Determining the identity of permissible or necessary parties to an accounting proceeding is often a simple task. But in rare cases, the answer is not always so easy. Most recently, in Matter of Cohen, Nassau County Surrogate Edward W. McCarty III was called upon to determine whether a potential creditor of a trust beneficiary was a “person interested” in a trust accounting proceeding. The Court answered the question in the negative.
Michael S. Cohen, died on March 18, 2002. Under the terms of his will (which was admitted to probate), the decedent directed that a trust be created for the benefit of his adopted son, Kevin Cohen (“Cohen”), the decedent’s only child. The will further directed that the trust terminate ten years after the decedent’s death, i.e., March 18, 2012, and that all remaining principal and income be distributed to Cohen (or, if he did not survive the termination of the trust, his minor daughters).
Cohen, formerly an attorney, was convicted in 2010 of 37 counts (including second-degree grand larceny, 11 counts of third-degree grand larceny and 10 counts of third-degree forgery) for stealing more than $300,000 from clients who thought he was assisting them in arranging adoptions; but the children did not actually exist. A criminal restitution order under Criminal Procedure Law § 420.10 was entered against him. The Lawyers Fund for Client Protection (the “Fund”) reimbursed 10 of Cohen’s former clients, all of whom assigned and subrogated their claims against Cohen to the Fund.
In January 2011, the trustee filed an intermediate account with the Surrogate’s Court. The trustee named as an interested party the Nassau County Attorney’s Crime Victims Project, which represented Cohen’s former clients in their claims against him. The County Attorney’s Office represented the interests of the former clients before the Lawyers Fund became involved, and it continued to represent one client who did not seek reimbursement from the Fund.
Both the Fund and the Nassau County Attorney filed objections to the account. The Fund, for its part, maintained that it had an interest in the accounting because of open questions on whether particular estate assets (including an annuity) were part of the trust or owned by Cohen separately.
Wendy H. Sheinberg, Esq., the guardian ad litem for Cohen’s two minor children, moved, inter alia, to amend the petition and account to strike the Nassau County Attorney and the Fund as interested parties, and to dismiss their objections to the account.
The Court began its analysis by noting that the statutory definition of “person interested” specifically excludes creditors. Indeed, SCPA § 103(39) provides that “[a] creditor shall not be deemed a person interested.” The Court then reviewed the cases relied upon by the Fund and the County Attorney, determining them to be distinguishable from the case at bar. Instead, the Court relied upon Matter of Lainez, 79 AD2d 78 (2d Dept 1981), in which the Appellate Division, Second Department, held that a creditor of a beneficiary who is still alive is not a proper party to an account in which the beneficiary has an interest.
The Court also rejected the agencies’ argument that affording them “interested person” status “would be a more efficient way for them to uncover information about Cohen’s assets than if they had to use other discovery methods.” However laudable the goal of efficiency, the Court explained, it “does not give rise to a privilege, right, or status which would otherwise be unavailable.”
Accordingly, the Court determined that as mere potential creditors of a living trust beneficiary, the Fund and the Nassau County Attorney were not persons interested in the decedent’s estate or the accounting. It therefore granted to guardian ad litem’s motion.
The Surrogate’s decision does not leave the two agencies without a remedy, however. The Surrogate’s dismissal of the agencies’ objections was explicitly made without prejudice to their commencing a proceeding pursuant to Executive Law §632-a (6) – the so-called “Son of Sam” law – and seeking the issuance of a preliminary injunction restraining the payment of trust principal to Cohen upon the termination of the trust. The Surrogate also directed that no payments from the trust be made to Cohen for 30 days upon its termination (presumably to give the agencies the opportunity to make an application under the Son of Sam law).
In Trotta v. Ollivier, the Appellate Division, Second Department, decided an issue of first impression in any New York State appellate court, to wit, whether the estate of a joint tenant may sue a surviving joint tenant to recover one-half of payments made by the decedent for the purchase and upkeep of property. The court answered this question in the negative.
