred stock held by the trust were valued at $55 per share, with a total value of $467,569. The remainder of the gross estate consisted of assets received in the probate estate which totaled $3,078,311. Of the debts, mortgages and liens, the primary debt was that due Jean Erdman in the amount of $1,111,710.

In valuing these assets, neither Helen Copley nor her attorneys contacted potential buyers for their estimate of the corporation’s worth. Under authority of the federal estate tax law (Int. Rev. Code, § 6166), Helen Copley worked out an installment payment of the taxes in ten equal annual payments commencing nine months after death. The first two installments of federal estate tax attributable to the stock and all the estate taxes attributable to other assets were paid on July 7, 1975. This amounted to $2,735,889 including interest of $232,816. On the same date, the estate paid California inheritance taxes in the amount of $2,053,888. All of these taxes were calculated and paid on the basis of the $17.50 per share common stock valuation figure.

In order to raise this amount of money, certain assets of the nonmarital trust had to be liquidated since, under the terms of the trust agreement, the nonmarital trust was obligated to pay these debts.

Soon after James Copley’s death, Helen Copley formed a conditional opinion the death taxes should be funded, if at all feasible, by a stock redemption plan so that the cash could be raised for payment of these debts without the sale of stock to outside persons. This would retain the control of the corporation within the family unhampered by outside influences. During the first weeks following James Copley’s death, when Helen Copley and Thomas Ackerman served as co-trustees, they discussed the nature of a redemption and the tax implications of the various means of raising the necessary funds to pay the death taxes. James Copley had also discussed this matter with Ackerman before his death and had expressed a hope that these expenses could be met by redemption of the stock under the provisions of Internal Revenue Code section 303, permitting the income tax benefit for certain exchanges between a corporation and its shareholders of granting sale rather than dividend treatment where the exchanges are made in order to pay death taxes and deductible administration expenses. The board of directors of the corporation, Helen Copley then serving as chairman of the board, approved the redemption plan on October 30, 1974, subject to obtaining favorable revenue rulings from the Internal Revenue Service and consent from Wells Fargo Bank, the corporation’s principal creditor. On May 9, 1975, the Internal Revenue Service issued a favorable ruling stating the proposed redemption satisfied the requirements of section 303 of the Internal Revenue Code. The trustees and the corporation then executed a redemption agreement for purchase by the corporation from the nonmarital trust of 672,133 shares of common stock for the stated value for estate tax purposes ($17.50). The sales agreement, however, provided the purchase price would be increased if the federal estate tax auditors increased the value of the stock.

Based on the value of $17.50 per share, the agreement provided for purchase of the 672,133 shares of stock for a total purchase price of $11,762,327.50 payable $200,004.91 in cash and by a 10-year, nonnegotiable, subordinated installment note in the face amount equal to the difference between the purchase price and the cash down payment. The corporation covenanted not to cancel the shares or restore them to the status of authorized but unissued shares until the shares were released from a pledge agreement securing the corporation’s performance under the redemption plan. Installments on the note were made to coincide with the payment schedules of the federal tax installment due dates.

The trustees argued vigorously with the Internal Revenue Service for adoption of the lowest possible figure. After extensive examination of the corporate assets by the Internal Revenue Service and conferences between the parties and their counsel, in October 1976, the Service assessed the value of the estate upward and on February 7, 1977, the Service and the estate executed an agreement as to final determination of tax liability. It was agreed the common stock of the corporation, as a block, had a fair market value at the date of death of $60,629,000 or $35.147246 per share. The corporation then issued to the nonmarital trust an adjusted promissory note reflecting the stock value of $35.147246 a share with principal and interest payments again geared to the revised installments owed by the nonmarital trust under the final determination of the federal estate tax liability. The number of shares redeemed in this revised transaction remained 672,133.

On April 4, 1978, the trustees caused the corporation to redeem an additional 102,474 shares of Copley stock. The shares were redeemed on a pro rata basis from the marital trust and the nonmarital trust as the respective holdings bear to the total outstanding shares. The value assigned to the shares was the revised value used for federal estate tax purposes. The second redemption resulted in 83,946 shares being redeemed from the marital trust and 18,528 shares being redeemed from the nonmarital trust. This redemption was functionally the equivalent of a dividend payable to each of the trusts but was treated as a tax exempt redemption under Internal Revenue Code section 303. In this regard, it was the contention of the objectors that if the nonmarital trust had received the proper value for its stock in the first redemption, it would have possessed a greater number of shares of the corporation at the time of the second redemption and, therefore, its pro rata share of the total proceeds of the second redemption would have been greater and the nonmarital trust would have received more cash.

