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.

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.”

Estate litigators arguably see more probate contests than any other type of conflict. While the details are always unique, they almost always include allegations that someone unduly influenced the decedent to change his or her will to either disinherit, or favor, a particular person.  These cases also often include an allegation — which is usually contested — that the purported influencer was in a “confidential relationship” with the decedent.  The frequency of such claims beg the questions (1) what exactly is a “confidential relationship,” and (2) what is the practical benefit to an objectant in establishing that one existed?

A confidential relationship is characterized as unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other. Some relationships are considered confidential as a matter of law, i.e., attorney-client, guardian-ward, and physician-patient, to name a few, while others will be deemed confidential as a matter of fact, based upon the details of the relationship, i.e., when one person is dependent on, and subject to the control of, another (see Matter of Satterlee, 281 AD 251 [1st Dept 1953]).

In a probate contest, it always is the burden of the objectant to prove that someone perpetrated undue influence upon the testator by establishing motive, opportunity, and the actual exercise of that undue influence (Matter of Walther, 6 NY2d 49, 55 [1959]; see Matter of Ryan, 34 AD3d 212, 213-14 [1st Dept 2006]).  However, where it is established that the decedent was in a confidential relationship with the alleged influencer, and there were other “suspicious circumstances” present (such as the alleged influencer having retained the attorney-draftsman for the decedent, or having accompanied the decedent to the will execution, for example) an inference of undue influence arises.  That inference requires the person in the confidential relationship to explain the circumstances surrounding the relationship between him and the decedent, and to establish by clear and convincing evidence that the subject bequest was fair and voluntary. (see Matter of Neenan, 35 AD3d 475, 476 [2d Dept 2006]; Matter of Bartel, 214 AD2d 476 [1st Dept 1995]).

As with most aspects of the law, there is an exception. Where the person in the confidential relationship also shared a close family relationship with the decedent, no inference of undue inference arises, and therefore, no explanation of a bequest in favor of that person will be required (see Matter of Walther, 6 NY2d 49 [1959]; Matter of Zirinsky, 10 Misc 3d 1052[A] [Sur Ct, Nassau County 2005]). This is generally because “a sense of family duty is inexplicably intertwined in this relationship” (Matter of Zirinsky, 10 Misc 3d at *8-9).  The exception exists despite the presence of “suspicious circumstances.”  Unsurprisingly, this often leads to questions about what degree of family relationship is close enough to negate the inference.

It must be noted that the inference of undue influence that may arise as a result of a confidential relationship should not be confused with shifting the burden of proof from the objectant (see Matter of Neenan, 35 AD3d 475 [2d Dept 2006]).  The burden of proving undue influence in the context of a will contest never shifts (see Matter of Bach, 133 AD2d 455, 456 [2d Dept 1987] quoting Matter of Collins, 124 AD2d 48, 54 [4th Dept 1987]).  The inference just makes it a little bit easier for an objectant to satisfy that burden, and ultimately succeed in his or her case.

In a decision that could well cause even the most casual trusts and estates practitioners to scratch their proverbial heads in wonder, the Appellate Division, Third Department, in Matter of Buchting, 111 AD3d 1114, 975 NYS2d 794 (3d Dept 2013), recently affirmed the determination of the Surrogate’s Court, Greene County, dismissing a “due execution” objection to probate, notwithstanding that both attesting witnesses invoked their Fifth Amendment rights against self-incrimination and refused to testify at their SCPA 1404 examination concerning the execution of the will, and notwithstanding that the Surrogate determined that summary judgment was improper because of “conflicts in the evidence.”

The petitioner in Buchting was the surviving spouse of decedent, who offered his will for probate shortly after his death.  The respondents were the decedent’s surviving children from a previous marriage. The attorney draftsman of the will (also the attorney who supervised its execution) testified at his SCPA 1404 examination in detail concerning the due execution of the will.  The two attesting witnesses were also called, but upon taking the stand, refused to testify, invoking their Fifth Amendment rights against self-incrimination.

