Kovalyshyn's Estate, Matter of

• Decision Date: 26 June 1975
• Citation: 136 N.J.Super. 40,343 A.2d 852
• Parties: In the Matter of the ESTATE of Jerry J. KOVALYSHYN, Deceased.
• Court: New Jersey County Court. New Jersey County Court — Probate Division

Page 40

136 N.J.Super. 40

343 A.2d 852

In the Matter of the ESTATE of Jerry J. KOVALYSHYN, Deceased.

Hudson County Court Probate Division, New Jersey.

June 26, 1975.

Norman H. Roth, Jersey City, for plaintiff (Davis, Roth & Beck, Jersey City, attorneys).

William E. Andersen, Jersey City, for defendant (Jesse Moskowitz, Jersey City, attorney).

DOWDEN, J.C.C.

This matter concerns the disputed ownership of certain funds and their availability for use to satisfy debts of an otherwise insolvent decedent's estate.

Decedent died owning certain shares of a mutual fund, more specifically identified as Certificate No. 458740, National Investors Corporation (hereinafter 'the Fund'), title to which is now contested by Marie Kuhn Kovalyshyn as executrix of decedent's estate and by her individually because of her status as the residuary beneficiary under the terms of decedent's last will and testament. The dispute arises because title to the property is claimed by Jaroslav B. Kovalyshyn who was named sole beneficiary of a certain Inter vivos trust created by decedent upon the occasion of his having commenced his investment program in February 1962. The trust corpus represents the value of those accumulated fund shares.

The decedent's other assets are insufficient to satisfy the debts resulting from his final illness and expenses incident to his burial and the conclusion of his worldly affairs. However, the date-of-death value of these mutual fund shares is sufficient to satisfy all such obligations and yet leave a balance for payment to its rightful owner, subject to the payment of New Jersey inheritance taxes. The beneficiary of the Inter vivos trust asserts ownership to the exclusion of the creditors' claims while acknowledging his state tax obligation. The residuary beneficiary under decedent's probated will also claims title to these proceeds, subject to satisfaction of all estate debts, obligations and inheritance taxes.

The pertinent terms of the declaration of trust and decedent's will must be outlined prior to focusing upon the legal issues. In February 1962 Kovalyshyn agreed to make monthly payments of $100 to Investors Planning Corporation of America (I.P.C.), which amount, after certain agreed deductions, was to be used to purchase capital stock in the National Investors Corporation (the Fund). In short, the investor was buying shares in a mutual fund. He also made a written declaration of trust concerning those fund shares and all accumulations thereto, whereby he acknowledged that he held such shares and accumulations for certain 'uses and purposes' and subject to specified 'conditions and limitations.' The investor-settlor agreed to hold the trust estate for the use and benefit of his son Jaroslav B. Kovalyshyn, of the Ukraine in the Soviet Union. The conditions and limitations of this trust included a reservation of the unilateral power to change beneficiaries during the settlor's lifetime, by elimination, substitution or addition. Further, the trust provided for the settlor to receive income and distributions of such fund shares during his lifetime and for the continued investment of same. The agreement terminated upon the death of the investor and distribution was to be made to the named beneficiary. It was specifically stated that the 'only interests of any' beneficiary shall be such as expressly conferred and which interests occur upon the death of the settlor.

Finally, the trust agreement states that the custodian of those funds shall regard the settlor as the sole owner of the trust estate until the custodian receives notice of the settlor's death. At that time the named beneficiary shall be regarded as the sole owner, and the custodian is absolved of any liability for the post-death payments to one other than the beneficiary, absent a written notice of the settlor's death. The procedure for changing beneficiaries is set forth in paragraph (4).

The probated will named Marie Kuhn Kovalyshyn as the residuary beneficiary of all assets after payments of all just debts and estate expenses.

This factual episode presents several legal questions: Considering the terms and conditions of the declaration of trust, was a valid Inter vivos trust created? Can a settlor change the beneficiary of this trust agreement by a method other than that provided under the terms of that agreement? If a settlor of such a trust dies insolvent, may these trust proceeds be applied to the satisfaction of the settlor-decedent's just debts and estate administration expenses?

The courts of New Jersey have not yet examined a trust instrument such as this in order to determine whether it creates a valid Inter vivos trust. This mutual fund alone has 3,800 such standard declarations of trust currently operative in New Jersey. Further, it is reasonable to say that this trust agreement is representative of such agreements utilized by the mutual fund industry in this State. Absent judicial guidance from New Jersey courts, resort to judicial expressions from the courts of sister states and treatise evaluations is necessary and appropriate.

