Before Judges King, Coburn and Axelrad.
The opinion of the court was delivered by: Axelrad, J.T.C. (temporarily assigned).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 13, 2000
On appeal from the Superior Court of New Jersey, Chancery Division, Atlantic County.
This is an appeal from the Chancery Division judge's August ll, l999 order enforcing the terms of a purported settlement agreement, which alters the will and estate plan of Henrietta Neufeld Cohen ("Henrietta"). Henrietta is a ninety-six year-old grandmother who is alive but legally incompetent. The appeal is filed by Michelle Cohen ("Michelle"), Henrietta's granddaughter, who is age twenty-nine and developmentally disabled, through her mother, Karen Jorgensen as guardian ad litem. Michelle's appeal is based on the following contentions: (1) the purported settlement agreement is an impermissible reformation of Henrietta's testamentary plan; (2) the purported settlement agreement is an impermissible gifting plan; and (3) there is no enforceable settlement since there was a lack of agreement on material terms. On May 11, 2000 we granted Michelle's emergent application for a stay pending appeal and acceleration of oral argument.
The material facts are as follows. Henrietta, a widow, presently resides at the Linwood Convalescent Center in Linwood, New Jersey. Henrietta had two children, Howard Cohen. M.D. ("Howard") and Charles Cohen ("Charles"). Howard is presently married to Jacqueline and was previously married to Karen Jorgensen. Two children were born of Howard's marriage to Karen Jorgensen, Douglas Cohen ("Douglas"), age twenty-seven, and Michelle. Charles died in l987 and has two children, Alan J. Cohen, Esquire ("Alan") and Rabbi Bruce Cohen ("Bruce"). Alan is married to Barbara, and they have two minor children. Bruce is married to Debra, and they have two minor children.
On August 4, 1992 Henrietta executed estate planning documents that were drafted by Ronald Wagenheim, Esquire, of Cooper Perskie. Pursuant to a Revocable Trust Agreement with the predecessor of First Union Bank, Henrietta divided her approximately $5 million estate in half between the two sides of her family - the Howard side and the Charles side. Half of the corpus was to be held for the benefit of Howard and his children, with seventy percent to be held in trust for Howard. The remainder of Howard's life estate was to be evenly divided upon Howard's death between trusts established for the benefit of Douglas and Michelle. The remaining thirty percent allocated to Howard's side of the family was to be divided evenly into separate trusts for Douglas and Michelle. The other half of the corpus was to be evenly divided between Charles' sons, Alan and Bruce, free of trust.
Henrietta contemporaneously executed a last will and testament, which provided bequests to various charities and bequests of personal property. Henrietta's last will and testament also directed that her residuary estate be paid to the August 4, 1992 trust and distributed in accordance with its provisions. No provisions were made in Henrietta's estate plan for Howard's second wife, Jacqueline.
In October 1996, Howard retained Albert F. McGee, Jr., an attorney, ("McGee") to investigate Henrietta's existing testamentary plans. Howard, McGee, and Jacqueline met with Henrietta to effectuate a new testamentary plan, which they represented would provide for estate, gift, and income tax savings to Henrietta and her family. This new testamentary plan would also contain provisions for Jacqueline.
Alan, who was supervising Henrietta's affairs at the time, filed a complaint in the Chancery Division, Probate Part, on January 10, 1997, seeking to declare his grandmother Henrietta legally incompetent. *fn1 Howard, Michelle, Douglas, and Bruce intervened in the incompetency action. Prior to the finding of incompetency, there were numerous cross-claims and counterclaims between the two sides of Henrietta's family. In addition to Howard's allegations in the first four counts of his counterclaim of improprieties by Alan acting under the power of attorney which had been issued, Howard's fifth count also alleged that the 1992 Trust Agreement may have been executed while Henrietta was incompetent and subject to undue influence. The fifth count of his counterclaim averred that the present documents [i.e., Henrietta's 1992 last will and testament and trust agreement] do not adequately effectuate her intent as to the objects of her bounty and may have been executed when she was incompetent and/or subject to undue influence. In addition, said documents do not effectuate the maximum saving of estate taxes and should be modified for that purpose as well.
Howard sought authority to implement "more appropriate testamentary and inter-vivos documents" for Henrietta. More specifically, Howard attempted to set aside pre-mortem the will and estate plan, which Henrietta effectuated in 1992 through Wagenheim, and substitute the plan prepared by McGee.
On May 20, 1997 the0 judge issued an order declaring Henrietta incompetent and "incapable of governing herself and managing her affairs as a result of unsoundness of mind." The judge appointed William Schultz, an attorney, as an independent guardian for Henrietta's property, and appointed Howard and Alan as co-guardians of her person. The judge then entered various management orders concerning Howard's five-count counterclaim, Alan's cross-claim against Howard, and the fee application dispute of McGee.
