By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Trust Attorney
I read a recent trust law case decided by an Appeals Court. Two trustees were named as co-trustees of the trust by the trust creator, a family member and an attorney. Thereafter the trust creator signed an Amendment to the Trust. The amendment added a no-contest provision that read as follows;
“Contest Provision: If any beneficiary hereunder, or other person whether named herein or not, directly or indirectly, contests this trust or objects to any provision thereof, or interferes or attempt to interfere with the administration of the trust, then I revoke all trust provisions in favor of such beneficiary and such beneficiary shall take no part of portion of the trust assets, except for the sum of one dollar which shall be paid to him or her by the trustee.”
Soon thereafter the trust creator died. The named trustee petitioned the court to appoint a family member as successor trustee instead of the law firm. The successor trustee (law firm) responded arguing it was the named successor trustee.
The trust argued that as the successor trustee the law firm, lacked standing to challenge the modification of the Trust. Standing is a component of jurisdiction and is subject to unlimited appellate review.
The law provides in relevant party: “A proceeding to approve or disapprove a proposed modification, termination and/or amendment to a trust may be commenced by a trustee or qualified beneficiary. A ‘Trustee’ includes the original, additional, and successor trustee, and a co-trustee.
Was the appointment of an independent, third-party trustee a material purpose of the Trust? The successor trustee argued that it’s appointment as successor trustee was a material purpose of the Trust. The family responded that the appointment of a different successor trustee was not a material purpose of the trust.
The court held that the interpretation and legal effect of written instruments such as a trust are matters of law, and an appellate court exercises unlimited review. The same rules that apply to the construction of wills apply to the construction of trusts and most other written instruments. When interpreting a trust, the court’s primary duty is to ascertain the settlor’s intent by reading the trust in its entirety. If that intent can be ascertained from the express terms of the trust, the court must effectuate those terms unless they are contrary to law or public policy.
In N.J. a non-charitable irrevocable trust may be modified upon consent of all the qualified beneficiaries if the court concludes that modification is not inconsistent with a material purpose of the trust.” “Material purpose” is not defined in the New Jersey statutes.
However, there is a law that a proposed modification to a trust changing the trustee or successor trustees, or replacing trustees may be a material purpose of the trust. While a modification of this type may well improve the administration of a trust and be more efficient and more satisfactory to the beneficiaries without interfering with a material purpose of the trust, on the other hand, a modification to change a trustee(s) or even a particular trustee, might have the effect of materially undermining the independence of a trustee. A proposed change to the trust might even have the effect of shifting effective control of the trust in such a way as to be inconsistent with a protective management purpose(s) or other material purpose of the trust. Thus, changes of trustees or a trustee provision in an existing trust are to be particularly scrutinized for their possible conflict with a material trust purpose.”
To discuss your NJ trust matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at email@example.com. Please ask us about our video conferencing consultations if you are unable to come to our office.