Beneficiary Participation Irrelevant to Allocation of Trustees' Litigation Costs
Beneficiaries often question the circumstances under which a trustee or executor’s legal fees are chargeable against their inheritance, especially when those fees are incurred in defending the fiduciary’s alleged misconduct.
The law provides that fiduciaries who are guilty of a breach often remain entitled to have their litigation costs covered by the estate or trust for which they serve (see Estate of Casey, 6/21/93 NYLJ 33 [col 6][Sur Ct, Westchester County]; Matter of Kettle, 73 AD2d 786 [4th Dept 1979]). Although Surrogate’s Courts have the discretion to charge legal fees against the fiduciary personally “as an expense caused by their wrong”, these determinations are generally limited to cases where the court finds an act of bad faith (see Matter of Hidden, 243 NY 499 [1926]). It is therefore logical that the legal fees of a fiduciary who is not guilty of any misconduct are chargeable to the estate or trust. This was the case in Matter of Hyde, 2009 N.Y. Slip Op 02491(3d Dept 2009). There, however, the beneficiaries who had not contested the trustees’ accounting sought to have the trustees’ litigation costs borne solely by the shares of the objecting parties.
Matter of Hyde dealt with two trusts, the Hyde Trust and the Cunningham Trust, of which two families, the Renz family and the Whitney family, were beneficiaries. Specifically, the Hyde Trust provided that the Hyde grandchildren, Louis Whitney (“Whitney”) and Mary W. Renz (“Renz”), were each to receive equal shares of trust income during their respective lifetimes. Upon the death of either beneficiary, the principal of the deceased beneficiary’s share was to be distributed to each of Hyde’s great-grandchildren. Whitney died in January 2008, providing each of Hyde’s five great-grandchildren with a one-fifth interest in the remaining principal of Whitney’s half.
The Cunningham Trust also provided income for Whitney and Renz, each receiving a one-sixth interest therein, with a contingent remainder of one-sixth of the principal upon termination of the trust if the beneficiary were still living.In 2001, the trustees of the Hyde Trust commenced a proceeding for an intermediate accounting. Thereafter, in 2003, the trustees of the Cunningham Trust commenced a proceeding to settle their intermediate accounts. The Whitney children filed objections to each accounting, seeking to deny trustees’ commissions and to surcharge for failure to diversify investments. The Warren County Surrogate’s Court dismissed the objections, and said dismissal was affirmed on appeal.
Because the objections and subsequent trial were pursued solely by the Whitney children, the Renz children sought to charge only the Whitney portion of the trust with legal fees in connection with the defense of said objections. The Surrogate denied the motion, and charged each of the trusts as a whole with all litigation expenses.
SCPA 2110[1] authorizes the Surrogate to fix litigation costs in connection with legal services provided to a fiduciary. In addition, pursuant to SCPA 2110[2], the Surrogate may “direct payment therefor from the estate generally or from the funds in the hands of the fiduciary belonging to any legatee, devisee or person interested.” Here, the Surrogate charged the trusts as a whole with the attorneys’ fees incurred defending in both accounting proceedings, despite the nonparticipation of the Renz beneficiaries. The Third Department affirmed.
In upholding the Warren County Surrogate’s decision, the Appellate Division relied on both SCPA 2110, and the Court of Appeals holding in Matter of Dillon, 28 NY2d 597 (1971). Dillon provides that “SCPA 2110 does not authorize payment for legal services rendered a party to be charged against the share of other individual parties” (see Matter of Dillon, 28 NY2d 597, 599). The Renz beneficiaries’ attempt to distinguish Dillon was without avail.
Court Rejects Executor's Attempt to Sell House To Herself For $10
The real estate market might be bad, but it’s not that bad.
In Matter of Karr, NYLJ 2/5/09 (Surrogate’s Court, Kings County), Surrogate Maria López Torrez canceled a deed by which the executor of an estate attempted to convey to herself, in consideration of $10, a house owned by the estate. You can’t make this stuff up.
The defendant in the action, Joan Melluso, was the executor of her father’s estate. He died in 1977, leaving his house in equal shares to his daughter and son, Joan and Donald. He also granted Joan a life estate in the house, and included a clause in his will providing that “[t]he choice when and if to sell shall be hers.” In 2004, Donald died intestate, leaving a wife and four children. In 2007, Joan, in her capacity as the executor of her father’s estate, conveyed the property outright to herself for $10.
Donald’s wife and children filed an action in Supreme Court seeking, among other things, a declaration that the deed conveying the house to Joan was invalid and that they retained a 50-percent tenancy-in-common interest in the house. They moved for summary judgment. Joan cross-moved to transfer the action to Surrogate’s Court. The court denied the motion for summary judgment without prejudice and granted the cross-motion to transfer. Ultimately, the fully briefed motion for summary judgment was submitted for decision to the Surrogate.
A Matter of Faith: Conditioning Bequests on Religious Observance and Marriage
In Matter of Feinberg, an Illinois appellate court recently addressed the enforceability of a will clause that provided that the testator’s descendants could only inherit from his estate if they married within the Jewish faith (or their spouses converted to Judaism within one year of the marriage) (383 Ill App3d 992, 992 [Ill App Ct 2008], app. all’d, 229 Ill2d 667 [Ill Sup Ct 2008]). The court found that it was not enforceable in that it violated public policy (id.). In doing so, the court analogized the Feinberg clause to will provisions that imposed similar faith-based marriage requirements on beneficiaries, and concluded that the clause impermissibly restrained marriage and encouraged divorce (id. at 994-95).
Would such a clause likely be enforceable in New York? The answer may be “yes.” Although no New York court has addressed the issue recently, several older decisions opine that such a clause is enforceable. Those decisions are, of course, subject to the general rule that the clause not encourage divorce or discourage marriage (cf. Robinson v Martin, 200 NY 159, 167 [1910] [discussing a bequest as a restraint on marriage]).
Matter of Silverstein’s Will is illustrative (155 NYS2d 598 [Sur Ct Queens County 1956]). There, the testator’s will provided for the equal distribution of his personal property to his grandchildren, but only if they married Jewish spouses (id. at 599-600). The Surrogate’s Court held the clause to be enforceable, explaining that conditions “not to marry a person of a particular faith . . . are not [per se] invalid” (id.). As a result, the court also concluded that one of the testator’s grandchildren was not entitled to a share of the testator’s personal property, since he married outside of the Jewish faith (id.).
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