Opinion
D071241
04-06-2018
EDWARD C. PILLEY, as Trustee, etc. et al., Plaintiffs, Cross-defendants and Appellants, v. SPENCER HARRIS, as Trustee, etc., Defendant, Cross-complainant and Respondent; PATRICIA PILLEY, Defendant and Respondent.
James E. Pilley for Plaintiffs, Cross-defendants and Appellants. Ravin Glovinsky, William W. Ravin, Jason L. Glovinsky and Thomas Ferrell for Defendant, Cross-complainant and Respondent Spencer Harris. SODEN & STENBERGER and Jason W. Coberly for Defendant and Respondent Patricia Pilley.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2013-00052360-CU-CO-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Joel M. Pressman, Judge. Affirmed. James E. Pilley for Plaintiffs, Cross-defendants and Appellants. Ravin Glovinsky, William W. Ravin, Jason L. Glovinsky and Thomas Ferrell for Defendant, Cross-complainant and Respondent Spencer Harris. SODEN & STENBERGER and Jason W. Coberly for Defendant and Respondent Patricia Pilley.
This appeal arises from a dispute over the disposition of the estate of James E. Pilley (Pilley). Pilley was the sole shareholder of a business that operated two residential care facilities. In 2004, Pilley decided to sell one of the facilities and set up a trust, the Pilley Investment Trust (PITv1), to hold the proceeds of the sale, in order to reduce the taxes associated with the sale. Pilley transferred the real property of the facility to the trust and the trustees, Edward and Jayne Pilley, and sold the facility for $1.5 million. Pilley and the PITv1 trustees then executed a private annuity agreement (the PAA), by which the trustees agreed to assign back to Pilley the $600,000 that the trust had received as the down payment for the property, and to pay Pilley the remaining $900,000 from the sale in installments.
Pilley subsequently arranged for the PITv1 trustees to purchase a commercial property with a substantial portion of the proceeds from the sale of the residential care facility, a transaction that was not contemplated by PITv1 or the PAA. Pilley's accountant later realized that this transaction had created unexpected tax consequences. Pilley retained a new estate planning attorney and, in an effort to correct the situation, executed the following documents: a second Pilley Investment Trust (PITv2) funded with $50,000; a secured promissory note (the Note) that required the PITv1 trustees to pay Pilley the remaining $1.45 million of the $1.5 million proceeds from the sale of the Heart Haven facility; a separate trust called the James E. Pilley Separate Property Trust (the JPSPT); and, an assignment of the Note to JPSPT (collectively, the 2009 documents). Upon Pilley's death, the PITv1 trustees asserted that the 2009 documents were invalid and initiated litigation against Pilley's widow, Patricia, and the trustee of the JPSPT, Spencer Harris, concerning the disposition of Pilley's estate.
After a bench trial, the superior court entered a statement of decision and judgment in favor of Harris and Patricia. On appeal, the PITv1 trustees assert that the trial court erred by determining that: (1) the Note and JPSPT were valid and did not improperly modify the PITv1; (2) the PAA created a $600,000 obligation that the PITv1 trustees failed to honor; (3) the Note and the assignment of the Note to the JPSPT were valid and enforceable; (4) Pilley's assignment of certain artwork and another piece of property, the Sumner duplex, to Patricia was valid; and (5) the claims asserted by the PITv1 trustees were barred by Probate Code section 16061.8. As set forth below, we conclude neither the Note nor the JPSPT improperly modified the Pilley Investment Trust; the PAA, the Note, the assignment of the Note, and the transfer of the artwork and Sumner duplex to Patricia are all valid and enforceable; and section 16061.8 is not applicable. We therefore affirm the judgment.
All further statutory references are to the Probate Code unless otherwise indicated.
FACTUAL AND PROCEDURAL BACKGROUND
During his lifetime, Pilley owned and operated a number of residential care facilities. Pilley had three children—Edward, Jayne, and Gail—each of who worked for the family businesses in varying capacities throughout their lives.
The record, at times, refers to Gail by his middle name, Austin.
