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Sunday, December 29, 2013

The Probate Part was not authorized to order the disbursement of non-probate assets into a testamentary trust

The Probate Part was not authorized to order the disbursement of non-probate assets into a testamentary trust                                                                        

October 31, 2013
                                                                                    APPELLATE DIVISION
                                                                                    DOCKET NO.  A-5669-11T4
Before Judges Ashrafi and Leone.

On appeal from Superior Court of New Jersey,
Chancery Division, Ocean County, Docket No.

Scott K. Seelagy, attorney for appellant
Jean Cotis.

Carton Law Firm, L.L.C., attorneys for
respondent Lee Strohmenger (James D. Carton,
III, on the brief).

            In this probate matter, Jean Cotis, the estranged wife of the deceased, William Strohmenger, appeals from several orders that dismissed her claims to a part of his estate and that established a constructive trust for the benefit of their child.  We affirm in part and reverse in part.
Cotis and Strohmenger were married at the time of his death but had been living separately for about ten years.  They had one child, a ten-year-old son who lived with Cotis in Sussex County.  Strohmenger lived in Ocean County but spent time with his son every weekend.
On May 25, 2009, Strohmenger committed suicide in his home.  He was distraught about an unfortunate but not uncommon incident that had occurred the previous night.  Strohmenger's sister, Diane,[1] was with him on the morning of May 25.  He told her he believed the incident would cause the loss of his job as president of a gun manufacturing company, and also prompt Cotis to interfere with his parenting time with his son.    
            That afternoon, while alone in his office at the manufacturing company, Strohmenger handwrote and signed a will on seven pages of lined paper.  The will stated in part:
William J. Strohmenger [[2]]

of sound mind
+ body

My Will

All to my son
[full name of son]
. . . — I love
him — Always Will

Lee my sister to
be my executor

. . . .

My Last will +
testament.  I leave
everything to my
                                         son.  I want Lee (sister)
to be my executor.
Here are my
[Listing of bank, retirement, and mortgage account information and location or persons with knowledge of other funds.]

                                                . . . .

Lee Don Marvel has
my retirement + Ins.
                                    from work [phone number]
he knows its all for
[son's name]

. . . .

Put it all in
a trust Fund
Fund for [son's name]

Use the money for
his education.

Don’t let Jean
get at it.

I hate Jean not really

William J. Strohmenger

I love you

[son's name]