The respondents objected to probate on the grounds of lack of due execution, lack of testamentary capacity, and undue influence.  They moved to dismiss the petition based upon the petitioner’s failure to establish due execution.  The petitioner cross-moved for summary judgment admitting the will to probate.  It appears from the Appellate Division’s decision that the Surrogate denied both motions, determining that summary judgment was improper because of “conflicts in the evidence,” but nevertheless dismissed the respondents’ objections and admitted the will to probate.

On appeal, the Appellate Division first concluded that the Surrogate properly denied the respondents’ motion to dismiss the petition because the petitioner complied with the requirement, imposed by SCPA 1404(1), that she produce the attesting witnesses for examination.  The court rejected the respondents’ argument that an attesting witness who invokes the privilege against self-incrimination and refuses to testify has not been “examined” within the meaning of section 1404.  It relied upon its prior decision in Matter of Hutchinson, 13 AD3d 704 (3d Dept 2004), in which it held that an attesting witness’ invocation of the Fifth Amendment “is akin to a failure to recall the events surrounding a will’s execution” (see id.).  It further noted that a will may be admitted to probate even where no attesting witness recalls it execution.  While the law requires the examination of at least one attesting witness, it imposes no requirements upon the substance of the testimony.

The issue, according to the court, “thus distills to whether there was sufficient other evidence to establish a prima facie case of due execution, and we find that there was.”  In this regard, the court relied exclusively on the testimony of the attorney draftsman and the presumption of due execution that resulted from the attorney’s supervision of the will’s execution.  The court determined that, in light of this presumption, the respondents had the burden to come forward with evidence contradicting the testimony of the supervising attorney.  It further determined that the respondents failed to meet their burden, notwithstanding that they “challenge[d] the veracity of the supervising attorney and argue[d], based upon various minor irregularities in the documents that she drafted, that she was unfamiliar with the necessary procedure. . . .”  Thus, according to the Appellate Division, the Surrogate properly denied the respondent’s motion to dismiss the petition and dismissed the due execution objection. 

Notably, the court stated that “to preclude the probate of a will as a matter of law because both attesting witnesses refuse to testify on constitutional grounds would come perilously close to drawing a prohibited inference from the invocation of the privilege by nonparties” (id.).

The court held that the Surrogate erred, however, in dismissing the remaining objections, grounded in testamentary capacity and undue influence, particularly prior to discovery.

A few thoughts on the Buchting decision. 

First, it seems fundamentally unfair to saddle an objectant with the burden to come forward with evidence to rebut a supervising attorney’s testimony concerning the due execution of a will in order to survive summary judgment where both attesting witnesses — likely the only other persons in the room with the decedent – refuse to testify for fear of self-incrimination.  It is difficult to imagine how an objectant could ever meet that burden.  Forgive me for stating the obvious, but it seems plain that the mere fact that both attesting witnesses have invoked the Fifth Amendment in order to avoid testifying concerning a will’s execution should itself be sufficient to justify further proceedings before admitting the will to probate.  The decision in Buchting essentially ignores that a court is obligated by statute to “inquire particularly into all the facts” in order to satisfy itself “with the genuineness of the will and the validity of its execution” (SCPA 1408).

Second, the court’s decision is grounded in its determination that a witness who has refused to testify concerning the execution of a will for fear of self-incrimination is “akin” to a witness who fails to recall the execution.  However, the decision reveals no substantial authority for that comparison.  The Buchting court cites only Hutchinson as authority — but this is a chain without an anchor, as the Hutchinson court cites no authority (see 13 AD3d at 707 [“In our view, the submission of conflicting affidavits followed by a refusal to testify falls more closely in line with a witness who has ‘forgotten the occurrence’”]).  Another statement of the obvious — failing to recall a will’s execution and refusing to testify concerning the execution for fear of self-incrimination are very different things. 