In 1984, Pilley incorporated his residential care facility business under the name Heart Haven, Inc., and named himself the chief executive and chief financial officer. The corporation issued 10,000 shares of stock to Pilley in exchange for certain assets related to the two facilities in operation at the time, Heart Haven and Azure Hill, but Pilley maintained ownership of the real property associated with the Heart Haven facility in his own name. Pilley remained the sole shareholder of the corporation until its dissolution. Over the years, the corporation purchased the Sumner duplex—an additional parcel of real property near the Heart Haven facility—and a significant amount of artwork.
In late 2004, Pilley had extensive heart surgery and spent two months in the hospital. Around the same time, he received an offer to purchase the Heart Haven facility for $1.5 million. The offer specified, for accounting purposes, that $600,000 of the offer was for the value of the real estate and $900,000 was for the value of the business. Pilley wanted to accept the offer but also wanted to reduce the amount of taxes that he would be required to pay as a result of the sale, so his attorney, David Gebhardt, advised him that he set up a trust and private annuity agreement. PITv1, the PAA, and the sale of Heart Haven
On November 3, 2004, Pilley, Jayne and Edward executed the document establishing PITv1. The trust document defines PITv1 as an irrevocable trust, names Edward and Jayne as cotrustees, and states that the purpose of the trust is to provide payments to Pilley under a private annuity agreement granted in consideration of Pilley's transfer of the Heart Haven real property to the trust. Schedule A lists the initial trust assets to include $10 and Pilley's interest in the real property associated with the Heart Haven facility.
Under the terms of the trust, Pilley could make additional gifts during his lifetime that the beneficiaries would be permitted to withdraw immediately. However, section 4.2 of the trust specifies, "[so] long as the trust continues, the trustee shall apply so much of the principal and income of the trust remaining after the withdrawals [of any such gifts] as may be necessary to pay the sums due on any and all private annuity agreements. If any income remains after those withdrawals, the trustee shall retain the income in trust." Section 4.2 goes on to state that "[a]ll decisions of the trustee regarding payments under this subsection, if any, are within the trustee's discretion and shall be final and incontestable by anyone." Upon Pilley's death, and after the expiration of the trust terms, the trustees were to distribute any remainder of the trust estate to Edward, Jayne, and Gail in equal one-third shares.
After the parties executed the trust, Patricia quitclaimed any interest that she had in the Heart Haven property to Pilley and Pilley transferred the deed to the PITv1 trustees. In December, the PITv1 trustees transferred the deed to Yousef and Randa Kurdy, the purchasers of the Heart Haven facility. In exchange, the Kurdys made a down payment of $600,000 and executed a 10-year note, payable to PITv1 and secured by the Heart Haven property, for the remaining $900,000. The note required the Kurdys to make monthly payments of $9,545.90, including interest, at a rate of 5 percent.
In January 2005, Gebhardt sent Pilley and the PITv1 trustees copies of the PAA, which required PITv1 to pay Pilley for the Heart Haven facility. The parties did not execute the PAA at that time.
After the sale of Heart Haven, Pilley decided that rather than keeping the $600,000 down payment from the sale, he wanted PITv1 to use the down payment to purchase a commercial property in El Centro, in an Internal Revenue Code section 1031 tax-deferred exchange. Gebhardt informed Pilley that the trust and the PAA were not set up for this type of transaction and advised Pilley to seek additional advice before proceeding with the proposed transaction. Despite this admonition, the PITv1 trustees used the $600,000 as a down payment to purchase the El Centro property, and took out a loan for $850,000 to cover the balance of the purchase price. The resulting deed, issued in June 2005, granted title to the El Centro property to Edward and Jayne, as the PITv1 trustees.
