On August 19, 2016, Governor Cuomo signed into law an amendment to CPLR §4503(b) which creates another exception to the attorney-client privilege in the case of revocable trusts. The first such exception, initially enacted pursuant to the provisions of CPA 354 (the predecessor to CPLR §4503[b]), provides that the privilege will not apply “in any action involving the probate, validity or construction of a will” (see CPLR §4503[b]).  The 2016 exception expands CPLR §4503(b) to now include actions, after the grantor’s death, involving revocable trusts.

The purpose of the attorney-client privilege is to promote the use of legal representation by assuring clients that they may freely confide in their counsel without concern that such confidences may be divulged to outsiders (see Matter of Colby, 187 Misc 2d 695 [Sur Ct, New York County 2001], citing Priest v Hennessey, 51 NY2d 62, 67-68 [1980]). Nevertheless, to the extent it shields evidence from disclosure, it obstructs the fact-finding process (see Matter of Colby, 187 Misc 2d 695, 697).

With this balanced approach in mind, the recent bill amending CPLR §4503(b) finds its justification in the pre-existing exception to the attorney-client privilege in the case of probate contests, and the fact that revocable trusts serve as the equivalent of wills.  However, it should be noted that the exception only applies after the death of the grantor, in recognition of the fact that a party, other than the grantor, has no standing to challenge a revocable trust during the grantor’s lifetime (see N.Y.S. Assembly Memorandum in Support of Legislation, citing Matter of Davidson, 177 Misc 2d 928, 930 [Sur Ct, New York County 1998]).

Many estate practitioners are familiar with litigated matters in which a charity interested in the proceeding is cited, as is the Attorney General, and both the Attorney General and private counsel for the charity appear in the proceeding. In such cases, both the Attorney General and the charity’s counsel represent the charity (although as a practical matter, since the charity has private counsel, the Attorney General may take a less pronounced role in the litigation, electing instead to defer to the charity’s chosen counsel).  What happens, however, when the status and identity of the charitable beneficiary is less than certain?  That was precisely the situation facing the New York County Surrogate’s Court in the probate contest involving the much-publicized estate of Huguette Clark.

Huguette Clark died on May 24, 2011, leaving a Last Will and Testament dated April 19, 2005, which disinherited her family.  However, just six weeks earlier, on March 7, 2005, Huguette executed a will naming her family as residuary beneficiaries.

Article FOURTH of the propounded will directed that the nominated executors form a private foundation to be named the Bellosguardo Foundation and “take all necessary steps to organize, operated (sic) and qualify said foundation as an educational organization, as defined by Section 501(c)(3) of the Code, for the primary purpose of fostering and promoting the Arts.”

In June, 2011, a bare two weeks after Huguette died, and notwithstanding that the propounded will had not been admitted to probate, three entities called the Bellosguardo Foundation were formed — one in California, one in Delaware, and one in New York.

Ultimately, members of Huguette Clark’s family, represented by Farrell Fritz, filed objections to probate.  The New York State Attorney General appeared in the now-contested probate proceeding to represent the charitable interests under the will.  In addition, a private law firm filed a Notice of Appearance in the proceeding, purporting to appear on behalf of an entity called the “Bellosguardo Foundation” (there was no indication which foundation — i.e., the California, Delaware, or New York foundations — the law firm purported to represent).

The probate proceeding was scheduled for trial in September 2013.  There were numerous motions submitted by the various parties in the months preceding the trial.  While most of those motions were evidentiary in nature, one, brought by Farrell Fritz on behalf of the Clark family, sought to strike the private law firm’s Notice of Appearance filed on behalf of the so-called “Bellosguardo Foundation.”  The family took the position that the foundation was not the foundation referenced in the will and, therefore, had no standing to participate in the trial.  Farrell Fritz argued on behalf of the family that the propounded will’s direction regarding the formation of a foundation had no legal effect prior to the admission of the will to probate.  Although the propounded will directed that the executors form a foundation, there were no executors prior to the will’s admission to probate, and, thus, the foundation referenced in the propounded will did not, and could not, exist prior to probate.  That a person incorporated an entity with the same name as the foundation to be formed in the event the propounded will were admitted to probate, and then caused that entity to appear in the probate proceeding, did not make the entity the “Bellosguardo Foundation” to be formed under the will.

