Accounting Issues, Removal of Guardian ad Litem and Denial of Attorneys’ Fees
In the Matter of the Inter Vivos Trust, Joseph Brandes, Grantor (September 12, 1994) and In the Matter of the Inter Vivos Trust, Dorothy Singer, Grantor (December 23, 1999), 2012 N.J. Super. Unpub. ____ (Docket No.: A-1998-09T3, A-6049-09T3, A-6050-09T3) (App. Div. 2012). On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County. Before Judges Fisher, Baxter and Nugent.
This appeal centers around the Chancery Division’s removal of Ricki Singer as guardian ad litem for her son, Daniel Martin Singer, who is a beneficiary of two (2) trusts established by his grandmother (the “1999 Trust”) and his Uncle (the “1994 Trust”), which named his Uncle, Steven Singer as Trustee. Ricki, as guardian ad litem, had brought suit against the Trustee on Daniel’s behalf seeking an accounting of the two (2) trusts.
After a discovery master was appointed, and discovery conducted between the parties, accountings for both trusts were produced. The Trustee sought summary judgment on the adequacy of these accountings. Summary Judgment was granted on the 1999 Trust, while litigation on the 1994 suit continued. In the 1994 Trust suit, Ricki amended her Complaint to add certain corporations as named Defendants, alleging they had engaged in fraud with the Trustee. A counterclaim against Ricki Singer for sanctions and legal fees was filed by these Corporate Defendants claiming that the filing was frivolous. Before a trial on the merits could occur, the Court removed Ricki Singer as guardian ad litem, finding that there was a conflict between her interest in defending against the imposition of legal fees against her individually and her representation as guardian ad litem for her son. Once she was removed, the newly appointed guardian ad litem settled the 1994 Trust dispute with the Trustee. The parties sought legal fees of over $1,500,000, more than the potential recovery to the Trusts under any scenario, which were denied. The parties appealed.
On appeal, the Appellate Division reversed the lower Court’s Order removing Ricki as guardian ad litem, finding that the potential for a fee award against either the trust or the guardian ad litem, or both, as an insufficient reason to remove her. The settlement following Ricki’s removal as guardian ad litem was also vacated and the matter remanded for further proceedings. The Appellate Division also set aside the lower Court’s disposition of the fee applications in the 1994 Trust dispute, holding that they could be renewed following the ultimate disposition of the action. The matter was remanded for further proceedings.
The matter was appealed to the New Jersey Supreme Court, and summarily remanded to the Appellate Division requesting a written opinion on the reasons that the Appellate Division overturned the lower Court’s decision on legal fees in this matter.
On remand, the Appellate Division reaffirmed its holding that Ricki should not have been removed as guardian ad litem, upheld its earlier holding that the settlement should be vacated, and that the fee applications should be addressed at the conclusion of the 1994 Trust suit, as the disposition of that action will have a profound effect on the issues raised by the parties in their fee applications. The lower Court had found that the fees in the 1994 Trust suit were exorbitant and beyond what is appropriate, and therefore denied the applications. The counsel fees far exceeded the alleged loss in assets due to the Trustee’s alleged mishandling of the Trust. The judge also found that Ricki’s discovery requests were abusive of the process and unnecessary. A guardian ad litem may be entitled to counsel fees out of a fund in court when the guardian’s efforts have produced a tangible economic benefit for a class of persons that did not contribute to the cost of the litigation. Ricki argued her efforts benefited her son, Daniel, as beneficiary. However, until final resolution occurs, the Court is unable to measure the economic benefit received by the 1994 Trust and whether any fees should be awarded to Ricki. As to the request for sanctions, the lower Court concluded that Ricki’s claims on behalf of the beneficiary were not frivolous. The Appellate Division reaffirmed its holding that all fee applications should be addressed at the conclusion of the 1994 Trust suit.