On July 8, 2005, the parties executed the previously drafted PAA. The PAA has an effective date of November 3, 2004, concurrent with the effective date of the PITv1. The PAA specifies that Pilley agreed to transfer the Heart Haven property to the trustees of PITv1, and that the property had a fair market value of $1.5 million, "less the amount assigned back to [Pilley] of $600,000, for a net value of $900,000." In consideration of the transfer, the PITv1 trustees agreed to annuitize the value of the trust property and to pay Pilley $109,970 per year for 10 years, in equal monthly installments, totaling the $900,000 plus interest at a rate of 4.2 percent. Payments were to be made to Pilley during his life and to Patricia thereafter. As with PITv1, Schedule A lists the trust assets; however, the Schedule A attached to the PAA includes $10 and Pilley's interest in the Heart Haven property, "less a note payable upon sale of the real property to James E. Pilley in the amount of $600,000." Later that same month, Gebhardt sent Pilley a letter detailing his concerns about the Internal Revenue Code section 1031 transaction and Pilley's apparent exercise of control over PITv1, which was established as an irrevocable trust.
In late 2005, Pilley dissolved Heart Haven, Inc., and in 2006, Heart Haven, Inc., executed a quitclaim deed transferring title to the Sumner duplex to Pilley and Patricia, as joint tenants. Pilley and Patricia then executed another quitclaim deed transferring title to the property to themselves as community property with rights of survivorship.
The 2009 documents
Sometime in 2007, Pilley's accountant, Spencer Harris, realized that the various real estate transactions had created a discrepancy with respect to PITv1 and the PAA, and that the discrepancy could have adverse tax consequences. He believed that the original plan had been for Pilley to purchase a commercial annuity using the $600,000 down payment on the Heart Haven property but, instead, the PITv1 trustees used the $600,000 to purchase the El Centro property and took title in the name of the trust, such that there was now more property in PITv1 than originally planned. Gebhardt refused to get involved at this point, so Pilley consulted another attorney, Rick Fenelli, who drafted a number of additional documents in an effort to reflect the transaction as it had actually occurred.
In 2009, based on Fenelli's advice, Pilley executed a second Pilley Investment Trust, PITv2. Fenelli drafted PITv2 as "an intentionally defective grantor trust," to accurately reflect the substance of the transactions that had taken place in 2004, for tax purposes, as well as a gift of $50,000 to the children via the trust. PITv2 is backdated with an effective date of November 3, 2004, to match the date of PITv1. The trust names Edward and Jayne as trustees, but does not call for their signatures and, as a result, they never signed it. Schedule A indicates that PITv2 was funded with $50,000. The PITv2 trust document instructs the trustees not to distribute any principal or income during Pilley's life, but to distribute the entirety of the trust property to Edward, Jayne, and Gail in equal shares upon Pilley's death.
Next, Edward and Jayne, as trustees of PITv1, and Pilley, executed the Note, also with an effective date of November 3, 2004, the same day PITv1 was created and before the sale of the Heart Haven property. The Note requires the trustees of the "Pilley Investment Trust," for value received, to pay Pilley $1.45 million with interest pursuant to an attached graduated loan schedule, and is secured by the Heart Haven property. The Note expressly states that each party acknowledges and agrees that they have read the entire document and "that this Note is entered into freely, voluntarily, and without duress."
The $1.45 million appears to reflect the $1.5 million that the trustees of PITv1 actually received from the sale of the Heart Haven facility, less the $50,000 gifted to Pilley's children pursuant to PITv2.
Finally, Pilley executed the JPSPT and assigned his interest in the Note to the JPSPT. The JPSPT governs the distribution of Pilley's separate, personal estate upon his death, and instructs the trustee to distribute payments under the Note in three shares during Patricia's lifetime—one share to Patricia and two shares divided equally between Edward, Jayne, and Gail—and to distribute the payments in equal shares to Edward, Jayne, and Gail thereafter. The JPSPT also specifies that all artwork assigned to the JPSPT is to be distributed solely to Patricia; Pilley separately assigned any interest that he had in any artwork to the JPSPT. Pilley executed both the Note and the assignment of the Note to the JPSPT in October 2009. However, the assignment of the Note states that the JPSPT was created on November 3, 2004.