Third, in order to conclude that the petitioner satisfied SCPA 1405(3) – which requires, as a condition for probate, the “examination” of at least one attesting witness – the court essentially determined that a witness who invokes the privilege against self-incrimination and refuses to testify has nevertheless been “examined.”  However, this seems to be in conflict with the Court of Appeals’ statement in Matter of Collins that, historically, the requirement that a witness be “examined” was “fulfilled when the witnesses took the stand and related what they knew of the circumstances” (60 NY2d 466, 471 n.3 [1983]).  Collins provides no authority for the proposition that a witness who refuses to testify altogether has nevertheless been “examined.”   

Fourth, even assuming a non-testifying witness could be deemed to be “examined” within the ambit of section 1405(3), that section requires actual testimony before a will may be admitted to probate.  It provides that where an attesting witness “has forgotten the occurrence or testifies against the execution of the will” the will may nevertheless be admitted to probate “on the testimony of the other witness and such other facts as would be sufficient to prove the will.”  But where the “other witness” invokes the Fifth Amendment, there is no testimony upon which to admit the will to probate.

Fifth, the court’s determination could well put a petitioner whose witnesses refuse to testify for fear of self-incrimination in a better position that a petitioner whose witnesses actually testify against the will.  A grant of summary judgment admitting a will to probate may be inappropriate where one attesting witness testifies against the will, even where the other witness and the supervising attorney testify favorably (see generally Matter of Jacinto, 172 AD2d 664 [2d Dept 1991]).  Why should the result be different where a witness – indeed, where both witnesses – refuses to testify concerning the execution of the will for fear of self-incrimination? 

Sixth, the presumption of regularity should not permit a court to turn a blind eye to facts calling into question a will’s validity.  A court should not employ a presumption where to do so would “elevate a legal construct above common sense” (People v Giordano, 87 NY2d 441 [1995]).  Even the presumption of legitimacy, “one of the strongest and most persuasive known to the law,” will fail if, in the words of Judge Cardozo, “common sense and reason are outraged by a holding that it abides” (Matter of Findlay, 253 NY 1 [1930]).  Depriving an objectant of a trial on the basis of the presumption of regularity, where both attesting witnesses refuse to testify concerning the execution of the will for fear of self-incrimination, offends both common sense and reason.

Of course, courts should resist the “temptation to overlook or ignore fixed legal principles when they are opposed to persuasive equities” because, as the ancient legal proverb teaches, “hard cases make bad law” (Dodd v Anderson, 197 NY 466, 469 [1910]).  However, “it might also be safely said that the occasional easy case makes law that is even worse” (People v Ramos, 40 NY2d 610, 628 [1976] [Jasen, dissenting]).  By placing undue reliance upon the presumption of regularity in order to deprive an objectant of a trial, in the face of facts calling into question the validity of the will, the court in Buchting made the case too easy, and established a troubling precedent.

Although summary judgment in a contested probate proceeding historically has been rare, the recent trend has been for Surrogate’s Courts to grant such relief with increasing frequency.  Consistent with that recent trend, Surrogate’s Courts have granted summary judgment dismissing probate objections alleging that a testator lacked testamentary capacity, notwithstanding the testator’s diagnosis of dementia before executing the propounded will.  This post discusses several cases in which a testator’s diagnosis of dementia prior to executing the propounded will was insufficient to raise a triable issue of fact to withstand summary judgment dismissing a capacity objection.

The threshold for establishing testamentary capacity is extraordinarily low (see Matter of Rabbit, 21 Misc 3d 1118[A] [Sur Ct, Kings County 2008]).  This is because the capacity that is necessary to execute a valid will is less than that which is required for any other legal transaction (see id.).  All that is necessary is that a testator: (a) understand the nature and consequences of making a will; (b) know the nature and extent of his or her property; and (c) know the natural objects of his or her bounty and relations with them (see Matter of Kumstar, 66 NY2d 691 [1985]). 