Strohmenger mailed the original handwritten will to his sister Lee, and also mailed copies to six other people.  He left two more copies on his desk at work and took a copy with him.  At some point after he returned home, he made several notations on an envelope addressed "For My Sister Diane Strohmenger."  On scattered parts of the envelope, he wrote where his recent tax return information could be found, that "other packets" had been sent in the mail, and, with respect to Cotis: "if Jean needs help financial wise, tell Lee to help her out — take care of [son's name], make sure they get help with their house Lee," and "[u]se my money to help Jean with her house but it's not for her business."  An arrow was drawn from the word "house" to a phrase "house bills." 
That evening, Diane went to Strohmenger's house and found him dead in his bedroom from a self-inflicted gunshot. 
The accounts referenced in the will included several for which Strohmenger had previously designated beneficiaries in the event of his death, and thus would pass by their terms and by operation of law outside the will.  On two life insurance policies and an IRA account, Strohmenger had previously designated his son as the beneficiary.  On three other accounts, he had previously named his sister Lee, his mother Margaret, and Cotis as the beneficiaries.
On June 11, 2009, Lee filed a verified complaint in the Chancery Division, Probate Part, Ocean County, seeking to admit the holographic will to probate and to appoint her as executrix of the estate.  A few days later, Cotis filed a caveat opposing probate of the will.[3]  Subsequently, the court entered orders appointing a guardian ad litem for the son and setting a discovery schedule.  Document discovery was conducted, and depositions were taken.
When discovery ended in January 2010, the court considered Lee's motion for summary judgment.  The certifications of Lee and Diane in support of the motion identified their brother's handwriting and signature on the will.  Lee also alleged that Cotis and Strohmenger lived separately for a decade, and that their relationship was "very unpleasant."  Cotis filed opposition to the summary judgment motion.  In her certification, she stated that the couple "supported" each other "as husband and wife in every other facet" of life despite their separation, and that Strohmenger provided a substantial amount of money for her expenses every month during the entire period of their marriage.  She claimed that "[i]t is clear from all the writings found in his home and from the nature of our relationship for the past 10-years, he did not intend to disinherit me." 
The court granted summary judgment to Lee and directed Cotis to withdraw her caveat.  She did so on January 19, 2010.  By order dated January 28, 2010, the court admitted the will to probate, appointed Lee executrix, required her to post a bond, and allowed attorney's fees to be paid out of the estate to the attorney for Lee and to the guardian ad litem. 
Less than a month after withdrawing her caveat, Cotis filed a verified complaint on February 16, 2010, alleging that the will should be construed to provide her an inheritance equal to that for the son.  She also sought the appointment of her father as trustee for the son's share of the inheritance.  In her complaint, Cotis made factual allegations essentially identical to her earlier certification in opposition to summary judgment.  She also explained that the withdrawal of the caveat and the filing of the new, so-called construction complaint were done upon the advice of counsel regarding how to proceed in the dispute.  The court issued an order to show cause to address the new complaint. 
Lee filed opposition, contending that the prior proceedings collaterally estopped Cotis from making the claim in the new pleading.  After hearing argument, the court issued an order on April 16, 2010, dismissing Cotis's complaint and denying restraints on the estate.  The court agreed with Lee that collateral estoppel applied, and it also cited res judicata and the entire controversy doctrine as grounds for dismissal.  Cotis appeals from an order dated April 30, 2010, which denied her motion for reconsideration of the court's April 16, 2010 order.
About a year later, on May 12, 2011, Lee filed a complaint and obtained an order to show cause seeking approval of a first intermediate accounting for the estate and the court's authorization for the estate to pay interim attorney's fees, other fees, and estate taxes.  She also sought her appointment as trustee with respect to both the residuary estate and the non-probate assets that designated the son as beneficiary.
Before Lee's order to show cause was heard, Cotis applied to the Sussex County Surrogate and was named guardian of the person and property of the child.  Counsel for Cotis stated before the Ocean County Probate Part that the life insurance carrier had informed him that appointment of a guardian was necessary for payment of the insurance proceeds to a minor in accordance with the terms of those policies.  In argument before the Probate Part, the insurance carrier agreed with Cotis's position that the insurance proceeds should be disbursed to her as guardian for the minor beneficiary.
The guardian ad litem sought a different disposition of the non-probate assets.  He expressed concern that a large amount of insurance money would be "dump[ed]" on the son when he turned eighteen, rather than placed in an educational trust as Strohmenger had desired.  The guardian ad litem suggested that the parties agree to a trust arrangement, with Cotis being co-trustee with a corporate trustee responsible for the day-to-day management of the trust.
The Probate Part did not accept either proposal at that time.  Instead, on July 5, 2011, it ordered that the insurance and IRA funds be deposited into the Ocean County Surrogate's intermingled minors account pending further argument on the question of how the funds should be distributed.  The court indicated that the order was "interim relief only."  The court recognized that "ordinarily such assets would be considered
. . . non-probate assets and as such would be transferred as per direction given outside the estate, outside the will holographic or otherwise."  However, the court viewed "the testator's intent" to be relevant in the circumstances of this case, since it seemed clear that Strohmenger wanted the funds to be used for his son's education. 
The court approved the interim accounting for the estate, no objections having been raised.  With the deposit of the insurance proceeds into the Ocean County Surrogate's account, the court dismissed the insurance carrier from the litigation.  Subsequently, the court approved a significant disbursement from the Surrogate's fund to reimburse Cotis for certain major expenses she had incurred for the son's benefit since Strohmenger's death. 
Cotis now appeals from the July 5, 2011 interim order, arguing that the Probate Part had no authority to direct disposition of non-probate assets contrary to the terms of the insurance policies and IRA account and contrary to their beneficiary designations.[4] 
On March 14, 2012, Lee filed another complaint, this time seeking approval of a final accounting of the estate and the appointment of Ocean First Bank as the trustee of both the residuary estate and the non-probate assets being held for the son in the Ocean County Surrogate's account.  Attached to the complaint was a proposed "Irrevocable Health and Educational Trust Agreement" that directed Ocean First Bank to manage the funds "to provide for the payment of medical and dental bills, day camps, and high school, post high school education . . . tuition, books, and any other necessary payment directly related to education." 
At oral argument on April 23, 2012, Lee's counsel conceded that the will did not control non-probate assets but argued that the court should consider the son's best interests and exercise its "equitable powers" to maintain the life insurance and IRA proceeds in trust in accordance with Strohmenger's instructions in his will.
Cotis did not object to the residuary estate being placed into a trust as proposed, but she objected to including the insurance proceeds and other non-probate assets in the trust.  Cotis argued that the non-probate assets for the son should not be treated differently from other non-probate assets that had already been distributed by their own terms and through operation of law to Lee, Margaret Strohmenger, and Cotis herself.  Cotis contended in the alternative that, if a constructive trust were to be created based on Strohmenger's expression of an intent that all his assets be used for the son's benefit, then the non-probate distributions to the three adults, including herself, should be included in that trust.
The court was persuaded that the son's interests required that the assets left for his benefit be held for him in a single trust.  After noting the disadvantage of leaving the son's funds in the intermingled minor's account for several years until he reached the age of majority, at a low interest rate, and also noting the duplicate administrative and legal expenses of having two separate accounts for the boy's benefit, the court concluded that combining the non-probate funds with the residuary estate in a single educational trust would be most consistent with the testator's intent and best for the boy.  The court rejected Cotis's alternative argument that the other three non-probate distributions should be disgorged and included in the trust on the ground that no objection had been raised at the time of those distributions.  The court entered orders on June 4 and July 3, 2012, that established the trust and named Ocean First Bank as the trustee.  The court also awarded counsel fees and costs to the guardian ad litem and the attorney for the estate.  Cotis appeals from those orders.