Nor was it necessary to permit the foundation to participate in the proceeding, as the charitable interest under the propounded will was being adequately represented by the Attorney-General, who “has the statutory power and duty to represent the beneficiaries of any disposition for charitable purposes (EPTL 8-1.1(f); other cites omitted)” (Alco Gravure Inc. et al. v. The Knapp Foundation, 64 NY2d 458, 465 [1985]).  Moreover, while a charitable beneficiary has standing to participate in a litigated proceeding in which it is interested, the Attorney General’s standing to represent a charitable interest is exclusive where the charity’s status is indefinite or uncertain, or, to express it differently, where the charity is “not within a class of potential beneficiaries that is ‘sharply defined and limited in number’ (Alco Gravure, 64 NY2d at 465).”  (Matter of Rosenthal, [Helmsley Charitable Trust], 99 AD3d 573 [1st Dept 2012]).

Both the Public Administrator of New York County and the Attorney General’s office supported the Clark family’s motion. On the eve of the trial, Surrogate Anderson rendered her decision, granting the motion.  The Surrogate noted that, “[t]he Attorney General, who is charged under the Estate’s Powers and Trusts Law § 8-1.4(e)(2) with representing all charitable interests under the subject will, has been demonstratively adequate and diligent in representing the interests of the Bellosguardo Foundation to be formed.  Further, the Attorney General has exclusive standing to represent a beneficiary of a disposition for charitable purposes when such beneficiary is indefinite or uncertain (EPTL §8-1.1(f))” (Estate of Huguette M. Clark, NYLJ 9/27/13, p. 25, col. 1. [Sur Ct, New York County]).

Subsequently, the parties in the litigation were able to settle the contest.  Thereafter, the true Bellosguardo Foundation was formed, as mandated by the Propounded Will as admitted to probate by the Surrogate.

While the Court of Appeals last year upheld the validity of contingency fee agreements in estate matters, especially in litigation, where it approved contingency fees of over forty million dollars when the actual time spent was a fraction of that value (see Matter of Lawrence 24 NY3d 320 [2014]), a recent New York County Surrogate’s Court case, Estate of Fanny Goldfarb, NYLJ, Oct. 14, 2015, p.22 col.2, confirms that the size of an estate can still be a major factor in determining the reasonableness of a contingent fee, even though the services rendered and the result achieved were exemplary.

In Goldfarb, litigation counsel was retained by the executor to pursue a SCPA 2103 turnover proceeding to recover a co-op apartment that had been transferred to the decedent’s cousin prior to her death.  The fee arrangement was formalized in a written retainer agreement which provided for a contingent fee of one-third of any recovery relating to the transfer of the apartment.  The attorney commenced the proceeding on behalf of executor, and within six months a settlement was reached, whereby the coop apartment was returned to the estate plus $75,000 cash, waiver of a $100,000 bequest, and $6,163 in purported commissions relating to other transfers discovered to have been made to the respondent, which had not yet been brought before the court.

The attorney sought a contingent fee of $251,995, representing one-third of the value of the apartment plus the other monies and waivers recovered. The Attorney General opposed the fee, arguing that it was “extremely excessive.”

Relying primarily on the “size of the estate” criteria enunciated a Matter of Potts, 213 AD 59 (4th Dept 1925), aff’d 241 NY 593 (1925), the court reduced the contingent fee to $115,000, and ordered the attorney to refund the excess without interest.  The court concluded that “such allowance recognizes that the value of respondent’s services outweighs the time he spent in the matter, yet also recognizes that the other factors discussed above do not support a fee that, as the Attorney General notes, would make respondent ‘in effect the major beneficiary of the estate.’”

Fee cases are fact specific. However, contingency fee arrangements are particularly important for smaller estates where a fiduciary may be unable to find counsel who would handle the matter on an hourly basis, and without whom there might be no recovery.

On October 28, 2014, the Court of Appeals rendered its long awaited decision in In re Lawrence, 2014 NY Slip Op 07291, reversing the decision by the Appellate Division in which it was held that (1) a revised retainer agreement, under which the law firm received 40% of the net recovery (i.e. $44 million) was procedurally and substantively unconscionable and that fees should be determined under the original retainer; and (2) the claim to recover gifts made by the client to her attorneys was timely.