Additionally, as a testator’s mental capacity must be assessed at the precise time of the instrument’s execution (see Matter of Schure, 2012 NY Misc LEXIS 5755 [Sur Ct, Nassau County Dec. 17, 2012]), a testator need only have a “lucid interval” of capacity to execute a valid will (see Matter of Minasian, 149 AD2d 511 [2d Dept 1989]).  Indeed, courts have found that testators had testamentary capacity, even though the testators were afflicted with ongoing mental illness (see Matter of Esberg, 215 AD2d 655 [2d Dept 1995]), progressive dementia (see Matter of Friedman, 26 AD3d 723 [3d Dept 2006]), and physical weakness (see Matter of Swain, 125 AD2d 574 [2d Dept 1986]).  As a result, it should come as no surprise that Surrogate’s Courts have granted summary judgment dismissing capacity objections, despite that the subject testators were diagnosed with dementia before they executed testamentary instruments. 

Case in point, in Matter of Schure (a case in which Farrell Fritz, P.C. represented the proponent of the testator’s will), the testator’s children opposed the proponent’s motion for summary judgment, alleging that a trial was necessary on the issue of capacity because the testator had been diagnosed with dementia several years before he executed the propounded instrument (see Schure, supra).  Nassau County Surrogate Edward W. McCarty, III, did not credit the objectants’ argument and, instead, granted summary judgment dismissing the capacity objection, among all of the other objections (see id.) In admitting the testator’s will, dated December 21, 2005, to probate, Surrogate McCarty cited the following evidence: (a) in July 2005, the testator called the propounded instrument’s attorney-draftsperson and made an appointment to discuss his estate planning; (b) in July 2005, the testator met with the attorney-draftsperson and his associate to discuss his estate planning and family; (c) in late-November 2005, the testator once again met with the attorney-draftsperson, his associate, and another colleague from their firm to discuss the terms of the testator’s will; (c) in early-December 2005, the testator met with one of his treating physicians, who made no notes in his file of the testator having psychological difficulties during their meeting and signed an affidavit stating that he would have noted such difficulties had he observed any; (d) on December 21, 2005, the testator executed the propounded will in the presence of the attorney-draftsperson, his associate, and another experienced trusts and estates practitioner; and (e) the attorneys attested to the fact that the testator was of sound mind at the time that he executed the will (see id.).     

Monroe County Surrogate Edmund A. Calvaruso’s decision in Matter of Petix is also instructive (see Matter of Petix, 15 Misc 3d 1140[A] [Sur Ct, Monroe County 2007]).  There, the testator died on April 29, 2005, just six months after executing his last will and testament on November 2, 2004 (see id.).  Inasmuch as the testator’s son was the nominated executor and sole beneficiary under the propounded will, the testator’s granddaughter, the daughter of his predeceased daughter, filed probate objections, alleging that the testator lacked testamentary capacity, among other things (see id.).  The bases for the capacity objection were the following: “a medical note by a Dr. Blackburn, dated 12/19/02, which stated that [the testator] was demented to the point where his driving was impaired;” and “two police reports, one where [the testator] had lost his car, and one where [the testator] had lost his wallet” (see id.). 

Notwithstanding the granddaughter’s proof that the testator had been diagnosed with dementia, Surrogate Calvaruso granted summary judgment dismissing the testamentary capacity objection (see id.).  In doing so, the court found that the granddaughter failed to offer proof to suggest that at any time on November 2, 2004, the date upon which the will was executed, the testator lacked capacity to make a will (see id.).  The court also noted that “a dementia diagnosis and lack of testamentary capacity are not one in the same” (see id.).  Accordingly, summary judgment dismissing the testamentary capacity objection was warranted (see id.).

To withstand a motion for summary judgment dismissing a capacity objection, a probate objectant generally will need to do more than show that a testator was diagnosed with dementia prior to executing the propounded will.  In light of Schure and Petix, among other decisions, a diagnosis of dementia may not be sufficient to raise a triable issue of fact to survive a motion for summary judgment on the issue of capacity.

 

 

Continuing the discussion of tax considerations in settling probate contests, the following additonal issues should be considered.

