As a fiduciary, an Executor of Trustee is guided by the following duties to the beneficiaries:
- duty of undivided loyalty;
- duty of impartially, a fiduciary is precluded from favoring one beneficiary over another;
- duty to act within the scope of his powers, to inform the beneficiaries of matters which effect the trust or estate and to administer the trust or estate solely in the interest of the beneficiaries;
- duty to make a full disclosure to the beneficiaries upon request; and
- fiduciaries must take all steps reasonable necessary for the management, protection and preservation of the estate in their possession.
The Court has authority to remove a fiduciary if he fails to account or embezzles, wastes, or misapplies any part of the estate for which the fiduciary is responsible, or abuses the trust and confidence reposed in the fiduciary. The Court may also remove a fiduciary for acts done in breach of the trust or detrimental to the welfare of the trust, for lack of honesty or reasonable fidelity to the trust, for acts done which diminished or endangered the trust, or even to protect the trust against possible future jeopardy.
The Court is not required to wait until misconduct has actually been found, but may remove a fiduciary where it finds that such action is necessary or warranted to protect the estate or trust from future harm. A fiduciary may also be removed where there is clear and definite proof of fraud, gross carelessness or indifference.
The Court may also remove a fiduciary where there exists mutual animosity or hostility between the fiduciary and beneficiary which interferes with the proper administration of the estate or trust, or where the confidence of the beneficiaries in the fiduciary is undermined.
While the mere existence of a conflict of interest as a fiduciary and a beneficiary does not warrant removal, if the conflict causes the fiduciary’s conduct to substantially threaten and become inconsistent with his obligations to the estate or trust, removal is warranted. Generally, a conflict of interest justifies removal when a fiduciary obtains a financial gain from the assets he manages or misappropriates trust assets for his own use. Removal is also justified where a fiduciary uses trust or estate assets for personal or financial gain. The trustee is required to exercise good faith and refrain from actions which may threaten or be inconsistent with his fiduciary obligation to the estate or trust.
Ultimately, a fiduciary needs to keep in mind his obligations to the beneficiaries, must properly account to them, and must ensure there is no self-dealing. His failure to do so subjects him to removal and surcharge.
Power of Attorney – Attorney in Fact Responsible for Payment of Nursing Home Costs as Responsible Party
Royal Suites Healthcare and Rehabilitation Center v. Estate of Dora Palladino, Theodore Fusco and Rita Fusco, 2012 N.J. Super. Unpub. ____ (Docket No.: A-1711-09T1) (App. Div. 2012). On appeal from the Superior Court of New Jersey, Law Division, Special Civil Part, Atlantic County. Before Judges Fuentes, Graves and Koblitz.
Defendants Theodore and Rita Fusco appeal from a judgment entered against them for an unpaid nursing home bill of their deceased aunt, Dora Palladino (“Palladino), along with costs of suit, in favor of Royal Suites Healthcare and Rehabilitation Center (“Royal Suites”). On March 10, 2008, Mr. Fusco signed an agreement to admit Palladino to Royal Suites, a residential nursing home facility. At the time of admission, Palladino was suffering from dementia and medical problems. Mr. Fusco signed the admission agreement on the line “Signature of Responsible Party”, and wrote “P.O.A.”, meaning Power of Attorney, after his signature.
The admission agreement at Royal Suites stated that a Responsible Party who signs for a Resident pursuant to a Power of Attorney must provide a copy of the Power of Attorney at the time of admission, and takes on the primary obligation of payment out of the resident’s funds or otherwise, and upon failure to pay, becomes a personal guarantor for payment.
On May 14, 2008, Medicare benefits were exhausted. At that time, Palladino had the choice to stay at Royal Suites or to leave, and she chose to stay. On June 3, 2008, Royal Suites sent Mr. Fusco a thirty day discharge notice which stated that he had not paid or come to any arrangements regarding payment, and that he must contact Royal Suites or they will no longer provide services to Palladino. Palladino was discharged to home on June 13, 2008. At that time, Palladino owed a balance of $7,755 to Royal Suites.
From January 2008 until Palladino’s death in August 2008, she received four checks totaling $160,418.52. The checks were deposited into joint accounts held by Palladino and the Fuscos or into the Fuscos’ individual names.
At trial, the Court noted that a Power of Attorney was never produced, not was a copy of Palladino’s Will admitted to probate. Without the Power of Attorney or Will, the Court held that Mr. Fusco, by signing the agreement, was acting on his own and not as agent on behalf of Palladino or her estate. Thus, the Court found the Fuscos liable for payment of the debt. The Court also reduced the legal fee request of Plaintiff’s counsel, which was not appealed.
On appeal, the Appellate Court cited Mr. Fusco’s handling of Palladino’s finances and the fact that Mr. Fusco acknowledged that over $160,000 in Palladino’s funds were deposited into accounts accessible to the Fuscos. Now that Palladino is deceased, the Fuscos do not believe they are obligated to pay her debts. In light of the contract with Royal Suites signed by Mr. Fusco wherein he agreed to be responsible for Palladino’s debts, coupled with the fact that a significant amount of Palladino’s monies were accessible by both defendants, the judgment against them is affirmed.
