One of the most important considerations in creating a trust is selecting the appropriate trustee. Oftentimes this involves determining whether a corporate trustee is appropriate as either the sole trustee or together with one or more individual co-trustees. A corporate trustee’s experience and sophistication in both investment and administrative matters are commonly cited reasons for appointing such a trustee. A corporate trustee may further provide a level of objectivity that may be difficult for family members or other individual trustees to match.

In Matter of Sinzheimer, 2017 NY Slip Op 31379(U) (Sur Ct, New York County 2017), the Court held a corporate co-trustee that had been “removed” pursuant to the terms of the trust agreement was not required to deliver the trust’s assets to the sole individual trustee where the individual defied the instruction in the trust instrument to appoint a successor corporate co-trustee. The perceived objectivity on the part of the removed corporate trustee figured prominently in the Court’s decision sustaining its decision to withhold delivery of trust assets to the individual trustee until a new corporate trustee had been appointed.

The relevant facts in Sinzheimer are as follows. Ronald and Marsha, husband and wife, established an irrevocable trust which provided for income and principal to be paid to Marsha in the discretion of the trustees for her “health, support maintenance and education.” On Marsha’s death, the trust remainder is payable to a further subtrust which terminates after the death of the last surviving issue of the parents of Ronald and Marsha. The remainder is payable to certain named individuals or their estates.

Ronald died in 1998, about a year after the trust was established. Thereafter, an individual trustee resigned and Andrew, the son of the grantors, Ronald and Marsha, was appointed in his place. Before Andrew’s predecessor resigned, he exercised his power to remove the corporate co-trustee (the “Bank”), but no corporate co-trustee was appointed to serve in its place.

Andrew maintained that a successor corporate co-trustee is not required and declined to appoint one. With respect to the issue before the Court as to the Bank’s turnover of trust assets to Andrew, the Court noted, “[t]he issue is consequential because Andrew has announced his intention to exercise his discretion to distribute all principal to Marsha if permitted to serve alone, thereby terminating the Trust” (id. at 2). The Court further noted that after Andrew became a trustee, but before his refusal to appoint a corporate co-trustee, he and his mother, Marsha, requested a discretionary distribution to Marsha of all the assets in the trust. A Bank officer asked for the standard documentation to initiate the discretionary request process, but Andrew and Marsha refused to provide the information.

The Court found it was clear from the trust instrument that the settlors intended that a corporate trustee would serve at all times after Ronald’s death. The authorities on which Andrew relied were distinguished because none involved a direction in the instrument to replace a corporate trustee with another corporate trustee, as was the case here, which, the Court stated, was “a significant difference because the professional management and independence uniquely afforded by a bank could affect a court’s analysis of such a provision” (id. at 5).

The Court next proceeded to dismiss Andrew and Marsha’s claim that the Bank converted the trust assets by not turning them over to Andrew as trustee. The Court found that the Bank never asserted title to the trust account which is an essential element of a claim for conversion. Rather, the issue was the Bank’s right, under these facts and circumstances, to temporarily withhold delivery of the trust assets to Andrew. The record established that the Bank never unequivocally denied that Andrew, as trustee, had a right to the assets, but asked only that he first appoint a corporate co-trustee to serve with him or obtain a court order determining his right to serve alone. The Court held:

Particularly given Andrew’s stated intent to terminate the Trust without regard to the rights of the remainder beneficiaries – a class that does not include himself, a measuring life – the Bank’s position was reasonable. … The Bank’s uncontroverted conduct here was prudent and appropriate in the circumstances, particularly in consideration of its fiduciary duty to the remainder beneficiaries… (id. at 8)

Although the Bank had been purportedly removed pursuant to the terms of the instrument, it, nevertheless, had an ongoing fiduciary duty to the remainder beneficiaries. The Court found the Bank fulfilled that duty by resisting its removal and not turning the trust assets over to the sole individual trustee.

Notably, the Bank’s withholding of the trust assets from Andrew was found prudent notwithstanding that co-fiduciaries have an equal right to custody of an estate fund (Matter of Slensby, 169 Misc. 292, 295 [Sur Ct, Kings County 1938] (“every estate fiduciary, by virtue of his office, is entitled to the custody of the assets of the estate or fund. When there are two or more fiduciaries, each possesses an equal right in this regard …”); see also Matter of Schwarz, 240 AD2d 268, 269 [1st Dept 1997]). The justification for departing from this rule in Sinzheimer was clear. The Bank faced potential exposure to claims from the trust’s remainder beneficiaries if it delivered property to the individual trustee who may later be found to be without the authority to exercise discretion alone, as he said he would by terminating the trust in favor of his mother.

Having a corporate trustee is not appropriate for all trusts. The cost of a corporate trustee’s services is an important factor to consider in determining if one is appropriate. The personal family knowledge possessed by a family member or dear friend of the grantor usually serves as a compelling basis to select such an individual to administer a trust for his or her family. On the other hand, a corporate trustee is less likely to be influenced by emotions, personal agendas, conflicts of interest and bias, all of which can impair the orderly administration of a trust consistent with the grantor’s intentions.

E-mail is seemingly omnipresent. Day in and day out, we use it in our business, social, and personal affairs. Yet, the improvements to the technology associated with e-mail have far outpaced the development of the law concerning our e-mail accounts and the rights that our survivors may have to access those accounts upon our deaths. This post addresses New York’s recently-enacted digital assets legislation, as well as Surrogate Mella’s well-reasoned decision in Matter of Serrano, which appears to be the first reported case to apply that legislation.

In 2016, the New York Legislature enacted a version of the Uniform Law Commission’s Revised Uniform Fiduciary Access to Digital Assets Act in Article 13-A (“Article 13-A”) of the Estates, Powers and Trusts Law (“EPTL”) (see Matter of Serrano, 2017-174, NYLJ 1202790870327 [Sur Ct, New York County June 14, 2017]). Article 13-A seeks to balance the tension that may exist between (a) the well-settled notion that the fiduciary of a decedent’s estate stands in the decedent’s shoes after the decedent’s death, and (b) the public policy that favors respecting the decedent’s privacy upon the decedent’s demise (see Legislative Memorandum in Support of Article 13-A).

