Estate litigation oftentimes arises when parents favor one or more of their children over others in their estate plans. Fortunately, at least for the parents, they typically do not have to deal with the issues involved in the litigation, as they are deceased by the time that it arises. As the Second Department’s decision in Sharrow v. Sheridan demonstrates, however, disfavored children do not always wait for their parents to pass before commencing litigation concerning the parents’ assets. Indeed, some disfavored children have gone so far as to sue their parents and siblings as “potential heirs” of the parents’ estates. This blog entry explains why such a strategy will prove unsuccessful.
In Sharrow, the plaintiff commenced an action against his mother and his sister, seeking to impose a constructive trust on certain assets that the mother transferred to the sister (see Sharrow v. Sheridan, 91 AD3d 940, 940-41 [2d Dept 2012]). The plaintiff alleged that a constructive trust was warranted because the sister exercised duress and undue influence on the ailing mother in pressuring her to transfer the assets to the sister (see id.). When the mother and sister moved to dismiss the plaintiff’s complaint, the plaintiff asserted that he had standing to seek a constructive trust over the assets formerly belonging to his mother as a “potential heir” of her estate (see id.).
The Supreme Court granted the defendants’ motions to dismiss and the Appellate Division affirmed (see id.). In affirming, the Second Department found that the plaintiff lacked standing to seek to impose a constructive trust on the assets that his mother transferred to his sister (see id.). As the court explained, for as long as she was alive, the mother had “the absolute right to change her intentions regarding the distribution of her assets” (see id.). Accordingly, the court concluded that the plaintiff’s interest as a “potential heir” of his mother’s estate was a “potential, speculative interest” that did not vest him with standing to prosecute a constructive trust claim concerning his mother’s former assets (see id.).
Of course, Sharrow is not the only case in which a child sought to void an inter vivos transfer made by a parent as a potential heir of the parent’s estate. In Schneider v. David, the plaintiff commenced an action to impose a constructive trust on real property that her mother transferred to her brother (see Schneider v. David, 169 AD2d 506, 506-08 [1st Dept 1991]). Among other things, the plaintiff alleged that her brother had fraudulently induced their elderly mother to convey the properly to him by telling the mother that the deed she signed only permitted him to manage the property while she was out-of-state (see id.). The defendant moved to dismiss, arguing – with his mother’s support – that the plaintiff lacked standing to seek a constructive trust (see id.).
Although the Supreme Court denied the defendant’s motion, the First Department reversed (see id.). The Appellate Division reasoned that the plaintiff was not a party to her mother’s conveyance of the property and could not void it simply because she considered herself to be an heir of her living mother’s estate (see id.). In short, the plaintiff’s self-serving description of herself as a potential heir of her mother’s estate did not cloak her with standing to sue or exercise rights on her mother’s behalf (see id.).
There are several lessons to take away from Sharrow and Schneider, the most obvious of which is for children to respect the wishes of their parents as those wishes relate to the parents’ assets during life. Putting the obvious aside, however, disfavored children and their attorneys should take note of the well-reasoned legal principle that, as “potential heirs” of their parents’ estates, they lack standing to take legal action concerning their parents’ assets. During their lives, the assets belong to the parents and are subject to the parents’ absolute right to dispose of their property as they wish.
The recent entry by Jaclene D’Agostino addressed the issue of constructive trusts. From that, we learned that a constructive trust is characterized by four elements: (1) a confidential or fiduciary relationship; (2) a promise; (3) a transfer in reliance thereon; and (4) unjust enrichment. While not an express trust in kind, a constructive trust is an equally useful device created by operation of law in order to promote equity. Although the Court of Appeals in Latham v. Father Devine, 299 NY 22 (1949) and Matter of O’Hara’s Will, 95 NY 403 (1884), cited by Ms. D’Agostino in her article, imposed a constructive trust under the circumstances presented, the Surrogate’s Court, Suffolk County in Dext v. Rorech III, Individually and as Executor of the Estate of William Rorech, Jr., NYLJ, 2/18/11, p.33 (col. 5) rejected that result for reasons explained below.
Before the court in Dext was a motion for summary judgment brought by the fiduciary in an action concerning the parties’ rights with respect to the decedent’s realty. The decedent’s Will was admitted to probate in Florida, and his son was appointed fiduciary of his estate. Thereafter, the fiduciary was appointed ancillary executor of the decedent’s estate in order to pursue an eviction in connection with the decedent’s home in Smithtown. The fiduciary alleged that the resident at the premises had been residing there rent-free for over a year since the decedent’s death.
Subsequently, the resident instituted an action, as plaintiff, in Supreme Court against the fiduciary alleging, inter alia, a cause of action in constructive trust, and requesting that she be given a life estate in the property. An answer was filed, and the fiduciary then moved for summary relief alleging, inter alia, that the decedent was the sole owner of the property, that there was no provision in the Will for plaintiff, that there was no written instrument evidencing the plaintiff’s right to occupy the premises, and that there was no proof of the promise(s) alleged. In opposition to the motion, plaintiff maintained that there were triable issues of fact as to whether the decedent had made an oral promise to plaintiff of a life estate in the premises, and, that there was part performance of same when decedent had plaintiff relocate from her home in Montauk to the Smithtown property. Further, plaintiff submitted her signed affidavit to support her claims, naming a number of witnesses who would testify on her behalf. The fiduciary replied.
In the interim, the action was transferred to the Surrogate’s Court pursuant to a so-ordered stipulation of the parties.
In granting the fiduciary’s motion for summary judgment, the court opined that in order to establish a claim for constructive trust four elements must be proven: 1) a confidential or fiduciary relationship between the parties; 2) a promise; 3) a transfer in reliance on the promise, and 4) unjust enrichment. Although the court noted that plaintiff had a close, confidential relationship with the decedent, it found that plaintiff had failed to prove the other required elements of a constructive trust.