Power of Attorney – Revocation of Trust on Grantor’s Behalf Allowed Under the Terms of the Power of Attorney
In the Matter of the Revocable Trust u/a dated June 30, 1995 established by Mildred Quick Muller, 2012 N.J. Super. Unpub. ____ (Docket No.: ESX-CP-0299-2011) (Ch. Div. 2012).
Pursuant to the terms of an executed Power of Attorney, Grantor’s attorney in fact sought to transfer assets held by her revocable trust into a new revocable trust established by Grantor. The acting trustee of the prior revocable trust, JP Morgan Chase bank, refused to transfer the assets, and suit was filed by Grantor’s attorney in fact seeking directions from the Court as to whether he had the requisite authority to transfer the assets to the new trust as agent under the Power of Attorney.
Grantor established a revocable trust for her own benefit in 1995, and said trust was restated in 1998 (the “1998 Trust”). The 1998 Trust named Grantor’s attorney and JP Morgan Chase bank as Co-Trustees and allowed the Co-Trustees to distribute the entire trust corpus to grantor. Grantor also reserved the right to revoke the trust. Her Will, signed in 2004, provided that her assets would be distributed to various charities and to her nieces and nephews.
In 2010, Grantor signed a new Will and trust (the “2010 Trust”), naming her nephew, Mr. Niemann, as Executor and Trustee. Grantor also signed a Power of Attorney naming Mr. Niemann as her attorney in fact. Mr. Niemann then asked JP Morgan Chase, the Trustee under the 1998 Trust, to transfer the Grantor’s assets to the 2010 trust, and the bank refused. Suit was then filed.
The Court reasoned that the terms of the 1998 Trust and the Power of Attorney granted Mr. Niemann the requisite authority to transfer the assets to the 2010 Trust. Article 1 of the 1998 trust allowed the trustee’s to exhaust the corpus for Grantor’s benefit. Paragraph 19 of the Power of Attorney granted Mr. Niemann, as agent, the power to take any action that the Grantor may take and exercise “full and complete power and discretion” in the same manner as Grantor. Paragraph 17 of the Power of Attorney allows Mr. Niemann the power to transfer Grantor’s property into a trust of which Grantor was a beneficiary. Therefore, Mr. Niemann had the requisite authority to withdraw assets of the 1998 trust “even to the point of completely exhausting corpus”, and transfer them to the 2010 Trust.
The authority conferred upon Mr. Niemann by the Power of Attorney therefore afforded him the right to make the transfer to the new Trust.
Power of Attorney – Undue Influence and Breach of Fiduciary Duty Committed by Attorney in Fact
Thurman E. King v. Terri E. Johnson, 2012 N.J. Super. Unpub. ____ (Docket No.: A-4357-09T3) (App. Div. 2012). On appeal from the Superior Court of New Jersey, Law Division, Camden County. Before Judges Grall and Alvarez.
Defendant appeals from a judgment against her which was entered by the trial Court after a jury trial finding that she breached her fiduciary duty and committed undue influence through a Power of Attorney given to her by her father, the Plaintiff herein.
When Plaintiff was 57 years old, he had a stroke leaving him paralyzed on his left side. His daughter, the Defendant herein, was living in Maryland at the time. She left her job and moved in with Plaintiff to care for him. Defendant was given a Power of Attorney and access to Plaintiff’s bank accounts and his 401(k), which she used to purchase a residence for her and the Plaintiff, paid for certain repairs to the residence, purchased a car, in part, with Plaintiff’s funds, and paid for some of Defendant’s personal expenses and for some trips taken with Plaintiff.
Plaintiff commenced this litigation through his attorney in fact, Barbara Johnson. In his complaint, Plaintiff charged Defendant with conversion, breach of fiduciary duty, undue influence, and he sought an accounting and sole title to their residence. After a jury trial, the Court found that there was insufficient evidence to support the claim that Defendant received her interest in the residence through deception and undue influence, and dismissed that claim. The Court left to the jury the issue of breach of fiduciary duty and undue influence on the remaining transfers. The jury found that Defendant had committed undue influence and breach of fiduciary duty and ordered her to pay Plaintiff $114,000 as reasonable compensation for his loss.
On appeal, the Appellate Court affirmed the decision, finding that Defendant’s appeal was procedurally defective as she did not seek a new trial at the conclusion of the jury trial before filing her appeal, which is required under Rule 2:10-1. In addition, the Appellate Division noted that the evidence adduced at trial was sufficient to support the jury verdict.
Probate Litigation – Interim Ruling on Complaint Seeking Removal of Executor, Replevin, Conversion and Exceptions to Accounting
In the Matter of the Estate of Patricia Hardy Johnson, 2012 N.J. Super. Unpub. ____ (Docket No.: ESX-CP-0013-2011) (Ch. Div. 2012).
