On appeal from the Superior Court of New Jersey, Chancery Division-General Equity, Middlesex County, Docket Nos. C-3068-71, C-3064-71 and C-178-02 in A-1487-03T1; and C-3064-71 in A-1785-03T1, A-1820-03T1 and A-2059-03T1.
The opinion of the court was delivered by: Cuff, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Cuff, Parrillo and Holston, Jr.
These appeals involve construction of a 1961 charitable trust (the 1961 Trust) settled by J. Seward Johnson (Johnson or the grantor). The principal issue is whether the grantor intended, by use of the term "spouse" in the trust instrument, to include a surviving or divorced spouse as an eligible beneficiary at termination of the charitable lead trust.
The issues in this case were first disposed of almost nine years ago by summary judgment after the trustees of the 1961 Trust filed an accounting and asked for guidance in interpreting the 1961 Trust instrument. The motion judge determined that the term "spouse" was clear and unambiguous and meant a person currently married to one of the grantor's then-living children and did not include a divorced spouse or a surviving widow or surviving widower. In an unreported opinion, this court reversed the motion judge's determination that the meaning of the term "spouse" was clear and unambiguous, finding that the term was ambiguous on its face and remanded the matter for further discovery and trial on the grantor's probable intent in using the word "spouse." In Re 1961 Trust, A-5762-96T1 (App. Div. Aug. 25, 1999) (slip op. at 20-29). This opinion also addressed a number of other issues.
On appeal to the Supreme Court, the Court reversed only that portion of this court's decision addressing the ability of third parties to challenge the paternity of one of the grantor's grandchildren by a particular marriage. In re Trust Created December 20, 1961, 166 N.J. 340, cert. denied sub nom Ryan v. Johnson, 534 U.S. 889, 122 S.Ct. 203, 151 L.Ed. 2d 143 (2001). The Court did not address the issues implicated in this appeal.
Following a six-day bench trial, Judge Messina found that the grantor intended to include surviving spouses, but not surviving divorced spouses, as eligible beneficiaries. The trial judge admitted into evidence the testimony of the scrivener of the trust instrument. He also rejected a request to reform the 1961 Trust to exclude the so-called illegitimate daughter of one of the grantor's sons, and denied counsel fees to the surviving spouse who benefited from the ruling.
Four separate appeals were filed. These appeals, originally calendared back-to-back, are consolidated on the court's motion for purposes of opinion only. At oral argument, we were informed that the issues regarding Jenia Johnson as a beneficiary and the conflict of interest raised by Eric B. Ryan and Hillary A. Ryan in A-1487-03 had been dismissed. Thus, the only issues that will be addressed in this opinion are the rulings that a surviving spouse is an eligible beneficiary, a divorced spouse is not an eligible beneficiary, and that the prevailing surviving spouse is not entitled to an award of counsel fees.
J. Seward Johnson was born in 1895 and was a son of the founder of Johnson & Johnson. During his life, Johnson established a number of trusts to which his several children were made beneficiaries. Four children were born to him and his first wife, Ruth: Mary Lea Johnson Ryan (1926), Elaine Johnson Wold (1927), J. Seward Johnson, Jr. (1930), and Diana Johnson Stokes (1932). Two children were born to him and his second wife, Esther: Jennifer Johnson Gregg (1941) and James Loring Johnson (1945). Among the trusts established by Johnson were four identical irrevocable trusts (the 1939 trusts) for the children of his first marriage. In 1944, Johnson created six substantially similar trusts (the 1944 trusts), one for each of his children and primarily funded with shares of Johnson & Johnson stock. The 1944 trusts included power-of-appointment provisions that did not appear in the 1961 Trust at issue in this appeal.
Between 1948 and the creation of the 1961 Trust in December 1961, Johnson had eleven grandchildren, specifically, six by Mary Lea Johnson Ryan (Eric Ryan, 1951; Seward Ryan, 1952; Roderick Ryan, 1953; Hillary Ryan, 1954; Alice Ryan, 1956; and Quentin Ryan, 1958); two by Elaine Johnson Wold (Keith Wold, 1950; and Diana Wold, 1951); two by J. Seward Johnson, Jr. (Bruce Johnson,*fn1 1948; and Jenny Johnson,*fn2 1961), and one by Diana Johnson Stokes (Loran D.J. Stokes, 1960).
On December 20, 1961, Johnson created the trust at issue in this appeal, the 1961 Trust. The trustees were to pay income to charities until the earlier of January 10, 1997, or the death of the last of certain named measuring lives, expressly, his first four children and all of his then-born eleven grandchildren. After January 10, 1997, the trust provided as follows with respect to income:
[2.](b) [I]f this Trust shall still be in existence on January 10, 1997, . . . and for so long as this Trust shall be in existence, to accumulate the net income and add it at the end of each calendar year to the Trust Property provided, however, that the Trustees may use for or distribute and pay to and among the Grantor's four children, MARY LEA JOHNSON RYAN, ELAINE JOHNSON WOLD, JOHN SEWARD JOHNSON, JR., and DIANA MELVILLE JOHNSON STOKES, their spouses, and their issue, or any one or more of them, so much of the net income and in such shares as the Trustees in their absolute and uncontrolled discretion may deem to be for his or her best interests.