Under Article 13-A, except where a deceased user has prohibited disclosure of digital assets before death, or a court orders otherwise, the custodian of electronic records has a statutory duty to disclose to the personal representative of the decedent’s estate “a catalogue of electronic communications sent or received by a deceased user (other than the content of the electronic communications)” upon receipt of the following from the personal representative: (a) a written request for such disclosure; (b) a copy of the deceased user’s death certificate; and (c) a certified copy of the letters appointing the fiduciary (or a small-estate certificate or court order) (see Serrano, supra; EPTL § 13-A-3.2). A custodian of electronic records may request: (a) the username for the deceased user’s account, among other identifying information; (b) “evidence linking the account to the [deceased] user”; (c) “an affidavit stating that disclosure of the [deceased] user’s digital assets is reasonably necessary for administration of the [deceased user’s] estate”; or (d) a judicial determination that the deceased user had an account with the custodian, or that “disclosure of the [deceased] user’s digital assets is reasonably necessary for administration of the estate” (see id.). Critically, Article 13-A defines the term “catalogue of electronic communications” as “information that identifies each person with which a user has had an electronic communication, the time and date of the communication, and the electronic address of the person” (see EPTL § 13-A-1[d]).

With respect to the content of electronic communications (i.e., the text of e-mails), Article 13-A provides that, where a deceased user has consented to, or a court orders, “disclosure of the contents of electronic communications of the [deceased] user,” the custodian of electronic records “shall disclose to the executor, administrator or personal representative of the estate of the [deceased] user the content of” the deceased user’s electronic communications, if the fiduciary of the deceased user’s estate provides the following to the custodian: (a) a written request for such disclosure; (b) a copy of the deceased user’s death certificate; (c) a certified copy of the letters appointing the fiduciary (or a small-estate certificate or court order); and (d) “unless the [deceased] user provided direction using an online tool, a copy of the [deceased] user’s will, trust or other record evidencing the user’s consent to disclosure of the content of [the deceased user’s] electronic communications” (see EPTL § 13-A-3.1[a]-[d]).[1] A custodian of electronic records may request: (a) the username for the deceased user’s account, among other identifying information; (b) “evidence linking the account to the [deceased] user”; or (c) a judicial determination that (i) the deceased user “had a specific account with the custodian”, (ii) “disclosure of the content of [the deceased user’s] electronic communications . . . would not violate [the federal Stored Communications Act, which Congress “enacted in 1986 as part of the Electronic Communications Privacy Act”,] or other applicable law”, (iii) “unless the [deceased] user provided direction using an online tool, the [deceased] user consented to disclosure of the content of electronic communications”; or (iv) “disclosure of the content of [the deceased user’s electronic communications] is reasonably necessary for administration of the [deceased user’s] estate” (see EPTL § 13-A-3.1[e]).

With the foregoing statutory provisions in mind, Surrogate Mella recently addressed whether the fiduciary of a decedent’s estate had a statutory right to “access his deceased spouse’s Google email, contacts and calendar information in order to ‘be able to inform friends of [the decedent’s] passing’ and ‘close any unfinished business’” (see Serrano, supra). Surrogate Mella was called upon to address this issue after the fiduciary contacted Google in order to obtain such access, prompting Google to request “a court order specifying that, among other things, ‘disclosure of the content [of the requested electronic information] would not violate any applicable laws, including but not limited to the Electronic Communications Privacy Act and any state equivalent” (see id.).

In considering the fiduciary’s right to access the contacts and calendar (i.e., the non-content material) associated with the decedent’s Google e-mail account, Surrogate Mella found that the requested disclosure was warranted and directed Google to make it (see id.). The Surrogate explained that “disclosure of the non-content information is permitted, if not mandated, by Article 13-A of the EPTL and does not violate [the governing federal privacy law]” (see id.).

With respect to the fiduciary’s request to access the contents of the decedent’s Google e-mail account (the actual text of the e-mail messages), Surrogate Mella reached a different result (see id.). The Surrogate wrote: “Authority to request from Google disclosure of the content of the decedent’s email communications – to the extent that [the fiduciary] requests such authority – is denied without prejudice to an application . . . , on notice to Google, establishing that disclosure of that electronic information is reasonably necessary for the administration of the estate” (see id.). Interestingly, the decision does not indicate that the decedent consented to granting the fiduciary of his estate access to the content of his e-mails (see id.).

In light of the foregoing, it appears that, absent a prohibition by the user, the fiduciary of a deceased user’s estate should, in most instances, be granted access to the non-content information associated with the deceased user’s e-mail account upon compliance with Article 13-A. Where the user consents to the fiduciary of his or her estate accessing the content of the user’s electronic communications, or a court orders otherwise, the fiduciary of the deceased user’s estate may be granted access to the content of the deceased user’s e-mail account under Article 13-A. It will be interesting to see how the Surrogates apply Article 13-A in the future.

[1] Article 13-A defines the term “online tool” as “an electronic service provided by a custodian that allows the user, in an agreement distinct from the terms-of-service agreement between the custodian and user, to provide directions for disclosure or nondisclosure of digital assets to a third person” (see EPTL § 13-A-1[p]). Facebook’s “legacy contact” feature appears to be an example of an online tool.

While most decisions rendered by the Surrogate’s Court result from an affirmative request for relief, occasionally the court will address an issue on its own motion when justice or the exercise of its inherent or statutory power requires. One of the better known instances in which the Surrogate’s Court undertook this role was Stortecky v. Mazzone, 85 NY2d 518 (1995), a case that addressed the court’s inherent authority to fix and determine legal fees. This post examines two recent opinions wherein the Surrogate’s Court, again, acted on its own initiative to achieve what it considered the proper result.