The Decedent died testate on May 21, 2008, survived by three daughters, Plaintiff, Mistri and Alexander. Decedent’s 1998 Will was admitted to probate and Letters Testamentary were issued to daughter, Mistri. The Will provides for a bequest of $10,000 to Decedent’s grandson, and divides the residuary equally between her three daughters. The Estate included joint brokerage and bank accounts, a residence in Decedent’s name, and a condo owned as tenants in common with Mistri. Due to the titling of accounts which created an uneven distribution between the daughters, Plaintiff filed a Complaint seeking removal of Mistri as Executor, replevin of certain items which Plaintiff claimed were removed from Decedent’s residence, return of the assets converted by Mistri, and sought an accounting. Mistri then filed a formal accounting. Plaintiff filed numerous exceptions to this accounting.
After completion of discovery, the parties filed cross-motions for summary judgment which were denied in pertinent part, with the Court finding sufficient facts to overcome the motions. In doing so, the Court performed a detailed analysis of the burden of proof pertaining to each account and asset, defining the burdens among the parties in anticipation of trial.
As to the exceptions, Mistri claimed that Plaintiff’s exceptions to the formal accounting should be dismissed as a matter of law. The Court disagreed, finding that although the exceptions do not include “the modification sought in the account and the reasons for the modification,” as required by R. 4:87-8, the Court found that Plaintiff articulated her particular issues with each entry and the Court understands the basis for her Exceptions.
On summary judgment, the Court was also asked to determine as a matter of law whether Mistri and Decedent shared a confidential relationship, which would shift the burden to Mistri to prove that the accounts were properly formed and created. After a thorough analysis, the Court found that there were sufficient factual issues to overcome summary judgment on this issue.
On the issue of Decedent’s IRA, Alexander argued that she should have been included as a beneficiary of the IRA along with her two sisters. However, the Court granted summary judgment on this issue, finding that Alexander had no standing to object to the beneficiary designation as she was never named as a beneficiary, with three prior designations only naming her two sisters.
Finally, the Court declined to order partial distributions until the accounting and other issues were resolved at trial.
Removal of Executor and Trustee and Appointment of Custodial Receiver for Decedent’s Business Deemed Premature in Light of Clear Dispute Over the Underlying Facts
In the Matter of the Estate of Ronald E. Manus, Deceased, 2012 N.J. Super Unpub. ____ (Docket No.: P-065-12) (Ch. Div. 2012).
Decedent passed on September 17, 2010, leaving a Will dated July 22, 2009, which named his brother, Kenneth as Executor, and his brother, Lawrence, as Trustee of separate trusts established for Decedent’s three children.
Plaintiff, Decedent’s ex-wife, filed a Complaint seeking a distribution from the trusts for her three children, an accounting, removal of Decedent’s brothers as Executor and Trustee, and for the appointment of a custodial receiver for Decedent’s bagel stores that were being run by Decedent’s brother and executor, Kenneth.
In denying the appointment of a receiver and Plaintiff’s request to remove the fiduciaries of the Estate as premature, the Court cited the fact that Plaintiff failed to establish the likelihood of success on the merits in light of the specific factual denials of Kenneth and Lawrence as Executor and Trustee. Discovery had yet to commence and there were insufficient facts to support the request for a custodial receiver. The Court denied Plaintiff’s request, without prejudice, and instead ordered an accounting and an expedited discovery schedule.
Trust Litigation – 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.
Trust Litigation – 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.
Attempted Removal of Co-Executor for Breach of Fiduciary Duty
In the Matter of the Estate of Albert Sauer, 2011 N.J. Super. Unpub. ____ (Docket No.: BER-P-088-11) (Ch. Div. 2011). Decision by the Superior Court of New Jersey, Chancery Division, Bergen County.
An order to show cause and complaint was filed by plaintiff, co-executrix of the Estate, seeking removal of her sister, as co-executrix for failure to account and breach of fiduciary duty for failure to include plaintiff in estate administration decisions and the payment of bills on behalf of the estate.
In this matter, defendant, a co-executrix, acted unilaterally pertaining to the administration of her father’s estate, despite having been appointed as a co-executrix with her sister, the plaintiff herein. Plaintiff sought information and documents and to be included in each decision pertaining to the estate, including paying bills. Defendant refused, instead providing information to plaintiff after decisions and payments were made. There was a guardianship action between the parties prior to decedent’s death, which muddied the waters between the parties.
Defendant also paid her attorney but refused to authorize payment for plaintiff’s attorney. Defendant utilized monies in a joint account established before decedent’s death to pay the bills and refused to transfer the monies into an estate account which would have necessitated a signature on each check by the plaintiff. Numerous letters between counsel were exchanged to no avail. Plaintiff then decided to file the complaint.
The Court held that defendant would not be removed so long as she involved plaintiff in all of the decisions pertaining to the estate, including the signing of any checks. Defendant had the obligation to include plaintiff in each decision as co-executrix. The Court also found that unless plaintiff’s counsel was also paid, that defendant’s attorney would need to disgorge the attorneys’ fees paid to him from the estate until such time as they agreed to pay both attorneys. Each executrix was entitled to hire counsel who should be paid. The matter as to the accounting and misappropriation of funds was allowed to move forward and a case management conference was scheduled.