Without Unjust Enrichment, There Is No Constructive Trust
Schultz v. Glasser, No. A-5239-18T3, 2021 WL 269674 (N.J. Super. Ct. App. Div. Jan. 27, 2021).
Husband and wife, Robert Schultz, Sr. (“Robert”) and Mary Ann Schultz (“Mary Ann”), created an inter vivos trust (“Trust”), of which they were the primary beneficiaries. Upon the death of the survivor of them, their children, Robert Schultz, Jr., (“Bobby”) and Donna Schultz (“Donna”) were the remainder beneficiaries. In the event Bobby or Donna died without issue, the survivor of them would inherit all of the Trust property. The Trust also stated that Bobby would receive real estate owned by the Trust and located in New Jersey.
Robert died in 2014.
The Trust held various parcels of real estate, including the home in New Jersey and real property in South Carolina. In 2017, Bobby and Donna’s cousin, Kathleen, prepared a quitclaim deed transferring the South Carolina property from the Trust to Bobby. She claimed Mary Ann wanted to transfer the property to Bobby because he visited the state frequently was hoping to move there; Mary Ann signed the quitclaim deed.
Bobby lived in the New Jersey property until he died in early 2018. Just weeks before he passed away he transferred the New Jersey property from the Trust to himself and Kathleen as joint tenants with right of survivorship. Bobby also listed Kathleen as the sole beneficiary of his will.
After Bobby died, Mary Ann, by her attorney-in-fact, and Donna, individually and on behalf the estate of Robert Schultz, Sr. (“Robert’s Estate”), filed a complaint alleging Bobby breached his fiduciary duty to the Trust beneficiaries. They sought a judgment declaring the transfer of the New Jersey property to Kathleen null and void. They argued the New Jersey property belonged to the Trust, not to Bobby’s estate.
Kathleen, individually and on behalf of the estate of Robert Schultz, Jr. (“Bobby’s Estate”), counterclaimed for equitable relief, seeking the imposition of a resulting or constructive trust because Bobby paid about 54 percent of the purchase price of the New Jersey property.
Donna and Kathleen testified at trial, and the judge found neither witness credible and some of their testimony highly speculative. In the end, the court was forced to rely primarily on the documents offered for evidence.
With regard to the New Jersey property, Kathleen argued that Bobby was the settlor of the Trust because he had contributed to the purchase price of the property, and therefore had a right to amend the Trust, which the he did by executing the quitclaim deed. The court disagreed: the evidence offered as to why Bobby made payments was purely speculative, and the reason Bobby exchanged funds with his parents was unknown — he was not a settlor.
Further, the Trust designated Robert and Mary Ann as the sole trustees during their lifetime and Mary Ann was living when the property was transferred. The judge agreed that Bobby violated his fiduciary duty to the beneficiaries of the Trust and voided the New Jersey deed.
Kathleen and Bobby’s Estate appealed. The sum of their claims revolved around the fact that Bobby paid $163,000 towards the purchase price of the New Jersey property, and thus his estate was entitled to a constructive trust as to the sums paid.
Donna, Robert’s Estate, and Mary Ann cross appealed, asserting that the trial judge erred by not allowing them to amend the complaint to assert an undue influence claim concerning the South Carolina property and because the court failed to award Robert’s Estate attorneys’ fees and costs as tort damages for the undue influence.
The Appellate Division affirmed the trial court’s decision. It emphasized that it is the court’s obligation to uphold a testator’s dispositions of property, whether made by a will or a trust. Determining the testator’s intent is the court’s goal, and this can include interpreting a trust; only when necessary should a trust be reformed, and it should be reformed in accordance with the settlor’s intent.
In this case, the Trust was clearly worded and Bobby was never appointed trustee. Bobby would only receive the New Jersey property if he survived Robert and Mary Ann, which he did not. Because he predeceased Mary Ann and left no surviving issue, the Trust plainly stated that his share was to be distributed to Donna, and not his estate. Given that he was not named the trustee, he had no authority to make the transfer.
As to the funds Bobby paid to his parents, a constructive trust is only warranted when the court finds there was some wrongful act and the failure to find a constructive trust will result in unjust enrichment. Kathleen and Bobby’s Estate did not meet their burden in this respect.
As to plaintiffs’ cross appeal, the appellate court noted that the grant of leave to file an amended complaint is within the discretion of the trial judge and is specific to the facts of each case. Here, the trial judge denied the plaintiffs’ request because to allow them to amend the complaint at the last minute to raise a claim of undue influence would have been unfair to the defendants who would have had the burden shifted to them based on the existence of a confidential relationship.