Appellate Division Affirms GST Trust Language Did Not Require Trust Assets to Be Income-Producing, Upholds Exculpatory Clause for Trustees, and Affirms Trial Court’s Damages Award
In re Estate of Nigito, No. A-2013-22, 2024 WL 5233136 (N.J. Super. App. Div. Dec. 27, 2024).
This matter arose from a challenge by Ann Mae Nigito (“Ann Mae”), daughter of the decedent, Paul Nigito (“Paul”), regarding the funding of a generation-skipping trust (“GST”) created under Paul’s will. The GST benefitted Paul’s wife, Antionette, during her lifetime, then Ann Mae, during her lifetime, then Ann Mae’s children.
Antionette, as executor and co-trustee, refused to fully fund the GST and defunded it entirely before her death.
At Paul’s death in 2001, his estate totaled around $19,000,000.00.
The will directed that Antionette, as executor, “set aside an amount equal to the balance of” the GST, which was $1,060,000.00 at the time of Paul’s death. In re Estate of Nigito, Docket No. A-2013-22, 5 (App. Div. Dec. 27, 2024). The will also stated that Antionette “shall have the right to require that the assets [of the trust] be income-producing.” Id. at 4.
The will required the trustees to “maximize the amount of trust property that eventually may be distributed to my grandchildren or more remote descendants without transfer tax of any kind.” Id. at 5. It also included an exculpation clause for the trustees.
Antionette funded the GST with an LLC which owned 50% interest in a rental property in Hackensack (“the Essex property”) which produced income of approximately $227,000.00 per year and was appraised at $1,300,000.00 in 2008. Therefore, in March 2009, the GST was valued at $650,000.00, or half of the Essex property’s value. Her co-trustee, Robert Pless, advised Antionette that the GST had to be funded with additional assets to complete the funding. He attempted coordinating such funding from Antionette for seven years before resigning as co-trustee and appointing Frank Brunetti and Anthony Guidetti as his successors. Brunetti also attempted to close the estate by having Antionette properly fund the GST.
In 2015, Antionette transferred the LLC’s interest holding the Essex property to another LLC, of which she was the sole member. The GST was never re-funded.
Antionette died in September 2019.
Ann Mae sought: an accounting of the estate and GST; imposition of a constructive trust on the Essex property; and causes of action for breach of fiduciary duty against Antionette and Brunetti.
The trial court found that Antionette owed Ann Mae $1,060,00.00 plus 6.8% statutory interest running from the date of Antionette’s death, and awarded Ann Mae attorney’s fees. The court denied Ann Mae’s request to hold Brunetti liable but ordered his removal as trustee with no entitlement to commissions. The court also denied Ann Mae’s request for punitive damages.
The court found that, unequivocally, the GST should have been funded, but a question remained as to whether those funds should have come from income-producing property. In reading the plain language of Paul’s will, the court found that it provided “a considerable amount of discretion” as to how the GST was funded and did not specify that funding had to come from real property. Id. at 11. Further, the language giving Antionette the right to require that the GST assets be income-producing also confirmed the opposite: that she also had the right not to do so.
On appeal, the Appellate Division affirmed the trial court’s finding that the language of the will did not require the GST be funded with real estate or any income-producing asset. The Appellate Division declined to invoke the probable intent doctrine because the plain language reading of Paul’s will supported the trial court’s findings. The Appellate Division noted that Pless testified that Paul did not instruct him to fund the GST with specific properties.
Ann Mae also challenged the trial court’s damages award on appeal, arguing that she was entitled to more than the $1,060,000.00 plus interest because if the GST was funded with income-producing assets, the GST would have produced greater income. She also asserted that Antionette breached her fiduciary duties in failing to fund the GST. The Appellate Division found that, again, the plain language of Paul’s will was clear and did not direct Antionette to invest the GST principal to grow beyond the original amount it held, thus Ann Mae was not entitled to additional damages.
Ann Mae challenged the trial court’s denial of voiding Antionette’s transfer of the Essex property to herself and imposing a constructive trust on the Essex property. The Appellate Division affirmed because, while the trial court did not impose the requested equitable remedy, the remedy of ordering Antionette’s estate to pay the $1,060,000.00 to Ann Mae was consistent with the court’s findings and imposing a constructive trust would contravene their findings that the will did not require the Trustees to fund the GST with real property.
Ann Mae also challenged the award of interest on damages starting at Antionette’s death in 2019, and asserted that the time should have run from Paul’s death in 2001. The court found that this was improper because “the measure of damages [was] to put [Ann Mae] in the position she would have been in if the GST had been funded. Not necessarily a position she would have been in if it was somehow done in the manner which would have been in the greatest benefit to her.” Id. at 25. Ann Mae would not have received anything from the GST until Antionette’s death, therefore the proper timeline started at Antionette’s death. The Appellate Division affirmed.
Ann Mae also challenged the trial court’s finding that the exculpatory clauses in Paul’s will absolved Brunetti of liability. The trial court found no evidence that Brunetti acted with the “reckless indifference” required to find him liable notwithstanding the exculpatory clause in the will. Brunetti had sent many letters over the years attempting to work with Antionette to get the GST funded but his efforts were consistently thwarted by Antionette. The Appellate Division affirmed because there was no error with the trial court’s application of the law to this issue.
The Appellate Division also affirmed the trial court’s denial of Ann Mae’s motion for leave to amend her complaint to insert a claim for punitive damages. The court found that Ann Mae had failed to prove a viable punitive damages claim because she could not show that Antionette acted with “actual malice” or “a wanton and willful disregard” for Ann Mae. The Appellate Division agreed stating “at most, the facts demonstrate a degree of negligence in Antionette’s activities as trustee.” Id. at 37.
Finally, the Appellate Division affirmed the trial court’s award of attorney’s fees to Ann Mae under the fund in court rule. The court found that Ann Mae brought this action on behalf of other remaindermen of the GST, not just herself, and that Antionette’s abandonment of her fiduciary duties, depriving the GST of funds, had created the lawsuit and imposed liability on her own estate. The Appellate Division agreed with the trial court, however, that Ann Mae was only entitled to attorney’s fees through October 31, 2022, before she brought her motion for reconsideration, which was denied.