When Helen Copley assumed control of the corporation, the other directors served more or less at her pleasure. Four attorneys designated as “trust assistants” serving the respective trusts personally or through their law firms were also either the personal attorneys of Helen Copley or employed as attorneys for the corporation. Three of the trust assistant attorneys were members of the board of directors of Copley Press throughout their time as such assistants.

After trial, the court found the value of the common stock at the date of the first redemption was undervalued and should have been fixed at $58 per share. It determined the nonmarital trust should be compensated for the differential. It held the trustees were willfully negligent in failing to know the $17.50 per share price was grossly below the realistic fair market value of the stock on May 21, 1975, the date of redemption. It determined that even the adjusted value of $35.147246 per share was inadequate, citing the following reasons:

“a. Unnecessarily and extremely high operating expenses of Copley Press which had been incurred for some time prior to the death of James S. Copley were detrimental to net profits of Copley Press. Any prospective buyer of Copley Press stock would have recognized the potential for eliminating and/or reducing many of these expenses.

“b. The Copley Press capital improvement program initiated by James S. Copley was about to bear fruit when the redemption decisions were made by Helen K. Copley. One time costs, such as new equipment and plant, severance for excess employees, plus an unusual newsprint shortage, adversely affected Copley Press profits in 1973 and 1974. It should have been obvious to the Trustees of the Non-Marital Trust and any prospective purchasers that these problems would be of short duration.

“c. During the 19-month period from the date of James S. Copley’s death on October 6, 1973, to the date of the Copley Press stock purchase on May 21, 1975, there was an active and ongoing interest by buyers of newspaper properties.

“d. The market areas for the several Copley Press newspapers demonstrated to the Trustees of the Non-Marital Trust the great potential for ■ future profits.

“31. Many other actual transactions involving the purchases and sales of newspaper properties illustrated the potential for realizing as much as 80 percent of the sales price being allocated to goodwill in the sale of a newspaper business. The Internal Revenue service settlement valuation of $35.147246 per share failed to consider the near unique market for newspaper properties in this country.”

Because the stock was undervalued for purposes of the redemption, the nonmarital trust was obliged to sell 672,133 shares rather than 407,304. The result is the nonmarital trust retained only 190,367 shares rather than 455,196. This, of course, makes a substantial difference in the income it might expect to receive from dividends, as well as the relative holdings of each trust, hence the value of the remainder as a voting block. Using the $35.147246 price for redeemed stock, the interests of the marital and nonmarital trusts are 81.91918 percent and 18.08082 percent, respectively; using the court fixed value of $58 a share as the price for redeemed shares, the respective trust interests are 65.455 percent and 34.545 percent.

To adjust for this inequity, the trial court ordered the marital trust to transfer 173,346 shares to the nonmarital trust, thus increasing the total shares of the latter to 363,713 and reducing the shares of the marital trust to 689,154. This brings the respective interests into proper proportion, i.e., 65.45515 percent and 34.54485 percent.

The court also found it was necessary for the marital trust to transfer the dividends it had received on those 173,346 shares between the date of redemption to the time of the trial court’s decision, July 17, 1978. This sum was $364,488.20. In addition, the marital trust would have to pay all dividends on those shares received after July 17, 1978, until the 173,346 shares were delivered.

In order to correct the inequities occasioned by the second stock redemption on April 4, 1978, which was based on improper holdings, the court determined the corporation should have redeemed an additional 16,872 shares from the nonmarital trust (a part of the 173,346 found to be properly a nonmarital trust asset) and ordered that number of shares delivered to the marital trust from the nonmarital trust. The redemption price paid the marital trust for those 16,872 shares should be paid by it to the nonmarital trust. That sum is $593,004.34.

The dividends received by the nonmarital trust after July 17, 1978, until the 16,872 shares are delivered to the marital trust are also to be delivered to the marital trust.

All payments bear interest at the legal rate of 7 percent per annum until paid.

