Appellate Division Reverses Trial Court’s Ruling and Finds That Grantor Has Standing

Andrews, et al. v. Frank, et al., No. A-5524-14T3, 2017 N.J. Super. Unpub. LEXIS 346 (N.J. Super. Ct. App. Div. Feb. 9, 2017).

Clifford Andrews appealed an order dismissing his claims against fourth-party defendant, Steven Ford.  In 1999, while Clifford and Terry Andrews were married, they created the Andrews Family Legacy Trust (trust), an irrevocable trust, which consisted only of a “second-to-die” life insurance policy with a face value of $10 million.  The policy was purchased with contributions by each party.  Steven Ford was the financial planner and insurance advisor to Clifford and Terry.  Clifford and Terry were grantors of the trust and agreed to relinquish powers to alter, amend or revoke any terms of the Trust.  Moreover, they retained no right or power to exercise any incidents of ownership in any asset transferred to the Trust.  However, they did retain the power to remove the trustee for any reason and appoint an individual or corporate trustee who is not related or subordinate to the grantors to serve as trustee in their place.

In 2006, Terry filed a complaint for divorce.  The parties executed a Support and Property Settlement Agreement (PSA) in May 2007, which was incorporated into the parties’ Dual Final Judgment of Divorce entered the same day.

Ultimately, the trial court found Clifford lacked standing to assert claims against Ford because the children were the beneficiaries of the Trust, not Clifford, and therefore, he had no right to the policy or its proceeds.  The Appellate Division reversed the trial court’s ruling, finding that the grantors’ reservation of the ability to remove and appoint a trustee provided Clifford with standing as grantor.

Specifically, the appeals court noted that the grantors of the Trust retained enforcement authority over the trust and trustee.  Under the liberal rules of standing, such reservation of authority should have been determinative on the issue of Clifford’s standing to bring claims as a grantor against the trustee or others.  The court held, “[w]e are hard pressed to say why a grantor with the ability to remove and replace a trustee would not have standing to press claims to remove the fiduciary for breach of fiduciary duties or for an accounting.” Id. at *15.