Breach of Fiduciary Duty for Conversion of Assets
Richard C. Pfeifer, et al. v. Joan A. Langone, et al., 2012 N.J. Super. Unpub. ____ (Docket No.: A-3168-10T4, A-4095-10T4) (App. Div. 2012). On appeal from the Superior Court of New Jersey, Law Division, Ocean County. Before Judges Carchman and Baxter.
Trustee who converted assets of a Trust which was established by her mother was ordered to reimburse the Trust for the assets which were converted to her own use, contrary to the terms of the Trust, and also ordered to pay punitive damages and legal fees. Trustee appealed and the Appellate Division affirmed, subject to the trial Court’s determination of whether the parties’ mother exercised the power of appointment given to her in the Trust and whether additional parties needed to be compensated.
On October 6, 1999, Verna and John Obermuller conveyed title to their residence located in Brooklyn, New York to a Trust held for the benefit of their four children. They named their daughter, Joan, as Trustee, and Verna and John each reserved a life estate in the residence. They also provided for a power of appointment limited to their issue. In the Trust Agreement, Joan, as Trustee, acknowledged that she held the property in trust for her and her siblings. The Trust Agreement also prohibited Joan from encumbering the property.
Despite the terms of the Trust, in March, 2002, Joan obtained a $100,000 mortgage on the property and used the proceeds for her own benefit. On November 4, 2002, Joan conveyed the property to a third party for $230,000, satisfied the mortgage balance, and retained the remaining proceeds by establishing a stock portfolio in her own name.
On June 22, 2009, Joan’s siblings filed suit, seeking an accounting and reimbursement to the Trust, claiming that Joan had breached her fiduciary duty. They sought compensatory and punitive damages. Since the proceeds from the sale of the residence were deposited in New Jersey, New Jersey was a proper forum to bring the action. On December 7, 2010, Joan consented to the entry of default against her and a consent order was entered subject to a determination of damages. The trial Court conducted a proof hearing, finding that the consent order included a concession of fraud, and punitive damages were therefore awarded, with Joan forfeiting her share of the Trust. The trial Court found that Joan had breached her fiduciary duty and therefore ordered Joan to pay back the proceeds from the mortgage, the proceeds received from the sale of the residence, awarded punitive damages with Joan forfeiting her share in the residence, and compelled Joan to pay Plaintiffs reasonable attorneys’ fees. The Appellate Division affirmed, also holding that the life estate in the parties’ mother should be quantified to determine whether there are any other beneficiaries who should be compensated, as the parties’ mother reserved a power of appointment and was a necessary party to the action.
Income from Special Needs Trust Included as an Asset for Child Support Purposes
Christina Mazyk v. Marcos Cozze, Jr., Richard C. Pfeifer, et al. v. Joan A. Langone, et al., 2012 N.J. Super. Unpub. ____ (Docket No.: A-1013-11T2) (App. Div. 2012). On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Hunterdon County. Before Judges Sapp-Peterson and St. John.
Defendant appeals from a judgment of the Family Part finding that distributions of income from Defendant’s self-established Special Needs Trust be recognized for purposes of his child support obligation.
After Defendant’s daughter was born, he had a serious motorcycle accident. A law suit was filed with Defendant receiving $1,800,000. Defendant then established a Trust, for his own benefit, with the settlement amount, meeting the requirements of the Federal Medicaid Statute, which allows trusts to be established for a disabled person to supplement Medicaid Assistance. The Trustee had absolute discretion to make distributions for Defendant’s benefit.
The mother of Defendant’s daughter filed a Complaint seeking child support. She also received state assistance for her daughter. The trial Court issued a written opinion finding that gross income for computing child support includes income from a Trust. The Court noted that Defendant’s Trust allowed for distributions for Defendant’s special needs, including vacations, cable television, etc. and that nothing prevented the court from determining why such special needs should not include support for his daughter.
