On appeal from Superior Court, Chancery Division, Probate Part, Essex County.
Approved for Publication June 14, 1995.
Before Judges Petrella, Havey and Brochin. The opinion of the court was delivered by Petrella, P.j.a.d. Brochin, J.A.D., (dissenting in part)
The opinion of the court was delivered by: Petrella
These are consolidated appeals. The Estate of Ray D. Post (estate) appeals from the Law Division's determination that Enid D. Post, the decedent's surviving wife (plaintiff), was entitled to an elective share. Based on certain valuation decisions the Judge found that the property she had derived from her late husband and had acquired from other sources was less than one-third of the augmented estate under the elective share statute, N.J.S.A. 3B:8-1 to -19. Plaintiff appeals from the denial of counsel fees on her claim of a frivolous defense and the estate cross-appeals on a similar claim as to the plaintiff's claims against the estate. We reverse on the estate's appeal and affirm on the plaintiff's appeal and the estate's cross-appeal.
Ray D. Post (decedent), a New Jersey resident, died testate on May 5, 1989, at the age of ninety. Plaintiff, his third wife, was sixty-five years of age at the time of decedent's death. Decedent was also survived by one son from a previous marriage, two granddaughters, and a grandnephew.
Decedent's will, executed on December 5, 1985, *fn1 was admitted to probate on May 23, 1989. The will named one of his granddaughters as executrix of his estate and made bequests to plaintiff and others. The residuary estate was divided equally among his granddaughters and his grandnephew.
Presumably dissatisfied with the amount left to her, plaintiff instituted suit to recover an elective share under N.J.S.A. 3B:8-1 to -19. The estate disputed her entitlement to an elective share and asserted not only that plaintiff's assets exceeded one-third of the augmented estate, but also that prior to decedent's death, he and plaintiff had lived apart "under circumstances which would have given rise to a cause of action for divorce or nullity of marriage." N.J.S.A. 3B:8-1.
A bench trial took place on various dates between March 4, 1991 and December 10, 1991. Both sides presented evidence on issues of the estate's value and plaintiff's assets. The record is fairly voluminous.
The estate also presented evidence on its marital disqualification defense that: plaintiff had been unhappy with decedent and had expressed interest in obtaining a divorce; plaintiff had been a habitual alcoholic; decedent had become frustrated by plaintiff's demands for more money; plaintiff and decedent had ceased having marital relations in 1986; and plaintiff had refused to take decedent to a hospital while he was allegedly demonstrating symptoms of a heart attack. Plaintiff presented testimony that she had not been a habitual alcoholic, and that any drinking she may have done had been a reaction to the stress resulting from her need to care for the declining mental and physical condition of her husband. She also presented testimony that her behavior and requests for money had been reasonable, and that she had not abandoned or mistreated her late husband.
In an oral decision on June 16, 1992, the Judge ruled in favor of plaintiff. *fn2 He found insufficient credible evidence existed to conclude that plaintiff was a habitual alcoholic, and he ruled that the estate presented little more than conjecture and innuendo as to plaintiff's alleged cruelty and the unreasonableness of her conduct. Thus, the Judge found the requirements for disqualification under N.J.S.A. 3B:8-1 were not satisfied.
The Judge valued the assets of the total augmented estate at $4,148,889, which included 97 of the 100 outstanding shares in J. Frank Post, Inc. (Post, Inc.), a closely held New Jersey corporation engaged in the distribution of home heating oil. *fn3 The total augmented estate also included one-half of the total value of the corpus of an irrevocable trust created by decedent in 1975, which provides that interest income was to be paid to him for life, upon his death the income to plaintiff, and upon her death or remarriage, the corpus is to be distributed equally among his two granddaughters. The parties stipulated that the value of the corpus was $482,728 at decedent's death. The court calculated plaintiff's life interest in the 1975 trust at one half the corpus (as per N.J.S.A. 3B:8-17) at $241,364. The court added the plaintiff's life interest to the augmented estate and then credited the plaintiff's life interest of $241,364 towards the satisfaction of her elective share, pursuant to N.J.S.A. 3B:8-18.
The Judge allowed the estate a deduction from the augmented estate of $158,000 in "funeral and administration" expenses, which included costs for reasonable estate expenses, debts, fees, and commissions. However, he rejected the estate's claim that its expenses exceeded $450,000, including the litigation fees. The Judge concluded that the lawsuit was a contest between individuals and that the bulk of the estate's expenses over the amount allowed was for attorneys' fees and costs amassed during this litigation, *fn4 not for ordinary "funeral and administration" expenses.
The Judge also found that plaintiff possessed $1,175,827 in assets chargeable against her elective share. He did not include in the augmented estate $10,000 in cash which plaintiff stipulated she had brought into the marriage approximately fourteen years prior to decedent's death. In so doing, the Judge concluded the $10,000 had long since been dissipated and no longer existed at the time of decedent's death. Neither party presented evidence that the same $10,000 was kept separate and apart from the marital assets.
The Judge determined that decedent had made inter-vivos and testamentary gifts of Post, Inc. stock to plaintiff so that she held 34% of the outstanding shares. Two employees of Post, Inc. were each given or devised a total of 33% of decedent's stock. The expert testimony on each side valued the outstanding shares for "liquidation purposes." This determined the open market liquidation value of the stock at the time of the decedent's death.