            We reject Cotis's argument that the Probate Part erred in its April 16 and 30, 2010 orders that dismissed her complaint for construction of the will to provide an inheritance to her.
We conduct plenary review of an order on summary judgment, granting no deference to the trial court's legal conclusions or application of the law to the facts.  W.J.A. v. D.A., 210 N.J. 229, 237-38 (2012).  We inquire anew into "whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor" of that party.  Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); see R. 4:46-2(c).  Where, as in this case, the summary judgment decision was based on application of legal principles, "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference."  Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
The probate judge referenced res judicata, collateral estoppel, and the entire controversy doctrine as the bases for dismissing Cotis's February 2010 construction complaint.  The court noted that some of Cotis's claims were among those adjudicated in January 2010 when the court rejected her caveat and admitted the will to probate.  Other theories presented by the new complaint may not have been addressed previously, but they could and should have been concurrently raised in the earlier proceedings and thus were barred by the entire controversy doctrine.  We agree with the Probate Part's conclusions of law on those issues.
Initially, we note that the construction complaint relied upon the notations on the envelope found in Strohmenger's home as indicating his intent.  Cotis did not claim the envelope was a codicil to the will.  She contended the notations were relevant extrinsic evidence of Strohmenger's intent when he executed his will earlier that day.  Further, she alleged that their life as husband and wife, and Strohmenger's consistent financial support of her and their son, was additional evidence of his probable intent. 
            The doctrine of probable intent is embodied in N.J.S.A. 3B:3-33.1(a):
The intention of a testator as expressed in his will controls the legal effect of his dispositions, and the rules of construction expressed in N.J.S. 3B:3-34 through N.J.S. 3B:3-48 shall apply unless the probable intention of the testator, as evidenced by the will and relevant circumstances, is contrary.