In upholding the revised retainer agreement, the Court stated that the most important factor in determining whether it was procedurally unconscionable was whether the client was fully informed upon entering into the agreement, in that the client had “full knowledge of all of the material circumstances known to the attorney” (Slip Op. at 18).  The hearing evidence demonstrated that Mrs. Lawrence, who was involved in every detail of the case, fully understood the revised retainer agreement, and that layperson could comprehend the mathematical calculations used to arrive at the 40% contingency fee. Refusing to engage in a “hindsight analysis” of the revised retainer agreement, the Court concluded that the revised retainer agreement was not substantively unconscionable in light of the risks taken by the attorneys, and the value of their services over two decades of contentious litigation during which there was a lengthy trial and several appeals.

Regarding the gifts, the Court found that the claim was time-barred, and that the statute of limitations was not tolled by the continuous treatment doctrine, which, the Court reiterated, applies only where there is a claim for professional misconduct, and the professional’s ongoing representation directly relates to the specific transaction giving rise to the malpractice claim.  The Court specifically distinguished between a dispute concerning an attorney’s malpractice in rendering services and a dispute over a client’s payment of a bill or making of a gift; a critical distinction for purposes of the policy underlying the continuous representation rule.  The rule exists because “the client should not be burdened with the obligation to identify the professional’s errors in the midst of the representation as the client is hardly in a position to know the intricacies of the practice or whether the necessary steps in the action have been taken” and thus, “cannot be expected to jeopardize his pending case or his relationship with the attorney handling that case during the period that the attorney continues to represent the person” (Slip Op. at 27).   With respect to a gift or fee dispute, however, the Court held that the giving of a gift is “not the subject of any prior or ongoing representation,” and therefore, disputing it would not “force a lay person to undertake actions that he is ill-equipped to carry out” or place the client at risk for interrupting corrective efforts.

Applying those principles to the facts before it, the Court found that the client’s voluntary gifts were unrelated to the lawyers’ provision of any legal services. Importantly, there was no underlying claim of malpractice against the attorneys who received the gifts. Thus, the seminal requirement to apply the continuous representation rule was missing.  The Court further determined that there was no need for the lawyers to have any future representation vis-à-vis the gifts or to take any “corrective action.” It then concluded, “the purpose underlying the continuous representation rule would not be served by its application” (Slip Op. at 29).

While attorney’s fees incurred by the fiduciary are generally reimburseable from an estate as a reasonable and necessary expense of administration, this is not the rule with respect to the legal fees incurred by a beneficiary. The different standard that applies was recently examined by Surrogate Mella in In re Frey, NYLJ, July 25, 2013, p. 25 (Sur. Ct. New York County).

Before the court was an application brought by counsel for a beneficiary to have its legal fees fixed for services rendered to the beneficiary in connection with her interest in the estate of her late mother. The executor of the estate did not oppose the application provided that the fees were charged to the beneficiary’s interest in the estate.


The record revealed that the services performed by counsel over a two year period resulted in its client in receiving emergency and regular distributions from the estate, loans against her legacy, and personal property that she was unable to obtain previously.  Since completing its work, counsel has not been able to contact its client and has not been paid.


The court noted that in a proceeding for the fixation of fees pursuant to SCPA 2110, the court is authorized to direct the source of payment either from the estate generally, or from the funds in the hands of the fiduciary belonging to the legatee. In examining this issue, the court relied on the factors outlined by the Court of Appeals in Matter of Hyde, 15 NY3d 186 (2010), that is: (1) whether the objecting beneficiary acted solely in his or her own interest or in the common interest of the estate; (2) the possible benefits to the individual beneficiaries from the outcome of the underlying proceeding; (3) the extent of the individual beneficiary’s participation in the proceeding; (4) the good or bad faith of the beneficiary; (5) whether there was justifiable doubt regarding the fiduciary’s conduct; (6) the relative interest of the objecting beneficiary in the estate; and (7) the effect of allocating fees on the interest of the individual beneficiary.


Based on this criteria, the court concluded that in pursuing her claim against the fiduciary, the beneficiary was not seeking to benefit or enlarge the estate, but only to secure her legacy. The court determined that there was no possibility that the other beneficiaries of the estate would benefit from the legal services performed, and thus, that it would be unfair to assess the other beneficiaries with the fees incurred.