SCPA 1408 and the Duty to Admit a Valid Will to Probate

In In re Friedman, NYLJ, Mar. 13, 2017, at 22, the Surrogate’s Court, New York County, was confronted with two petitions requesting the admission to probate of a purported will of the decedent, dated April 5, 2011. The initial petition was filed by the nominated executor under the instrument and objections to probate were filed by the decedent’s daughter. Thereafter, the daughter withdrew her objections to probate, and filed a cross-petition for probate requesting that she, and not the nominated executor, be appointed fiduciary.

Despite the absence of objections to probate, the court noted several deficiencies on the face of the instrument, as well as evidence in the record that created “serious” concerns regarding its execution and the decedent’s testamentary capacity. More specifically, the court observed that the instrument arguably failed to dispose of any testamentary property, that the decedent’s name was misspelled, and that while the instrument contained a detailed listing of over 30 stock holdings and accounts, a year before the execution date, the decedent had been found by an examining psychiatrist to have cognitive limitations, and was unaware of his income.

In view thereof, and in accord with the provisions of SCPA 1408(1), the court scheduled a hearing in order to satisfy itself as to the genuineness of the propounded will and the validity of its execution. Petitioner, who was the only witness to testify, stated that the decedent drafted and typed the instrument, and later executed the document, without the supervision of an attorney, in the presence of two of petitioner’s friends. No explanation was given regarding the discrepancies in the instrument, or to mitigate the court’s concerns about the decedent’s mental capacity. Moreover, no explanation was provided as to the reference in the instrument to a date and event that occurred after the date of its execution, and the existence of the pre-typed names and addresses of the witnesses, despite petitioner’s contention that the decedent had never met them prior to the will being signed.

Accordingly, based on the foregoing, and the record as a whole, the court held that it was not satisfied that the will was valid, and denied the petition and cross-petition for its probate.

Surcharge of Fiduciary, Sua Sponte

Because a fiduciary is presumptively entitled to statutory commissions, an objectant in a contested accounting proceeding generally has the burden of demonstrating that fiduciary commissions should be denied. In In re Colt, NYLJ, Apr. 14, 2017, at 22 (Sur. Ct. New York County), the court seemingly deviated from this rule when it exercised its authority to review sua sponte the fiduciary’s commissions as executor and trustee.

Before the court were contested accountings of the fiduciary as executor of the decedent’s estate and successor trustee of a revocable trust created by the decedent in 2006. Following the dismissal of certain objections and the withdrawal of others, the court held a hearing on the remaining issue of the legal fees payable to the fiduciary’s counsel. The record at the hearing revealed that much of the work performed by counsel related to conflicting claims to the assets of the estate and trust. More specifically, it appeared that in 2004, the decedent had executed a pour over will and revocable trust into which he transferred his condominium and brokerage account. Two years later, he executed the subject 2006 trust, as well as a new will, which, again, contained a direction that his residuary estate pour over into the trust. The 2004 trust and 2006 trust essentially had the same legatees, however, the beneficiaries of the decedent’s residuary estate differed.

Significantly, the draftsperson of both wills and trusts was the fiduciary, who was the decedent’s estate planning attorney. Of equal note was the fiduciary’s acknowledgment that the decedent intended his assets to pass pursuant to the 2006 trust, and his admission that he failed to have the decedent revoke the 2004 trust and fund the 2006 trust with the assets with which the 2006 trust had been funded. Although the controversy regarding the rightful owners of these assets was settled, the court found that the decedent’s estate had a claim against the fiduciary for the legal fees incurred to resolve the trust issues that were created from his failure to properly advise the decedent. Indeed, regardless of whether the statute of limitations on any claim for malpractice had expired, or whether fiduciary had been shielded from claims based upon the privity doctrine, the court concluded that the fiduciary’s duty as executor required that he make the estate whole for the legal fees resulting from his negligence. His failure to fulfill this duty was exacerbated by his affirmative approval of the considerable legal fees incurred, which he apparently made no attempts to control.

In view thereof, the court held that the fiduciary had demonstrated a gross neglect of his duty and a substantial disregard of the rights of the beneficiaries warranting a denial of his commissions both as executor and trustee.

thatIn some will contests, lawyers will speculate that the decedent may have misled people as to his true estate plan, either out of weakness, to keep the peace, to measure reactions, to avoid uncomfortable conversations, and perhaps, sadly, intending to cause pain and disappointment. When this happens, it may be easier, for example, for a son to believe that his sister was responsible for subverting their mother’s wishes than to even approach the idea that his mother was not being truthful when she told him that he would receive “everything.” Bitter litigation is often the result. We can speculate that there may have been a bit of that going on with the parties involved in Gersh v. Nixon Peabody LLP, 2017 NY Slip Op 30363(U), (Sup Ct, New York County 2017), outside of the context of a will contest.

Decedent’s surviving spouse was the Plaintiff in Gersh, suing individually, and as executor of Decedent’s estate, for legal malpractice against Nixon Peabody LLP. She alleged that the firm committed malpractice in rendering planning services to her and to the Decedent, who jointly retained the Nixon firm in 2003. At that time, the Decedent — married for the third time, some forty years after his divorce from his first wife — decided to create a will and amend an existing revocable trust. When he did so, his obligations to the children of his first marriage under a separation agreement were seemingly unaccounted for in his estate plan.

Decedent and his first wife had two children, Laurie and Ellynn. The couple entered into a separation agreement 1963. The agreement provided that if the first wife survived Decedent, and if Laurie and Ellynn had reached the age of 21 at the time of Decedent’s death, then Decedent was obligated to leave 50% of his estate in trust for the first wife, with the remainder passing to Laurie and Ellynn upon their mother’s death. This provision is not a model of clarity. For example – – what are the terms of this “trust”? What is this separation agreement referring to when it refers to Decedent’s “estate”? Is it the Decedent’s probate estate? Or the Decedent’s net estate for estate tax purposes? Or something else?