The doctrine is no more than "a rule of construction or interpretation, and therefore presupposes an existing testamentary disposition" to interpret.  In re Estate of Flood, 417 N.J. Super. 378, 382 (App. Div. 2010), certif. denied, 206 N.J. 64 (2011).  The doctrine is "applied sparingly and only where necessary to give effect to the intent of the will or trust without varying the terms of the document."  Estate of Gabrellian, 372 N.J. Super. 432, 441 (App. Div. 2004), certif. denied, 182 N.J. 430 (2005).  By way of example, a decedent's intent to minimize the tax consequences of testamentary dispositions might be used to read "technical provisions essential to achieve tax savings" into an existing gift, In re Estate of Branigan, 129 N.J. 324, 335 (1992), "but only to the extent that those revisions [do] not alter the dispository provisions of the will," Estate of Gabrellian, supra, 372 N.J. Super. at 442.  "The doctrine of probable intent is not applicable where the documents are clear on their face and there is no failure of any bequest or provision."  Id. at 443.
            These principles are fatal to Cotis's claim that the will should be construed to include her as a beneficiary.  She has never pointed to a single sentence, phrase, or word in the will that could be interpreted to give any part of Strohmenger's estate to her.  The will could hardly have been clearer:
  • "Everything all to my son [name]." 
  • "I leave everything to my son."
  • "Don Marvel . . . knows its all for [name of son]." 
  • "Put it all in a trust fund for [name of son].  Use the money for his education." 