Additionally, the court ma^e the following finding:

“As a result of the consummation of the Copley Press stock purchase, the Trustees:

“a. did not properly discharge their fiduciary duties and obligations to the beneficiaries of the Non-Marital Trust, did not reasonably exercise their discretions and powers under the Copley Trust, and breached and violated their Trustees’ fiduciary obligations owed to the beneficiaries of the Non-Marital Trust and the Trustees’ conduct thereby constituted a constructive fraud against the beneficiaries of the NónMarital Trust;

“b. failed to act in the highest good faith toward the beneficiaries of the Non-Marital Trust;

“c. enabled Helen K. Copley to obtain an advantage over the beneficiaries of the Non-Marital Trust; and

“d. used and dealt with Non-Marital Trust property for the benefit of Helen K. Copley.

It also made this finding:

“In addition to the Trustees’ actions in connection with the Copley Press stock purchase and their breaches of fiduciary duties, the hostility exhibited by the Trustees towards cross-complainants, the antagonism existing between the Trustees and cross-complainants, the Trustees’ concern for protection of their personal interests instead of actively determining and serving the needs of all of the beneficiaries of the Non-Marital Trust, the unwillingness of the Trustees to supply cross-complainants with information concerning the administration of the Non-Marital Trust except under court order and the inevitable conflict between the Trustees and cross-complainants which may result in the future, all make it essential for an independent fiduciary to be appointed to administer the Non-Marital Trust. Accordingly, Helen K. Copley and Joseph P. Kinney should forthwith be removed as Trustees of the Non-Marital Trust.”

The General Approach to Issues

As in so many types of cases, the touchstone to any court’s resolution of this case is determining what was James Copley’s intent as expressed in his May 1973 trust agreement. It is a duty of the courts to carry out that intent once determined. Rules pertaining to this subject were aptly summarized by the court in Wells Fargo Bank v. Huse (1976) 57 Cal. App.3d 927 [122 Cal.Rptr. 522], as follows (at p. 932): “[T]he paramount rule in the construction of wills, to which all other rules must yield, is that a will is to be interpreted according to the intention of the testator as expressed therein, and this intention must be given effect as far as possible [citations]. For interpretive purposes, there is no distinction between inter vivos and testamentary trusts. As the court put it in Brock v. Hall (1949) 33 Cal.2d 885, 889 . . . : ‘the primary duty of the court in construing all documents is to give effect to the intention of the maker, and we can see no justification for any distinction in this regard between instruments operating inter vivos and those taking effect at death since the intention to be gathered from similar words or provisions, whether they be contained in a declaration of trust or a will, would ordinarily be the same.’ (See also: Estate of Russell, supra [69 Cal.2d 200, 205]; Vincent v. Security-First Nat. Bk. (1945) 67 Cal. App.2d 602 . ...)

“The centerpiece of interpretation, of course, is the langauge contained in the will or the trust document. One of the axioms is that words are to be taken in their ordinary and grammatical sense, unless a clear intention to the contrary can be ascertained (Estate of Thompson (1937) 18 Cal.App.2d 680, 684 ... ). Where an instrument has been drawn by one skilled in the law, the presence of legal technical terms is an indication that the legal term of art has been used, and therefore is to be accepted, in accordance with its legal definition (Estate of Thompson, supra [64 P.2d 984]; Maud v. Catherwood (1945) 67 Cal. App.2d 636, 641 ...).”

What do we know James Copley intended by the trust instrument? Among other things, we know he intended:

1. Helen Copley, his wife, will be a co-trustee of the trust holding all the Copley shares at his death.

2. Helen Copley as co-trustee will be possessed of all but a few powers and all the protections conferred by the instrument on the trustees.

3. The co-trustees will have sole discretion as to whether to retain the Copley Press shares in the trusts.

4. Helen Copley will have the benefit of the dividend income generated by at least one-half of the Copley Press shares beginning at his death and continuing until the co-trustees, in their discretion, change the asset structure of the trusts or other events occur.

5. Helen Copley is also entitled to share in the income generated by the assets of the nonmarital trust.

6. Helen Copley’s interest in the income of the marital and nonmarital trusts will continue for her life.

7. Only the assets of the nonmarital trust will be used to pay the death taxes and most likely the expenses of administering his probate estate and his debts; the assets of the marital trust will not be touched for these purposes.