If the Decedent had wanted his surviving spouse to receive all of his wealth despite the separation agreement, he could have employed trusts, life insurance, beneficiary designations, lifetime transfers and gifts, and other mechanisms to, at the very least, reduce what his first wife and children would receive . Arguably, it was possible to plan around the separation agreement, and for the Decedent to ensure that his surviving spouse received all of his assets, and that his first wife and Laurie and Ellynn received nothing. However, no such planning was done.

The Decedent died in 2014, and it appears that he died with a substantial probate estate. The Decedent’s first wife died shortly thereafter, and their children, Laurie and Ellynn, promptly claimed that they were entitled to 50% of their father’s estate pursuant to the separation agreement. Their claim against the Decedent’s estate ultimately settled for $2.367 million.

After compromising the claim, Plaintiff sued the Nixon firm. She alleged that the Nixon firm was aware that the Decedent had been divorced twice, but nevertheless neglected to perform a proper inquiry and investigation to determine the existence of the separation agreement. She maintained that the Nixon firm committed legal malpractice because it never inquired about or obtained a copy of the agreement, and never informed her and the Decedent that the Decedent’s first wife and children had a potential claim to as much as 50% of his estate. She further alleged that the Nixon firm did not provide her and the Decedent with advice to reduce exposure to such a claim in order to fulfill the Decedent’s wish to leave virtually all of his assets to Plaintiff. She claimed that if the Nixon firm had done so, the Decedent would have taken appropriate steps in planning and that she would have received the $2 million-plus that was paid to Laurie and Ellynn in settlement of their claim.

Examining Plaintiff’s claim on a motion to dismiss, the Court observed that it was undisputed that the Decedent was aware of the separation agreement at all relevant times, and that the Decedent did not inform the Nixon firm of the existence of the separation agreement. Citing well-settled law, the Court held that an attorney cannot be held liable for legal malpractice for failing to disclose facts already known to the client. Moreover, the Court held that even assuming that the Nixon firm had a duty to investigate separation agreements attendant to the Decedent’s prior marriages, and advise as to the effect of same, and was negligent in failing to do so, that Plaintiff could only speculate that this negligence was the proximate cause of her loss in the settlement paid to Laurie and Ellynn. Citing the familiar case of Leff v. Fulbright & Jaworski, LLP, 78 AD3d 531 (1st Dept 2010), the Court held that Plaintiff’s assertions as to what Decedent would have done had he received advice concerning the effect of the separation agreement on his estate plan were speculative and insufficient to support a legal malpractice claim.

In Gersh, it may have been that the Decedent had some sense of obligation to his first wife and Laurie and Ellynn. He may have known full well that his first wife and/or children might make a claim for 50% of his estate when he was working with the Nixon firm on his estate plan. He may have decided that it would be easier to let his first wife and children make a claim against his estate rather than talk to his wife about how he wanted to leave them something out of a sense of obligation. He may have wished to avoid a conversation, or a series of excruciating conversations, with his wife about whether and to what extent his children should receive assets upon his death. On the other hand, perhaps Decedent relished the idea of a fight between his surviving spouse and his first wife and children after his passing and his estate plan was so designed. Even if the Nixon firm had enlightened him as to the effect that the separation agreement would have had on his estate plan, he might have opted to do nothing. We can only speculate.

A person’s standing to interpose objections to probate is governed by SCPA §1410, which provides that,

 any person whose interest in property or in the estate of the testator would be adversely affected by the admission of the will to probate may file objections to the probate of the will or of any portion thereof except that one whose only financial interest would be in the commission to which he would have been entitled if his appointed as fiduciary were not revoked by a later instrument shall not be entitled to file objections to the probate of such instrument unless authorized by the court for good cause shown.

The case law has firmly established that the interest that would be adversely affected must be pecuniary in nature (see, e.g., In re Hall, 12 AD3d 511 [2d Dept 2004]). An interest based on sympathy, sentiment, or anything other than the gain or loss of money is insufficient to confer standing.

Recently, the Kings County Surrogate’s Court rejected two different standing arguments in Estate of Saunders, a contested probate proceeding. First, in a January 2017 decision, the Court rejected the petitioner’s argument that sons of the decedent lacked standing to file objections (see Estate of Saunders, NYLJ, Jan. 27, 2017, p.35). Under the will, each of the sons was bequeathed $100, and the residuary was to be divided equally among three charities. Following the decedent’s death, the sons, as “sole heirs of the estate,” transferred all of their purported interest in real property owned by the decedent, which had become part of the residuary estate, to a limited liability company (id.). The petitioner claimed that as a result of that transfer, the respondents had no pecuniary interest in the estate that would be adversely affected by the admission of the will to probate. In opposition, the respondents argued that the cash bequests gave them an additional interest in the estate. They further argued that the estate indeed had cash. The petitioner conceded both of those facts, but asserted that the cash had been depleted through the administration of the estate. The court was not persuaded that the executor’s proper use of the cash assets for administration purposes determined whether the respondents had standing under the statute. It concluded that because the respondents assigned away only their purported interest in the real property, and not their interests as distributees of the decedent, they indeed had standing to interpose objections to probate.

The Surrogate addressed standing again in a later decision, when the LLC moved to intervene and file objections on the grounds that it was a good faith purchaser of the real property, and would be adversely affected by the admission of the will to probate (see Estate of Saunders, NYLJ, Mar. 1, 2017, p.25, col. 6 [Sur Ct, Kings County]). In an unpublished decision and order, the Surrogate found that the LLC lacked standing. Although we don’t know the court’s precise reasoning, its decision is not that surprising, as the LLC was not a beneficiary of the real estate under the will or prior will, and certainly was not a distributee or legatee of the decedent.

