Coffey v. Coffey

• Decision Date: 12 December 1995
• Citation: 286 N.J.Super. 42,668 A.2d 76
• Parties: Janet Ann COFFEY, Plaintiff-Respondent, and Cathleen Coffey, Jennifer Coffey and Mary Coffey Solomon, Intervenors-Respondents, v. Thomas P. COFFEY, Defendant-Appellant.
• Court: New Jersey Superior Court — Appellate Division

Page 42

286 N.J.Super. 42

668 A.2d 76

Janet Ann COFFEY, Plaintiff-Respondent, and Cathleen Coffey, Jennifer Coffey and Mary Coffey Solomon, Intervenors-Respondents, v. Thomas P. COFFEY, Defendant-Appellant.

Superior Court of New Jersey,

Appellate Division.

Submitted March 29, 1995.

Decided Dec. 12, 1995.

Farmer & Campen, Union City, for appellant (Gregory T. Farmer, on the brief).

Karin Duchin Haber, Florham Park, for intervenors-respondents (Ms. Haber, on the brief).

Before Judges KESTIN and ARIEL A. RODRIGUEZ.

KESTIN, J.A.D.

Defendant appeals from orders of the trial court affecting the disposition of bonds and other assets he holds for the benefit of his daughters, Mary, Jennifer and Cathleen. The orders required defendant to turn over to a special receiver for distribution to the daughters all the contents of a safety deposit box (the assets) and to pay

• the receiver's fees, with a retainer of $2500;

• $115,597.65 in interest to his daughters, from July 29, 1988;

• $28,000 to Cathleen as reimbursement for her college costs, for which defendant was personally responsible but which had been paid out of the assets held by defendant; and

• $9,600 in counsel fees to the daughters, plus an additional $900 in counsel fees for an enforcement proceeding.

Defendant was also ordered to transfer immediate ownership and possession of all accounts held for the daughters, including a $50,000 certificate of deposit held for Cathleen (mistakenly designated as Jennifer in the order). The orders further required defendant to secure a $5,000 bond as a precondition of receiving case files from defendant's former attorney and denied defendant's requests for

• counsel fees of $7,500 to be charged against the assets held by defendant; and

• repayment of $87,000 in federal taxes defendant alleged he paid on account of the assets held for the benefit of his daughters.

The award to defendant of $11,000 as reimbursement for funds he advanced for the purchase of Cathleen's certificate of deposit is not a subject of this appeal.

The trial court denied defendant's application for a stay, pending appeal, of distribution of the assets; but did order a stay, conditioned upon the posting of a supersedeas bond, to secure other monies defendant had been ordered to pay to his daughters or on their behalf. Defendant posted a cash bond of $250,000.00. On defendant's motion, we stayed the distribution of the assets pending disposition of this appeal.

The history of this matter dates back to May 17, 1973, when defendant prepared a memorandum memorializing his thoughts after a conversation with his accountant. He wished to give money to his three daughters, then young children 10, 7 and 4 years of age, "without it becoming legally theirs when they are 21," and in a manner that would minimize or eliminate the tax impact from transfers to them. A portion of the memorandum notes defendant's adoption of a plan recommended by the accountant.

He also pointed out another way--the purchase of municipal bonds which I would retain in my name and on which I would pay all taxes, giving them in gifts or in trips the sums of interest, and giving to them each year the maximum amount that the government allows a married man to give to his children. The risk in this, if I understood him correctly, is that after the children are 21, if any of the bonds are called in prior to maturity dates, I would be legally obliged to distribute this sum to them equally or to deposit it to their accounts. This strikes me as sound advice and I have determined to follow it. I will purchase from time to time bonds that might come due in 15, 20, or 30 years and hold them in my account while distributing them to the children each year in the maximum amounts that the law allows. I hereby certify that this should become a part of my will so that on my death the bonds should be given to my children to be shared equally by them.

Although defendant manifested his intentions in the 1973 memorandum, he did not begin to purchase municipal bonds in accordance with the plan until 1978.

On July 28, 1988, defendant and his wife were divorced, after having been separated for about ten years. In their incorporated agreement, the parties provided that defendant would "be responsible for all of the future costs and expenses to be incurred" for Cathleen's further education. Cathleen, the youngest of the three children, was then nineteen. Her elder sisters, Jennifer and Mary were, respectively, twenty-three and twenty-five years of age.

The parties' agreement, as recited in the judgment of divorce, provided further:

The Defendant agrees to maintain in full force and effect a certain "trust" for the benefit of the three children of the marriage equally, as testified to in Court on June 29, 1988. All of the items set forth on [certain exhibits] shall be maintained exclusively for the benefit of the three children of the marriage equally and irrevocably. The Defendant has affirmed under oath in open Court that the items contained on [the exhibits] shall be irrevocably held in trust for the benefit of Mary, Jennifer, and Cathleen Coffey, equally. The Defendant further agrees to provide a copy of the trust document/agreement to the Plaintiff's attorney promptly.