Also after that date the trustees were authorized to make corpus distributions as follows:
[3.](b.) After January 10, 1997, and for so long as this Trust shall be in existence, from time to time, and whenever in the absolute and uncontrolled discretion of the Trustees they deem it to be for his or her interests, to use for or distribute and pay over to and among the Grantor's four children, MARY LEA JOHNSON RYAN, ELAINE JOHNSON WOLD, JOHN SEWARD JOHNSON, JR., and DIANA MELVILLE JOHNSON STOKES, their spouses, and their issue, or any one or more of them, in such shares as the Trustees may determine, to be his or hers absolutely, outright, and forever, any or all of the Trust Property.
At termination, the trustees were directed [3.(c.)](i) to divide the Trust Property then remaining into as many equal shares as there shall be children of the Grantor's four children (MARY LEA JOHNSON RYAN, ELAINE JOHNSON WOLD, JOHN SEWARD JOHNSON, JR., and DIANA MELVILLE JOHNSON STOKES) then living, or children of the Grantor's four children who died leaving issue who are then living, and to transfer and pay over, absolutely, outright, and forever, one of each such equal shares to each child then living of the Grantor's four children and one of each such equal shares to the issue, per stirpes, then living of each deceased child of the Grantor's four children, or failing all such persons, then (ii) to divide, transfer, and pay over, absolutely, outright, and forever, the Trust Property to those persons, other than the Grantor, who, under the laws of New Jersey then in force, would have been entitled to inherit from the children of the Grantor's four children, MARY LEA JOHNSON RYAN, ELAINE JOHNSON WOLD, JOHN SEWARD JOHNSON, Jr. and DIANA MELVILLE JOHNSON STOKES, (had such children of the Grantor's four children at that time died intestate domiciled in New Jersey) personal property located in New Jersey of which he or she died possessed and in the same proportions as they would have been so entitled, or failing such persons, then . . . [to distribute the Trust Property to educational, religious or charitable organizations meeting certain IRS requirements and as selected by the trustees in their discretion.]
Thus, the 1961 Trust provided for discretionary distributions to "spouse[s]" after 1997, of income and corpus, until the trust's termination, at which point the children or issue of the oldest four Johnson children named in the instrument were to be the primary beneficiaries. Notably, designation as a beneficiary did not guarantee a distribution from the 1961 Trust, except on termination and then only to the beneficiaries designated to receive distributions on termination. The trustees were always to be two senior Johnson & Johnson executives. The third trustee was originally Kenneth Perry, the former General Counsel of Johnson & Johnson. He was succeeded in 1964 by James Hill, who remained a trustee at the time of trial.
The 1961 Trust does not define "spouse." It does define "issue," and it also provides a limitation on the number of adopted issue.
As with the grantor's prior trusts, the 1961 Trust was funded with Johnson & Johnson stock. At the time of the creation of the 1961 Trust, the grantor's first four children were alive, married and none had been divorced. As of December 1961, none of the grantor's married grandchildren were yet divorced. Thereafter, additional grandchildren of the grantor were born or adopted (two to J. Seward Johnson, Jr., three to Diana Johnson Stokes, two to Jennifer Johnson Gregg, and seven to James Loring Johnson).
Much of the trial following the remand focused on the grantor's lawyer's knowledge and understanding of Johnson's intent under the 1961 Trust. Kenneth Perry, the former General Counsel of Johnson & Johnson and the architect of the Johnson trust and estate plan, died in 1964. James Hill was hired by Perry as an attorney in 1949, and he eventually succeeded Perry in managing the Johnson estate and other personal family matters. Initially, Hill worked as Perry's subordinate or associate and under Perry's supervision drafted Johnson family wills and documents in addition to his other duties.
Johnson started to come to Hill's office on a regular basis and Hill sometimes went to meet Johnson at his house or farms. Occasionally, Hill traveled with Johnson. Hill felt that the two men came to know each other very well, and that Johnson approved of his work.
By the early 1950s, Perry assumed special counsel status and moved to Arizona. Hill became the person in the Law Department with the day-to-day responsibility of addressing Johnson's questions. By this time, Hill was also serving as trustee of a number of trusts Johnson had established for family members. Hill also worked with Johnson on a host of family and charitable projects. Nevertheless, Hill continued to solicit Perry's approval of some of the legal work he performed on Johnson family matters.