8. Janice Copley and Michael Copley, for their lives, will have the benefit of discretionary, then substantial, income derived from the assets of the nonmarital trust left after the death taxes, expenses of adminisntration and debts are paid.

9. David Copley will have the benefit of discretionary income from the nonmarital trust until Helen Copley dies, at which time he will begin to receive one-third of the nonmarital trust’s corpus if he is of designated age; and after Janice and Michael die, David (or his issue) will receive the remainder of that trust’s corpus.

Although they are not expressed in the instrument, certain facts bearing on James Copley’s intent are important to remember while analyzing the issues of this case. Those facts include James Copley’s having fully funded the trust before his death with the Copley Press shares through which he was able to and did control the corporation just as his father had controlled the same corporation. Also bearing on the issues we consider is the fact that within five months of his death, knowing he was terminally ill, James Copley placed his wife in a position as trustee with full power to vote the shares and from which she was empowered to exercise the same control of the corporation as he then had. That he contemplated retention of the corporation’s shares in the trust is strongly shown by the trust’s provision authorizing the trustees to recapitalize the stock of the corporation after Helen Copley’s death in order to provide Janice and Michael Copley with substantial income on their respective shares of the then divided nonmarital trust.

The Conflict of Interest

The trustees contend the trial court erred in finding a conflict of interest arose by Helen Copley’s serving both as- co-trustee and administratrix, and by entering into the redemption agreement establishing a price per share equal to the estate tax valuation. Initially, it should be noted the trustor expressed a desire Helen Copley assume a role with conflicting interests. It is error for the court to use this as a basis for obviating the intent expressed in the trust. The role of administratrix would have obligations in this case comparable with those we see inherent in the role of trustee and principal oificer of the corporation.

The interest identified in the trial court’s finding as the subject of the conflict, the price per share, is not truly descriptive of the interest vitally involved. The vital interest of prime importance to the estate and the trusts at the time of the redemption was the amount of the death taxes. Those taxes had the potential of diminishing substantially or even eliminating the nonmarital trust which bore the burden of paying the taxes on the entire estate. It was clear from the moment of James Copley’s death that the value of his estate would result in application of the maximum 77 percent death tax rate. If the value of the stock is fixed too high, most if not all assets of the nonmarital trust would be consumed to raise the funds as a result of disposal of the only assets capable of making such large tax payments, i.e., the stock of the corporation. This realistically, at a minimum, could have impaired the ability of the nonmarital trust to make income payments to the beneficiaries, or put the effective control of the corporation in the hands of another and subjected it to less effective management, ultimately injuring the income and corpus beneficiaries of both trusts. A glance at the amount of death taxes based on the $17.50 per share figure, over $11 million ($30,187,500 common stock value), compared with the amount of such taxes based on the $35 plus per share figure, just under $23 million ($60,629,000 common stock value), demonstrates the potentially devastating multiplier effect attending valuation of the corporation. We are informed that if death taxes were figured on stock valued at $58 per share, the amount due would have been $38 million ($100,050,000 common stock value).

Any personal representative of an estate, personally responsible for payment of large sums of death taxes (see Int. Rev. Code, § 2002; and see Rev. & Tax. Code, § 14101), would share an identical interest of a trustee responsible by the terms of the trust for coming up with the money to pay those taxes from a particular trust the assets of which the trust must also preserve. That interest is to keep the amount of taxes as low as possible based on the applicable law and the factual circumstances then existing (see Estate Planning for the General Practitioner (Cont.Ed.Bar 1979) § 20.1, p. 725).

Here, at the time of the redemption, the administratrix and the trustees had the benefit of an appraisal creating a death tax liability which the nonmarital trust (really the corporation since the stock was the trust’s only asset) could arrange to pay without suffering an undue burden. Yet, a tax value acceptable to the Internal Revenue Service had not been fixed at that time. It would have been folly to permit the resolution of stock value in adversary proceedings between antagonists before that tax was determined. To open the door to such a public debate at that time undoubtedly would have piqued the interest of the Internal Revenue Service and resulted in that agency appraising the stock higher than it would otherwise. We recognize there is no certainty of this result, but the practice of the agency leaves little doubt as to what its approach would be here and good counsel would caution the trustees on this strong likelihood. The amount of taxation and the ability to pay at the higher level could be an insurmountable burden.