The facts of the case, as alleged in the complaint, were not particularly remarkable. In 1992, the decedent, Susan Leone, and the defendant, Charles Ollivier, purchased real property as joint tenants with the right of survivorship. Thereafter, they lived together for a period of time as an unmarried couple. From her own funds, Leone allegedly paid $90,000 toward the purchase price, a construction loan, and other closing costs and expenses, and thereafter paid $102,000 for the mortgage, $20,000 for property insurance, $11,000 for repairs, $2,500 for utilities, and $1,000 for replacement appliances. In total, Leone allegedly expended $226,500 from her own funds in connection with the property. Allegedly, Ollivier did not contribute to the purchase and carrying charges of the property or, if he did, his contributions were not equal to those of Leone. At no time did either Leone or Ollivier seek a partition of the property.
Leone died unexpectedly in 2008. Subsequent to her death, the plaintiff, the executor of Leone’s estate, made mortgage and other payments on the property totaling $7,500.
The executor commenced an action against Ollivier in Supreme Court alleging unjust enrichment and seeking a judgment reimbursing the estate for one-half of the purchase price of the property and the carrying charges of the property, and full reimbursement of the $7,500 in carrying charges paid by the estate.
The trial court granted Ollivier’s pre-answer motion to dismiss the complaint for failure to state a cause of action, holding that the estate’s reimbursement claim did not survive Leone’s death, and that RPAPL 1201 -- discussed below -- was inapplicable. The Appellate Division reversed, agreeing that the complaint failed to state a cause of action as to any of the expenses paid by Leone prior to her death, but holding that the estate stated an unjust enrichment claim against Ollivier for reimbursement of the $7,500 paid post-death.
The court began its analysis by noting that Leone, while she was alive, could have sought to partition the property, effectively severing her joint tenancy with Ollivier, and in that regard could have sought an equitable adjustment of the interests she and Ollivier held in the property. She never did so. The court further noted that “Leone, during her lifetime, was free to manage her finances and spend her money as she saw fit, even if, with the benefit of hindsight, her decision to purchase the subject property and hold title with Ollivier as a joint tenant, and to continue to pay its ongoing expenses after Ollivier moved to another address, inured to the financial benefit of Ollivier.” Thus, according to the court, the estate had no claim for unjust enrichment for reimbursement of Leone’s pre-mortem expenditures.
The court further rejected plaintiff’s argument that RPAPL 1201 provided the basis for a claim for reimbursement. That statute provides that “[a] joint tenant or a tenant in common of real property, or his executor or administrator, may maintain an action to recover his just proportion against his co-tenant who has received more than his own just proportion, or against his executor or administrator.” Despite a “paucity” of case law interpreting the statute, the court determined that RPAPL 1201 vests joint tenants and tenants in common, or their estates, with the right to recover monies “received” by a co-tenant that exceed his or her proportionate share; it does not extend the right of recovery to expenses “paid” by a tenant beyond his or her equitable share means.
Accordingly, the court held that no claim existed against Ollivier with respect to pre-death payments made by Leone.
The court reached a different determination with respect to the $7,500 the estate paid toward the property’s expenses after Leone’s death. When those payments were made, ownership of the property had already passed to Ollivier by operation of law. The estate, according to the court, had a valid claim for unjust enrichment in connection with those payments, as it would be “against equity and good conscience to permit Ollivier to retain the value of those payments.”
In a recent decision in the Matter of Lally, the Schenectady County Surrogate’s Court decided an issue of standing on a set of particularly interesting facts.
The case involved a charitable trust agreement that directed that “St. Clare’s Hospital of Schenectady, New York Foundation Inc. Schenectady, New York” (along with various other charitable beneficiaries) receive a portion of the remainder of the subject trusts.
