Recent Cases:
Probable Intent – Imposition of Trusts on Intestate Estate
In the Matter of the Trusts to be Established in the Matter of the Estate of Margaret A. Flood, Deceased, 417 N.J. Super 378 (App. Div. 2010). On appeal from the Superior Court of New Jersey, Chancery Division, Monmouth County.
The Court considered whether the doctrine of probable intent applied to a person’s intestate estate where the Decedent had engaged in certain estate planning prior to her death without executing a formal Will.
Decedent, Margaret Flood, had 4 children, 2 of which were disabled and received governmental assistance and Medicaid. Decedent first considered estate planning after her husband’s death in 2004. According to testimony presented to the trial court, Decedent was concerned about protecting the inheritance of her disabled daughters and their obligation to reimburse the government for disability payments. She did not consult an attorney until March of 2008. These plans were delayed due to the illness of one of her children and Decedent’s own injuries. Decedent died on May of 2008 without having executed a Will. The administrator of the Estate filed a Complaint seeking authorization to establish special needs trusts for the Decedent’s 2 disabled children.
The trial Court held that the doctrine of probable intent may extend to give effect to Decedent’s intention to establish special needs trusts for her disabled children.
The Appellate Division disagreed, reversing the trial court’s decision and ordering the disposition of the Decedent’s estate in accordance with intestacy. The doctrine of probable intent is a will construction statute, but it cannot be used to write a will that the testator did not write.
Trusts – Undue Influence
In re the Joseph Buscavage and Helen A. Buscavage Living Trust, 2010 N.J. Super. Unpub. ____ (Docket No.: A-6041-08T3 (App. Div. 2010). On appeal from the Superior Court of New Jersey, Chancery Division, Probate Part, Somerset County.
This case involved allegations of undue influence pertaining to changes to Decedent’s revocable trust agreement.
Joseph and Helen executed a revocable living trust in 1998 naming various beneficiaries. They had no children and Helen predeceased Joseph. After Helen died, Joseph made 2 unchallenged amendments to the trust in 2001 and 2003, amending the percentage distribution to various nieces and nephews. In 2007, Joseph made additional amendments with a new attorney. The 2007 amendment eliminated certain beneficiaries and is at the center of this appeal.
Joseph’s niece, Helen, contacted a new attorney and brought Joseph to a meeting to discuss his intentions to amend the disposition of his assets under the trust. The attorney went to the hospital to have Joseph sign the amendment. He had surgery the same day he signed the amendment. Five months later, Joseph signed another amendment to the trust further increasing the disposition of his estate to his niece, Helen, and cutting out one of his sisters. This Amendment was signed in the presence of Helen at Joseph’s home, who was notably sick but “mentally fine”, according to the attorney draftsman. Joseph also changed the beneficiaries of some CDs.
Joseph died a few months later on 9/11/07 at the age of 82.
The beneficiaries receiving a reduced interest due to the amendments challenged the validity of same based on undue influence and conflict of interest of the attorney draftsman who also represented Helen who benefited from the change in disposition.
The trial court found that appellants failed to establish that Joseph lacked testamentary capacity, that there was the presence of undue influence, or a conflict of interest by the attorney draftsman which compromised his representation of Joseph. Appellants claim the trial court erred by focusing on testamentary capacity, which was not raised in their complaint, instead of performing an analysis of the case based on undue influence.
Although the trial court denied a motion to dismiss as it found the presence of a confidential relationship and suspicious circumstances, it failed to reference same in its opinion. Nor did it mention its finding of suspicious circumstances, a key element to undue influence. The lower court also failed to make a finding whether the prior relationship with Helen created a conflict of interest.
The matter was remanded for further findings of fact on the issue of undue influence.
Trusts – When is an Inter Vivos Trust subject to equitable distribution?
Tannen v. Tannen, 2010 N.J. Super. Unpub. ____ (Docket Nos.: A-4185-07T1 & A-4211-07T1 (App. Div. 2010). On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Bergen County.