Marital Deduction

In determining the taxable estate, a deduction is allowed for the value of property which “passes” from the decedent to his surviving spouse.

If, as a result of a controversy involving the decedent’s will, or involving any bequest or devise thereunder, the surviving spouse assigns or surrenders a property interest in settlement of the controversy, the interest so assigned or surrendered will not be considered to have passed from the decedent to the surviving spouse and, so, will not qualify for the marital deduction.

Conversely, if a property interest is assigned or surrendered to the surviving spouse, the interest will be considered as having passed from the decedent to the spouse and, so, may qualify for the marital deduction, but only if the assignment or surrender was a bona fide recognition of the rights of the surviving spouse in the decedent’s estate that are enforceable under state law, and it meets the other requirements for the marital deduction (for example, the QTIP requirements for a transfer in trust). Thus, a transfer to a surviving spouse may qualify if it is made in settlement of her claim arising under an alleged failure by the estate to fulfill the decedent’s obligations under a prenuptial agreement; in that case, the transfer represents a bona fide settlement of enforceable rights. Such a bona fide recognition is presumed where the transfer is pursuant to a decision of a local court rendered upon the merits in an adversarial proceeding following a genuine contest. 

Charitable Deduction

 

In general, a deduction is permitted for federal estate tax purposes for bequests or other transfers to or for a charitable purpose. In determining whether an interest in property has passed from a decedent to a charity, the rules relating to marital bequests, described above, are applicable.

 

Thus, an amount distributed from an estate to a charity pursuant to a settlement agreement following a bona fide will contest is deemed to have passed directly to the charity from the decedent, and is eligible for a charitable deduction where the charity had a recognizable and enforceable right to a portion of the estate. However, the amount of the deduction cannot be greater than the value of what the charity would have received under the original will if it had litigated its claim to conclusion.

 

If a charitable organization assigns or surrenders a part of a transfer to it pursuant to a compromise agreement in settlement of a controversy, the amount so given up is not deductible as a transfer to that charitable organization. Thus, an estate which settles a will contest from funds in a residuary charitable bequest is required to pay tax on the settlement amount.

 

Gift and Income Taxes

 

The settlement of a will contest may involve several transfers of property, either between the estate and a beneficiary or claimant, on the one hand, or between beneficiaries or claimants, on the other. While each of these transfers may have certain estate tax consequences, as described above, the various parties must also consider the possible gift tax and income tax consequences.

 

In general, it is unlikely that a transfer made pursuant to the settlement of a will contest will be treated as a taxable gift if it is the product of a bona fide, arm’s-length transaction that is free of donative intent. Where that is not the case – as where two beneficiaries agree to “revise” the decedent’s will as it concerns dispositions of properties to themselves ‑ the readjustment of their property interests may be deemed a taxable gift.

 

In light of the facts and circumstances, a payment by the estate to a claimant may be treated, under the terms of a settlement, as taxable compensation for services rendered to the decedent, rather than as a non-taxable bequest.

 

Alternatively, the payment (or distribution) to a beneficiary may result in taxable income to the beneficiary if the estate has distributable net income.

 

It is also possible that beneficiaries who transfer or exchange property, as part of a settlement, will be treated as having sold such property, thereby realizing taxable gain (some of which may be treated as ordinary income, depending upon the asset).

 

If the property is an interest in a pass-through entity, such as an S corporation or a partnership, the transfer of such an interest will effect a change in its ownership (presumably effective from the date of the decedent’s death) which may necessitate the amendment of the returns of both the entity and the owners. This, in turn, may require additional economic outlays among the parties in order to restore any benefits lost (including distributions), or to indemnify any losses incurred by any of the parties.

 

Finally, where the estate holds items of income in respect of a decedent (“IRD”), such as retirement funds, it may behoove the estate to consider distributing such items to a charitable organization in settlement of the organization’s claim to a share of the decedent’s assets; in this way, the estate and its non-charitable beneficiaries may avoid the income tax thereon. 

