Opinion ID: 2383573
Heading Depth: 1
Heading Rank: 9

Heading: The Tax Refund Motion

Text: Following the Chancery Division's denial of Richards' equitable adjustment motion, the Trustees received from the United States and the State of New Jersey the approximate $550,000 in income tax refunds. The Trustees sought authorization to distribute these refunds to the beneficiaries in the proportions provided in paragraph 16 of the Agreement for the distribution of trust income (47 per cent to Martin Richards, 53 per cent to the other beneficiaries). Richards made a cross-motion for distribution of the refunds in a manner consistent with that which the Trustees had used in the amended 1990 fiduciary income tax returns, and which had in effect been upheld by the Chancery Division: 91 per cent to him, 9 per cent to the other beneficiaries. The Chancery Division granted the Trustees' motion and denied Richards' cross-motion. Richards appealed to the Appellate Division, arguing that the results reached by the Chancery Court at these two hearings were inconsistent with each other and that the court had caused a double injury to Mr. Richards. The Appellate Division first determined that the trial court properly denied Richards' motion to compel the beneficiaries to reimburse him for the taxes he paid on the partial distribution. The court concurred with the lower court's conclusion that Richards' tax liability was consistent with the terms of the 1990 Agreement between the parties. Further, the court noted that any ambiguities in that Agreement regarding the manner in which income taxes on partial distributions would be paid were properly construed against Richards by the trial court because Richards' own counsel had drafted the Agreement. Moreover, the Appellate Division noted that no equitable principle warranted the court's interference with the Trustees' exercise of discretion which Richards does not claim has been abused. On Richards' second contention, however  that the trial court should have ordered the tax refunds to be allocated according to the amount of taxes paid rather than in accordance with the 1990 agreement  the Appellate Division parted company with the Chancery Division. Recognizing that the refunds were trust assets and giving deference to the scope of trustees' discretion to allocate trust assets, the Appellate Division nevertheless found, based upon equitable considerations, that the refund should have been allocated by the Trustees proportionate to the way in which the taxes were paid. Accordingly, the Appellate Division reversed on this second ground and remanded the case for the trial court to enter an order directing the Trustees to redistribute the refunds in proportion to the taxes paid on the partial distribution. We granted certification. 142 N.J. 447, 663 A. 2d 1354 (1995).