The trial court found that there was no issue with any of the relevant documents being "back dated," and plaintiffs do not directly challenge that finding on appeal.
Pilley died in February 2012 and Harris became the trustee of the JPSPT. On June 4, 2012, Fenelli sent a "Notification by Trustee Pursuant to section 16061.7" to Edward, Jayne, and Gail, together with a copy of the JPSPT. None of the children contested the JPSPT at that time. A dispute later arose regarding the payments due under the Note and, in June 2013, Edward and Jayne, as trustees of PITv1, filed a complaint against Harris, as trustee of the JPSPT, and Patricia seeking an accounting and a declaration that they did not owe any money to Pilley's estate or to the JPSPT, among other causes of action. In response, Harris, as trustee of the JPSPT, filed a cross-complaint seeking declaratory relief as to the validity of the various estate documents and also seeking damages from the PITv1 trustees for breach of the Note.
Following a four-day bench trial, the trial court issued a statement of decision in favor of Harris and Patricia. Of importance here, the court found that there was no evidence of fraud or coercion in obtaining the signatures of Edward and Jayne, the PITv1 trustees, on the 2009 documents; the PAA and Note were both valid and voluntarily executed; and the Note remained controlling. With respect to the statute of limitations under section 16061.8, the court found that the action was a contest to the JPSPT, because it challenged payments due to the JPSPT under the Note, and further found that the claims were barred since they were not initiated within the time allotted by section 16061.8. However, the court reiterated that the Note and the JPSPT did not modify PITv1 and were valid and controlling, regardless of the statute of limitations. Finally, the court found that the deeds transferring the Sumner duplex from Heart Haven, Inc., to Pilley and Patricia, and then from Pilley and Patricia as joint tenants to themselves as community property with rights of survivorship, as well as the assignment of the artwork to the JPSPT, were valid and enforceable. The court entered judgment in favor of Patricia and Harris, in accordance with the statement of decision.
Edward and Jayne, as PITv1 trustees, appeal.
I.
DISCUSSION
A. General legal principals
When interpreting the terms of a trust, the court looks first to the intent of the settlor, as established by the four corners of the document itself. (Aguilar v. Aguilar (2008) 168 Cal.App.4th 35, 39 (Aguilar).) The court may also consider extrinsic evidence, such as the circumstances under which the settlor created the trust, in interpreting the trust instrument. (Id. at p. 40.) Similarly, when interpreting the terms of other written instruments, such as contracts or notes, the court looks to the mutual intent of the parties and, whenever possible, determines that intent from the written provisions of the instrument itself. (Civ. Code, §§ 1636, 1637.)
Once a settlor places property in an irrevocable trust, that property becomes the property of the trust and only a trustee acting on behalf of the trust can sell, assign, or otherwise encumber it. (Aguilar, supra, 168 Cal.App.4th at p. 39; §§ 16220, 16226, 16227, 16228.) The trustee must administer the trust based on its written terms, but typically has all the powers necessary to transact business on behalf of the trust, including the ability to make investments with the trust property and to borrow money on behalf of the trust. (§§ 16000, 16047, 16241, 21101, 21102; Moeller v. Superior Court (1997) 16 Cal.4th 1124, 1132.)
B. Standard of review
The interpretation of the terms of a written instrument, such as a contract or a trust, is ordinarily a question of law subject to independent appellate review. (Johnson v. Greenelsh (2009) 47 Cal.4th 598, 604; Broffman v. Newman (1989) 213 Cal.App.3d 252, 257.) Similarly, the interpretation of a statute is a legal question that this court reviews de novo. (Harustak v. Wilkins (2000) 84 Cal.App.4th 208, 212.) However, the appellate court will uphold any relevant underlying factual determinations made by the trial court, as long as the findings are supported by substantial evidence. (See Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 503; Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 632.)
The PITv1 trustees assert that the issues they raise on appeal are almost exclusively issues of law, but a number of their arguments question the underlying factual findings made by the trial court. Thus, we will review the relevant written terms of the various legal documents at issue and any issues of statutory interpretation de novo, while accepting the underlying factual findings of the trial court where supported by substantial evidence.