Professor Scott sets the tone when he indicates in his recognized treatise that a trust is a flexible device utilized for the disposition of property. It is unique to our system. The purposes for which trusts may be created are unlimited; there are no technical rules restricting the creations of trusts. 1 Scott on Trusts (3 ed. 1967), § 1 at 3 Et seq. This child of equity has grown and evolved through judicial decisions and has been codified in several states. Hence the trust has been used in family and other fiduciary relationships, such as with infants, the senile, the mental incompetent and the spendthrift.

The elasticity and adaptability of the trust instrument is most valuable and desirable, having proven its worth through the test of time and its continuing acceptability in the ongoing evolution of this country's political and economic climate. We have had charitable trusts, insurance trusts and business trusts, and now we have the latest device, the mutual fund Inter vivos trust. Inter vivos trusts have involved real and personal property alike.

An express trust is based upon the manifested intent of the settlor; a resulting trust is based upon the presumed or inferred intent of the settlor; a constructive trust is created by court action in order to work out justice without regard to the intent of the parties. The instrument is the outward manifestation of the settlor's intention to create the trust for the benefit of the named beneficiary; to impose upon himself or another, as trustee, equitable duties to deal with the property for the benefit of another person. 1 Scott op. cit., § 23 at 190. The retention of the power to invade, to control or to revoke the trust does not invalidate an Inter vivos trust once it has properly been created. For all its adaptability, however, the Inter vivos trust may not be a substitute for testamentary disposition which takes effect only upon the death of the testator unless the prescribed formalities set forth in the New Jersey Statute on Wills are followed.

Mutual fund Inter vivos trusts have been the subject of judicial review in several states. While each case deals with a particular trust instrument, it appears that the following cases reveal sufficient factual statements as to the retained powers, etc., of the settlor to indicate how other courts have dealt with instruments strikingly similar to the one under review here: Farkas v. Williams, 5 Ill.2d 417, 123 N.E.2d 600 (Sup.Ct.1955); Ridge v. Bright, 244 N.C. 345, 93 S.E.2d 607 (Sup.Ct.1956); Investors Stock Fund, Inc. v. Roberts, 179 F.Supp. 185 (D.C.Mont.1959), aff'd Sub. nom. Roberts v. Roberts, 286 F.2d 647 (9 Cir.1961). See also, United B. & L. Ass'n v. Garrett, 64 F.Supp. 460 (D.C.Ark.1946).

In essence, these cases reviewed and evaluated each of the powers reserved by the settlor and determined that the retention of some or all of the powers did not prevent the creation of a valid Inter vivos trust or indicate an intention to the contrary. The views of the highest courts of these states is consistent with the view of 1 Scott, op. cit. §§ 56 to 57.2, and Bogert, Trusts and Trustees (2 ed. 1965), §§ 103--104. In New Jersey our courts have reviewed each of these powers and ruled that the existence of any or all of them in an Inter vivos trust instrument does not invalidate it. However, New Jersey has never reviewed these powers as they appear collectively in this mutual fund. In this case the court deals with an instrument designed to be an express Inter vivos trust whereby the settlor intended to create a Present beneficial interest in favor of the named beneficiary while postponing his enjoyment thereof until the settlor's death. Further, the settlor manifested his intention clearly, specifically and unequivocally. In light of the past expression of New Jersey courts concerning the legal concept of valid Inter vivos trusts and their potential includable powers and limitations, I find that this instrument is consistent therewith and valid. See Wolf v. Wolf, 136 N.J.Eq. 403, 42 A.2d 300 (E. & A.1945); Nat'l Newark & Essex Banking Corp. v. Rosahl, 97 N.J.Eq. 74, 128 A. 586 (Ch.1925); Bassin v. Enoch-Pearl Co., 140 N.J.Eq. 428, 54 A.2d 824 (E. & A.1947); Savings, Investment & Trust Co. v. Little, 135 N.J.Eq. 546, 39 A.2d 392 (Ch.1944).

The second question to be resolved is whether decedent effectuated a valid change of beneficiary of the Inter vivos trust by the subsequent execution of his probated will. It is undisputed that the settlor had named his son as beneficiary when he executed the declaration of trust and never advised the custodian bank of any change during his lifetime. Plaintiff claims title to these proceeds, asserting that the deceased made her the beneficiary when he executed his will. Plaintiff contends that the settlor relied upon the advice of his lawyer, now...