In keeping this matter of valuation closely within the triad of the probate administration, trust management and corporate operation until the value was finally fixed for death tax purposes, Helen Copley as administratrix and as a co-trustee conducted herself with appropriate circumspection in working toward the goal, common to each role, of establishing the death taxes with finality in an amount as low as the law and the facts then applicable would permit. There was no conflict of interest in Helen Copley’s assuming the duties of administratrix and working toward this goal by acting simultaneously as a trustee entering into the redemption agreement with the corporation. Had she done otherwise, and jeopardized the financial well-being of the corporation, trust and probate estate by urging or encouraging a higher valuation before the death taxes were fixed, her competency to act in either capacity could have been subject to serious question, and her potential liability most likely would have been far greater than it was in acting as she did (see, e.g., Annot. (1976) 68 A.L.R.3d 1265, Trustee’s Overpayment of Estate Taxes; see also Annot. (1974) 55 A.L.R.3d 785, Executor-Liability for Tax Overpayment).

Similarly, the obligation to minimize the income tax effect by utilizing the Internal Revenue Code section 303 redemption agreement procedure was an obligation Helen Copley was required to observe. To have attempted a sale to third persons would have had tax consequences necessarily avoided by the redemption.

The trial court erred in concluding an irreconcilable conflict of interest resulted from Helen Copley’s assuming the position of administratrix with the will annexed and, as a trustee, by entering the redemption agreement establishing a price equal to the estate tax valuation.

The Court-fixed Value

There is error in the trial court’s finding deeming the $17.50 per share price “grossly below any realistic fair market value of the per share value of said stock at the date of death of James S. Copley on October 6, 1973 and at the date of the Copley Press stock purchase on May 21, 1975....” The quoted portion of the finding recites as a preamble that this conclusion is drawn “[i]n light of prices paid for newspaper properties at or near the date of death of James S. Copley.” The preamble alone does not permit drawing the conclusion the court made about the value of the Copley Press shares on May 21, 1975, 19 months after the date of death, for it refers only to prices paid for newspaper properties “at or near the date of death of James S. Copley.” We cannot accépt this finding as having bearing on the price per share on May 21, 1975, when the redemption agreement was executed.

Although we hold defective the trial court’s finding the May 21, 1975, per share price was “grossly” low, we cannot overturn its finding $58 per share was the stock’s value on that date as the trustees urge us to do. There was substantial evidence of a wide range of valuation figures from which it was reasonable for the trial court as trier of fact to infer $58 was the May 21, 1975, value. Accordingly, we deem this factual matter sufficiently established and supported by the findings we have quoted above at page 267. We have concluded, too, it is unnecessary to address what may be viewed as an indirect attack by the trustees on this stock value figure based on the trial court’s failure to apply a discount figure to the valuation of the stocks redeemed because they represented minority shares. The figure established after the adversarial negotiation with the Internal Revenue Service applied no such discount, and we are not directed to appropriate points in the record showing this issue was preserved for appeal. A request for a finding of the “fair market value of a block of 672,133 shares of ... common stock on May 21, 1975,” does not sufficiently apprise the court of the nature of the request. Nor do we address the trustees’ attacks based upon the trial court’s failure to make findings on stock valuations as of October 6, 1973, for such findings were not essential to resolution of the crucial issue, the fair value of the shares on May 21, 1975, when the redemption agreement was executed. We must accept the $58 per share figure found by the trial court as the fair market value of the common stock on May 21, 1975.