C. The Note and JPSPT documents are valid and controlling
Plaintiffs argue the express terms of PITv1 precluded Pilley from modifying or terminating the irrevocable nature of the trust, and that the Note and JPSPT are invalid because they improperly modified PITv1 without the necessary consent of the parties and because they are not supported by sufficient consideration.
1. Neither the Note nor the JPSPT modifies PITv1
We first address whether the Note or the JPSPT modified PITv1. The trial court specifically concluded that they did not. That finding is supported by the documents themselves and the associated record.
Contrary to the apparent belief of Edward and Jayne, it is clear that Pilley did not establish PITv1 as a mechanism to bestow the family business upon his children as a gift. Rather, according to the trust document itself, the purpose of the trust was to create an investment from the proceeds of the sale of the Heart Haven facility from which the trustees could transfer those proceeds to Pilley, in part by making payments to him over time, in accordance with the PAA. After executing the PITv1 and taking title to the Heart Haven property, the PITv1 trustees sold the facility to the Kurdys. Although the trust document indicates that Pilley placed only the real property of the Heart Haven facility into the trust, the PITv1 trustees ultimately received both the $600,000 down payment, representing the value of the real property, as well as the rights to the Note obligating the Kurdys to pay an additional $900,000 for the value of the Heart Haven facility business. As set forth in the PAA, the parties agreed that the trustees would immediately assign the $600,000 back to Pilley, and would pay him the remaining $900,000 over time. Thus, all of the proceeds from the sale of Heart Haven were to be paid to Pilley; none were gifted to Pilley's children.
However, because the trustees had used the $600,000 to purchase the El Centro property—and had to retain the title of that property in the name of the trust for purposes of the Internal Revenue Code section 1031 exchange—they were not able to assign those funds back to Pilley, as contemplated. Thus, the parties executed the 2009 documents to more accurately reflect the substance of the transactions that took place in 2004. The Note, which replaced the PAA, required the PITv1 trustees to pay $1.45 million of the original $1.5 million value of the property placed in, and retained by, PITv1; Pilley gifted the additional $50,000 to Edward, Jayne, and Gail in accordance with the terms of the PITv2. Although the Note, and by extension, the JPSPT to which the Note was assigned, affect the liabilities of PITv1, they do not modify PITv1 and, as counsel for plaintiffs conceded at oral argument, both the Kurdy Note and the El Centro property remain the property of the trust.
Plaintiffs also assert that PITv2 improperly modified or replaced PITv1. The two documents do have the same name and effective dates, and according to the briefing in this case, "v2" refers to "version two" of the PIT. Further, at oral argument, counsel for Harris stated that title to the El Centro property is now in PITv2, suggesting that PITv2 superseded PITv1. However, Schedule A of PITv2 indicates that the only property used to fund PITv2 is $50,000; significantly, no language in any of the relevant documents in the record, including PITv2, indicates that PITv2 modified, superseded or otherwise invalidated PITv1. Further, there is no indication in the record that title to the El Centro property was ever transferred from PITv1 to PITv2. Regardless, Pilley placed $1.5 million worth of property into the trust and none of that property has been removed, with the exception of payments made to Pilley pursuant to the PAA, and later, the Note, and the trial court credited these payments against the balance due on the Note. The trial court did not make a finding as to whether PITv1 or PITv2 is controlling with respect to the trust property, and plaintiffs do not claim that the court erred by failing to do so.