Accordingly, the court fixed the fees and disbursements of counsel and directed that they be paid from its client’s share of the estate.

Generally, where an infant or someone under another disability is a necessary party to an action, it is the parent or guardian of the property who represents him in that action.  If the disabled individual has no such guardian, then the court shall appoint a guardian-ad-litem to represent his interests (see CPLR 1201).  It is the appropriate guardian who will have the authority to enter into a stipulation of settlement on behalf of the incapacitated individual, but he or she must seek court approval of said agreement by motion pursuant to CPLR 1207 prior to its becoming enforceable. 

Particularly relevant to the trusts and estates practitioner, the corresponding procedure in Surrogate Court is very similar.  Pursuant to SCPA 315, an adult competent party who has a similar economic interest to another necessary party who suffers from a disability (i.e., an infant) may represent the latter by virtual representation.  However, the statute restricts virtual representation to court proceedings and informal accounts, and thus, it does not apply with respect to a typical out of court settlement.  Instead, where an individual under a disability is a necessary party to a settlement agreement that falls outside of SCPA 315[8], the parties must file a compromise proceeding pursuant to SCPA 2106.

Pursuant to SCPA 2106[5], a compromise proceeding requires the petitioner to outline for the court the facts that caused the dispute, identify the various disagreeing positions and the interests of the parties, and establish the necessity for court approval of the agreement.  A guardian-ad-litem will then be appointed to represent the interests of the infant or other individuals under disabilities, and it is his responsibility to determine whether the proposed settlement is in the best interests of his ward(s).  If it is, then the guardian-ad-litem must obtain authority from the court to enter into the settlement.  However, it is only if the court deems the relief obtained through the settlement to be “just and reasonable,” that it will enter the requisite final decree binding on all interested parties, including those under a disability. (see Charles F. Gibbs and Colleen F. Carew, Surrogate’s Practice and Proceedings: SCPA 315 and Out-of-Court Settlements: Risk v. Reward, New York Law Journal, Nov. 6, 2006).

Although SCPA 2106 and CPLR 1207 provide vehicles by which necessary parties who are under a disability can be bound by a settlement, these statutes create additional hurdles to creating enforceable stipulations.  Indeed, the proposed agreement may be rejected by the guardian-ad-litem, his or her appointment may result in the filing of objections, or the court may not find the agreement to be “just and reasonable.”

 The validity of a decedent’s marriage is a topic that is litigated in Surrogate’s Courts with increasing frequency. A determination on the issue has multiple implications for those interested in an estate, including the surviving spouse’s right to an elective share, distributee status and consequential standing of other family members to participate in probate proceedings if the marriage were invalid, and priority in obtaining letters of administration. In the recent case of Matter of Cheek, decided by Surrogate Holzman of Bronx County, the decedent’s sister – motivated, at least in part, to obtain distributee status – challenged the validity of her brother’s marriage to the respondent as a basis to vacate a stipulation of settlement.

Specifically, the decedent’s sister, who had previously commenced a proceeding alleging that she was a creditor of the estate, sought to vacate the stipulation that had previously been entered into on the record in open court, settling her claim. She alleged that she had been in an emotional and volatile state when the agreement was made because it occurred on the one year anniversary of the decedent’s death. She further argued that the agreement was void based upon a mutual mistake of fact regarding the validity of the decedent’s marriage at the time of his death. To this extent, the sister alleged that after entering into the agreement, she learned that the decedent’s divorce from his first wife had been invalid, thus rendering his second marriage to the respondent invalid as well. The sister further claimed that the invalidity of the marriage eliminated the respondent’s status as sole distributee of the estate, and meant that either she or the first spouse, if living, were the sole distributees.

Opposing the sister’s application, the respondent provided an original certified copy of her marriage certificate, which recognized the decedent’s divorce from his first wife. The respondent further alleged that the sister lacked standing to contest the validity of her marriage; but even if standing existed, the decedent’s first wife, not his sister, would be the sole distributee. The respondent additionally asserted that there existed no grounds to vacate the stipulation of settlement for mutual mistake inasmuch as she had provided proof of her marriage, and the sister provided no proof to the contrary.