Not content to sit on the sidelines and rely on the sons’ objections to preserve its purported interest in the property, the LLC subsequently moved to renew its motion on the grounds that it had commenced a proceeding to quiet title to the property, which the Supreme Court stayed pending the outcome of the contested probate proceeding. According to the LLC, it would have no recourse to protect its interest if it could not intervene. The Surrogate was not persuaded. First, it noted that a motion to renew, pursuant to CPLR §2221(e) must be based on new facts that existed at the time the original motion was made, but were not presented at that time. The LLC’s motion was grounded on the Supreme Court’s stay order which occurred years after the original motion to intervene was made. The Surrogate sua sponte also considered the motion as one for reargument, pursuant to CPLR §2221(d), but again, found that it failed because the LLC did not claim that the Surrogate misapprehended the facts or law, but rather, advanced an entirely new argument, which is not a proper basis for such a motion.

As parties prepare for trial before the Surrogate’s Court, a question that oftentimes arises is whether the parties have a right to a trial by jury. The right to a jury trial is anything but universal in Surrogate’s Court proceedings, and, in fact, does not exist in a proceeding concerning the removal of a fiduciary. This blog post explains why no right to a jury trial exists in a Surrogate’s Court removal proceeding.

The Surrogate’s Court Procedure Act (“SCPA”) provides that a party is only entitled to a jury trial in a proceeding “in which any controverted question of fact arises as to which [the] party has a constitutional right of trial by a jury, in any proceeding for the probate of a will in which a controverted question of fact arises, and in any proceeding commenced after the death of the creator of a revocable lifetime trust to contest the validity of such trust in which a controverted question of fact exists” (see SCPA § 502[1]). Under Article 1, Section 2 of the Constitution of the State of New York, a constitutional right to a jury trial only exists in those “cases in which it has heretofore been guaranteed by constitutional provisions” (see N.Y. Const. Art. 1, § 2; Matter of Mastro’s Will, 100 Misc2d 866, 867 [Sur Ct, Suffolk County 1979] [citations omitted] [“The result of (that) constitutional provision, enacted in 1938, is that the constitutional guarantee of a jury trial continues only to the degree that such jury trials were authorized prior to the 1938 Constitution”]).

Based upon the foregoing, in Matter of Ruggiero, the Second Department held that a party did not have a right to a jury trial in a removal proceeding (see Matter of Ruggiero, 51 AD2d 969, 969-71 [2d Dep’t 1976]). There, the petitioner sought a trial by jury in the proceeding she commenced to remove the decedent’s sister as the fiduciary of the decedent’s estate (see id.). The Surrogate’s Court and Appellate Division both found that a jury trial was unwarranted, mindful that there is no right to a trial by jury in a removal proceeding under the New York State Constitution or the SCPA (see id.).

In light of the foregoing, a party preparing for trial in a Surrogate’s Court removal proceeding should plan to proceed before the Surrogate. Such a party does not have a right to have its trial heard by a jury.

Although one of the many duties and responsibilities of an executor is to marshal and appraise estate assets, and, depending upon the dispositive terms of the governing instrument, liquidate them for purposes of distribution, the fulfillment of these duties may, at times, result in fiduciary liability. In Matter of Billmyer, 142 AD3d 1000 (2d Dept 2016), the Appellate Division, Second Department, considered this issue, in an appeal from an Order of the Surrogate’s Court, Kings County (Lopez Torres, S.), which surcharged the executor for selling certain real property of the estate below fair market value.

The decedent died with a brownstone residence, located in Brooklyn, New York, valued at approximately $1.5 million. In her Will, she named four Lutheran charities and Adelphi University as residuary beneficiaries of her estate.

Two years after the decedent’s death, the executor entered a contract for the sale of the Brownstone residence to an acquaintance of his for the sum of $670,000. Prior to the closing, the purchaser assigned his rights under the contract to an LLC, and the sale was consummated shortly thereafter between the estate and the LLC. Three days after this sale, the LLC sold the subject property to an unrelated third party for the sum of $1,300,000, pursuant to the terms of a contract dated one month prior to the date of the contract that it had entered with the estate.

The executor then accounted, and objections were filed by the charitable beneficiaries and the Attorney General of the State of New York, as the statutory representative of the charities. Following depositions, Adelphi University and the Attorney General moved for summary judgment determining that the sale of the real property was for less than its fair market value, and surcharging the executor accordingly. The executor opposed, alleging that the property required extensive repairs prior to its initial sale, albeit without an explanation as to how the property resold three days later for almost twice the price. The Surrogate’s Court granted the motion, and surcharged the executor in the sum of $630,000, plus 6% interest from the date of the estate’s sale to the date of remittance.

The Appellate Division affirmed, opining that in performing his fiduciary duty, the executor was required to employ good business judgment. Further, the Court explained that to the extent the executor failed to satisfy this standard in the sale of estate property, he could be surcharged. However, the Court cautioned that a surcharge did not result simply upon a showing that the estate fiduciary did not obtain the highest price obtainable for an asset. Rather, it had be demonstrated that the executor “acted negligently, and with an absence of diligence and prudence which an ordinary [person] would exercise in his [or her] own affairs” (Billmyer, citing Matter of Lovell, 25 AD3d 386, 387 [2d Dep’t 2005]).

Within this context, the Court noted that the executor chose a real estate agent for the sale of the brownstone, who was based in Staten Island, had no knowledge about the Brooklyn real estate market, and did not actively market the property for sale. Moreover, the record indicated that the executor did not obtain an appraisal of the property at the time of sale or learn the fair market value of comparable properties, failed to visit the property for an extended period of time prior to sale, and was unaware of how the property was being marketed.  In addition, he sold the property to an acquaintance of his, when there was an unrelated third party ready and willing to buy the property for nearly double the price paid by the LLC.