Plaintiffs assert that Pilley could not "take back" the property that he placed into the trust because the trust was irrevocable, and that any attempt to do so was effectively an improper modification of the trust. This argument is misplaced, because Pilley never took any property from the trust. As discussed, the stated purpose of PITv1 was to conserve and protect the property placed into the trust, and to provide payments to Pilley under the PAA, in consideration of his transfer of the Heart Haven property to PITv1. The fact that the trustees agreed from the outset to pay Pilley over time for the value of the property that he placed into the trust does not mean that Pilley removed any assets from the trust. To the contrary, the PITv1 trustees were entitled to enter into agreements, including those obligating them to pay debts, and the PAA—drafted concurrently with the PITv1 document—indicates that the intent of the parties was always for the trustees to pay Pilley the full value of the Heart Haven property, in one form or another. (§§ 16000, 16047, 16241, 21101, 21102; Moeller, supra, 16 Cal.4th at p. 1132; cf. Aguilar, supra, 168 Cal.App.4th at p. 40 [settlor cannot change distribution or transfer assets from an irrevocable trust].) The trust property itself, including the proceeds from the sale of the Heart Haven facility and title to the El Centro property, remained the property of PITv1, and the PITv1 trustees were free to invest them as they saw fit for the purpose of generating additional income and complying with the terms of the PAA and, subsequently, the Note.
Plaintiffs claim that Aguilar, supra, 168 Cal.App.4th at page 40, is instructive. There, the settlor's wife attempted to remove her interest in certain real property from a trust by conveying it to herself, as trustee of a separate trust. (Id. at p. 38.) Here, as discussed, no one has attempted to remove, or convey an interest in, any trust property.
Edward and Jayne devote a significant portion of their briefing to the legal question of whether the necessary parties adequately consented to the alleged modification of PITv1, and, in particular, whether section 15404, which permits certain modifications to trusts with the consent of the settlor and all beneficiaries, applies to an irrevocable trust like PITv1. (See § 15404.) The trial court briefly addressed whether the parties had consented to any such modification pursuant to section 15404, but went on to state that the more important fact was that the Note and JPSPT are consistent with, and did not modify, PITv1 in the first instance. As discussed, we agree with the trial court that these documents did not modify PITv1. We therefore need not decide whether section 15404 applies in this context or whether the parties consented to any such modification.
2. The Note is supported by adequate consideration
Plaintiffs also assert that the Note is invalid because it lacks consideration. We disagree. The assignment of Pilley's interest in the Heart Haven property to the PITv1 trustees constitutes adequate consideration supporting the Note. (See, e.g., Blonder v. Gentile (1957) 149 Cal.App.2d 869, 874-875 [written contracts are presumed to be supported by sufficient consideration, the validity of which does not depend on its value].)
Plaintiffs allege that Pilley took back any consideration that was put into the trust and, similarly, that he breached the PAA by removing property from the trust. However, the record indicates otherwise. Edward and Jayne, as trustees of the PITv1, hold legal title to the El Centro property, purchased with some of the proceeds from the Heart Haven sale, and are the holders of the $900,000 note executed by the Kurdys. While there is evidence that certain initial payments from the Kurdys were deposited directly into Pilley's personal bank account rather than into the PITv1 bank account, there is also substantial evidence that the monthly payments were consistently made to the PITv1 trust account thereafter. Thus, although the PAA and, subsequently, the Note, obligated the trustees to pay Pilley all proceeds from the sale of the Heart Haven facility, the property placed in the trust remained in the trust and was adequate consideration for the PAA and the Note.
Although plaintiffs ask us to reverse the judgment, they do not assert that the trial court erred in determining the amount of money actually owing under the Note (assuming that the Note is valid). We therefore do not decide whether the trial court adequately accounted for any payments from the Kurdys made directly to Pilley instead of the trust when determining the exact amount the trustees still owe on the Note.
Plaintiffs argue that none of the payments due under the PAA were mandatory, such that the agreement is illusory. They rely on section 4.2 of the PITv1, which states that the decisions of the trustees regarding payments from the trust are final and incontestable. However, when read in its entirety, section 4.2 also requires the trustees to use as much of the principal and income of the trust as necessary to pay the sums due pursuant to the PAA. If income remains, for example because Pilley made additional gifts to the trust as permitted by section 4.1, then the trustees could make additional payments to the beneficiaries during Pilley's lifetime. Thus, it appears that the provision on which plaintiffs rely was intended to ensure that any decision by the trustees regarding whether there was sufficient principal or income available to allow a beneficiary to make a withdrawal would be final and incontestable. Moreover, the plain language of the document also indicates that the trustees are obligated to make payments under the PAA. We therefore disagree with the assertion of the PITv1 trustees that they had no obligation to comply with the terms of the PAA.