According to the petitioner, St. Clare’s Hospital of Schenectady, N.Y. Foundation, Inc. (the “Foundation”) is a not-for-profit corporation established to support and assist St. Clare’s Hospital of Schenectady (the “Hospital”) in expanding and developing its services to the community. However, in 2008, the New York State “Berger Commission” mandated that the Hospital close its doors. Allegedly, the commission required the Hospital to surrender its license to operate and to execute an Asset Transfer Agreement with Ellis Hospital (“Ellis”), which assumed the sole responsibility of providing hospital and other healthcare services previously provided by the Hospital, and is the sole remaining hospital in Schenectady County. While the Foundation remains in existence as a not-for-profit corporation, and holds significant assets, it no longer supports or assists the inoperative Hospital.
The corporate trustee of the subject trusts, Trustco Bank, brought a cy pres proceeding in the Surrogate’s Court, to determine whether the Hospital’s relinquishment of its license to operate renders the administration of the subject trusts according to their literal terms impractical or impossible. Ellis filed a Notice of Appearance in the proceeding. The Foundation moved to “reject” the Notice of Appearance, in essence asking that the court rule that Ellis had no standing to participate in the proceeding. The Attorney General filed papers in support of the Foundation’s motion, and Ellis, naturally, opposed it. The trustee took no position.
By way of background, courts generally entertain cy pres proceedings when the intended recipients of a charitable donation can no longer be identified. In such cases, courts are authorized to release funds for purposes as close as possible to the wishes of the donors. As one court explained,
the cy pres doctrine takes its name from the Norman French expression, cy pres comme possible, which means “as near as possible.” The doctrine originated to save testamentary charitable gifts that would otherwise fail. Under cy pres, if the testator had a general charitable intent, the court will look for an alternate recipient that will best serve the gift’s original purpose.
(Airline Ticket Comm’n. Antitrust Litig. Travel Network, Ltd. v United Air Lines,
Inc., 307 F3d 679, 682 [8th Cir 2002]).
The court first addressed -- and rejected -- various procedural arguments. First, it rejected the Attorney General’s argument that it was premature to determine Ellis’ standing prior to the court deciding whether it would exercise its cy pres power in the first place. Second, it rejected the argument that the court should not reach the issue of standing because Ellis neither initiated the proceeding nor was suing to enforce its claim to the subject charitable gift. Having rejected those procedural arguments, the court went on to address the merits of the motion, i.e., the issue of Ellis’ standing to participate in the proceeding.
The parties agreed that the court should apply the standing rule enunciated by the Court of Appeals in Alco Gravure v. The Knapp Foundation, 64 NY2d 458 (1985). That case was a declaratory judgment action brought by corporate plaintiffs whose employees were the intended beneficiaries of a charitable foundation. In deciding the issue of the plaintiffs’ standing to maintain the action, the Court held that one who is merely a possible beneficiary of a charitable trust, or a member of a class of possible beneficiaries, is not entitled to sue for enforcement of the trust. Rather, the Attorney General has the statutory power and duty to represent the beneficiaries of any disposition for charitable purposes. However, the Court also recognized an exception to the general rule, where a particular group of people has a special interest in funds held for a charitable purpose, as when they are entitled to a preference in the distribution of such funds and the class of potential beneficiaries is sharply defined and limited in number (see id. at 465).
The Surrogate noted that the facts in Alco Gravure differed from the facts of the case before it because, first, Alco Gravure was not a cy pres proceeding; second, the plaintiffs in Alco Gravure were members of a named class of beneficiaries (i.e., persons employed by the defendant corporation); and, third, the issue in Alco Gravure pertained to the plaintiffs’ standing to sue, not standing to appear and participate as an intervenor as in this case. Nevertheless, the court stated that it would apply the rules enunciated in Alco Gravure, there being no other authority providing any superior guidance.
Applying those rules, the court rejected the argument advanced by the Attorney General and the Foundation that Ellis is merely one of an undefined class of hundreds of potential beneficiaries of a cy pres-directed distribution of the trust, with no preferred status in a case. Instead the court determined that Ellis had a unique, contractual relationship with the Hospital that set it apart from all other potential charitable beneficiaries, and that therefore it was entitled to a preference in the distribution. The court based its determination on the facts regarding the Berger Commission’s mandate and the Asset Transfer Agreement between the Hospital and Ellis, by which Ellis acquired the Hospital’s assets and assumed its hospital services.