While it was conceded by the lower Court that the Trustee could not make distributions from the Trust for unpaid child support, the Defendant’s trust income and social security assistance should be considered income for child support purposes. The Court therefore ordered an accounting of the income of the Trust to compute Defendant’s child support obligation.
On appeal, the Appellate Division affirmed, noting that this was a matter of first impression in New Jersey. Defendant voluntarily gave up the assets of his settlement by creating the Special Needs Trust and, while the trial Court appropriately recognized that the assets were not available for child support obligations, the distributions from that Trust were appropriately considered as income for support purposes.
Reimbursement of Expenses Out of Special Needs Trust to Beneficiary’s Mother Allowed
In the Matter of Jennifer Rogiers, Deceased, 2012 N.J. Super. Unpub. ____ (Docket No.: A-0389-10T1) (App. Div. 2012). On appeal from the Superior Court of New Jersey, Chancery Division, Hudson County. Before Judges Yannotti, Kennedy and Guadagno.
Ruben Martinez appeals from the trial Court’s judgment granting $441,391.16 to Rosa Rogiers in unreimbursed expenses to be paid out of the funds remaining in a special needs trust held for the benefit of their now deceased daughter, Jennifer. Rosa appeals from the denial of pre-judgment interest. After considering the arguments, the decision was affirmed on appeal.
Jennifer was born in 1983, severely handicapped as the result of cervical cord injuries inflicted upon her at birth. Jennifer resided with her mother, Rosa until her death in 2005, and Rosa provided Jennifer with ongoing medical assistance. Suit was brought by Rosa on Jennifer’s behalf alleging medical malpractice. They obtained a judgment of $2.6 million which was placed in a special needs trust for Jennifer’s benefit. There are $1.1 million remaining in trust, which is to be distributed to Ruben and Rosa, equally, as Jennifer’s parents under intestacy.
After Jennifer’s death, Reuben sought 50% of the funds held in the Trust, which was challenged by Rosa, who sought reimbursement for expenses she incurred and services she provided on Jennifer’s behalf during her lifetime, including, compensation at $15 per hour for 8 hours per day for attending to Jennifer’s needs which was previously approved by the New York Surrogate’s Court, $204,936.91 in out of pocket expenses listed in an exhibit filed with the Court, $172,320 for care given by Rosa while Jennifer was hospitalized prior to her death in Ecuador, unpaid bills from Rosa and Jennifer’s trip to Ecuador prior to her death, and a $2,000 a month household allowance that was withheld from Rosa over the past few years prior to Jennifer’s death. It was undisputed that Jennifer required nursing care twenty-four hours a day and that Rosa performed this task with fidelity and devotion, a duty for which people are normally compensated. The trial Court found that these expenses were for legitimate services provided by Rosa over the years. This decision was upheld on appeal.
Trust Terminated by its Terms Based on Finding of Probable Intent of Grantors
In the Matter of the David Markowitz and Rosalie Markowitz Insurance Trust, 2012 N.J. Super. Unpub. ____ (Docket No.: MER-12-00220) (Ch. Div. 2012).
After reviewing the submitted documents and ascertaining Grantors’ probable intent as to the termination of their irrevocable trust, the Court found that Grantors intended that the Trust terminate upon the second to die should they live past the date of termination set forth in the Trust.
After the death of their parents, Grantors’ children filed a Complaint seeking a final distribution from their parents’ Irrevocable Insurance Trust along with an accounting. The Trustee, PNC Bank, NA, filed an answer claiming that the Trust was intended to continue for the term of the lives of Grantors’ children.
After reviewing the submissions of the parties, the Court determined that the issue would be resolved by an interpretation of Grantors’ probable intent.
Grantors established the Trust and funded it with a second to die life insurance policy. The Trust provided that the proceeds of insurance would be held until January 1, 2005 at which time the assets would be distributed to Grantors’ children. The Trust also provided that after the death of the Grantors, that the assets would be divided into equal shares for each of Grantors’ children and held in further Trust for their lifetimes. And the termination paragraph provided that the Trust shall terminate on January 1, 2005 unless either Grantor was alive or trusts have been established pursuant to the terms for Grantors’ grandchildren. This ambiguity required the Court to determine Grantors’ probable intent.
