On appeal from the Superior Court of New Jersey, Chancery Division, Hudson County, Docket No. C-55-00.
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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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, Payne, and Waugh.
The opinion of the court was delivered by CUFF, P.J.A.D.
Alfred and Etta Kirschner, the parents of plaintiff Eileen Kirschner Pass (Eileen),*fn1 established a family limited partnership and a family trust to benefit Eileen and her brother, defendant Howard Kirschner (Howard), equally. Alfred and Etta gifted some of their interests in the family limited partnership to Eileen, Howard, and their families. During Alfred's lifetime, Eileen, her husband, and their children (the Pass family) in turn gifted their interests in the partnership to Howard, allegedly at the request of Alfred and Etta. After Alfred died, the gifts of interests in the limited partnership to Howard continued at Howard's behest, and Etta amended the trust to disinherit Eileen in favor of Howard. Eileen sued Etta, Howard, Alfred's estate, and other family members seeking to set aside the Pass family gifts to Howard and his family and the amendments to Etta's trust. She alleged unauthorized transfers, undue influence, and breach of fiduciary duty.
Following a trial that stretched over ten months, the trial judge found Howard unduly influenced Etta to execute amendments to the trust. The judge also found Howard crafted a "gift-back" plan without the knowledge of his parents, and that Howard and his wife breached their fiduciary duties to Eileen and her family with respect to the partnership. The judge voided all of the gifts of partnership interests by the Pass family to Howard and his family that occurred before and after Alfred died. The judge awarded Eileen and the Pass family damages, prejudgment interest, and attorneys' fees, totaling $6,838,271.71.
In this appeal, defendants argue that the trial judge erred in finding that Howard unduly influenced his mother to alter the estate plan in his favor. Defendants also argue that the trial judge erred in voiding the Pass family gifts of family limited partnership interests to Howard and his family, and in awarding damages to Eileen's husband and children. Defendants also assert the trial judge erred in finding that Howard and his wife Deborah Kirschner (Deborah) breached their fiduciary duties to the Pass family, and ignored Alfred's and Etta's handwritten notes. Defendants also argue the trial judge erred in calculating damages, admitting the testimony of Eileen's expert, and calculating prejudgment interest. They also urge that the reports of the fiscal special agent and plaintiff's expert should not have been admitted. Finally, defendants contend the trial judge should not have awarded counsel fees to Eileen and should have approved Howard's accounting.
We affirm the liability determination, the damage award, and the disapproval of the accounting submitted by Howard, but remand for recalculation of prejudgment interest.
Alfred and Etta were married in 1935 and had three children: Howard, Eileen, and Bernice Kirschner Kahn (Bernice).
Due to a dispute with Bernice regarding her eldest daughter's marriage to a man Bernice and her husband considered unsuitable, but whom Alfred and Etta did not, the Kirschner family became estranged from Bernice, and her parents amended their estate plan to disinherit Bernice. Following this amendment, the estate plan provided that Howard and Eileen would share equally.
Alfred developed a successful dental practice in Queens, New York. In anticipation of Howard's graduation from dental school and joining the practice in 1961, Alfred purchased a piece of property in Far Rockaway, New York, designed and built a building, and moved his dental practice to the building. Etta worked as the office manager. By all accounts, the dental practice flourished, ultimately allowing the practice to employ several dentists and other professional staff.
In 1970, Alfred and Howard established a pension plan for the practice, including themselves and Etta. They contributed a significant portion of the earnings from the dental practice to the plan. Alfred and Etta, however, contributed more to the pension plan than Howard due to their greater age. Alfred was sixty-one years old when they established the plan.
In the early to mid-1980s, Alfred and Howard decided to terminate the pension plan. In June 1985, the I.R.S. approved the termination and the assets were distributed as follows: Howard received $983,206; Alfred received $835,543; and Etta received $378,899. In January 1987, despite the fact that the pension had been terminated, Alfred designated Howard as the sole beneficiary of his pension and Etta waived her rights to Alfred's pension.