  • "Don't let Jean get at it." 
Because the will was clear that all of Strohmenger's estate was to go to his son in trust and none to Cotis, and because this directive could be carried out as written, the doctrine of probable intent had no role in this case.  The court was required to and did effectuate Strohmenger's intent by ordering the residuary estate to be placed in an educational trust.  That order, and the judgment dismissing the will construction action, were correct on the merits.
            Furthermore, as the Probate Part correctly concluded, Cotis's contentions had been presented and considered in the prior proceeding adjudicating her caveat to probate of the will.  In those proceedings, the court had determined that the seven handwritten pages mailed to several different persons and otherwise found were Strohmenger's will, and that the notations on the separate envelope were not part of the will.  Thus, Cotis's claim that it was Strohmenger's testamentary intent to assist her financially with her "house bills" had been previously adjudicated and could not be raised again in a separate action among the same parties.  Those claims were barred by res judicata and collateral estoppel.  See Estate of Gabrellian, supra, 372 N.J. Super. at 446; see also Brookshire Equities, LLC v. Montaquiza, 346 N.J. Super. 310, 318 (App. Div.), certif. denied, 172 N.J. 179 (2002) (elements of res judicata are (1) final judgment by court with jurisdiction, (2) identity of issues, (3) identity of parties, and (4) identity of cause of action).
            Other grounds for construing the will in Cotis's favor were barred by the entire controversy doctrine.  See R. 4:30A.  The doctrine requires that a litigant present "all aspects of a controversy in one legal proceeding," or else be precluded from raising the omitted claims in a later lawsuit.  Hobart Bros. Co. v. Nat'l Union Fire Ins. Co., 354 N.J. Super. 229, 240 (App. Div.) (quoting Malaker Corp. Stockholders Protective Comm. v. First Jersey Nat'l Bank, 163 N.J. Super. 463, 496 (App. Div. 1978), certif. denied, 79 N.J. 488 (1979)) (internal quotation marks omitted), certif. denied, 175 N.J. 170 (2002).  The doctrine furthers the judicial "preference that related claims and matters arising among related parties be adjudicated together rather than in separate, successive, fragmented, or piecemeal litigation."  Kent Motor Cars, Inc. v. Reynolds & Reynolds, Co., 207 N.J. 428, 443 (2011).
            "In determining whether successive claims constitute one controversy for purposes of the doctrine, the central consideration is whether the claims . . . arise from related facts or the same transaction or series of transactions."  Ditrolio v. Antiles, 142 N.J. 253, 267 (1995).  The preclusive effect therefore extends "not only to matters actually litigated, but to all aspects of a controversy that might have been thus litigated and determined."  Vision Mortg. Corp. v. Patricia J. Chiapperini, Inc., 307 N.J. Super. 48, 52 (App. Div. 1998) (quoting Mori v. Hartz Mountain Dev. Corp., 193 N.J. Super. 47, 53 (App. Div. 1983)), aff'd, 156 N.J. 580 (1999).  At the same time, the entire controversy doctrine "does not apply to bar component claims that are unknown, unarisen, or unaccrued at the time of the original action."  Mystic Isle Dev. Corp. v. Perskie & Nehmad, 142 N.J. 310, 323 (1995).  Also, equitable principles may ease its application, and courts should not enforce the doctrine where doing so would deprive a litigant of "a fair and reasonable opportunity to litigate [a] claim."  Hobart Bros., supra, 354 N.J. Super. at 241. 
Cotis argues that her action for construction of the will did not accrue until the will was admitted to probate.  She cites Higgins v. Thurber, 413 N.J. Super. 1 (App. Div. 2010), aff'd, 205 N.J. 227 (2011), as supporting her contention that the entire controversy doctrine does not apply to a probate matter.  Higgins dealt with a more complex probate action in which subsequent legal malpractice claims were brought against attorneys who had represented the estate.  Id. at 9.  We discussed the nature of probate proceedings and the limited applicability of the entire controversy doctrine to successive pleadings and independent lawsuits in the Probate Part.  Id. at 12-13.  We held that a subsequent claim against the attorneys was not barred by the doctrine.  Id. at 14.
            By contrast, in Estate of Gabrellian, supra, we held the doctrine was appropriately applied to dismiss successive actions among the same parties in admitting a writing to probate and later seeking to determine the testator's probable intent.  372 N.J. Super. at 437-38, 444-45.  We also held that the same result could be reached on grounds of res judicata.  Id. at 447.
            The facts and circumstances of this case are more like Estate of Gabrellian than Higgins.  Cotis challenged the will by her June 2009 caveat.  She had the opportunity to conduct discovery and to claim, as an alternative to rejection of the will, that it should be construed in her favor based on the notations on the separate envelope and the parties' relation-ship.  But the will was crystal clear as to Strohmenger's intent.  Once Cotis's caveat was rejected and the seven-page will was admitted to probate, there was no further claim to be separately adjudicated regarding construction of the will. 
            The Probate Part correctly dismissed Cotis's complaint, both because it was procedurally barred, and because Cotis's construction complaint had no merit.
            We agree with Cotis, however, that the Probate Part was not authorized to order the disbursement of non-probate assets into a testamentary trust, even though the trust was created in accordance with Strohmenger's wishes and a single trust made good sense in the circumstances of this case.
The Probate Part recognized that non-probate assets pass outside the decedent's estate to the named beneficiary.  Because the son is a minor, the ordinary procedure would be the appointment of a guardian who would manage the funds until the boy turns eighteen.  Jurisdiction to appoint a guardian of a minor's estate lies concurrently in the Superior Court and in the Surrogate's court in the county in which the minor resides.  N.J.S.A. 3B:12-12; N.J.S.A. 3B:12-21.    