Factually, Grantors survived the January 1, 2005 date. They both died in 2009, and thereafter the Trust was funded. The Trustee believed the Trust continued and the Grantors’ children sought an immediate distribution.
In analyzing the probable intent of the Grantors, the Court looked to the various estate planning letters which led to the conclusion that the Grantors’ wanted their children to receive an immediate distribution on January 1, 2005, or thereafter when the second to die passed and the Trust was actually funded. The Court was unable to find any evidence of an intention to continue the Trust after January 1, 2005. The Court therefore ordered the Trust terminated and an accounting by the Trustee.
In the Matter of the Irrevocable Funded Life Insurance Trust Established by Joseph Weinberg U/A Dated May 11, 1982, 2011 N.J. Super. Unpub. ____ (Docket No.: A-2351-09T3) (App. Div. 2011). On appeal from the Superior Court of New Jersey, Chancery Division, Probate Part, Somerset County. Before Judges Parrillo, Yannotti and Espinosa.
This is the third appeal brought by a beneficiary/trustee daughter of two (2) trusts established by Joseph Weinberg. Joseph Weinberg created two trusts for the benefit of his daughters, Lynn and Deborah, the 1982 life insurance trust and the 1997 revocable trust. Joseph named Lynn and Deborah as beneficiaries of his estate under his Will. In this appeal, Lynn requests a remand of the matter to allow for further review of the accounting irregularities.
Joseph was a resident of Florida when he died in 2001. In 2002, Deborah and Lynn entered into a settlement agreement pertaining to the estate and the 1997 trust. As a result of the settlement, Lynn became the sole executor of the estate, the sole trustee of the 1997 trust and the sole beneficiary of both. The settlement did not affect the 1982 trust, in which Deborah and Lynn remained equal beneficiaries. A third party remained trustee of the 1982 trust.
Lynn filed an action requesting an accounting and other relief against the trustee of the 1982 trust. After a hearing, the trial court allowed the third and final accounting of the trustee of the 1982 trust with certain exceptions. The court awarded commissions and allowed attorneys’ fees paid from the 1982 trust. The court’s order provided that the trustee was to supply documentation to Lynn. Five months later, Lynn filed a motion to enforce the Order. After oral argument on the motion, the trial court closed the case, directing the trustee to turn over to Lynn some stock and denying Lynn’s request for further discovery and documentation. Lynn appealed.
On appeal, the Appellate Division affirmed the trial court’s denial of Lynn’s request for additional discovery, citing res judicata and estoppel issues. The trial court properly denied Lynn’s request to reopen the estate and 1997 trust, which was settled, and to reargue issues already adjudicated in two prior appeals.
Creditor Collection – Spendthrift Clause
Pickett v. Pritchard and Peapack Gladstone Bank, 2011 N.J. Super. Unpub. ____ (Docket No.: A-2820-09T1) (App. Div. 2011). On appeal from the Superior Court of New Jersey, Law Division, Mercer County. Before Judges Wefing, Payne and Koblitz.
This appeal involves plaintiff’s attempt to collect a judgment against the interest of a beneficiary of a trust established for his benefit under the Wills of his late parents. The Trusts contained a spendthrift provision. The trial court dissolved a writ of execution served upon Peapack Gladstone Bank, respecting a prior order of dissolution entered by a Pennsylvania court, and the plaintiff appealed.
Plaintiff obtained a judgment against Defendant in the US District Court. Defendant is the beneficiary under trusts established under his late parents’ wills. The Trusts were originally administered in Pennsylvania. Plaintiff sought a writ of execution in Pennsylvania seeking to attached Defendant’s income interest in these trusts. A writ of execution was issued by a Pennsylvania Court. Defendant filed a request to dissolve the writ of execution in light of the spendthrift provisions of the trusts, and the Pennsylvania court agreed. No appeal was taken from the order dissolving the writ of execution.
