In Stephenson v. Spiegle, Docket No. A-4193-11T2, the Appellate Division examined the issue of a contradicting estate, where the Decedent named his attorney the “pay-on-death” beneficiary of a bank account instead of funding a trust benefiting family members which was referenced in his Will.
Here, the Decedent executed a Will on December 19, 2006 leaving his estate to family members or trusts for the benefit of family members. The Will was prepared by Defendant. Then, on February 2, 2007, the Decedent opened an account payable on death to Defendant.
The Decedent died on December 19, 2007. At the time of his death, the subject account held approximately one-third (1/3) of his estate. The Executor discovered the account while marshalling the assets of the estate. The Defendant took the position that the Decedent probably established the account to take the money out of the estate and denied any knowledge of the opening of the account.
In its analysis of the matter, the trial judge first considered reformation which is largely dependent upon a mutual mistake. Bonnco Petrol, Inc. v. Epstein, 115 N.J. 599, 608-09 (1989). Thus, the trial judge searched further considering a constructive trust, probable intent, conversion and undue influence. All of these theories require some unconscionable, fraudulent or wrongful conduct on the Defendant’s part which did not exist. The trial judge ultimately ordered rescission on a theory mainly utilized in other circumstances. He found that the mistake was so great that to enforce the contract would be unconscionable even absent any wrong on the part of the Defendant.
In order to order rescission it is necessary to prove a mistake of such consequence that enforcement would be unconscionable; the mistake was material; the mistake occurred regardless of the exercise of reasonable care; and it would not cause serious prejudice to Defendant. The decision finds support in cases involving rescission of insurance companies and bidders on public contract in cases of good faith unilateral mistakes.
The decision notes that the loss of a windfall does not constitute prejudice to the Defendant which would prevent the rescission of this contract.
The decision also holds that the facts support the imposition of a resulting trust allowing the corpus to revert to the Settlor. In re Voorhees, 93 N.J.Super. 293, 298 (App.Div.1967); In re Estate of Kovalyshyn, 136 N.J.Super. 40, 45 (Cty.Ct. 1975). The decision also points out that a resulting trust differs from a constructive trust since the latter requires dependent on a wrongful act whereas the former does not.
The decision also discusses the applicability of the doctrine of probable intention by which a court may reform mistaken testamentary dispositions. Payable on death accounts are referred to as poor man’s wills. Sadofski v. Williams, 60 N.J. 385, 397-99 (1972). Since the purpose behind creating the account is analogous to the purpose in creating a Will, the doctrine of probable intention should be applicable in both situations.
The decision ends quoting Chief Judge Cardozo’s dissent in Graf v. Hope Bldg. Corp., 171 N.E. 884, 888 (N.Y.1930): “equity will find a way, though many a formula of inaction may seem to bar the path.”
Ultimately, the trial court held that rescission was appropriate where the Decedent made a unilateral mistake by naming his attorney the “pay-on-death” beneficiary on a bank account instead of funding a trust referenced in his Will. In his decision, the trial judge rejected – as highly unlikely – defendant’s claim that the Decedent decided to convey a substantial portion of his estate to Defendant instead of to his family members. Furthermore, the trial judge found nothing about the Defendant’s relationship with the Decedent, an attorney-client relationship, which would support the intent to confer such a substantial personal benefit. After finding a unilateral mistake had occurred, the trial judge tried to fashion a remedy.
Defendant appealed the trial court’s decision. He argued that the trial judge erred in holding that a unilateral mistake had occurred.
The Appellate Division agreed with the trial court.