 

Conclusion

 

The foregoing discussion highlights some of the tax considerations that are attendant to the settlement of a will contest. The manner in which each of these is addressed can have a significant impact on the net economic results realized by the parties to the settlement. It is imperative that the parties and their advisors be aware of the tax implications of their actions throughout the will contest, and especially during the negotiation of the settlement. In this way, the parties may better understand their true economic goals and costs, and their advisors may better manage their client’s expectations.

In a recent decision in the Estate of Mildred Rosasco , Surrogate Glen carefully explains the difference between undue influence and duress, two legal concepts that have become conflated in Surrogate’s Court practice. 

If you speak with a trusts and estate’s lawyer and ask her to define undue influence, you will hear something like “undue influence is moral coercion that destroys a testator’s will to act independently and leads the testator to act contrary to his own desires because he cannot refuse or is too weak to resist.”   However confident that lawyer sounded in her recitation of this definition, understand that the Court of Appeals has stated, as Surrogate Glen tells us, that "[i]t is impossible to define or describe with precision and exactness what is undue influence . . ."  In Rosasco, Surrogate Glen explains how courts have struggled with the concept of undue influence, citing to decisions dating back to the 19th Century, and how the Court of Appeals, in Matter of Walther (6 NY2d 49 [1959]), affirmed the explanation of undue influence cited above.

What is critical in a probate contest involving an objection on the grounds of undue influence is that a prima facie case of undue influence requires a showing, not only of opportunity and motive to exercise undue influence, but also, of the actual exercise of undue influence.  Although undue influence can be proven by circumstantial evidence, as there is rarely direct proof of undue influence, it can only be proven by substantial circumstantial evidence.  Undue influence is difficult to prove, but the burden of proving undue influence is eased where there is a showing that the testator was in a relationship of trust and dependence with proponent of the will, i.e., the existence of a confidential relationship. Surrogate Riordan’s decision in Matter of Zirinsky is a must read for anyone trying to get a handle on undue influence (Also review the Appellate Court decision on the appeal of the Zirinsky case).

As to duress, Surrogate Glen, citing the Restatement (Third) of Property, notes that duress is something different from undue influence. She explains that a will or a bequest is procured by duress if the wrongdoer threatened to perform or did perform a wrongful act that coerced the testator into doing something that she would not otherwise have done. A “wrongful act” in this definition means a criminal act or an act that the wrongdoer had no right to do. 

One can understand how the two concepts differ by examining a three-year-old child’s threats.  When a three-year-old has his mind set on eating a second piece of chocolate or on watching a cartoon that features incredible acts of violence, he might threaten to flush his father "down the toilet."   In the alternative, he might repeatedly and sincerely state that he will not talk to his father until he receives his chocolate or is gratified by watching Spiderman deliver bone-crushing blows. Flushing another human being down the toilet would certainly constitute a crime.  The three-year-old child’s father taking this threat seriously and acting on this threat could be said to be acting under duress.   On the other hand, absent some legal relationship, such as that which a guardian has with his ward, a person is well within his rights to refuse and refrain from talking or associating with another.  If the three-year-old child’s father is acting on the child’s threat to cut off all communication, he might be said to be acting as a result of undue influence.   

An interesting issue recently arose in an uncontested probate proceeding before the Bronx County Surrogate’s Court, namely, whether the disqualifying provision of EPTL §3-3.2(a)(1) is applicable to an instrument executed outside of this jurisdiction. 

In Estate of Alford, 2010 NY Slip Op 51707(U) (Sur Ct, Bronx County 2010), the sole beneficiary of the decedent’s estate was a Canadian citizen and was one of two attesting witnesses to the subject will. The execution of the instrument occurred in Ontario, Canada. 

Pursuant to EPTL §3-3.2(a)(1),

(a) An attesting witness to a will to whom a beneficial disposition or appointment of property is made is a competent witness and compellable to testify respecting the execution of such will as if no such disposition or appointment had been made, subject to the following:

(1) Any such disposition or appointment made to an attesting witness is void unless there are, at the time of execution and attestation, at least two other attesting witnesses to the will who receive no beneficial disposition or appointment thereunder.

