Opinion
A148030
03-27-2018
JODI PUSICH, as Trustee, etc., Plaintiff and Appellant, v. JEFFREY PUSICH, Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Alameda County Super. Ct. No. RP15786857)
Jodi and Jeffrey Pusich are siblings who jointly own rental property that was transferred to them under the terms of their parents' trust following the death of their last surviving parent. In her capacity as trustee of her parents' trust, Jodi filed a petition to partition the property and transfer Jeffrey's share of the sale proceeds to the trust. The probate court denied the petition without prejudice to filing a separate civil action for partition, reasoning that the subject property is no longer owned by the trust.
Because the parties and their parents share the same last name, we will refer to them by their first names. We intend no disrespect by this practice.
On appeal from the order denying her petition, Jodi contends the court erred in finding that the property was distributed free and clear of the trust. She argues that the trust retained a contingent future interest in the property in light of the trust's direction to place Jeffrey's share of the sale proceeds in the trust upon a sale of the property. We agree with Jodi and shall reverse.
FACTUAL AND PROCEDURAL BACKGROUND
Stanley and Theresa Pusich were the parents of Jodi and Jeffrey. They owned a condominium in Hayward (the "Hayward property") that was used as a source of rental income.
Stanley and Theresa executed the Stanley and Theresa Pusich Living Trust (the "Trust") as settlors on January 9, 2007. The Trust established the terms under which the settlors' property would be held during and after their lifetimes. The Hayward property was one of the assets of the Trust.
Article VII of the Trust contains five sections governing the distribution of property to beneficiaries upon the death of the surviving settlor. The first two of these sections provide for cash gifts to the settlors' grandchildren. The third section gives Jeffrey a life estate in property located in San Leandro, with the condition that the property shall be transferred to Jodi if Jeffrey is absent from the property for 90 days or more. The fourth section provides that the Hayward property will be transferred equally to Jodi and Jeffrey, but contains the following condition in the event of a sale: "If the property is sold, JEFFREY PUSICH's share is to be held in Trust as stated below." The fifth section of Article VII specifies that the remainder of the Trust estate is to be divided equally between Jodi and Jeffrey, with Jeffrey's share to be held in the Trust for his benefit. Jodi, as trustee, is to make monthly distributions of $1,500 to Jeffrey until the Trust has been fully exhausted. The Trust provides that additional distributions to Jeffrey may be made in the event of a medical emergency.
The Trust became irrevocable upon the death in February 2013 of Theresa, who was the surviving settlor. Under the terms of the Trust, Jeffrey and Jodi became co-successor trustees. In their capacities as co-successor trustees of the Trust, Jodi and Jeffrey executed a grant deed on May 3, 2013, granting the Hayward property equally to Jeffrey and Jodi. The grant deed was recorded along with an affidavit confirming the death of the surviving settlor.
In late May 2013, Jeffrey resigned as co-trustee of the Trust. He did so at the request of a bank that insisted the Trust have only one trustee as a condition of opening a bank account. Jodi agreed to allow Jeffrey to take responsibility for managing the Hayward property.
According to Jodi, Jeffrey began a campaign of harassment and abuse directed at her within roughly one year after the Hayward property was transferred to them pursuant to the terms of the Trust. Among other things, Jodi found a dead skunk on her doorstep after Jeffrey disputed Jodi's refusal as trustee to reimburse him for expenses he characterized as medical in nature. Jodi complained that Jeffrey had failed to perform maintenance work and other property management duties associated with the Hayward property, had misappropriated money held in a bank account jointly controlled by the siblings, and had been hostile and belligerent in his dealings with Jodi and third parties, including tenants. In a final attempt at reconciliation, Jodi's counsel sent a letter to Jeffrey in April 2015 proposing the terms and conditions on which they would continue to jointly manage the Hayward property. Through her counsel, Jodi offered to continue the co-ownership arrangement as long as Jeffrey's involvement was limited to nothing more than communicating with the homeowner's association and paying the mortgage and property tax. Jodi's counsel wrote that Jodi might seek to compel the sale of the Hayward property if Jeffrey rejected the proposal. Counsel advised that Jeffrey's share of the sale proceeds would not pass to him but would be placed in trust, per the wishes of their parents as set forth in the Trust. Jeffrey did not respond to letter.
