In re Bonardi
376 N.J. Super. 508, 2005 N.J. Super. LEXIS 115, 871 A.2d 103 (2005)
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Rule of Law:
A testamentary trust cannot be terminated by the beneficiaries' consent if a material purpose of the testator remains unfulfilled and would be defeated by such termination, especially when the termination would divert the trust corpus to an unintended beneficiary or undermine explicit restrictions on distribution.
Facts:
- William Bonardi died testate on March 9, 2002, survived by his wife, Donna, and his two daughters, Danielle (18) and Jessica (16).
- William's will created two testamentary trusts; one named Donna as the income beneficiary and Danielle and Jessica as the remaindermen, and the other named the daughters as sole beneficiaries.
- Under Donna's trust, William directed the trustee, Stephen F. Pellino, to pay Donna net income and principal only if deemed advisable for her welfare, explicitly stating his expectation that Donna would largely support herself and that the corpus be preserved for his children.
- The will specified that the daughters were not entitled to outright distribution of their trust interests before they reached the age of twenty-five.
- A dispute arose between Donna and Pellino regarding the amount of principal necessary for Donna's support, with Donna claiming insufficient funds due to part-time work and medical issues, and Pellino insisting on preserving the corpus per William's intent.
- On May 12, 2004, Danielle (20) and Jessica (18) executed a waiver of their remainder interest in the trust established for their mother, stating they believed it was in their best interest for the trust to be terminated and the corpus immediately distributed to Donna.
- Pellino, as Executor/Trustee, refused to accept the waiver and opposed the termination of the trust.
Procedural Posture:
- Donna Bonardi filed an action in the Superior Court, Chancery Division (trial court), seeking to compel formal accountings of her husband’s estate and her testamentary trust, and to direct the immediate distribution of all net income and necessary principal.
- Simultaneously, William's two daughters filed a separate complaint, also in the Chancery Division, seeking a formal estate accounting and distribution of income and/or principal from their separate trust.
- The trial judge issued a consolidated order requiring the Executor, Stephen F. Pellino, to provide an informal accounting and to examine the beneficiaries' financial requests.
- Pellino rendered an accounting, and subsequently, the two complaints were consolidated under a single docket number.
- Danielle and Jessica Bonardi executed a waiver of their remainder interest in their mother's trust; Pellino refused to accept this waiver.
- The daughters filed a motion in the Chancery Division to terminate the testamentary trust.
- The trial judge granted the motion, terminating the testamentary trust and directing distribution of the daughters' remainder interest in trust principal to Donna Bonardi.
- The Executor/Trustee, Stephen F. Pellino, appealed this judgment to the Superior Court of New Jersey, Appellate Division.
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Issue:
Does a testamentary trust, which directs the trustee to preserve the corpus for specific remaindermen and limits the income beneficiary's access to principal, qualify for termination upon the remaindermen's waiver of their interest in favor of the income beneficiary, when such termination would frustrate the testator's clear intent?
Opinions:
Majority - Parrillo, J.A.D.
No, a testamentary trust cannot be terminated by the beneficiaries' consent if doing so would frustrate the testator's clear intent to preserve the corpus for specific remaindermen and limit the income beneficiary's access to principal. The court's primary function is to enforce the testator's expressed intent, and while beneficiaries may consent to a trust's termination, this is only permissible if all beneficiaries are sui juris (of legal capacity) and if the continuance of the trust is no longer necessary to carry out a material purpose of the trust. This case established several material purposes of the testator's will that would be defeated by termination. First, the testator's clear purpose was to preserve the corpus for the ultimate benefit of his daughters and their issue, not to divert it to the income beneficiary (Donna). Second, the trust was intended to provide supplemental, not primary, support for Donna, with the trustee vested with 'absolute discretion' over principal distributions, thus denying Donna immediate control over the assets. Third, the testator intended to insulate trust principal from the daughters' control until they reached the age of twenty-five. The daughters, being only twenty and eighteen, were below this age, and their decision to renounce their interests, made while living with and presumably under their mother's influence, contravened this plain intent. The trial court's conclusions regarding the testator's intent were deemed unsupported speculation, and the case was distinguished from Ajax II, where termination allowed acceleration of distribution to the intended beneficiaries, not a diversion to an ineligible one. Therefore, terminating the trust would defeat the testamentary plan and contravene the testator's express wishes.
Analysis:
This case significantly reinforces the material purpose doctrine in New Jersey trust law, affirming that a testator's intent is paramount and overrides beneficiary consent if a material purpose of the trust remains unfulfilled. It clarifies that such purposes can include not only preserving the corpus for designated remaindermen but also controlling the income beneficiary's access to principal and insulating assets from premature control by young beneficiaries. The decision highlights the judiciary's role in scrutinizing family settlement agreements that might undermine a testator's carefully constructed estate plan, particularly when underage beneficiaries are involved, offering protection for contingent beneficiaries (like grandchildren).