Plaintiff then filed the judgment in New Jersey. The Pennsylvania trustees had resigned and the trust assets were transferred to a New Jersey bank. The Defendant sought execution on his judgment in New Jersey. The Bank objected, claiming that the Pennsylvania order of dissolution should be given full faith and credit, and the trial court in New Jersey agreed, thereby granting the bank’s motion to dissolve the writ of execution. This was upheld on appeal, the Appellate Division finding that the spendthrift provisions of the trusts prevented attachment of the writ of execution.
Designation of Successor Trustee
In the Matter of the George Link, Jr. Charitable Trust Established Under the Last Will and Testament of Eleanor Irene Higgins Link, Deceased, 2011 N.J. Super. Unpub. ____ (Docket No.: A-4930-09T4) (App. Div. 2011). On appeal from the Superior Court of New Jersey, Law Division, Monmouth County. Before Judges C.L. Miniman and LeWinn.
This matter involves an appeal by two of the co-trustees of the George Link, Jr. Charitable Trust and the lower court’s denial of their application to approve their designation of a successor trustee.
Soon after the death of decedent, the three trustees of the trust met to discuss trust issues. At the meeting, they appointed successor trustees pursuant to the terms of the will establishing the trust. One of the trustees, Robert Link, also announced his intention to resign as a trustee. Soon thereafter, the other two trustees executed designations of trustees naming their children and revoking any prior designations by Robert. They sent the designations to Robert for his signature. In response, Robert changed his mind about stepping down as trustee. Robert also executed a designation of trustee naming his daughter as his successor. A month later, Robert filed an Order to Show Cause and Complaint seeking to declare the prior designations by the other trustees null and void and to declare the designation of his daughter as successor trustee as valid.
Based on the terms of the will, the lower court found that Robert was given the “right” to designate his successor. Although the discretion exercised by the trustees was subject to majority vote, and Michael, also a trustee was given veto power of the exercise of the trustees’ discretion in making distributions and investments, the court found that this did not apply to the designation of a successor trustee. The court concluded that there was no ambiguity in the terms of the will and therefore no need to examine extrinsic evidence outside the four corners of the will. The will provided that each trustee was given the “right” to appoint a successor. The designation made by Robert was valid, and this decision was affirmed on appeal.
Failure to Impute Income to Beneficiary of Discretionary Trust for Purposes of Computing Alimony
Tannen v. Tannen, 2011 N.J. Super. Unpub. ____ (Docket No.: A-53-10) (2011). Before the New Jersey Supreme Court. On appeal from the Superior Court of New Jersey, Appellate Division’s decision reported at 416 N.J. Super. 248 (App. Div. 2010).
The Supreme Court, in affirming the Appellate Division, held that an ex-wife’s beneficial interest in a discretionary trust is not an asset for purposes of computing alimony.
Mark Tannen and Wendy Tannen were married for 18 years. Mark filed for divorce. During their marriage, Wendy’s parents established an irrevocable discretionary support trust for Wendy’s benefit, with Wendy and her parents acting as co-trustees. Before trial, the trial court ordered Mark Tannen to name the trust as third-party defendants. After trial, the trial court issued judgment and applied the Restatement (Third) of Trusts, determining that the terms “support” and “maintenance” in the Trust required the trustees to distribute “such sums as are necessary to maintain” Wendy’s lifestyle. The trial court then held that it must consider trust benefits before computing alimony and imputed income to Wendy from the Trust. An appeal was taken.
On appeal, the Appellate Division noted that the Restatement (Third) of Trusts had not been adopted by any reported decision in New Jersey, and therefore refused to apply this new law. Based on existing law, the Appellate Division held that Wendy’s beneficial interest in the discretionary trust was not an asset for computing alimony. The Supreme Court affirmed for the reasons expressed by the Appellate Division in its decision reported at 416 N.J. Super. 248 (App. Div. 2010).