The guardian is vested with title to the minor's property as trustee, N.J.S.A. 3B:12-38, and the court may confer on the guardian the power to manage the property, subject always to the supervisory authority of the court, N.J.S.A. 3B:12-49.  This authority would usually terminate once the minor reached eighteen years of age, and the funds would be turned over to the minor, N.J.S.A. 3B:12-55, although in certain circumstances the court may approve investments that "impound" the funds beyond that period, see In re Guardianship of A.D.L., 208 N.J. Super. 618, 626-27 (App. Div. 1986) (court could authorize investment in annuity that would make payments past minor's eighteenth birthday).  In this case, the Probate Part followed a different path, creating a constructive trust for the non-probate assets. 
A constructive trust has been described as "the formula through which the conscience of equity finds expression."  Carr v. Carr, 120 N.J. 336, 351 (1990) (quoting Beatty v. Guggenheim Exploration Co., 122 N.E. 378, 380 (N.Y. 1919)).  A constructive trust may be imposed when "the holder of legal title may not in good conscience retain the beneficial interest."  Stewart v. Harris Structural Steel Co., 198 N.J. Super. 255, 268 (App. Div. 1984) (quoting Stretch v. Watson, 5 N.J. 268, 279 (1959)).  Ultimately, a constructive trust is a tool to avoid the unjust enrichment that would likely occur in its absence.
Lee argues that this is an extraordinary case, in which the court was "empowered to achieve substantial justice," Seavey v. Long, 303 N.J. Super. 153, 156 (App. Div. 1997), by imposing a constructive trust on the non-probate funds so that they would pass to the son according to Strohmenger's intent.  In Seavey, however, we reversed the Chancery Division's invocation of its equitable powers to create a constructive trust and to split a widow's pension between the needy first wife of the decedent and the less needy second wife, who was entitled to the pension benefits by statute.  Id. at 157, 161.  We stated "that in ordinary circumstances equity follows the law and will not divest rights that have been legally acquired," id. at 156, although "extraordinary circumstances or countervailing equities [may] call for relief," ibid. (quoting Monmouth Lumber Co. v. Indemnity Ins. Co. of N. Am., 21 N.J. 439, 451 (1956) (internal quotation marks omitted)). 
            In Vasconi v. Guardian Life Ins. Co., 124 N.J. 338 (1991), and in Bauer v. Crummy, 56 N.J. 400 (1970), the Supreme Court authorized the potential disposition of non-probate assets in accordance with the decedent's testamentary wishes.  But in those cases, the record clearly established that the assets would have passed to an expressly unintended beneficiary unless the equitable powers of the court were employed to carry out the testator's wishes.  Here, in contrast, the insurance proceeds and the IRA funds will be distributed for the benefit of the son, the intended beneficiary, although through their own contractual provisions and the operation of law.
The Probate Part had good intentions in creating a single, sensible trust, but it did not have the power to do so.  There is nothing in the record that indicates the boy will be deprived of the benefit of the insurance and IRA funds if his mother, acting as his guardian, receives the funds and is able to make use of them for his benefit.  Although Strohmenger stated explicitly that he did not want Cotis to have access to his assets for her own benefit, he recognized that a financial benefit to his son would include her to some extent.  By his notations on the envelope that were made after the execution of the holographic will, Strohmenger indicated his desire that Cotis and their son be aided financially, in particular to pay their "house bills." 
In writing his holographic will without advice of counsel, perhaps he erred in believing that the life insurance proceeds and IRA funds would pass under the estate into a trust for his son, but his error does not alter the Probate Part's limited authority to order the distribution of probate assets.  Without having conducted a hearing and made findings based on the evidence relevant to improper disposition of the funds or unjust enrichment in the absence of a constructive trust, the Probate Part overstepped its authority in ordering that the insurance proceeds and the IRA funds be placed in a testamentary trust.
            Since we have reached that conclusion, Cotis's remaining argument — that the court also erred in awarding attorney's fees for services performed regarding non-probate assets — will have to be reconsidered by the Probate Part.  We note Lee's argument that Cotis did not object to the amount of attorney's fees awarded when application was made to the Probate Part.  She contends that failure to object constitutes waiver of the contention on appeal.  We leave it to the Probate Part on remand to determine whether an objection to the attorney's fees awarded was preserved, whether the fees were properly awarded for services related to the estate or otherwise for the benefit of the son, and whether any adjustment should be made in the amounts awarded.
            We affirm the Probate Part's orders in part and reverse them in part, and we remand to the Probate Part for further proceedings in conformity with our decision.  We do not retain jurisdiction.


[1] Meaning no disrespect, and for convenience of reference, we will use first names for two of the decedent's sisters discussed in the briefs, Diane Strohmenger and Lee Strohmenger.

[2] We use script to indicate a signature without attempting to duplicate Strohmenger's actual signature.
[3] A surviving spouse is typically entitled to an elective share of one-third of the estate if the decedent did not provide as much for the spouse in his or her will, but not if the couple were "living separate and apart in different habitations" or had "ceased to cohabit as man and wife," as in this case.  N.J.S.A. 3B:8-1. 
[4] As we will discuss, it appears that subsequent orders have mooted the provision of the July 5, 2011 order from which Cotis appeals. 

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