Jodi filed a petition in probate court in her capacity as trustee of the Trust seeking a partition and sale of the Hayward property under Code of Civil Procedure section 872.010 et seq. In addition to seeking to sell the property, she sought an order transferring Jeffrey's share of the sale proceeds to the Trust, to be held and administered for his benefit under the terms of the Trust. In support of the petition, Jodi offered a declaration by the attorney who drafted the Trust for Jodi and Jeffrey's parents. The attorney stated that it was very important to the parents that Jeffrey not receive any significant sums of money outright and free of trust because they believed he was not capable of handling large sums of money. According to the attorney, that is why the Trust was structured to provide for his needs without giving him the ability to squander or dispose of the assets. The attorney declared "it would contravene the intentions of the trust settlors and constitute a breach of trust if [Jeffrey] were allowed to receive his share of sale proceeds of [the Hayward property] outright and free of trust."
The probate court denied the petition without prejudice to the petition being refiled as a civil action. The probate court found that "the subject real property is no longer owned by the trust as it had been distributed to the beneficiaries outright and free of trust." This timely appeal followed.
DISCUSSION
The question presented in this appeal is whether the probate court erred in holding that the Hayward property was distributed to Jeffrey free and clear of the trust, thereby extinguishing any contingent future interest the Trust held in Jeffrey's share of any sale proceeds. The answer to this question dictates whether the proceeds of any sale of the Hayward property are distributed outright to Jeffrey or are placed in the Trust for his benefit.
" 'In construing trust instruments, as in the construction and interpretation of all documents, the duty of the court is to first ascertain and then, if possible, give effect to the intent of the maker.' " (Gardenshire v. Superior Court (2005) 127 Cal.App.4th 882, 888.) The interpretation of a trust instrument is a question of law that we consider de novo in the absence of any conflicting evidence offered to resolve an ambiguity in the trust instrument. (Estate of Powell (2000) 83 Cal.App.4th 1434, 1439-1440.) We review the resolution of any disputed facts under the substantial evidence standard of review. (De Anza Enterprises v. Johnson (2002) 104 Cal.App.4th 1307, 1315.)
Here, the settlors' intent was clear. The Hayward property was to be jointly owned by Jodi and Jeffrey but, if for any reason the Hayward property were sold, Jeffrey was not entitled to receive his share of the sale proceeds outright. Instead, his share of the proceeds was to be added to the Trust for his benefit. Not only is this interpretation dictated by the plain terms of the Trust, but it is also consistent with other provisions of the Trust, such as the life estate in a residence and a monthly allowance, which were intended to provide for Jeffrey's wellbeing without giving him the right to control significant sums of money or property.
Because the pertinent terms of the Trust are not ambiguous, we need not resort to extrinsic evidence to interpret the Trust. But even if Trust language were ambiguous, the only extrinsic evidence brought to this court's attention supports the interpretation set forth above. The attorney who drafted the Trust confirmed the settlor's intent to avoid giving large sums of money or property outright to Jeffrey.
Further, interpreting the Trust to distribute the Hayward property to Jeffrey free and clear of the Trust would render meaningless the Trust language directing Jeffrey's share of any sale proceeds to be held in trust. This interpretation violates the rule that the words of a testamentary document must be interpreted if possible to avoid rendering any of its provisions inoperative. (See Estate of Noorish (1933) 135 Cal.App. 166, 167.)