However, the court was careful to emphasize that its ruling should not be interpreted as meaning that in the event it determined to exercise its cy pres power, Ellis would be the likely recipient of the subject charitable disposition. The court’s ruling only provided Ellis with the status of an interested party, with the right to file a responsive pleading, participate in discovery, make motions, and participate during the trial.
Although the importance of the court’s decision in Matter of Lally might not extend much further than the specific facts of that case, it certainly provides further authority for the proposition that the Surrogate’s Courts are, first and foremost, courts of equity.
This is my third “dog pun” post in as many years.
If you’ve read this blog since its inception, or have merely been sniffing through the archives, then know that real estate heiress Leona Helmsley left $12 million in her will in trust for her four-legged friend, Trouble. She also created a charitable trust valued at between $5-8 billion. In a two-page mission statement, she expressed her desire that the trust funds be used for the care and welfare of dogs.
In my post dated December 31, 2008 -- titled “Leona’s Wishes May Be Thrown To The Dogs” -- I opined that a court might construe the mission statement as constituting merely a precatory request, not a mandatory directive. On February 26, 2009, in my post titled “A Sop For Cerberus”, I reported that in an “advice and direction” proceeding, New York County Surrogate Troy Webber had indeed decided that Ms. Helmsley’s trustees had the discretion to distribute the funds to charities as they saw fit, not just to canine causes.
Not content to let sleeping dogs lie, however, four animal welfare charities sought to intervene in the proceeding after the fact and vacate the court’s decision. They argued to the court that their causes were insufficiently protected by the New York State Attorney General and that they should have an opportunity to be heard in the matter. However, in a Decision and Order dated April 15, 2011, Surrogate Nora Anderson denied their application.
Essentially, the court found no reason to depart from the general rule that possible trust beneficiaries or members of a class of possible beneficiaries do not have standing to participate in court proceedings to enforce the provisions of the trust. The court also rejected the proposed intervenors’ argument that they fell within a narrow exception to that general principle, affording standing to a particular group with a special interest in funds held for a charitable purpose. Instead, as the court explained, by statute the Attorney General is conferred with the authority to represent all possible unnamed charitable beneficiaries. Further, the court rejected the charities’ argument that the Attorney General failed to doggedly protect their interests.
This decision will no doubt leave the proposed charitable intervenors a bit dog-eared. But it appropriately -- and thankfully (I’m all out of dog puns) -- brings closure to a nearly 25-year-old saga (in dog years, of course: http://www.onlineconversion.com/dogyears.htm).
A recent decision of the Appellate Division, First Department, demonstrates that notwithstanding the New York State Legislature’s failure to enact legislation authorizing same-sex marriages in New York State, the Surrogate’s Courts will still recognize such marriages pursuant to the so-called “marriage recognition rule.”
In Matter of Ranftle, 81 AD2d 566 (1st Dept 2011), the Appellate Division was called upon to determine the propriety of an order of the Surrogate’s Court, New York County (Kristen Booth Glen, S.), denying the vacatur of a decree admitting a will to probate. In his will, the decedent made bequests to three brothers and a goddaughter. He left his residuary estate to his same-sex partner, the respondent on the appeal. Respondent and the decedent had married in Canada two months prior to the execution of the decedent’s will. The decedent nominated respondent as the executor of his estate. Respondent, as the executor named in the will, commenced a probate proceeding, identifying himself as the decedent's surviving spouse and sole distributee of the decedent's estate. Respondent subsequently served the legatees with notice of probate, and the Surrogate's Court ultimately issued a decree granting probate of the will.
The Surrogate’s Court issued an opinion finding that respondent was “decedent’s surviving spouse and sole distributee” and, accordingly, determined that service of process in the probate proceeding was not required to issue to anyone under SCPA § 1403(1)(a), which enumerates those entitled to service of process in probate proceedings. The court found that the decedent’s same-sex marriage to respondent was valid under Canada law and did not fall into either of the two exceptions to the “marriage recognition rule,” as the marriage was not affirmatively prohibited or “proscribed by natural law.” Accordingly, the court found that the marriage was entitled to recognition.