 

In other words, the statute mandates the invalidation of a bequest to the witness beneficiary if he or she is one of two attesting witnesses whose testimony would be required to probate the instrument. While a distributee, such as the beneficiary this case, remains entitled to his intestate share of the estate even if he is a witness to the execution of the will (EPTL §3-3.2(a)(3)), this beneficiary would inherit more under the will than his intestate share.

In making its determination, the court considered the following factors: (1) that EPTL § 3-5.1(c) provides that a will is valid in New York if it was validly executed in another jurisdiction; (2) that in Canada, a bequest to a witness beneficiary is void only if there was undue influence over the testator, which was not alleged here; and (3) in this particular case, no interested party contested the will or requested that the beneficiary testify. Thus, because it was determined that the instrument was validly executed pursuant to the laws of Ontario, Surrogate Holzman held that EPTL §3-3.2(a)(1) was inapplicable. Accordingly, the beneficiary’s devise was not reduced to his intestate share by statute.

The court’s analysis begs the question of whether the conclusion would have been the same if the probate proceeding had been contested. Although the witness’ testimony would be necessary if that were the case, the fact remains that absent a finding of undue influence, the will and the bequest itself would be valid pursuant to the laws of the jurisdiction in which it was executed. However, if any allegations of undue influence had been made, such claims would call into question the validity of the instrument in Ontario, Canada, and thus, undermine two of the bases for Surrogate Holzman’s decision. 

Consequently, it appears that the applicability of EPTL §3-3.2(a)(1) in the case of wills executed outside of this jurisdiction is

 

highly fact sensitive and must be determined on a case by case basis.

In recent years, Surrogate’s Courts have become increasingly inclined to grant motions for summary judgment in contested probate proceedings when warranted.   A decision issued last week in Monroe County is yet another example of this trend. While the evidence presented by the objectants in this particular case appears to be exceptionally weak, the following analysis provides a cohesive illustration of the considerations and standards that Surrogates routinely utilize in analyzing typical objections. 

In Matter of Feller, 2010 NY Slip Op 50001(U), eight of the decedent’s eleven known distributees filed objections to probate, alleging the customary lack of due execution, lack of testamentary capacity and undue influence. The decedent executed a last will and testament nine months prior to her death, leaving her estate to ten charities and four individuals in equal shares, and naming the attorney-draftsman as executor. The New York State Attorney General’s Office filed a motion for summary judgment, seeking to dismiss the objections.

Due Execution

The objectants contended that the will was not duly executed within the requirements of EPTL 3-2.1 because the attorney-draftsman/proponent, not the testator, requested that that the witnesses act. But the testimony of the attorney-draftsman demonstrated that the testatrix responded in the affirmative when questioned as to whether she wanted those present to witness the execution of the instrument. The Court opined that this conduct coupled with the circumstances surrounding the execution ceremony satisfied the due execution requirements of EPTL 3-2.1. Indeed, “[a]ttorneys routinely lead their clients through the will execution formalities in order to ensure that the requirements of EPTL 3-2.1 are satisfied . . . and . . . publication and instruction . . . is not required to be in any ‘ironclad ceremonial or ritualistic language’” (Matter of Feller, supra, citing In re Douglas’ Will 193 Misc 623, 631-632 [Sur Ct, Broome County 1948]).

Testamentary Capacity

With respect to testamentary capacity, the Court noted the presumption in favor of capacity when a will is drafted by, and the execution supervised by, an attorney. In this case, the Court held that the proponent established a prima facie case of the requisite capacity based upon the following facts:

·        The decedent herself sought the services of the attorney-draftsman;

·        The decedent personally met with the attorney-draftsman and brought detailed notes as to her desired estate plan;

·        The decedent told the attorney-draftsman about her familial situation;

·        The witnesses were aware of the decedent’s involvement in her estate planning, and testified that she appeared to have no visual, auditory or cognitive difficulties; and

·        The decedent made specific and accurate changes to the draft of the will.