Significantly, the court found that plaintiff would be the primary witness in support of her claim, inasmuch as she failed to oppose the defendant fiduciary’s contention that these witnesses expressed no knowledge of the purported promise to plaintiff by the decedent. Further, the court noted that although plaintiff alleged that she had other witnesses to testify on her behalf, she failed to offer any proof regarding these witnesses other than her own self-serving affidavit. Additionally, the court opined that plaintiff’s contention that she gave up her home in Montauk based upon the decedent’s alleged promise was insufficient to demonstrate a transfer in reliance or unjust enrichment.
Finally, the court held that plaintiff’s theory based upon part performance of an oral contract to give plaintiff a life estate also failed, on the grounds that her move from her Montauk home could not reasonably be viewed as unequivocally referable to the alleged agreement she had with the decedent.
Hence, it can be seen from the foregoing, that while a cause of action based in constructive trust may be a useful tool in obtaining equitable relief, the failure to prove the requisite elements thereof can prove fatal in some circumstances.
Most simply explained, a constructive trust is an equitable remedy imposed to prevent unjust enrichment (see Simonds v Simonds, 45 NY2d 233, 242 ; Sharp v Kosmalski, 40 NY2d 119 ). According to the Court of Appeals, the constructive trust is “the formula through which the conscience of equity finds expression. Where property has been acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee” (Beatty v Guggenheim Exploration Co., 225 NY 380, 386 ).
It is an amorphous doctrine, as the constructive trust is “not limited by rigid definition and its very purpose requires flexibility in its application” (In re Alpert, 9 Misc 3d 1102[A], *10). It therefore follows that the constructive trust “has been famously described as a remedy applicable to ‘whatever knavery human ingenuity can invent’” (In re Alpert, 9 Misc 3d at *7 [Sur Ct, New York County 2005], quoting Bogert, Trusts and Trustees Sec. 471 at 29 [2d ed rev]). In fact, it is of such broad scope that attempted precise definitions have been deemed inadequate (see Simonds v Simonds, 45 NY2d 233, 241 ).
Even applicable in the case of an innocent donee, no wrongful act is necessary to find unjust enrichment warranting the imposition of a constructive trust. However, in the case of a bona fide purchaser, he or she takes property free of a constructive trust that would otherwise be imposed (5 Scott, Trusts [3d ed] sec.468).
A constructive trust “is perhaps more different from an express trust than it is similar”, in that “the constructive trustee is not compelled to convey the property because he is a constructive trustee; it is because he can be compelled to convey that he is a constructive trustee” (Simonds v Simonds, 45 NY2d 233, 241 , relying on 5 Scott, Trusts [3d ed], sec. 461-462]). Generally, the following elements must be established to state a claim for this type of relief: (1) a confidential or fiduciary relation; (2) a promise; (3) a transfer in reliance thereon; and (4) unjust enrichment (see Sharp v Kosmalski, 40 NY2d 119, 121 ). Nonetheless, unlike most causes of action, courts do not require strict satisfaction of each element, but rather use them more as flexible considerations (Lester v Zimmer, 147 AD2d 340, 341 [3d Dept 1989]).
Courts most often impose constructive trusts where traditional remedies prove inadequate or unavailable. Perhaps most illustrative in the context of trusts and estates is the landmark case of Latham v Father Divine, 299 NY 22 (1949), where the facts seemed appropriate for a claim for tortious interference with wills, a cause of action that is not recognized by New York law (see Restatement (Second) of Torts §774B [1979-2010], citing Vogt v Witmeyer, 87 NY2d 998, 999 ).
In Latham, the decedent had executed a will, but later expressed a desire to create a new testamentary instrument to contain bequests to other individuals. However, due to fraud, undue influence, and ultimately murder committed by the defendant, the decedent was prevented from executing her new will.
As is often the case where a constructive trust proves to be the appropriate remedy, the Court of Appeals recognized that there was no precedent precisely on point to address the facts presented. But the Court relied upon other well-respected authorities and explained that “[w]here a devisee or legatee under a will already executed prevents the testator by fraud, duress or undue influence from revoking the will and executing a new will in favor of another or from making a codicil, so that the testator dies leaving the original will in force, the devisee or legatee holds the property thus acquired upon a constructive trust for the intended devisee or legatee” (Latham v Father Divine, 299 NY 22 , 26 ).
In light of that rule, along with other analogous Court of Appeals decisions, the Court held that the imposition of a constructive trust was appropriate, as “its applicability is limited only by the inventiveness of men who find new ways to enrich themselves unjustly by grasping what should not belong to them” (299 NY at 27). The Court further stated that “a constructive trust will be erected whenever necessary to satisfy the demands of justice” (see id.).
In coming to its conclusion, the Court cited Matter of O’Hara’s Will, 95 NY 403 (1884), noting that the plaintiffs in that case successfully obtained a constructive trust in their favor, notwithstanding the fact that “disappointed hopes and unrealized expectations were all that the secretly intended beneficiaries, not named in the will, had,” as well as Williams v Fitch, 18 NY 546 (1859), in which the fraud “consisted of the legatee’s failure or refusal to carry out the testator’s designs, after tacitly or expressly promising so to do” (see Latham, 299 NY at 27). Notably, in Latham, there was no discussion of a fiduciary or confidential relationship, one of the elements generally considered in determining the appropriateness of imposing a constructive trust.
In sum, the constructive trust is a remedy that may be applied in a variety of situations where equity demands, despite the feasibility of strictly satisfying its elements, and should be kept in mind as a potential claim to correct a wrong that may not fit squarely within any other cause of action.