In view thereof, the Court found that the objectants had established, prima facie, that the executor had breached his fiduciary duty and acted negligently with respect to the sale of the property. Further, it concluded that the executor had failed to submit evidence in opposition sufficient to raise a triable issue of fact. Finally, the Court held that the Surrogate’s Court had properly exercised its discretion in awarding interest upon the surcharge, based upon proof that three days after the executor had sold the property, it was resold for nearly twice the original purchase price.

A nominated executor is obliged to secure estate assets even before the issuance of letters testamentary, or preliminary letters testamentary (see Matter of Schultz, 104 AD3d 1146 [4th Dept. 2013]).  Courts have recognized that “an executor’s duties are derived from the will itself, not from the letters issued by the Surrogate” (Estate of Skelly, 284 AD2d 336 [2d Dept. 2001]).  Thus, as we have noted in a prior post, executors have been subject to surcharge for a loss sustained to estate property in the period between the decedent’s death and the executor’s receipt of letters from the Surrogate’s Court (see, e.g., Matter of Donner, 82 NY2d 574 [1993] [surcharging nominated executors for investment losses based on date of death values]; Matter of Kranzle, N.Y.L.J. 11/7/1991 p. 28, col. 1 [Sur Ct, Suffolk Co.] [surcharging nominated executor for interest and penalties on taxes due several months after decedent’s death, but before the probate proceeding commenced]).

Decisions addressing a nominated executor’s obligations in respect of estate assets before formal appointment by the Court usually arise from the fiduciary’s failure to act. A recent case, however, addressed the nominated executor’s obligations not in the context of an omission, but, instead, involved the fiduciary’s expenditure of funds to safeguard property that ended up not being estate property (Matter of Timpano (Brough), 2016 NY Slip Op 51770(U) [Sur Ct, Oneida Co.]).  Although the nominated executor’s actions may have been misdirected, the Surrogate permitted an allowance from the estate for these expenses as the actions were undertaken in good faith and, further, the Court cited the need to avoid deterring other nominated executors from taking immediate measures to safeguard estate property.

In Estate of Skelly, supra, the fiduciary was notified at the decedent’s funeral in May 1995 that she had been named executor.  It was undisputed that she failed to probate the will until November 1996, over one year after decedent’s death.  During that time, decedent’s real property, which was bequeathed under the will, was vandalized and damaged.  The person to whom the property was bequeathed sought damages for the loss.

The Surrogate denied the executor’s motion for summary judgment dismissing the objections, and the Second Department affirmed.  Even though title to the real property may have vested with the objectant on the death of the decedent, the Second Department found “there are issues of fact as to whether the [executor] failed to assess the assets of the estate and neglected to preserve the premises prior to probate.” (Skelly, 284 AD2d at 337).

In Timpano, the decedent’s sister, Georgianna, lived in a mobile home in Florida across the street from one in which decedent resided. Decedent died in April 2010 survived by his three children, Mark, Kelly and Robert. His will named Georgianna as executor.

Probate of decedent’s will was delayed by SCPA 1404 examinations and, following the testimony of one attesting witness, Georgianna withdrew her probate petition. Ultimately, the Oneida County Chief Fiscal Officer (the “CFO”) was appointed as administrator of the estate.

Believing decedent owned the mobile home in which he lived, beginning in April 2010 (the month of decedent’s death), Georgianna used her personal funds to pay lot rent to avoid confiscation of the mobile home and its contents. She further paid for electrical service to run the air conditioning to avoid mold and mildew so as to further protect the mobile home and decedent’s possessions therein. At no time did any of decedent’s children object to her covering these expenses.

In January 2011, decedent’s son Robert informed Georgianna that he had searched the title to the mobile home and found that his name was on the title. Upon learning this, Georgianna removed the decedent’s possessions from the mobile home and placed them in storage. She further stopped paying lot rent and electric bills.

When the CFO submitted its final accounting, decedent’s daughter Kelly objected to Georgianna being reimbursed for the expenses for lot rent and electric service. Kelly testified in support of her objections and, significantly, acknowledged that she too believed the mobile home was estate property before being told otherwise in January 2011

The Surrogate found Georgianna’s actions following decedent’s death evidenced her understanding that a nominated executor has an obligation to secure assets of an estate prior to formal appointment, citing Schultz, supra. Even though the will was not ultimately admitted to probate, the Surrogate noted, “Georgianna would have had no basis to anticipate this outcome when she acted to preserve decedent’s assets throughout 2010 and into early 2011.”

The Surrogate recognized that Kelly’s claim that if the estate did not own the property, it could not be responsible for related expenses, is true in a technical sense. The Surrogate, however, noted that to rule in Kelly’s favor would ignore the circumstances of the case.

After reviewing the cases holding that an individual who expends personal funds in good faith in furtherance of her fiduciary responsibilities is entitled to reimbursement, the Surrogate found Georgianna acted in good faith and should be entitled to reimbursement from the estate.[1] The Court reinforced its decision by reference to the following policy consideration: “to sustain the objections would be to instill a chilling effect on the work of nominated executors who are tasked with preserving an asset believed in good faith…to belong to the estate” (Timpano, supra).

 

 

[1] The Court directed that part of the expenses be charged against Robert’s share of the estate.

Powers of attorney and trust instruments have each been the subject of many an estate plan. They each have also been the subject of multiple estate litigations. In combination, the two have served as fodder for controversies surrounding the agent’s authority over the trust and its terms. Pursuant to the provisions of Uniform Trust Code §602(c), a settlor’s agent acting under a power of attorney can revoke  or amend a revocable trust, when authorized by the terms of the trust or the terms of a power of attorney.[1]  New York has no comparable statute under the EPTL or the SCPA, or, for that matter, under the General Obligations Law. Stemming from this silence, came two decisions that addressed the issue, albeit with different results; the first, Matter of Goetz, 8 Misc 3d 200 (Sur Ct, Westchester County 2005), in the context of a revocable trust, and the second, Matter of Perosi v. LiGregi, 98 AD3d 230 (2d Dept 2012) in the context of an irrevocable trust. Both decisions provide valuable instruction for drafters and litigators.