In October 1991, plaintiff filed a motion to enforce the terms of the divorce judgment, returnable on November 22, 1991. The motion sought a determination that defendant was "in willful violation of litigant's rights," the imposition of sanctions for violation of the judgment of divorce, and an order:

• compelling defendant to pay Cathleen all the costs and expenses she had incurred for her college education;

• requiring defendant "to account completely" for the exhibits referred to in the provision of the judgment of divorce relating to the trust funds;

• appointing a receiver to administer the trust; and

• compelling defendant to pay over to the children all assets of the trust; and

• awarding counsel fees.

Shortly after the motion was filed, Cathleen, by then twenty-two years of age, moved for leave to intervene and for essentially the same relief sought by plaintiff, her mother. Cathleen further sought an accounting relating to the sale of Pennsylvania real estate which had been held by defendant as custodian for Cathleen, as well as payment of the proceeds of the sale.

In an order entered on April 10, 1992, the two elder daughters, Jennifer and Mary, were joined as intervenors; and a discovery period was provided preliminary to a plenary hearing. The plenary hearing concluded on August 4, 1993. The findings and conclusions of the trial judge were set out in a letter decision dated September 20, 1993. A further enforcement proceeding on January 28, 1994 resulted in the orders from which this appeal has been taken.

A fundamental issue in this case is whether a valid trust exists at all, or whether defendant held the assets in some capacity other than trustee that would require him to turn them over to the beneficiaries on demand. Defendant has taken the position throughout these proceedings that it was his intention to establish an irrevocable trust governed by the terms of the 1973 memorandum, for the benefit of his children, with himself as trustee. He asserts that as bonds were recalled or reached maturity, at least until 1988, he either distributed the proceeds to a particular child or purchased a certificate of deposit for the benefit of a particular child, in a consistent effort to achieve equality of distribution among his children.

Every indicator points to the conclusion that an active trust existed, one in which defendant, as trustee, retained legal title to the assets and was required to manage them in substantial compliance with the terms of the trust instrument, with care and prudence, for the benefit of his children, the cestuis que trustent, until such time as, by the terms of the trust instrument, the proceeds were to be turned over to the beneficiaries. Commercial Trust Co. v. Barnard, 27 N.J. 332, 343, 142 A.2d 865 (1958); Milberg v. Seaboard Trust Co., 7 N.J. 236, 244, 81 A.2d 142 (1951) (citing Blauvelt v. Citizens Trust Co., 3 N.J. 545, 71 A.2d 184 (1950)); Branch v. White, 99 N.J.Super. 295, 306-07, 239 A.2d 665 (App.Div.), certif. denied, 51 N.J. 464, 242 A.2d 13 (1968); Tannenbaum v. Seacoast Trust Co., 16 N.J.Misc. 234, 254-55, 198 A. 855 (Ch.1938), aff'd, 125 N.J.Eq. 360, 5 A.2d 778 (E. & A.1939); Restatement (Second) of Trusts, §§ 2, 164, 169-183 (1959).

Although the principle that "[a] trust cannot be created unless there is trust property", Restatement (Second) of Trusts, § 74 (1959), precludes a finding that a trust existed at the time defendant prepared his memorandum in 1973, no rule exists that precludes a trust from coming into existence at the time the settlor manifests the requisite intention by the way in which he treats or deals with certain property.

The manifestation may be by conduct, or by words, and no particular form of words is necessary. Restatement--Trusts, § 23. The issue of trust or no trust turns almost invariably on proof of intention, since the trust arises upon mere expression of the requisite intention.

[Eagles Bldg. & Loan Ass'n v. Fiducia, 135 N.J.Eq. 7, 9, 37 A.2d 116 (Ch. 1944), aff'd, 136 N.J.Eq. 117, 40 A.2d 627 (E. & A.1945).]

Accord State v. Atlantic City Elec. Co., 23 N.J. 259, 266, 128 A.2d 861 (1957); State v. United States Steel Co., 12 N.J. 51, 58, 95 A.2d 740 (1953). We are aware of no rule holding that a trust, the existence of which is determined by the manifested intention of the settlor, may not be governed by previously declared terms if those may fairly be seen to express the settlor's continuing design. Indeed, authority exists to the contrary. See Brainard v. Commissioner of Internal Revenue, 91 F.2d 880, 882 (7th Cir.1937) cert. dismissed, 303 U.S. 665, 58 S.Ct. 748, 82 L.Ed. 1124 (1938); Restatement (Second) of Trusts, § 26 cmt. k; but...