In litigation over equitable distribution, alimony and child support, the trial court ordered plaintiff husband to join as third party defendants four separate inter vivos trusts in which the defendant wife or the couples’ children were beneficiaries. The trusts requested dismissal of the third party complaint based on lack of standing and other grounds.
The trusts sought to exclude income from the trusts as an asset for alimony and child support purposes, which was denied. The trial court considered the income generated by the trusts as income for computation of alimony. The court also reasoned that it had the authority to compel a distribution of income when the trustees were being unreasonable in refusing to make distributions..
On appeal, the crucial issue became whether defendant wife’s beneficial interest in the trust was an asset held by her, whether she had control of the income generated by the trust, or the ability to tap into the income. This required the court to analyze the terms of the trust and the probable intent of the settler of the trust by looking at the four corners of the document.
The language of the large trust for defendant wife limited distributions to health, maintenance and support, and specifically stated that distributions could not be compelled by defendant wife. It also had a spendthrift clause. The Appellate Court held that the trust was a discretionary trust not an asset of defendant wife for computation of alimony.
Trustee Compensation
Herder and Fine v. J.P. Morgan Chase Bank and The Francese Light Trust u/w/o Aaron Helwitz, 2009 N.J. Super. Unpub. LEXIS 1425 (Docket No.: A-2635-07T3) (App. Div. 2009). Before Judges Wefing, Parker and LeWinn.
Issue: Was the award of a termination commission and counsel fees to the trustee of a testamentary trust proper?
Holding: Yes. The compensation sought by the Trustee was proper and is provided by statute, and the award of counsel fees to be assessed against the trust for having to defend the action was also proper where no breach of any duty was found. The lower Court found that the trustee’s handling of the trust after the death of the income beneficiary was proper and reasonable. There was also no evidence that the trustee enhanced its statutory fee in any way by its handling of the trust. Plaintiff withdrew their claim of trust mismanagement and their request for a formal accounting prior to trial. The trustee merely defended against the baseless opposition to the termination fee, and counsel fees to the trustee payable from the trust, which were affirmed on appeal.
Trusts – Jurisdiction – Prudent Investor Act
Edelman, et al. v. Merrill Lynch Bank and Trust Company (Cayman) Limited, et al., 2009 N.J. Super. Unpub. LEXIS 296 (Docket No.: A-4529-06T3) (App. Div. 2009). Before Judges Wefing, Yannotti and LeWinn.
Issue: Do the New Jersey Courts have jurisdiction over a trust established by an Argentinean resident which was signed in Florida and governed by the laws of the Cayman Islands where the trustee, Merrill Lynch Bank and Trust Company (Cayman) Limited did not have offices, employees or assets in New Jersey, did not do business in New Jersey, but merely opened an asset management account in Investment, a New Jersey limited partnership, to invest trust assets?
Holding: The trial Court dismissed Plaintiff’s complaint for lack of jurisdiction and forum non conveniens. On appeal, the matter was remanded to allow for discovery on the jurisdictional issues.
A Revocable Trust was established by an Argentinean resident under the laws of the Cayman Islands, who travelled to Florida to execute the documents. The trustee, Merrill Lynch (Cayman), has no offices, employees or assets in New Jersey, and is not registered to do business in New Jersey. The trust provided for income and principal distributions for the grantor, and at her death, for her son and his family. The Trust granted Merrill Lynch (Cayman) broad powers of investing and managing assets. Subsequent to establishing trust, grantor sent Merrill Lynch (Cayman) a letter memorandum expressing her intentions as to limiting distributions from the trust. In light of the memorandum, an advisory committee was established and the assets were conservatively invested. After Grantor’s death, it was determined that grantor’s child and his family would require less income, so more equities were purchased. The assets were reinvested in an asset management account with defendant Investment, a limited partnership in New Jersey, and a subsequent decline in value occurred. The committee issued a recommendation that more fixed income assets be purchased to avoid any further losses.