Subsequently, J. Philip Kirchner was substituted for Richard Hyland in the representation of Howard. Jeffrey Waldman was substituted for John Rosenberger in the representation of Bruce, and Joseph Youngblood was substituted for Thomas Haynes in the representation of Douglas. Thomas Haynes continued to represent Michelle until some time after April 19, 1999, when Charles Heuisler was substituted for Thomas Haynes on behalf of Michelle and Karen Jorgensen, Michelle's guardian ad litem. In a motion dated November 13, 1997 Howard sought to implement the McGee "comprehensive gift and financial plan" for the management of Henrietta's estate as a substitute for the testamentary plan contemplated by the 1992 trust agreement. The plan was allegedly designed to provide for lifetime care of Henrietta, distributions to her family, restructuring of her investment portfolio, centralized investment management, and the minimization of enormous amounts of generation-skipping transfer taxes and estate and gift taxes that would have resulted from the 1992 Trust Agreement. The plan formed the basis and the starting point for all subsequent settlement negotiations among the parties. The judge adjourned Howard's motion indefinitely to give counsel and the parties an opportunity to study the McGee plan and to see whether they could consensually resolve the issues.
At the request of Michelle and Douglas, the court appointed an expert tax advisor, at the expense of Henrietta's estate, to advise the parties of the feasibility, benefits, and risks associated with Howard's plan. The court-appointed expert, Leonard Goldberg, a prominent New Jersey tax and estate-planning lawyer, prepared a written report that adopted many of the features of the McGee plan but differed in certain respects.
On August 3, 1998, following circulation of the expert's report, the judge convened a settlement conference with all parties and their counsel present. The parties used a draft of the McGee plan as the basis for their negotiations. As a result of the differences of opinion among the parties, respecting the status of the case, Howard's counsel filed a motion to enforce the purported settlement agreement, which he contended had been reached as a result of the August 3, 1998 settlement conference. Howard's counsel certified that all disputed issues identified at the beginning of the conference had been resolved at the conclusion of that conference, and that the only issue left to be resolved was the issue of reimbursement by Henrietta's estate of counsel fees incurred by either of the co-guardians of her person.
In a telephone conference and confirming letter, the judge scheduled argument for October 9, 1998 on the motion to enforce. The judge suggested that the parties attempt to settle the matter because if the issues were not "otherwise addressed" by the return date of the motion to dismiss, he would sua sponte, determine (a) whether any party has standing to challenge the incompetent's will before her death and (b) whether the creation of a new testamentary plan is permissible under the circumstances set out here. This last issue is, I think, closely related to my request that the parties consider whether these issues can be settled and implicates the extent to which In re Trott, 118 N.J. Super. 436 (Ch. Div. 1972) permits the modification of a testamentary scheme to effectuate tax savings.
The judge heard argument on October 9, 1998; the substance of his ruling was set forth in an October 23, 1998 order, which reads in relevant part:
A. The motion of Dr. Howard Cohen to enforce settlement and for attorney's fees and costs is denied.
B. Howard Cohen, MD has no present standing to maintain an action to contest the 1992 Will and Trust Agreement of Henrietta Cohen;
C. The Court shall hold an evidential hearing as to Counts 1, 2, 3 and 4 of Dr. Howard Cohen's counterclaim against Alan Cohen;
D. The Court shall hold a second evidentiary hearing to determine the appropriateness of the "gifting and financial" plan submitted by Albert F. McGee, Jr., Esquire on behalf of Howard Cohen, MD, and whether such plan will generate actual tax savings to the Estate of Henrietta Neufeld Cohen. The purposes of this hearing will be to determine:
1. Whether, if Henrietta Cohen had been presented with such a plan, it would have been her "probate intent" *fn2 to effect the plan; and if so
2. Whether such plan provides the same benefits as the 1992 Will and Trust plan of Henrietta Cohen to the beneficiaries named therein; and if so
3. Whether such plan will actually generate sufficient surplus funds to ensure that all beneficiaries under the 1992 Will and Trust will receive the same benefits and to permit the Court to consider the appropriateness of allowing such surplus or extra funds to be applied for the benefit of Jacqueline Cohen as provided in the proposed plan.
In December 1998, Howard and Alan executed and filed a stipulation of dismissal with prejudice as to the first four counts of Howard's counterclaim and Alan's cross-claim. Howard filed a motion for reconsideration of the judge's order denying his motion to enforce the settlement agreement on the grounds that the basis for the court's denial of that motion, the dispute between Alan and Howard, had been resolved.
Rather than conducting oral argument on April 12, 1999, the return date of that motion, the judge convened a second settlement conference among all parties and counsel. According to Howard, after two days of negotiating, the parties reached a second agreement, which contained slightly different terms to settle the entire litigation; they agreed to return to the courthouse the following day to put their settlement on the record and to consider minor revisions to which they had agreed during the course of negotiations on April 13, 1999. However, according to Howard, when the parties returned to the courthouse the following morning to review the revised settlement documents prepared by Alan, Douglas announced that he was not ...