In response to the foregoing, the court explained that an original certificate of marriage in New York is generally prima facie evidence that the marriage existed (id., citing CPLR 4526), and also stated that absent contrary evidence, there exists a presumption of the validity of a second marriage; the burden of proving otherwise lies with those who assert it. The court went on to state that that burden is even greater where the party challenging the validity is a stranger to the marriage, such as the sister in the subject case (id. relying on Matter of Esmond v Lyons Bar & Grill, 26 AD2d 884 [3d Dept 1966]).

The court further explained the longstanding rule that “stipulations of settlement are favored by the courts and not lightly cast aside” (Hallock v State of New York, 64 NY2d 224 [1984]), “particularly where, as here the stipulation was entered on the record in open court, its terms are unambiguous, the parties were represented by counsel, and the court conducted a proper allocution of the petitioner and determined that she voluntarily and knowingly accepted the terms of the stipulation’” (Matter of Cheek, quoting Matter of Siegel, 29 AD914, 915 [2d Dept 2006]). Considering the sister’s allegations – which the court characterized as conclusory – in view of that standard, the court opined that there was no basis to vacate the stipulation of settlement.

The holding in Cheek is not surprising given the high standard one must meet to vacate a valid stipulation of settlement. Indeed, “only where there is cause sufficient to invalidate a contract, such as fraud, collusion, mistake or accident, will a party be relieved of the consequences of a stipulation made during litigation” (Hallock v State of New York, 64 NY2d 224, 230 [1984]). Nonetheless, the court refused the respondent’s request for affirmative relief of attorney’s fees against the sister in connection with her application for vacatur, and despite describing her allegations as conclusory, opined that it had not been a frivolous proceeding.

 As you may know, the United States Congress passed the Middle Class Tax Relief Act of 2010 last night. It is anticipated that President Barack Obama will sign this extremely important piece of legislation into law this afternoon. 

In addition to providing an extension to unemployment benefits during this difficult economic time, and extending various income tax cuts implemented by President George W. Bush, this bill delivers tremendous, sweeping changes to the federal gift and estate tax. Unfortunately, this legislation is only a two-year “band-aid”; and it appears that we will find ourselves and our government embroiled in the gift and estate tax debate at least until 2013.    

In order to keep our colleagues, friends and clients prepared and informed, we have prepared this brief summary of the anticipated impact of this new and revolutionary legislation.  


Estate Taxes

Old Law –        Prior to the enactment of the new law, no federal estate taxes would apply to the estate of an individual dying in 2010. There is, however, potential for some negative income tax consequences, as there would be a limited ability to “step-up” the basis in inherited property to date of death values for capital gains tax purposes. Most importantly, 2011 would have brought about a revival of the federal estate tax, with a shockingly low exemption amount of $1,000,000 per person and estate tax rates of up to 55%. 

New Law –       Once the new law is enacted, representatives of the estates of individuals dying in 2010 will have two options which will need to be carefully considered: (1) a $5,000,000 estate tax exemption, with the excess taxed at a rate which will not exceed 35%, along with the unlimited ability to “step-up” the beneficiary’s cost basis in inherited property to date of death value for capital gains tax purposes; OR (2) absolutely no federal estate taxes, but a limited ability to “step-up” the estate beneficiary’s cost basis in inherited property to date of death values for capital gains tax purposes. 

Estates of those dying in 2011 or 2012 will be subject to a generous $5,000,000 estate tax exemption (with a 35% maximum rate on the excess) and an unlimited ability to “step-up” cost basis in inherited property to the value at the time of the decedent’s date of death.   Additionally, under certain circumstances, a surviving spouse may utilize the unused estate tax exemption of a pre-deceased spouse. Unfortunately, New York State only provides for a $1,000,000 estate tax exemption and no “portability” of unused estate tax exemption between spouses. This disparity will necessitate careful analysis of existing estate plans.


Gift Tax

For 2010, each individual is limited to making lifetime gifts not to exceed $1,000,000 which are not subject to gift tax. Gifts in excess of this amount will be subject to a 35% federal gift tax. Upon enactment of the new law, in 2011 the federal gift tax exemption will be "reunified" with the federal estate tax exemption. This means that starting in 2011, each individual will have a lifetime exemption of $5,000,000. This dramatically increased exemption provides tremendous opportunities for estate planning, especially in the current economic environment, where asset values, and the required interest rates used in connection with estate planning, are historically low. It is important to note that any gifts made during an individual’s lifetime utilizing gift tax exemption will also erode the individual’s estate tax exemption. Accordingly, it is important that any significant gifts made be considered strategically, with the individual’s overall estate planning in mind.