In Goetz, the petitioner, a child of the decedent, contended that the decedent’s spouse lacked authority, as his attorney-in-fact,  to amend a revocable trust created by the decedent, in order to confer upon herself a limited power of appointment over the trust remainder. The subject power of attorney was executed in 1995 and provided the agent with the full authority included in the form at the time.

While the terms of the trust instrument, as originally executed, divided the trust principal equally among the grantor’s four children, the amendment in issue provided the grantor’s spouse with a limited power of appointment over the principal exercisable in favor of any one or more of the children as she determined. Several days after the amendment was drafted, it was signed by the decedent’s spouse, as his agent. Shortly thereafter, the decedent, who was ill at the time, passed away. Two years following the decedent’s death, his spouse passed away leaving a last will and testament expressly disinheriting the petitioner, and exercising the power of appointment in favor of her other three children.

The petitioner maintained that the trust amendment was invalid and exceeded the authority granted the decedent’s spouse under the power of appointment. The respondent, the executor of both the decedent’s and his spouse’s estates, claimed that the trust amendment was consistent with the decedent’s expressed wishes and testamentary plan, and was within the scope of the powers conferred upon the decedent’s spouse as his attorney-in-fact.

The court rejected the respondent’s position, and declared the trust amendment invalid, opining that a grantor’s power of revocation is generally a personal right that terminates upon death, unless otherwise provided in the trust instrument. The subject trust contained no such provision. Moreover, recognizing a revocable trust as the lifetime equivalent of a will, the court was troubled by a ruling that would sustain an agent’s authority to essentially alter a principal’s testamentary plan.

Finally, and most importantly, the court held that neither the trust instrument nor the power of attorney at issue explicitly granted the extent of authority sought to be invoked by the agent in amending the trust (see EPTL §7-1.17(b)), concluding “[i]nstruments must be construed as written by their terms, and courts may not add to or alter their provisions in the guise of interpreting them, nor interpolate into them broad grants of authority not included by the parties.”

In Matter of Perosi, the Second Department took a different view from the court in Goetz on the issue of the agent’s authority, and distinguished the opinion in reaching its result. It is questionable whether the distinctions drawn upon the Court are sound, given the rationale of Goetz, and the rules of construction invoked in Goetz in interpreting the subject trust and power of attorney.

As compared to the trust in Goetz, the trust instrument in Perosi was irrevocable, and was established for the benefit of the creator’s three children, one of whom was his attorney-in-fact. The trustee of the trust was the creator’s brother. The power of attorney executed by the creator granted his agent the authority to act with respect to “all matters”, as well as with respect to “estate transactions.” Additionally, the major gifts rider to the power authorized the agent to establish and fund revocable or irrevocable trusts, transfer assets to a trust, make gifts and act as grantor and trustee.

The attorney-in-fact, with the consent of the beneficiaries, executed an amendment to the trust pursuant to EPTL §7-1.9, which removed the named trustee and his successor, and designated two others, including the son of the attorney-in-fact, in their place. Two weeks thereafter, the creator of the trust died.

A petition was then filed by the new trustee and the attorney-in-fact for an accounting by the predecessor trustee, who moved to set aside the trust amendment on the grounds that the trust was irrevocable. The petitioners opposed, relying upon the provisions of EPTL §7-1.9, which permitted the amendment during the creator’s lifetime, with the beneficiaries’ consent.

The Supreme Court granted the trustee’s motion and denied the petition, finding that the power of attorney did not authorize the amendment of estate planning devices created prior to its execution. Further, the court held that the statutory right to revoke or amend an irrevocable trust was a personal right, which was not expanded by the terms of either the trust instrument or the power of attorney. The Second Department reversed.

The Court found that although the trust was irrevocable, the creator nevertheless possessed the authority to amend or revoke the instrument pursuant to EPTL §7-1.9. In view of the beneficiaries’ consent to the amendment, the Court was confronted with the issue of whether the power of attorney empowered the attorney-in-fact to effectuate the amendment on the creator’s behalf. Notably, despite the authority granted to the agent with respect to “estate transactions” and “all other matters”, the Court concluded that neither the power of attorney nor the General Obligations Law specifically authorized the attorney-in-fact to amend the trust. (cf. Goetz).

Nevertheless, as compared to the analysis in Goetz, this did not end the inquiry for the Court, which went on to observe that an attorney-in-fact is an alter ego of the principal, authorized to act with respect to any and all matters, with the exception of those which by their nature, public policy, or otherwise, require personal performance. The Court noted that these matters would include the execution of a principal’s Will, the execution of a principal’s affidavit upon personal knowledge, or the entrance into a principal’s marriage or divorce.

Finding that the amendment of the trust by the attorney-in-fact did not fall into any one of these categories, the Court concluded that since the trust did not prohibit the creator from amending the trust by way of his attorney-in-fact, “the attorney-in-fact, as the alter ego of the creator”, properly did so.

Notably, in reaching this result, the Court distinguished Goetz on two grounds; the first, to the extent that it relied on the principal that the power of revocation was a personal, not delegable right; and the second, that the Goetz trust specifically reserved to the creator the right to amend or revoke the trust. Nevertheless, despite these purported distinctions, it is difficult to reconcile the results in in Perosi and Goetz.