Plaintiffs also point to a clause in the PAA that reads, "both [Pilley] and [plaintiffs] are aware that there are no guarantees that all annuity obligations can be met." This clause does not free plaintiffs of their obligations to carry out their duties in accordance with PITv1 and the PAA; it simply states that the parties are aware of the risks associated with the arrangement.
Plaintiffs point to the discrepancy between Schedule A of the trust and Schedule A of the PAA and, specifically, to the fact that only the latter states that the $600,000 was to be assigned back to Pilley through a note. They assert that the court must construe any ambiguity against Pilley as the drafter. (See Rabinowitch v. California Western Gas Co. (1967) 257 Cal.App.2d 150, 157.) If, as plaintiffs maintain, Schedule A of the trust is controlling, then Pilley placed only the real property of the Heart Haven facility, worth $600,000, into the trust, and the trust was not entitled to the $900,000 in payments made by the Kurdys for the value of the business. However, the Note executed by the Kurdys clearly establishes that the $900,000 was payable to the trustees of the PITv1. Moreover, both PITv1 and the PAA establish that the parties understood that Pilley transferred the property to the trust so that the trustees could sell the property and the business to the Kurdys, and then pay the proceeds of the sale to Pilley over time. The intent of the parties, as set forth in the documents as a whole, is controlling. (Aguilar, supra, 168 Cal.App.4th at pp. 39-40.)
Regardless, Patricia and Harris are not trying to enforce the PAA, and they agree that the Note replaced the PAA, thereby freeing the trustees from any obligations under the PAA. The PITv1 trustees voluntarily executed the Note, and the Note is supported by adequate consideration[ ]specifically, the money used to purchase the El Centro property and the $900,000 Note executed by the Kurdys to the benefit of the "trustees of the Pilley Investment Trust."
Similarly, plaintiffs argue that Pilley had no authority to enter into the Note because he had already placed the collateral into PITv1, an irrevocable trust and, therefore, no longer had any control over it. However, plaintiffs fail to acknowledge that the creation of the trust, and Pilley's agreement to fund the trust with the Heart Haven property, is itself consideration for the PAA and, subsequently, the Note. While it is true that Pilley no longer had any ownership right to, or control over, the property once he placed it into the trust, he placed the property into the trust in the first instance as part of a multi-part transaction that required the PITv1 trustees to pay him for the value of the property. As set forth in PITv1 and the PAA, which was drafted concurrently with, and has the same effective date as, PITv1, the trustees of PITv1 agreed at the time Pilley established PITv1 that they would pay Pilley for his initial transfer of the Heart Haven property into the trust. However, the subsequent purchase of the El Centro property with the $600,000 down payment from the Heart Haven property precluded the trustees of PITv1 from complying with the agreement as set forth in the PAA. To remedy the situation, the parties voluntarily entered into the Note to replace the PAA, accounting for the discrepancy and allowing the trustees to pay Pilley for the value of the Heart Haven property over a longer period of time.
3 . Neither the PAA nor the Note was induced by fraud or duress
Edward and Jayne contend, rather summarily, that the PAA and, subsequently, the Note, were induced by fraud and oppression. The trial court concluded that Edward and Jayne produced no evidence of fraud or coercion, and the record supports that finding. Edward and Jayne were given ample opportunity to review the documents prior to signing them. Jayne testified repeatedly that she would sign essentially anything that her father asked her to, because it was his business and she did not want to upset him. Neither the children's desire to appease their father nor their apparent failure to review the documents before signing them establishes a claim for fraud or duress.
Plaintiffs assert for the first time in their reply brief that Harris should be equitably estopped from enforcing the Note because he concealed material facts about the alleged changes being made to PITv1 in 2009. We decline to address this new argument. (See Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764-766 [appellate court may decline to address new issues raised for the first time in an plaintiff's reply brief].)