The Outside Sales

As we have implied in our discussion above, the trial court cannot be sustained in its finding the trustees abused their discretion by failing to consider the detriment to the nonmarital trust’s beneficiaries through use of the Internal Revenue Code section 303 redemption at substantially less than the market value “and by failing to consider the possible benefit to the beneficiaries through the method of selling Copley Press common stock to ‘outsiders’ at the fair market value of such stock.” While dealing with this difficult matter of valuation before the death tax valuation was fixed it would have been highly questionable in terms of preserving the trust estate by endeavoring to keep the death taxes low for the trustees to “let the shares out to bid,” thus calling for a free market determination of value (see Rubber Research, Inc. v. C. I. R. (8th Cir. 1970) 422 F.2d 1402, 1406). Putting the shares out for bid or discussing such a sale when the buyers are not seriously locked into a purchase often provides a misleading evaluation and its real value is highly speculative. At this point, the trustees were still working on the premise an Internal Revenue Code section 303 redemption could be effected. Had competitors been offered an opportunity to help boost the valuation by making offers without obligation to buy (and very likely causing additional tax burdens), there is no way of telling how high the bidding might have gone. The taxing authorities would have had a field day and, should the value be fixed too high for death tax purposes, the death knell of the nonmarital trust and the corporation could well have been sounded as the consumptive 77 percent tax rate applied itself to the higher total valuation. In addition, had the trustees performed as urged by the objectors by selling all the nonmarital shares to third parties in order to obtain a better price, and had they obtained $58 or more per share, significant income taxes on the capital gain would have been incurred and the corporate well-being from both financial and control standpoints further jeopardized.

On the basis of either form of jeopardy, it was reasonable in this complex matter and fully within the trustees’ broad power to reject consideration of outside sales.

The outside sale consideration properly played no role in the trustees’ approach to death tax fixing and payment, and it should have been of no concern to the trial court in determining whether an abuse of discretion occurred. This finding of abuse thus must fail.

The Use of Internal Revenue Code Section 303 Redemption

A necessary corollary of our conclusion of error in the finding of abuse of discretion in not considering “outsiders” in conjunction with the redemption is the conclusion there was no abuse of discretion in the trustees’ using the Internal Revenue Code section 303 redemption to fund the nonmarital trust’s death tax obligation. The finding in question expressly and correctly acknowledges the power to do so is reposed in the trustees subject only “to their fiduciary duties, and all such discretions and powers [must] be exercised in a reasonable manner.” Since we have eliminated the failure to go to “outsiders” as an element of impropriety, it is clear from the remainder of the finding, which is correct, the exercise of the power was no abuse of discretion by the trustees.

The Statutory Fiduciary Duties

The trustees contend the trial court erred in concluding Civil Code sections 2228, 2229 and 2231 were violated by the trustees engaging in the redemption agreement. The court’s conclusion was, by engaging in the stock purchase the trustees failed to act in the highest good faith toward the beneficiaries (Civ. Code, § 2228), and Helen Copley as co-trustee used and dealt with the nonmarital trust property for her own profit (Civ. Code, § 2229) and she used the influence her position gave her to obtain an advantage over the beneficiaries of the nonmarital trust (Civ. Code, § 2231). We hold these conclusions cannot stand, for they ignore the plain meaning and operation of the trust as James Copley intended it to be carried out.

Quoting with approval from 2 Scott on Trusts, section 170.1, page 1321 (formerly p. 1213), the California Supreme Court in Estate of Thompson (1958) 50 Cal.2d 613 [328 P.2d 1], has said (at pp. 616-617): “‘By the terms of the trust the trustee may be permitted to do what in the absence of such a provision in the trust instrument would be a violation of his duty of loyalty.’ The cases in other jurisdictions involve for the most part real estate transactions wherein the trustee might make an individual profit by buying and selling property to and from the trust. The basic policy in those cases prohibits such transactions (Civ. Code, § 2229), but this policy is deemed to have been overridden where in conflict with a specific direction in the governing' instrument. In the present case the same considerations are present in favor of compliance with the expressed wishes of the testatrix. By imposing her faith and trust in her designated executor and providing for his compensation, the purpose of the policy which might otherwise restrict self-dealing transactions can no longer be accomplished and the policy is no longer a controlling consideration.” (Italics added.)

These principles, drawn from trust law and applied to a will interpretation case, a fortiori apply to the trust interpretation problem at hand (see also Wells Fargo Bank v. Huse, supra, 57 Cal.App.3d 927, 932). The duty of loyalty imposed on a trustee (Civ. Code, § 2228) and the prohibitions against self-dealing by a trustee (Civ. Code, §§ 2229 and 2231) must give way to directions contained in the governing trust instrument.