After attending a dental society meeting concerning estate planning and sheltering assets, Alfred and Etta retained a law firm in Utah to prepare their estate plan. In December 1987, Alfred dispatched Howard and Deborah to Salt Lake City to meet with Dwight Epperson, an associate at the firm, to work with them. Over two or three days, Epperson prepared estate planning documents for Etta and Alfred, consisting of a family trust with two inter vivos trusts, a family limited partnership, and two wills. The plan was created in consultation with Howard, Deborah, and Howard's parents, who participated by telephone.
Epperson prepared the Alfred and Etta Kirschner family trust (the family trust), which was established in April 1988. Article 7 provided that all real and personal property of Alfred and Etta was to be placed into the trust and any property later acquired by either of them would automatically become part of the trust at the time of acquisition. Article 2B provided that during the lives of Etta and Alfred, the trust property would be equally allocated between two separate living trusts, the Alfred Kirschner Trust (the Alfred trust) and the Etta Kirschner Trust (the Etta trust), and the property in each trust was to remain separate.
Article 6 provided that as long as Etta and Alfred were both alive, each could revoke or modify their own trust. Article 22 provided that upon the death of the first spouse, the inter vivos trust of that spouse would fund a credit shelter trust and a marital trust. The credit shelter trust was to be funded in an amount equal to the federal tax exemption. At the time, the exemption was $600,000. The credit shelter trust could not be revoked or amended.
The marital trust would be funded from two separate sources: the balance of assets in the deceased spouse's inter vivos trust, i.e., the assets in that trust which exceeded $600,000 became a power of appointment (POA) trust, and the assets in the surviving spouse's inter vivos trust. Upon the death of the first spouse, the survivor could only amend or revoke the marital trust provisions pertaining to the assets transferred therein by the surviving spouse.
The family trust also provided for a distribution of $200,000 to Leah, Bernice's oldest child, and the remainder to Eileen and Howard equally. Schedule A of the family trust agreement listed all the assets that Etta and Alfred transferred to the trust, including: bank accounts, cemetery plots, investment accounts, their interest in a cooperative apartment,*fn2 and their interests in the family partnership. The trust agreement contained language regarding a "Qtip" trust, but a Qtip trust was never established and Alfred's estate never made a Qtip election.*fn3
Epperson also prepared the documents establishing the Kirschner Family Limited Partnership (KFLP or the family limited partnership). Etta and Alfred were the general partners and also held a 16% limited partnership interest in the KFLP. There were eleven additional limited partners: Howard, Deborah, their four children (Britta, Bennett, Stuart, and Austin), Deborah's mother, Rivka Kopelman Kaufman (Kaufman), Eileen, Eileen's husband, Leonard Pass (Leonard), and Eileen's two children (Julie and Andrea). Alfred and Etta transferred all of their interests in the KFLP to the family trust.
Epperson testified that Alfred and Etta intended the KFLP as a vehicle to transfer their assets to Howard without incurring taxes. Notwithstanding this testimony, the express terms of the KFLP documents provided otherwise. Section 6.1 of the KFLP provided that all profits or losses would be credited or charged to the partners in proportion to their interests. Section 6.3 provided that all earnings would be distributed to the partners each year, except that they could be retained in capital accounts at the discretion of the general partners. Section 3.1 required maintenance of partnership records.
Alfred and Etta funded the KFLP with a deposit of $500,000. According to Epperson, Alfred and Etta intended to transfer proceeds from their pension plans to Howard to compensate him for years of work in the dental practice for which he had accepted a smaller salary in order to avoid taxes. Alfred and Etta, together, received in excess of $1.2 million when the pension plan dissolved, but initially only funded the KFLP with less than half that amount. In addition, the amounts received by Howard and his parents on dissolution of the plan were not grossly disparate. Howard received $983,206, which he invested in an individual retirement account. Moreover, none of the documents reflected Alfred's and Etta's purported desire to pay Howard amounts that had been distributed to them from the pension plan.
By the end of 1989, Alfred and Etta had contributed an additional $1,530,397 to the KFLP. Most of the funds Etta and Alfred transferred to the KFLP had been in a Smith Barney brokerage account (the Smith Barney account), which contained funds from sources other than the distribution from the dissolved pension plan.
In addition to the trust and the KFLP, Epperson prepared wills for Alfred and Etta. Each contained a clause disinheriting anyone who challenged the estate plan. Each will left the residue of the estate to a family trust.