4. The assignment of the Note to the JPSPT is valid
Plaintiffs argue that the assignment of the Note to the JPSPT was not valid because the Note, itself, was not valid and also because the terms of the JPSPT conflict with the terms of the PITv1. As discussed, ante, the Note is valid and neither the Note nor the JPSPT removes property from PITv1. Instead, the terms of the JPSPT govern the assets in the JPSPT, and not the assets that remain in PITv1. There is thus no requirement that the terms of the JPSPT be consistent with the terms of PITv1.
D. The Quitclaim Deeds to the Sumner duplex and the assignment of artwork to Patricia
are valid
Plaintiffs assert that the quitclaim deeds transferring the Sumner duplex to Pilley and Patricia are not enforceable because the Sumner duplex was the property of the trust at the time Heart Haven, Inc., purportedly transferred the property to Pilley and Patricia. Similarly, they assert that Pilley's assignment of the artwork to the JPSPT, which in turn, distributes it to Patricia, was invalid because the artwork was the property of PITv1 at the time Pilley executed the assignment.
To the contrary, the trial court found that the Sumner duplex and artwork purchased by Heart Haven, Inc., were not assigned to PITv1 and substantial evidence supports that finding. Schedule A of the trust states that the trust assets initially included $10 and "the real property located at 1160 and 1160 E. Broadway, El Cajon." The address given is that of the Heart Haven facility and the trustees of PITv1 subsequently transferred the deed to that property to the Kurdys. While PITv1 allowed Pilley to make additional gifts to the trust, nothing in the record suggests that the Heart Haven, Inc., corporation, the artwork, or the Sumner duplex—which Heart Haven, Inc., owned at the time PITv1 was established—were ever placed into the trust. Thus, it is irrelevant whether the trust was irrevocable or whether the parties consented to the transfer of the property outside of the trust, because the property at issue was never part of the trust in the first instance.
The evidence that plaintiffs cite in support of their contention that Pilley placed the Heart Haven corporation into the trust does not establish that he did so. In particular, plaintiffs seem to conflate the business associated with the Heart Haven facility in El Cajon, which was sold to the Kurdys and thus, is no longer the property of Pilley or PITv1, and the Heart Haven, Inc., corporation, which was never assigned to the trust or the Kurdys. --------
E. Section 16061.8 is not applicable
Finally, plaintiffs assert that the trial court erred in finding that section 16061.8 bars their claims.
When the status of the trust itself or the trustee changes as a result of the death of the settlor, the successor trustee must serve a notice on each heir and beneficiary of the trust—and may also serve the notice on any additional individuals—that includes information regarding the settlor, the trust, and the trustee. (§ 16061.7.) Pursuant to section 16061.8, any individual on whom the trustee serves the section 16061.7 notice must bring any action contesting the trust within 120 days after the trustee serves the notice on the individual or within 60 days after the trustee mails or personally delivers a copy of the terms of the trust to the individual, whichever is later. (§ 16061.8.)
Plaintiffs concede that they received an appropriate section 16061.7 notice and that they filed their claims more than 120 days after the notice, but contend that their lawsuit does not contest the JPSPT because it does not challenge the validity of the JPSPT or any of its provisions. We agree that the case brought by plaintiffs did not challenge the validity of the JPSPT or its terms but, instead, challenged the validity of certain assignments to the JPSPT, including the Note, and that the complaint is therefore not a contest to the JPSPT. (See, e.g., Estate of Stoker (2011) 193 Cal.App.4th 236, 241 [an action is a contest subject to § 16061.8 if it practically challenges the validity of the trust at issue].) Regardless, the trial court concluded that the Note and the JPSPT are valid and did not improperly modify PITv1 such that plaintiffs' claims fail even if not barred by section 16061.8. We agree.
II.
DISPOSITION
The judgment is affirmed.
AARON, J. WE CONCUR: McCONNELL, P. J. GUERRERO, J.