Plaintiff's expert, Lawrence Biel, testified that the value of 100% of Post, Inc. stock was $878,000, and that the value of decedent's 97 shares was $851,660. He opined that plaintiff's shares were worth $289,564. However, notwithstanding his liquidation value approach, Biel also recommended subtracting 50% of the worth of plaintiff's shares as a "minority discount" because her minority shares would assertedly be worth less in the open market. As later discussed, the 50% reduction in value ultimately resulted in the Judge valuing plaintiff's Post, Inc. holdings at $144,782 for purposes of satisfying plaintiff's elective share.
The estate's expert, Gary Trugman, testified the liquidation value of 100% of Post, Inc. stock was only $468,000, which set the value of plaintiff's shares at approximately $159,000. Trugman did not apply a "minority discount" because he considered such a discount inappropriate in a liquidation analysis. Neither expert nor the court considered, however, the fact that as of the time of trial plaintiff had sold her stock and properties related to the business to the two Post, Inc. employees for $200,000 on April 12, 1991; *fn5 $144,460 was attributable to the stock. Without commenting on this April 1991 sale of the stock, the trial Judge accepted Biel's opinion, finding Biel more credible. The Judge, however, initially determined that the 50% "minority discount" was too great and adjusted the discount to 30% without any explanation as to how he reached that percentage.
Also, in determining what property plaintiff owned as a surviving spouse, see N.J.S.A. 3B:8-18, the Judge valued at "zero" a trust established by plaintiff's father in 1953 (the Brix Trust). Evidence at trial revealed that the Brix Trust provides that income is to be paid to plaintiff's mother for her life, and upon her death, the corpus is to be divided into two equal parts and held in trust for the benefit of plaintiff and her sister. The trust also authorizes the plaintiff's mother's trustee to invade the corpus for her support; upon the death of plaintiff's mother, *fn6 plaintiff may also invade the corpus for an aggregate amount not to exceed $20,000 in toto. The parties stipulated that at decedent's death, plaintiff's mother was still alive (age 85) and the value of the corpus of the Brix Trust was $710,654. The trial Judge found the trust could not be properly valued because of insufficient evidence, and he thus attributed no value to it.
The court calculated that plaintiff's elective share, one third of the total augmented estate, was $1,382,963. The court then found the elective share exceeded plaintiff's assets of $1,175,827 by $207,136.
Thereafter, the parties filed cross-motions for reconsideration. On July 2, 1992, the Judge modified certain aspects of his June 16 decision. Among the modifications, the Judge sua sponte increased the total augmented estate by adding the value of the remainder interest in the 1975 trust, $241,364. The Judge apparently reasoned that the irrevocable trust was subject to the elective share statute even though it was created before the May 28, 1980 effective date of the statute. The Judge also increased from 30% to 50% the "minority discount" he used in valuing plaintiff's shares of Post, Inc. stock to accord with plaintiff's expert's testimony. The Judge considered his earlier determination arbitrary because he did not have the requisite expertise to assess the value of the stock on the open market. Final judgment was entered on October 5, 1992. *fn7
Thereafter, both parties cross-moved for statutory counsel fees. See N.J.S.A. 2A:15-59.1 (prevailing party may recover counsel fees if the losing party's claims were frivolous or presented in bad faith). Plaintiff claimed the estate's marital disqualification defense was frivolous and asserted in bad faith because the trial Judge had found no grounds to establish a defense based on habitual intoxication or extreme mental cruelty. The estate countered that plaintiff had not demonstrated it had acted in bad faith, and that it was entitled to counsel fees because plaintiff's elective share action was instituted and continued in bad faith. The Judge denied both motions on February 26, 1993, reasoning plaintiff could not recover because sufficient grounds existed to allege the disqualification defense, and the estate could not recover because it was not a "prevailing party." An amended judgment was entered on April 19, 1993.
The parties raise various arguments on these consolidated appeals. The estate contends that the trial Judge erred in (1) adding to the augmented estate the value of the remainder interest in decedent's 1975 irrevocable trust; (2) refusing to calculate and apply the value of the Brix Trust against plaintiff's elective share; (3) allowing a 50% reduction in the value of plaintiff's share of Post, Inc. stock; (4) relying solely upon Biel's testimony in determining the value of Post, Inc. stock; (5) failing to grant the estate's motion for involuntary dismissal of plaintiff's elective share complaint; (6) not including plaintiff's $10,000 in the amount charged against her elective share; (7) failing to remain fair and impartial; (8) limiting funeral expenses and estate administration costs to $158,000; (9) failing to accept the estate's marital disqualification defense; and (10) failing to award it counsel fees under N.J.S.A. 2A:15-59.1. On plaintiff's appeal the estate takes the position that the Judge properly rejected plaintiff's motion for counsel fees under N.J.S.A. 2A:15-59.1, but claims it is entitled to such fees.
Our Disposition of the issues in contentions (1), (2), and (3) of the estate resolve its appeal. The remaining issues have been considered on both appeals and are without merit. R. 2:11-3(e)(1)(A) and (E).
We first consider the estate's claim that the Judge erred in including the 1975 irrevocable trust established by decedent in the value of the augmented estate.
N.J.S.A. 3B:8-3 defines the augmented estate as:
The "augmented estate" means the estate reduced by funeral and administration expenses, and enforceable claims, to which is added the value of property transferred by the decedent at any time during marriage, to or for the benefit of any person other than the surviving spouse, to the extent that the decedent did not receive adequate and full consideration in money or money's worth for the transfer if the transfer is of any of the following types:
a. Any transfer made after May 28, 1980, under which the decedent retained at the time of his death the possession or enjoyment of, or ...