In 1988, Alfred and Etta made gifts of part of their interests in the KFLP to each of the limited partners. In November 1989, Epperson met with Alfred, Etta, Howard, and Deborah in New York and discussed the gift plan. In 1989 and 1990, Etta and Alfred again diminished their own interests in the KFLP by gifts of equal portions of their interests to each KFLP limited partner. The gifts from Etta and Alfred disproportionately favored Howard's family because the family had seven limited partners (including Kaufman), and the Pass family had only four.
Eileen testified that her parents requested that the Pass family gift their interests in the KFLP received from Alfred and Etta to Howard and Deborah in order to give them some extra money, but there is no document in the record that reflects this instruction or request. In 1991, Howard contacted Epperson regarding the Pass family's gifts of their interests to him. Epperson never consulted the Pass family if they wanted to gift their interests to Howard. Epperson determined the maximum amount Etta and Alfred could gift to the limited partners as well as the amount that could be transferred by the Pass family to Howard and Deborah as gifts without incurring a tax consequence.
On January 3, 1992, Howard sent Eileen a package containing gift memoranda for the years 1989-1992.*fn4 At Howard's request, the Pass family signed the gift memoranda. The memoranda gifted the interests in the KFLP transferred from Alfred and Etta to the Pass Family to Howard and Deborah. Eileen testified that the Pass family signed the gifting documents, but she had no idea what they were. Etta and Alfred also transferred some of their interests to Kaufman, and she gifted her interests to Howard and Deborah.*fn5 In 1991 and 1992, Britta also gifted her interest to her parents.
In March 1992, Epperson wrote to Howard describing Alfred and Etta's remaining interest in the KFLP. He mentioned in this letter that Alfred and Etta needed to continue the gifting program, but that they had almost accomplished their goal of minimizing tax consequences.
Alfred died on May 17, 1993, and Eileen believed his death terminated the gift-back program. Nevertheless, Howard continued to ask Eileen to sign the gift memoranda, and she complied. Eileen executed gift memoranda in 1993, 1994, and 1995 at Howard's request. After 1992, Leonard never signed any gifting documents; it appears Eileen signed his name on the 1993, 1994, and 1995 memoranda.
On August 10, 1993, Epperson prepared an authorization, which Etta signed, giving Howard and Deborah full authority to buy and sell stock and to withdraw any of the partnership funds for their personal use. On the same day, Howard became a general partner of the KFLP. Although the KFLP required that all other partners be notified about any amendment to the partnership, the Pass family was not notified of either of the changes that had been made.
In 1994, the Pass family also began gifting to Howard's children. Howard stated that this was done at the Pass family's request because Eileen and her husband wanted to be written out of the gifting program. However, other than Howard's statement, there is no evidence in the record to reflect this intent.
After Alfred died, the West New York cooperative was held in Etta's name. Epperson prepared the documents to transfer ownership of the apartment from Etta to Howard and Deborah.
Epperson testified he represented Etta and Howard in this transaction. Indeed, Epperson testified that virtually all instructions about the KFLP after Alfred's death and all discussions about Etta's trusts were with Howard. Documents were sent from Epperson to Howard; most did not reflect that Etta received a copy. The judge also observed that Epperson seemed to confuse or forget at various times whether he represented Etta or Howard.
By 1995, Epperson determined that the Pass family had no remaining interest in the KFLP because they had transferred by gift their entire interest to Howard and his family. At trial, it was determined that Epperson miscalculated; therefore, Eileen continued to hold a small interest in the KFLP after 1995. The Pass family never received financial information or tax documents, such as K-1s, as required under the terms of the partnership. In November 1995, Etta signed an amended limited partnership certificate which reflected only eight partners in the KFLP, none of whom were members of the Pass family. Deborah was also named a general partner at that time. Beginning in 1996, Etta gifted her remaining shares in the KFLP to Howard, Deborah, and their children. On July 2, 1996, on the advice of Epperson, Etta signed a resolution limiting the accounting requirements of the partnership.
In late 1998 or early 1999, Howard spoke to Epperson about the fact that Eileen might inherit more than the $600,000 their parents had intended because the value of the assets in the Etta trust had increased. They discussed an amendment to the trust to foreclose that possibility.