In fact, the only basis for the allegation of lack of capacity was one of the objectant’s observations that the decedent had appeared preoccupied, reserved and distracted during a visit that occurred around the time that the will had been executed. Citing holdings of the Appellate Division that evidence of sadness or confusion alone is insufficient to prove lack of capacity, the Court rejected this contention. The Court further explained that a diagnosis of dementia, Alzheimer’s, or simply old age, without more, would also be insufficient to override a prima facie showing of capacity (id., citing Matter of Nofal, 35 AD3d 1132 [3d Dept 2006]; Matter of Castiglione, 40 AD3d 1227 [3d Dept 2007]; Matter of Minasian, 149 AD2d 511 [2d Dept 1989]; Matter of Hedges, 100 AD2d 586 [2d Dept 1984]).

Undue Influence

Addressing the claims of undue influence, the court reiterated that it is an objectant’s burden to demonstrate by a preponderance of the evidence, (1) motive, (2) opportunity, and (3) actual undue influence. Undue influence must amount to “a moral coercion, which restrained independent action and destroyed free agency or which . . . constrained the testator to do that which was against his free will and desire . . .” (id.,quoting Children’s Aid Society of NY v Loveridge, 70 NY 387, 394 [1877])., The Court further noted that undue influence may proved by circumstantial evidence, “but the circumstances must lead to it not only by a fair inference but as a necessary conclusion” (id., quoting In re Will of Henderson, 253 AD 140 [4th Dept 1937]).

The objectants’ claim of undue influence alleged that the proponent persuaded the testator to change her funeral home of choice to one that was a client of the proponent. However, the proponent testified that he made no recommendations regarding the decedent’s testamentary plan, but tried to persuade her to choose another executor. In addition, the record demonstrated that every time the decedent met with the proponent regarding her estate plan, she was not accompanied by anyone. In view of these facts, the Court held that the Objectants failed to meet their burden in connection with their allegations of undue influence (see Matter of Feller, supra).

Interestingly enough, there was no discussion of a confidential relationship between the decedent and proponent in this case, and thus, the burden of proof did not shift. After all, an attorney-client relationship often gives rise to a confidential relationship, and a consequential presumption of undue influence (see e.g., Weber v Burman, 22 Misc 3d 1104[A] [Sup Ct, Nassau County 2008]; Estate of Olson, 5/16/2006 NYLJ 33 [col 4] [Sur Ct, Richmond County]). Perhaps this was not considered because the attorney-draftsman was not a beneficiary, but I would submit that such a relationship is arguably relevant here, in light of the allegations.

Discovery in a contested probate proceeding is generally governed by what Surrogate’s Court practitioners call the “three/two” rule (22 NYCRR 207.27). This rule limits discovery to the “three-year period prior to the date of the propounded instrument and two years thereafter, or to the date of the decedent’s death, whichever is the shorter period” (id.). It is a “pragmatic rule" intended to prevent the abuses associated with a “runaway inquisition” or “wild goose chase” (Estate of Das, NYLJ, 5/1/2009, at 31 [Sur Ct Nassau County]).

Notwithstanding that general rule, however, the time period for discovery may be extended by the Surrogate’s Court when “special circumstances” exist, such as when “a scheme of fraud or a continuing course of conduct of undue influence” is alleged (id.). For example, in Matter of Kaufman, the objectants sought discovery with respect to the entire period of cohabitation between the proponent of the decedent’s will and the decedent, which lasted from September 1948 until the decedent’s death in April 1959 (11 AD2d 759, 759-60 [1st Dept 1960]). The objectants argued that the departure from the three/two rule was warranted because the proponent’s long relationship with the decedent gave rise to testamentary capacity and undue influence concerns (id.). Although the Surrogate’s Court denied the objectants’ motion, the Appellate Division reversed, reasoning that a full examination of the decedent’s relationship with the proponent was warranted (id.).   

           

 

   

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