Here, the trust directed payment of the death taxes and, as slightly conditioned, the expenses and debts involved in the probate administration were to be made from the nonmarital trust containing as its only asset, before any such payment, one-half the shares of Copley Press. Hence, after the prescribed payments are made in these circumstances the known certain result is the marital trust would have a greater percentage of the Copley Press shares than would the nonmarital trust, and the named trustee-beneficiary of the marital trust would thereby obtain a benefit by sharing in a larger percentage of the dividends and by holding a general power of appointment over this larger, more strongly controlling percentage of the corporation than was the case upon James Copley’s death and until the payments are made. Ineluctably, the result was, as stated in the findings: “.... Helen K. Copley thereby consolidated her absolute control of Copley Press and rendered her personal position unassailable. Helen K. Copley also personally benefitted because such purchase had the effect of causing increased dividends to be paid to the Marital Trust, as described in Paragraph 41 hereof, and had the effect of causing increased redemption proceeds to be paid to the Marital Trust in the ‘second redemption’ . .. . ” This inevitable result can and should be viewed, as well, as a direction contained in the trust instrument. The conclusion necessarily follows under the rules of the Thompson case, supra, 50 Cal.2d 613, 616 to 617, in carrying out this direction of the trust the trustees committed no breach of the duty of loyalty to the beneficiaries and no violation of the prohibition against self-dealing in the sense of profiting or obtaining an advantage. Nor, in the context of the particular trust terms, the timing and tax payment circumstances involved in this case, can the trial court’s findings and conclusions that the trustees breached their Civil Code section 2228 duty of highest good faith to the beneficiaries be sustained. By reason of the circumstances we have noted, the failure to realize the value was low and to make efforts to appraise the stock value as of May 21, 1975, must be viewed in proper context as not reflecting on the trustees’ good faith “toward” the beneficiaries. Moreover, as we shall discuss in more detail in connection with the matter of the trustees’ removal, the good reasons existing for not furnishing information at the times requested due to the unsettled taxation situation preclude the use of this factor as a basis for concluding the highest good faith standard was breached. Accordingly, the trial court’s conclusions under Civil Code sections 2228, 2229 and 2231 are erroneous and must be disregarded.

The Trustees’ Redemption Date Valuation Efforts

In reaching this holding, we point out this intent and direction of the trust instrument can only be viewed as going to the fact there necessarily would be a relative increase and diminution in the percentages of the share holdings or values of the marital and nonmarital trusts, respectively, and to the attendant personal benefits and detriments connected with those relative value changes. It cannot be said the trust reveals an intent or makes a direction as to the amount or degree of any such relative value changes. Bearing on the latter issue are the trial court’s findings the trustees were “wilfully negligent in failing to know that $17.50 per share was grossly below the realistic fair market value of Copley Press common stock on May 21, 1975,” and: “29. Prior to the consummation of the Copley Press stock purchase on May 21, 1975, neither the Trustees nor any of their attorneys or advisors made any realistic, good faith effort to determine the fair market value of Copley Press stock as of May 21, 1975. Events which had transpired in the operation of Copley Press during the 19-month period after James S. Copley’s death should have made it obvious to the Trustees that Copley Press had appreciated in value from its value on the date of James S. Copley’s death, even beyond optimistic earlier projections. It was unfair to the beneficiaries of the Non-Marital Trust that the $17.50 per share date of death value of Copley Press common stock, as adjusted to $35.147246 per share, was utilized as the redemption price.”

The factors recited by the trial court as bearing on the May 21, 1975, redemption date value, quoted above at page 267, also pertain to the question of the proper relationship of marital trust benefit to nonmarital trust detriment as a result of correct share valuation as of the redemption date. Resolution of this question is primarily a factual matter and, as we have said, there is support in the record for the trial court’s determination $58 was the fair market value of the shares on May 21, 1975. Determination of the correct relative benefit-detriment ratio follows as a matter of mathematical computation. If correct, as they are here, those computations bind us as a factual issue resolved on conflicting evidence by the trial court. Thus, we are bound by the trial court’s factual finding there was no realistic good faith effort in connection with the May 21, 1975, fair market value of the shares.

However, on the finding of negligent failure to know the $17.50 value was low for purposes of the May 21, 1975, redemption agreement, it is only reasonable to gauge the trustees’ duty to know fair market value by a standard taking the then existing circumstances into account. Given the unsettled death tax valuation and considering the trustees’ broad powers as well as the