Insurance Broker Liability for Lapse of Life Insurance Policy
Joseph J. Triarsi, as Trustee for the Joseph H. Halpin Insurance Trust v. BSC Group Services, LLC and Herbert Wright , 2011 N.J. Super. Unpub. ____ (Docket No.: A-5047-09T1) (App. Div. 2011). On appeal from the Superior Court of New Jersey, Law Division, Union County. Before Judges Carchman, Messano and Waugh.
Plaintiff, Trustee of an irrevocable life insurance trust, filed suit against the insurance broker and his agency for allowing the Decedent’s life insurance policy to lapse before his death. Specifically, the Trustee claimed that the insurance broker assumed a role beyond that of a broker and because he regularly met with the insured, he knew that the insurance policy in question was critical to decedent’s estate plan as the sole asset of the Trust.
Prior to his death, decedent’s health declined, causing him to become despondent and less attentive to business affairs. This caused the policy to lapse. The Complaint alleged breach of fiduciary duty, breach of duty of care and breach of special relationship between insurance agent and claimant. The matter was designated as a professional malpractice matter requiring the filing of an Affidavit of Merit. Plaintiff did not file an Affidavit of Merit. Defendants filed a motion to dismiss which was opposed, and Plaintiff did not file an Affidavit of Merit in response. The lower court dismissed the Complaint, finding that the Affidavit of Merit Statute applied to insurance producers.
Plaintiff then field an Affidavit of Merit and a motion for reconsideration, claiming that the Affidavit of Merit statute was inapplicable as the lower Court did not hold a Ferreira conference, required within 90 days of the filing of a malpractice Complaint, and that there were extraordinary circumstances warranting reinstatement of the Complaint. This motion was denied. Plaintiff appealed.
On appeal, the Court found that it is the nature of the proof required to prove the claims that controls whether an Affidavit of Merit is required, not how the claims are captioned in the Complaint. The Court held that expert testimony is required to establish that the insurance broker had a duty with respect to the payment of renewal premiums, avoidance of cancellation and reinstatement in the event of cancellation. However, the third count of the Complaint alleged a special relationship between the broker and the decedent whereby the broker, by his conduct, took on responsibility for the policy and invited plaintiff’s detrimental reliance. The appellate Court allowed this claim to go forward as it did not involve professional malpractice. Matter was reversed reinstating this count. The Court also failed to allow the filing of an Affidavit of Merit as no “extraordinary” circumstances existed, this was basically a judgment call by Plaintiff not to file. He also failed to file the Affidavit in response to the motion. Also the failure to hold a Ferreira conference does not toll the time limits of the statute.
James F. Silva, Jr. v. Ann E. Fitzpatrick and Joseph Fitzpatrick, husband and wife, 2011 N.J. Super. Unpub. ____ (Docket No.: A-1528-09T3) (App. Div. 2011). On appeal from the Superior Court of New Jersey, Chancery Division, Atlantic County. Before Judges Carchman, Graves and Messano.
This matter arises out of a dispute between siblings and the lower court’s order permitting either party to purchase the property which they owned together pursuant to an auction process, without any offsets.
The parties received real estate located in Longport, New Jersey worth approximately $900,000 as a distribution from a trust established by their now deceased parents. At the time of distribution from the trust, the interest of 2 of the siblings were paid off, and a Deed was transferred into the names of plaintiff and defendant. They owned the property equally, with plaintiff occupying the property during the winter months and defendant and her family using the property primarily in the summer months. Plaintiff testified he paid in excess of $200,000 to upgrade the property. He filed a complaint to have the property sold and for reimbursement of the costs associated with the upgrades, claiming that a partition was not practicable. Defendant field an answer claiming that plaintiff had sole possession of the property for over 10 years and that none of the improvements were approved by her. Defendant also sought reimbursement of monies she paid to maintain the property after plaintiff vacated the premises.
