Doctrine of Probable Intent Cannot Be Used to Create Special Needs Trusts for Intestate Decedent

In a published decision, the Superior Court of New Jersey, Appellate Division, ruled that a trial court erred when it applied the doctrine of probable intent to create testamentary special needs trusts for two disabled children of a woman who died prior to finalizing her estate planning documents. In the Matter of the Trusts to be Established in the Matter of the Estate of Margaret A. Flood, Deceased, 417 N.J. Super. 378 (App. Div. 2010).

Margaret Flood had four children, including two daughters with disabilities who received government benefits. Concerned about leaving an inheritance directly to the daughters with disabilities, Ms. Flood consulted with an attorney about the possibility of creating a special needs trusts for them. However, Ms. Flood died intestate before an estate plan was ever drafted, and under New Jersey’s intestacy statute, her $480,000 estate passed in equal shares directly to all four children.

The administrator of Ms. Flood’s estate filed an action in the Chancery Division seeking to create and fund special needs trusts to hold the inheritances for her daughters with disabilities. The court granted the request, holding that the doctrine of probable intent allowed it to create the trusts because it was Ms. Flood’s undisputed intent to create them prior to her death. The state, which was a party to the action because one of Ms. Flood’s daughters had accrued a million-dollar Medicaid lien, appealed.

The appeals court reversed, finding that the trial court had no authority to establish and fund the trusts under the doctrine of probable intent. The court reasoned that “the doctrine of probable intent is a rule of construction or interpretation and, therefore, presupposes an existing testamentary disposition . . . [w]here there is no will there can be no will construction.”

The appellate panel of Mary Catherine Cuff, Clarkson Fisher and Douglas Fasciale said the trial judge, while well-intentioned, misunderstood the applicable law which, the court held, “precludes application of the doctrine of probable intent to create a testamentary disposition where none existed.”

(I first blogged about the Flood case in August 2009 after Hon. Patricia Del Bueno Cleary, J.S.C., a Superior Court Judge in Monmouth County, authorized my client, the administrator of his deceased mother’s intestate estate, to establish two special needs trusts to protect the intestate shares of the estate which passed to the decedent’s two disabled adult daughters, and to fund the trusts with the beneficiaries’ intestate shares. I blogged about the case again in November 2009 after Judge Cleary upheld her decision on reconsideration. The State of New Jersey appealed the decision to the Superior Court, Appellate Division. The Appellate Division issued an opinion reversing Judge Cleary’s decision last month. I was very disappointed after receiving the appellate court’s decision in the Flood case. I remain absolutely convinced that Judge Cleary’s decision was correct. However, the Appellate Court has ruled otherwise, and this is the law in New Jersey today.)

The case is annexed here – In the Matter of the Trusts to be Established in the Matter of the Estate of Margaret A. Flood, Deceased, 417 N.J. Super. 378 (App. Div. 2010).

UPDATED ON FEBRUARY 16, 2011: On February 10, 2011, we filed a Petition for Certification to the New Jersey Supreme Court in the Flood case on behalf of the petitioner. A Petition for Certification is basically a brief explaining why the Supreme Court should accept the case for consideration, providing the law supporting the moving party’s position. In our brief, we explained why certification should granted as follows:

Certification is being sought in this matter to address an issue of general public importance: a chancery court’s authority to mold equitable remedies in unique and compelling cases in which equity demands such results. Subsumed within this issue is the more particular question of the right for a deceased parent’s probable intent to be honored, even when her unexpected injury and death precluded her from effectuating a testamentary plan.

The practical effect of the chancery court’s decision permitted a widow’s intent to be honored, and advanced the public policy in favor of the disabled and the legislative goals of the intestacy statutes. In ordering the disabled daughters’ shares to pass for the benefit of those daughters, and in the percentages required by statute, the chancery decision did no damage to the intestacy statutes, but permitted a remedy to the tragic set of circumstances it was called upon to address.

Courts of chancery are routinely called upon to exercise their inherent power to devise remedies and render justice in the unique cases with which they may be confronted. Therefore, the boundaries of those powers is an issue that will arise whenever a court of equity is asked to render justice where traditional remedies provided for at law may be insufficient.

It is for these reasons that the instant matter is worthy of consideration by this Court.

We also made the following comment with respect to the appellate division decision:

In the decision below, the Appellate Division rejected the Chancery Division’s decision to impose equitable trusts on the decedent’s disabled daughters’ shares of the intestate estate, while essentially ignoring the reasoning of the court below. In so doing, not only did the Appellate Division choose to accept a technical reading of the intestacy statutes over the policy behind those statutes, the clear intent of the decedent, and the public policy favoring the rights of the disabled; it also rendered the chancery court powerless to mold equitable remedies in the unique circumstances in which justice so demands.

The Appellate Division’s decision is contrary to the public policy of this state, and therefore is against the interests of justice.

Hopefully, the Supreme Court will recognize the merit in our analysis, grant the Petition for Certification and agree to consider the case.

UPDATED ON JUNE 5, 2011: Unfortunately, the New Jersey Supreme Court denied our Petition for Certification. The Appellate Division’s opinion is the final word on this issue. See, ___ N.J. ___, 2011 N.J. Lexis 585 (May 10, 2011).