Beginning in 1959 or 1960, based on what Hill had learned from another attorney in New York whom he held in high regard, Hill formed the idea to create what would become the 1961 Trust as part of an overall process of qualifying Johnson for the so-called unlimited charitable contribution income tax deduction. Hill drafted the 1961 Trust document, but he sought Perry's review and advice throughout the finalization of the instrument because Perry designed Johnson's overall estate plan. Hill incorporated any concerns expressed by Perry and then presented the draft to Johnson, telling him of Perry's approval and discussing with Johnson whatever questions Johnson had. Hill observed Johnson read the documents. Johnson asked questions about the meaning of particular paragraphs during the extended drafting process. Johnson also proposed some changes, although Hill could not recall any specific ones.
In that way, therefore, Hill tried to "incorporate Mr. Johnson's intent." He recalled that the two men disagreed at times over a provision, and it would be changed to reflect Johnson's will, unless the change was not allowed by law. Alterations were made in the trust instrument almost up to the date of execution. It was finally executed by Johnson on December 20, 1961.
Hill provided a succinct overview of the 1961 Trust in the following testimony: "Well, during the general term, it was to devote all of its income to charity, and after the charitable term, the trustees would decide which members of the family [within the identified class] were to get how much and when." Hill further explained that Johnson excluded the two children by his second wife because Johnson was cognizant which children would inherit additional monies, and overall, "he wanted the children generally to be treated equally." Regarding distributions prior to termination, Hill understood that Johnson wanted his trustees to have "uncontrolled discretion" as to whether any beneficiary received them, an intent Hill understood as complementing the grantor's general concern that the trustees be able to address, what Johnson often referred to as, the "vicissitudes of life," or the "unanticipated, unfor[e]seen problems that would arise in anybody's life." The grantor "wanted absolute maximum discretion" given to the trustees so that "they would never be in trouble or sued or bothered by any -- as he put it -- lawyers."
With respect to the class of eligible beneficiaries, Hill had many discussions with Johnson but particularly recalled how Johnson was "insistent that the last two beneficiaries [the children of his son J. Seward Johnson, Jr.] be identified" by name. He added that "I think he thought it would help the family."
Hill was also sure he had conversations with Johnson about "spouses of his children" as a class of beneficiaries, but he could not recall them specifically. Nonetheless, Johnson did not want to "distinguish among the different classes of beneficiaries . . . [,] [h]is children, spouses and grandchildren," saying instead "that that's up to the trustees to distribute within that broad category as they saw best." Thus, Hill believed that the grantor's intent was that surviving spouses of any of the named children should be considered beneficiaries under the trust. Although the grantor never expressed as much, and Hill "never discussed the subject directly with him," Hill added that "certainly, it was my understanding that he wanted to include surviving spouses."
Hill garnered that impression from his long association with Johnson. Over time, the two men discussed family matters, as well as "world issues," and Hill believed that they shared the same views about family in particular. He referred to Johnson as a "family man." Johnson had what Hill agreed was a "broad definition" of family, a view Hill likened to that held by "most laymen," the bounds of which included "parents, children, spouses, nephews, nieces, grandparents, brothers, siblings." In fact, according to Hill, Johnson was "devoted" to his family, and seemed to be interested in the spouses of his children as much as in his children themselves, though he was closer to some than others. Thus, Hill identified Johnson's overall goals in estate planning as providing for family and charities, noting that as time went by, Johnson became more interested in charitable giving and particularly in the prospect of setting up a foundation.
In addition to general conversations, Hill also recalled two particular subjects of conversations. One concerned a widow in Trenton whose infant son was the beneficiary of a considerable amount of money. The widow, however, had very little money because no provision had been made for her as the spouse or the surviving spouse. Hill recalled that the situation was terrible. Hill related that he "got the impression from [Johnson] that if somebody -- somebody died and left a spouse that he would that [sic] spouse to be taken care of, either under the instrument or what have you." The second instance concerned Johnson's knowledge of the gift tax implications of gifts from a beneficiary to a spouse. Hill related that Johnson "was knowledgeable about tax law, and he knew that a beneficiary of his could not give to his or her spouse without worrying about gift tax, and he said how we can avoid that, and I said we'll permit transfers directly from the trust to the spouses." Hill noted, however, that "I don't think he distinguished between surviving spouses and spouses at that time." Especially with respect to the tax issues and Johnson's concerns over limitations of gifts to a spouse, the grantor asked Hill whether he could "avoid that in these documents, and I said yes, [and] I meant the trustees [would have the power] to distribute directly to a spouse."
As for divorced spouses generally, Hill testified that they were no longer considered a member of the family once there was a divorce. As Hill stated, "they were out of the family." He elaborated by reference to the personal history of Johnson and his brother, both of whom had been divorced. He stated:
Well from his and his brother's record of having been divorced a couple times and those spouses were no part of the family, and he never discussed specifically with me a divorced child that I recall, but I think he felt ...