In Spring 1999, Etta visited Bernice in Baltimore in an attempt to reconcile, and remained there for eight or nine weeks. Eileen visited her mother there, and said she looked
ill. Etta had been diagnosed with congestive heart failure and had been hospitalized for a possible stroke.
In April 1999, Epperson called Etta in Baltimore to suggest an amendment to her trust to limit Eileen's inheritance to $600,000. Although disputed, Epperson testified that he prepared the April 1999 amendment to Etta's trust at the request of Etta and Howard. That amendment provided that Eileen would receive no part of "the Etta Kirschner Trust Estate."
On April 21, 1999, Epperson sent Howard a copy of the amendment to Etta's trust. According to Epperson, Etta told him she was disinheriting Eileen because she did not need the money and Etta had already given her many other gifts. Eileen did not dispute that her parents had given her gifts over the years totaling hundreds of thousands of dollars. On April 28, 1999, Etta executed the amendment (the April amendment) in Baltimore;
Eileen was not informed. Thereafter, on June 15, 1999, Etta wrote to Smith Barney that she no longer wanted control over the brokerage account.
On October 17, 1999, Etta signed a document stating she wanted to give Eileen her inheritance before she died. Etta executed this letter a few days before Eileen and her husband arrived for a visit. At that time, Eileen and her husband lived in Florida. On October 24, 1999, Howard arrived at his mother's West New York apartment and told Eileen that she would get a $600,000 "gift" if she agreed to sign a release that disinherited her from her parents' estates. She inquired how Howard settled on this sum and asked other questions. Howard told Eileen there was no will and no documents to determine the worth of the estates. Eileen refused to sign and Howard left the house. However, he made numerous phone calls to her at their mother's home, threatening to cut her off from her mother and himself if she did not sign the release.
Eileen and Leonard returned to Florida on October 29, 1999. On that same day, Etta signed a second amendment (the October amendment), prepared by Epperson, which purported to amend not only the marital trust but also the Alfred and Etta family trust. Both the April and October 1999 amendments left Eileen with nothing. Epperson dealt directly with Etta in amending the trusts, but also spoke to Howard regarding the amendments.
Over the years, Epperson also added Howard, Deborah, and Kaufman, as clients. The record reflects Howard had frequent contact with Epperson regarding the amendments to the trust and the gifting, including the gift-back program from the Pass family to his family.
On November 1, 1999, Eileen wrote to Epperson requesting information about her parents' estates; Howard responded with a message not to communicate with Epperson because he was Howard's attorney. Howard called again with Etta on the phone and told Eileen that her mother wanted her to accept the $600,000. Howard called a third time and left an angry message on Eileen's answering machine.
On December 2, 1999, Epperson sent Eileen a release to sign, which provided that she would receive her 50% distribution of the credit shelter trust, approximately $450,000. In order to receive this sum, she had to surrender any claims to the KFLP or the trusts.
On December 18, 1999, Etta executed a notarized instrument disinheriting both of her daughters and leaving her entire estate to Howard (the December document). On February 18, 2000, Etta signed a codicil to her Last Will and Testament to the same effect.
Meanwhile, on November 5, 1999, Howard took Etta to be examined by Dr. Adam Chester, who performed a psychiatric examination and found Etta to be aware of her assets and how she would like to distribute them. Then, on January 7, 2000, Dr. Lee Angioletti examined Etta and found that she was legally blind. On January 28, 2000, Etta was videotaped in the office of attorney Laura B. Hoguet. On the videotape, Etta stated Eileen and Bernice had already received their inheritance. Significantly, notwithstanding the recent declaration that Etta was legally blind, the videotape shows her reviewing documents.
On March 28, 2000, Howard took Etta to Dr. Alberto M. Goldwaser (Goldwaser), who performed a psychiatric evaluation and found Etta competent to alter her estate plans. Goldwaser rendered this opinion without performing a "mini mental" exam of the type normally used as an indicator of mental competence. Etta told Goldwaser she had given Eileen and Bernice their inheritances in the amount of approximately $300,000 about twenty or thirty years earlier, and Howard was not given any money at that time. Etta also told him that Bernice was content with this arrangement and Eileen was not. Etta told Goldwaser her grandson*fn6 had invested the money and helped it grow from $1 million to $5 million but she did not mention her ...