Generation-Skipping Transfer Tax

Presently, the Generation-Skipping Transfer Tax (GST) has been repealed for 2010, thus removing an additional layer of taxation that would otherwise be present when property is gifted or inherited by beneficiaries who are two generations younger than the grantor. This repeal was only temporary, however; and the GST was due to be reinstated in 2011. 

Under the new law, 2011 will bring a generous $5,000,000 GST exemption amount, enabling tremendous opportunities for inter-generational wealth transfers with very limited transfer tax consequences. 



In conclusion, it appears that the federal government has temporarily averted a potential gift and estate tax crisis by passing the Middle Class Tax Relief Act of 2010. The new law provides for very generous exemptions and unprecedented opportunities for multi-generational estate planning. On the negative side, this law is only a temporary repair, as we have no guidance as to the future of gift and estate taxes for 2013 and beyond. Accordingly, the window of opportunity to take advantage of the estate planning options which the new law provides is limited. If Congress does not act again before December 31, 2012, we will be in the same uncertain and challenging tax scenario that we were facing only a few days ago. 

If you have any questions about the new law, or how it may impact your estate planning, please do not hesitate to contact us. Thank you.

Dear Readers,

At the Fall meeting of the NYSBA’s Trusts and Estates Law Section (October 7-8 in Rochester), I will be moderating a panel discussion on the Court of Appeals’ three most recent pronouncements in the area of trusts and estates law, Matter of Singer, 13 NY3d 447, 449 (2009) (addressing "safe harbor" provisions of SCPA 1404), Schneider v. Finmann, 2010 NY Slip. Op. 05281 (June 17, 2010) (addressing malpractice liability of estate planning attorney), and Matter of Hyde, 2010 N.Y. Slip Op. 05676 (June 29, 2010) (addressing allocation of legal fees among beneficiaries).

The discussion panel will include, among others, Bronx County Surrogate Hon. Lee L. Holzman and Albany County Surrogate Hon. Cathryn M. Doyle. I welcome you to forward me questions and/or issues for discussion by the Panel about these three important cases.

(FYI, an excellent article discussing the Schneider and Hyde cases, by Charles F. Gibbs and Colleen F. Carew, appears in today’s New York Law Journal. Their article discussing Singer was published in the Law Journal on February 26, 2010.)


Eric Penzer.

The Court of Appeals has rendered a landmark decision, chipping away at privity in holding that an estate fiduciary may maintain a legal malpractice claim against its decedent’s estate tax planning attorneys for negligent representation.  Until now, privity, i.e., a legal connection between two parties, was a strict condition precedent to maintaining a legal malpractice claim.  

In Estate of Schneider, 2010 NY Slip Op 05281, decided June 17, 2010, the estate argued that the decedent should have been provided advice that would have decreased his estate’s tax liability.  Specifically, it was asserted that the decedent’s attorneys should have advised him to transfer, or not to transfer, his $1 million life insurance policy to or from an entity of which he was the principal owner in order to reduce his gross taxable estate.

The Supreme Court dismissed the claim for failure to state a cause of action, but the Court of Appeals reversed.  In upholding the claim, the high court equated the relationship between an estate and its decedent to one of privity, or one “sufficiently approaching privity” for purposes of pursuing a legal malpractice action.  It aligned its reasoning with that of the Texas Supreme Court, and opined that “‘the estate essentially stands in the shoes of the decedent’ and therefore ‘has the capacity to maintain the malpractice claim on the estate’s behalf’”.  

In determining the foregoing, the Court stated that its holding complies with EPTL 11-3.2(b), which permits the fiduciary of an estate to “maintain an action for ‘injury to person or property’ after that person’s death”.   The Court further noted that its decision had no altering effect on the strict privity rules against beneficiaries bringing legal malpractice claims against a decedent’s estate planning attorneys.

It would not be surprising if the natural outgrowth of this decision is an increased number of legal malpractice claims against estate planning attorneys.