Eventually, plaintiffs filed suit seeking to recover the more than $1,000,000 loss in value under the NJ Prudent Investors Act. Merrill Lynch (Cayman)sought dismissal of the Complaint based on forum non conveniens, urging that New Jersey had no interest in having its Courts and judicial system resolve the dispute. Plaintiffs argued that by engaging Investment, where the investment decisions were made, Merrill Lynch (Cayman) had purposely availed itself of New Jersey.
In general, defendants must have sufficient contacts with New Jersey for jurisdiction to attach. The record demonstrates that Investment had a role in selecting investments. Due to the fact that the record is not sufficient to support the trial Court’s dismissal as to the role Investment played in managing the trust assets, the matter was remanded for further proceedings and jurisdictional discovery.
The doctrine of forum non conveniens applies where there is a choice of 2 jurisdictions, and a trial in one jurisdiction over the other would serve the convenience of the parties and the ends of justice. Dismissal should be granted only when Plaintiff’s choice of forum is demonstrably inappropriate. The Appellate Court held that dismissal on forum non conveniens grounds should not have been granted without jurisdictional discovery.
Trusts – Title Insurance Policy Voided by Transfer to Trust
Marie Carney-Dunphy v. Title Company of Jersey & Chicago Title Insurance Company, 2009 U.S. Dist. LEXIS 55418 (Docket No.: Civil No.: 07-3972 (JBS/AMD) (U.S.D.C. 2009). Before Judge Simandle.
Issue: Is a beneficiary of a trust fund established by her mother entitled to title insurance coverage on the real estate Deeded to the trust prior to the mother’s death, in light of the subsequent transfer of the real estate into the beneficiary’s individual name?
Holding: No; the beneficiary does not succeed to the grantor’s rights in the title insurance policy.
Plaintiff, who received the real estate in question from a family trust established by her mother, did not succeed to her mother’s rights in the property by operation of law, as that term was used in the title insurance policy, and therefore the policy does not provide coverage to plaintiff.
Mrs. Carney purchased a property in Avalon, New Jersey in her individual capacity, subject to riparian rights of the State of New Jersey and the United States. A title insurance policy was issued in Mrs. Carney’s individual name prior to the purchase which excepted the riparian rights. The term “insured” in the policy included the name insured and all those who succeed to the interest of such insured by operation of law, as distinguished from purchase. Mrs. Carney applied for a riparian grant which was approved. However, the required payment was never made by Mrs. Carney.
Thereafter, Mrs. Carney created an irrevocable trust and transferred the real estate to the trust in 4 separate deeds over time. The trust was held for the benefit of one of Mrs. Carney’s children, and Mrs. Carney relinquished all rights to the income or principal of the trust. The trustees did not obtain a new title insurance policy on the property at the time the transfers were made. Plaintiff and her brother, as beneficiary of the trust, entered into an agreement whereby plaintiff transferred her interest in a family business to her brother and he transferred his interest in the trust to the plaintiff. Plaintiff then folded up the trust and transferred the real estate to herself.
After obtaining the property, plaintiff attempted to prosecute the tidelands grant and satisfy New Jersey’s claim against the property. She sought coverage from the issuer of the original title policy and she was refused coverage.
The Court held that plaintiff did not succeed to her mother’s rights in the property by operation of law and is therefore not a named insured pursuant to the terms of the policy.
A property passing by operation of law passes automatically, such as an involuntary lifetime transfer. A voluntary lifetime transfer does not cause the property to pass by “operation of law”. Plaintiff received the property through voluntary lifetime transfers, as opposed to inheritance or involuntary transfer, and therefore the property did not pass to her by operation of law. Her interest is therefore not covered by the title insurance policy issued to Mrs. Carney, and she was properly denied coverage.
In light of this decision, particular attention should be given to title insurance policies in drafting an estate plan where real estate is involved.