Indeed, both courts were concerned with the fact that neither the language of the trusts or the powers of attorney at issue authorized the agent to amend or revoke the trust instrument. Moreover, the fact, mentioned by the Perosi court, that the creator in Goetz reserved in the instrument a power to revoke or amend its terms, should not be considered a distinguishing factor that would justify a contrary result, since the trust in Perosi was irrevocable, and thus, would not have given the creator that right. Nevertheless, like the instrument in Goetz, the statute, EPTL §7-1.9, relied upon in Perosi, which authorized the trust amendment, also did not confer that right upon an attorney-in-fact.  However, rather than end the inquiry, as the court did in Goetz, that omission served as a basis for the Perosi court to find that the attorney-in-fact could amend the trust, a result antithetical to the principle enunciated in Goetz, which cautioned against “interpolating instruments into broad grants of authority not included by the parties.”

With the foregoing in mind, it would seem that the more critical distinction between the opinions in Goetz and Perosi is the fact that the former involved a revocable trust- – a testamentary substitute — and, as such, the equivalent of a will, which both the courts in Perosi and Goetz, recognized could not be amended or revoked by an attorney-in-fact.

The distinction aside, the lesson to be learned from both Goetz and Perosi is to insure that the language of a trust and/or power of attorney be specific as to the extent of the agent’s authority to amend or revoke the instrument.

[1] Although not yet adopted in New York, a New York Uniform Trust Code has been the subject of significant analysis by the New York State Bar Association and the New York City Bar Association.

Very often, when the proponent of a will (and sometimes even the attorney-draftsperson or witness) is questioned about the decedent’s mental state and the decedent’s instructions, the reflexive response is that the decedent was “as sharp as a tack” and was “as clear as a bell.”  But making a will is not “splitting the atom.”  In fact, testamentary capacity has been described recently by the New York County Surrogate’s Court as “the lowest acceptable level of cognitive ability required by law.”  Overselling a decedent’s capacity and clarity of communication using tired metaphors may result in the trier of fact becoming suspicious of the proponent, perhaps perceiving the proponent as dishonest where other evidence reveals that the decedent likely had diminished capacity.

The Basics

In a will contest, the proponent has the burden of proving that the decedent had the capacity to make a will. This burden is often easily established, as a testator is generally presumed to be of sound mind and to have sufficient mental capacity to execute a valid will.  The proponent must show that the testator understood the nature and extent of her property, knew the natural objects of her bounty, and the contents of her will.  Age, illness, or hospitalization are not determinative – one can suffer from physical weakness and infirmity, a disease of the mind, and failing memory and still possess testamentary capacity at the time of the execution of the will.

A Recent Illustration

A recent decision from Kings County Surrogate’s Court in the Estate of Eleanor Martinico, 2014-3403, NYLJ 1202770885618, at *1 (Sur Ct, Kings County 2016), provides some illustration.  There, the decedent, age 83, executed her will while hospitalized – – she was admitted to the hospital nine days prior to the execution.  A form in her hospital records completed by staff, entitled “Adult Patient Without Capacity With Surrogate for DNR [Do No Resuscitate] Order,” stated, “I have determined that the patient lacks capacity to make this decision,” by reason of “dementia.”  Other medical records stated that the decedent became confused and disoriented during dialysis on the day that she was admitted, and suggested that the decedent had periods of confusion.

However, the attesting witnesses to the decedent’s will were both attorneys who knew the decedent for several years. One knew the decedent for approximately 15 years, had represented her in several matters, and found her demeanor during the propounded instrument’s execution consistent with his prior interactions with her as a person of sound mind acting on her own volition. The witnesses both averred that the decedent, was of “sound and disposing mind, memory and understanding, competent to make a will, free of restraint, and not suffering from any defects which would affect her capacity to make a will.”  Further, decedent’s medical records on the date of the execution of the will contained notes indicating that she was alert and oriented to person, place, and time.

This case did not make it to trial. The court, on a motion for summary judgment, held that the objectants failed to proffer evidence sufficient to raise a triable issue of fact that the testator lacked testamentary capacity at the time of the execution of the propounded instrument.

Another Illustration

In another widely cited case from the Kings County Surrogate’s Court, Estate of Gallagher, NYLJ, Oct. 19, 2007, at 19, 2007 NY Misc LEXIS 7639 (Sur. Ct. Kings County), the testator, in her eighties, made her will two years after suffering from a traumatic debilitating stroke, and only a few months before the Supreme Court adjudicated her an incapacitated person under New York’s Mental Hygiene Law Article 81.  Following the Article 81 hearing, the Supreme Court found that the decedent was suffering from organic brain syndrome and dementia, could not express herself verbally, and was, at times, greatly disoriented. The Supreme Court held that she required one-on-one attention, in a medically assisted supervised home.

The will was offered for probate upon the decedent’s death, and on a motion and cross-motion for summary judgment the Surrogate’s Court held the issue of testamentary capacity should go to a jury. On the motions, the proponent submitted that the testimony of the attorney-draftsperson, a subscribing witness, and affidavits of witnesses who stated that the decedent was able to converse normally, was able to understand her surroundings and act appropriately, and frequently mentioned her trips and interactions with the proponent.  Additionally, the Court Evaluator in the Article 81 proceeding affirmed that the decedent was able to communicate and identified her signature on the will.  The objectants submitted evidence from the Article 81 guardianship proceeding and the testimony of a treating physician that the decedent lacked testamentary capacity.

Sharp as a Tack?

Not everyone is as “sharp as a tack,” or has the gift of making every communication “as clear as a bell” – – even in the prime of their life.  Reflexively insisting that an octogenarian, who suffered from periods of confusion, with a diagnosed illness of the mind, who could not communicate verbally, was “as sharp as a tack,” and “as clear as a bell,” is unnecessary, and could be untruthful and backfire.  Ultimately, if the issue of testamentary capacity is presented to a jury, the learned and ponderous musings of lawyers expressed in law reviews, CLE materials, journals, treatises, and yes, blogs, will yield to the opinions of six citizens, some of whom might be suspicious upon hearing that an elderly person suffering from dementia who executed her will in the hospital was, at the time, “as sharp as a tack.”