(CN) – Donald Callender’s daughter, an heir to the “Marie Callender” name, is entitled to a full third of royalties from the name along with her stepbrother and Callender’s widow, a California appeals court ruled.
When Donald Callender died, he stipulated that his trust was to be divided into thirds, with equal portions allotted to his daughter from his first marriage, Cathe, his surviving widow Katy, and his son from his second marriage, Lucky.
The total value of Callender’s estate was approximately $143 million.
By far the most valuable asset owned by the trust are the royalty payments resulting from the licensing of the “Marie Callender” name, valued at $37 million on the estate’s tax return in 2009, and potentially worth far more today.
In court, the beneficiaries disputed how the cash and royalty assets should be distributed.
A federal judge ruled that these assets should be divided based on the “changing-fraction method,” which changed the beneficiaries’ percentage interest after estate taxes were paid.
The trust provided that estate taxes would be allocated to the children, but not to Callendar’s widow Katy.
Therefore, the children’s shares would effectively be reduced to 26-27 percent, and Katy would receive 47 percent of the remaining assets.
Callender’s son by his second wife – Katy – did not challenge the reduction of his distribution, because his mother has promised to leave all of her estate to him upon her death.
But a California appeals court reversed the ruling Wednesday.
“We conclude there is simply no basis for applying the changing-fraction method to the Trust,” Fourth Appellate District Judge David Thompson wrote for the three-judge panel. “It is not found in the trust provisions. There is no evidence to show this was Donald’s intent. In fact, 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.
The attorney who drafted the trust, Jack Barcal, testified, “Don really wanted a third to each,” and said Callender did not intend that the one-third division would change due to taxes. Barcal also confirmed he had never heard of the changing-faction method used in distributing trust principal.
The widow’s claim that the 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.
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