Nothing precludes an owner of real property from creating a contingent future interest in the property upon its transfer to the trustee of a self-settled trust, and giving the trustee instructions to withhold that contingent future interest upon the property's distribution to beneficiaries. (See, e.g., Civ. Code, § 1105 [fee simple title is presumed to pass by grant of real property unless it appears from the grant a lesser estate was intended]; Civ. Code, § 778 [remainder may be limited by contingency that abridges or determines the precedent estate in case the contingency should happen].) The legal significance of the section of the Trust directing Jeffrey's share of any sale proceeds from the Hayward property to be held in the Trust was to create a contingent future interest in the Hayward property (or more accurately, the sale proceeds), with the sale as the contingency that would trigger the Trust's right to reclaim a share of the sale proceeds.
The Trust's contingent future interest was not recorded, but that omission is not critical under the circumstances presented here. "An unrecorded instrument is valid as between the parties thereto and those who have notice thereof." (Civ. Code, § 1217.) The purpose of the law regarding the recording of interests in real property is "to protect those who honestly believe they are acquiring a good title, and who invest some substantial sum in reliance upon that belief." (Beach v. Faust (1935) 2 Cal.2d 290, 292- 293.) That concern is not implicated here. Jeffrey had notice of the Trust's terms. In light of the Trust's plain terms, he cannot claim he believed his interest in the Hayward property was transferred free and clear of the Trust.
Jeffrey contends the outcome of this appeal is dictated by Estate of Dayan (2016) 5 Cal.App.5th 29. We disagree. In Estate of Dayan, the defendant's mother was the grantor of certain real property and through various deeds over the years quitclaimed a one-third interest in the property to the defendant. The defendant had his one-third interest at the time his mother executed a will specifying that "all title, rights and interests" in the property would be transferred to her trust upon her death. (Id. at p. 32.) Following her death, defendant's brother filed a probate petition and sought an order establishing that the mother's estate owned the property in its entirety. Although the brother admitted the defendant had a one-third legal title in the property, he claimed the mother had 100 per cent equitable title at the time of her death. (Id. at p. 33.) The attorney who prepared the will testified that the mother "believed she had full interest in the property," although he acknowledged he did not look for any deeds or research the chain of title when he prepared the will. (Id. at p. 35.) The defendant testified that his mother never requested that he give up his one-third interest. The probate court denied the brother's request for an order establishing that the mother owned the property in its entirety. Based upon the evidence before it, the court reasoned that the mother intended for defendant to retain his one-third interest and for her trust to receive the remaining two-thirds ownership. (Ibid.) The Court of Appeal affirmed, concluding that substantial evidence supported the probate court's findings. (Id. at p. 36.) Among other things, the court noted that the will was silent as to whether the mother had full title to the property, and the testimony of the attorney who prepared the will was unpersuasive in light of other evidence. (Id. at p. 37.)
In this case, unlike in Estate of Dayan, the language of the testamentary document is unambiguous. There is consequently is no need to resort to extrinsic evidence to interpret the settlors' intent. Further, there is no extrinsic evidence in the record before this court, much less substantial evidence, to support a conclusion that the settlors intended to give the Hayward property to Jeffrey free and clear of the Trust. Also, this case is dissimilar from Estate of Dayan in that Jeffrey's share of the Hayward property was not transferred to him before the execution of the testamentary document specifying the manner in which the Hayward property was to be distributed. Rather, the transfer was made pursuant to the Trust's terms and subject to the condition that Jeffrey's portion of the sale proceeds would be placed in the Trust upon a sale of the property. Therefore, Estate of Dayan is inapposite and does not cause us to change our conclusion that the probate court should have granted Jodi's partition petition.
DISPOSITION
The order of February 1, 2016 denying appellant's petition without prejudice to being refiled as a civil action is reversed. The probate court is directed to enter a new and different order granting the petition. Appellant shall be entitled to recover costs on appeal.
/s/_________
McGuiness, Acting P.J. We concur: /s/_________
Siggins, J. /s/_________
Jenkins, J.
Retired Presiding Justice of the Court of Appeal, First Appellate District, Division Three, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution. --------