At trial, a real estate expert testified that improvements were made to the property but she was unable to pinpoint exactly what improvements were made and when, or what value may have been added by any such improvements. The parties presented conflicting testimony on the improvements. The trial court found that plaintiff failed to establish that defendant had agreed to reimburse him for the improvements, nor had plaintiff established that the improvements had improved the property. The court also recognized that plaintiff in fact made some improvements and therefore refused to charge him for the years of costs associated with maintaining the property after he moved out. Thus, neither party was entitled to a credit.
The Appellate Division affirmed the decision, finding that plaintiff simply failed to prove the value of his improvements to the property.
Reformation of Inter Vivos Insurance Trust after Decedent’s Death
In the Matter of the Irrevocable Life Insurance Trust of William McLellan, 2011 N.J. Super. Unpub. ____ (Docket No.: ESX-CP-0107-2011) (Ch. Div. 2011). Decision by the Superior Court of New Jersey, Chancery Division, Essex County.
Decedent’s wife sought reformation of an insurance trust established by her husband to remove the generation skipping provisions of the Trust. Decedent filed for divorce and was living separate and apart from his wife at his death. Pursuant to the terms of the Trust, in the event the parties were living separate and apart, Decedent’s wife was eliminated as a beneficiary. This was conceded, however, the plaintiff sought to continue as trustee.
The reformation of a trust agreement in a probate action requires clear and convincing proof of the testator’s intent. Here, plaintiff sought reformation of the generation skipping provisions of the Trust to allow for her to distribute the insurance proceeds to decedent’s children as opposed to his grandchildren, as she believed that the Trust was established to take advantage of the GST Tax provisions which were no longer necessary in light of the increased exemption of $5.0 million. The Court found that this request failed to meet the clear and convincing evidence standard required under the doctrine of probable intent as no evidence was offered to show that the only reason decedent’s grandchildren were named as beneficiaries of the Trust was to take advantage of the federal estate tax exemption.
The Court also held that the plaintiff may continue as trustee as the provisions in the Trust pertaining to the appointment as trustee did not preclude her from acting as such, even though the decedent had filed for divorce and was living separate and apart from plaintiff at the time of his death.
Surcharge Against Trustee for Misappropriation of Trust Funds
In the Matter of the Trust Under the Will of Antonia Zanengo, Deceased, 2011 N.J. Super. Unpub. ____ (Docket No.: A-4997-09T3 (App. Div. 2011). On appeal from the Superior Court of New Jersey, Chancery Division, Probate Part, Somerset County. Before Judges Sapp-Peterson and Ashrafi.
Defendant appeals from the lower court’s judgment entered against him in the amount of $414,457, plus interest, in favor of the trust for which he was the trustee.
Defendant, a CPA, was appointed as trustee under the Will of decedent, who died in 1994. The trust required defendant to pay income to decedent’s husband, then 80 years old, and principal for his health, maintenance and support. Decedent’s grandchildren were named as residuary remainder beneficiaries. The trust was initially funded with $320,000, but at the death of decedent’s husband, the trust had virtually no assets.
Plaintiff, the father of three of decedent’s grandchildren, brought an action for an accounting from the defendant. After trial, the lower court found that defendant had looted the trust, and entered judgment against him.
On appeal, defendant claims that plaintiff lacked standing, and that defendant had provided services to the beneficiary which the beneficiary agreed to pay for. These arguments were rejected by the court as a minor beneficiary is an interested person under the statute. Defendant also failed to prove by clear and convincing evidence, under the Dead Man’s Statute, that the beneficiary had agreed to pay for services from the defendant. In light of defendant’s looting of the trust’s entire corpus, the court also denied his request for compensation under quantum meruit.
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 JosephBuscavage and HelenA.BuscavageLiving 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.
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.