Code of Civil Procedure (CCP) Section 873.840 – Treatment of Successive Estates

Code of Civil Procedure section 873.840 governs how the court is to distribute sales proceeds when there are “successive estates” upon the property. This can be a tricky situation for the court to manage, as present possessory estates that will eventually terminate can be difficult to actually value.

Code of Civil Procedure section 873.840 states:

(a) The court shall ascertain the proportion of the proceeds of sale that will be a just and reasonable sum for the satisfaction of the estate of a tenant for life or years and shall order such amount distributed to him or held for his benefit.

(b) The court shall ascertain the proportional value of any vested or contingent future right or estate in the property and shall direct such proportion of the proceeds of sale to be distributed, secured, or held in such a manner as to protect the rights and interests of the parties.

(c) Notwithstanding any other provision of this section, in the case of an estate for life or defeasible estate with remainder over, the court may direct that the entire proceeds of sale be placed in trust as provided in this section upon a showing that the establishment of such a trust is economically feasible and will serve the best interests of the parties. The court shall appoint a trustee, upon security satisfactory to the court, who under court supervision shall invest and reinvest the proceeds, pay the income of the investments, if any, to the life tenant or owner of the defeasible interest, and upon termination of the life or defeasible estate, deliver or pay the corpus of the trust estate to the remainderman. The court shall retain jurisdiction over the settlement of the accounts of the trustee and in all matters necessary for the proper administration of the trust and the final distribution of the trust fund.

“Shawn” and “Julie” are siblings who inherit a farm from their grandfather. When their father loses his home, the siblings grant him a life estate in the farm. The father will be entitled to remain on the property and treat it as his own for the rest of his life.

Unfortunately, the siblings begin to feud over property taxes and other aspects related to the farm. Shawn eventually decides to sue for partition. The court allows the partition to go through, and the farm is eventually sold to a third party buyer.

Under section 873.840, the court has two options. First, it can value the life estate and reversionary interests of Shawn and Julie, and distribute the funds accordingly. Or second, it can establish a trust to pay the father portions of the sales proceeds for the rest of his life. This second option is in the discretion of the court.

1976 Addition.

Subdivision (a) of Section 873.840 supersedes former Sections 778–780. Particular aspects of the former sections are preserved in other provisions. See Sections 872.520 (protection of interests of unknown owners), 872.640 (interests of unknown owners considered together), 873.820 (proportionate allocation after costs and expenses). The provision in former Section 778 for prejudgment estimate of the value of a tenancy for life or years which the owner may “consent” to accept is not continued because it is inappropriate under modern conditions.

Subdivision (b) continues the substance of the first portion of former Section 781 and the last portion of former Section 766(2).

Subdivision (c) supersedes the last portion of former Section 781. It makes clear that imposition of a trust under its terms is not mandatory in all cases but is discretionary with the court and then only if the establishment of a trust is both practical and desirable. Contrast Estate of Giacomelos, 192 Cal App 2d 244, 13 Cal Rptr 245 (1961) (imposition of trust mandatory). Investment under this subdivision may be by purchase of other property for use of the parties where appropriate. It should be noted that, in the case of successive life or defeasible estates, the court may be required to formulate a more complex formula for investment and distribution than is specified in the statute.

For an exception to the requirements of Section 873.840, see Section 872.840 (disposition of property subject to an express trust).

As is the case for many of the partition statutes, section 873.840 does not include an “official” Assembly Committee Comment from the California Legislature. But this is the norm. And that’s because the Legislature endorsed an overall adoption of the Law Revision Commission suggestions when it passed the new partition statutes in 1976.

In fact, the introduction to Assembly Bill 1671 (the bill that contained the new partition laws) states that the Revision Commission’s recommendations “reflect the intent of the Assembly Committee… in approving the various provisions of Assembly Bill 1671.” This demonstrates that the intent of the Legislature was essentially in line with that of the Revision Commission.

As to the comment and statute itself, there is quite a bit going on. Recall that under Section 872.210, owners of successive estates are entitled to commence partition actions.

If the court allows the partition to proceed, though, the sales process becomes complicated. This is due to the fact that the court needs to place a value on the present possessory estates and the future estates, and divide the sales proceeds accordingly. Section 873.840 offers little guidance on how exactly this is to be done, other than that the court must come to a “just and reasonable sum.”

That said, for life estates in particular, it should be noted that their respective “value” can be subject to substantial variations depending on the type. As the Fourth District Court of Appeal noted, “There is no question that an owner of a life estate can bring a partition action. However, all life estates are not created equal. Some are referred to as ‘absolute’ meaning that the owner thereof can do almost anything with his interest other than commit waste…. Others are known as determinable or contingent because of various sorts of limitations placed upon the life estate.” (Forrest v. Elam (1979) 88 Cal.App.3d 164, 170.)

In addition, the competing interests between the present and future possessory interest holders in the property does allow for the court to take a unique approach to solving this issue: placing the proceeds into a trust. Litigants should take care to understand, though, that the establishment of a trust from the sales proceeds is an option, not mandatory. The statutes provides that the court “may direct” the creation of a trust, not “must.”

Here at Underwood Law Firm, our knowledgeable attorneys are here to help navigate the complex web of case law and statutes surrounding partitions. If you are thinking of filing a partition, are already in the midst of a partition suit, or just have any questions, please do not hesitate to reach out to our office to learn more about Partition Law.