One of the decedent’s brothers, the appellant in the appeal, sought vacatur of the probate decree, asserting that the marriage was not entitled to recognition by the court as it violated New York public policy. Accordingly, appellant argued that the decedent’s three brothers were the sole distributees of the estate and therefore entitled to process in the probate proceeding. The Surrogate’s Court denied the petition for vacatur.
The Appellate Division affirmed the Surrogate’s order. It explained that New York’s “marriage recognition rule affords comity to out-of-state marriages and ‘recognizes as valid a marriage considered valid in the place where celebrated’” (id., quoting Van Voorhis v Brintnall, 86 NY 18, 25 ). The court also noted, however, that the rule does not apply where the foreign marriage is “‘contrary to the prohibitions of natural law or the express prohibitions of a statute’” (id., quoting Moore v Hegeman, 92 NY 521, 524 ). However, same-sex marriage, according to the court, does not fall within either of the two exceptions to the marriage recognition rule (see id.).
The Appellate Division expressly rejected appellant’s argument that the Legislature’s failure to enact a bill authorizing same-sex marriages demonstrates that such marriages are against the public policy of the State. The court made clear that the Legislature’s failure to enact a bill “‘affords the most dubious foundation for drawing positive inferences’” (id., quoting Clark v Cuomo, 66 NY2d 185, 190-191 ).
Notably, in denying the petition for vacatur, the Surrogate relied upon the decision of the Appellate Division, Fourth Department, in Martinez v County of Monroe, 50 AD3d 189 [4th Dept 2008], lv. dismissed, 10 NY3d 856 [2008). There, the Appellate Division held that a Canadian same-sex marriage was entitled to recognition for purposes of the laws governing spousal health care benefits. The court determined that there is no legislation in the State prohibiting the recognition of same-sex marriages validly entered into outside of New York and, thus, the “positive law” exception to the marriage recognition rule does not apply. Moreover, the court determined that the “natural law” exception to the rule also does not apply to same-sex marriages, as that exception has generally been limited to marriages involving polygamy or incest, or marriages “offensive to the public sense of morality to a degree regarded generally with abhorrence” (id., quoting Matter of May, 305 NY 486, 493), which would not include a same-sex marriages.
The Appellate Division in Ranftle agreed with the Surrogate’s Court that the appellant’s “public policy” argument was specifically addressed and rejected by the Martinez court.
Thus, while the New York State Legislature has not seen fit to enact legislation authorizing same-sex marriages, it also has not enacted legislation prohibiting the recognition of such marriages validly entered into outside of the State. Accordingly, same-sex spouses may well be entitled to the rights and benefits generally afforded to heterosexual spouses, whether they be spousal health-care benefits or inheritance rights.
While the myth that Ellen Naomi Cohen, a/k/a Mama Cass, choked to death on a ham sandwich was debunked years ago, the perhaps less sensational “fact” that the singer died intestate has only recently become the subject of dispute. Approximately 35 years after her death, it appears that Ms. Cohen, a member of the 1960’s rock-folk group The Mamas & The Papas, did in fact make a Will, and the beneficiaries thereunder are suing the singer’s estate-planning attorneys for concealing its existence, under theories of malpractice, negligent misrepresentation, and fraud.
An article from today's New York Law Journal reports that according to a lawsuit filed in Los Angeles earlier this month, the law firm of Mitchell, Silberberg & Knupp prepared a Will for Ms. Cohen in 1967, but the firm advised the singer’s heirs in 1974, when she died, that no Will could be located. Accordingly, the assets of Ms. Cohen’s estate were distributed entirely to her daughter, in accordance with California intestate law. The plaintiffs’ complaint also alleges that the law firm had conflicts of interest in that it simultaneously represented Ms. Cohen’s estate and some of her creditors.
Recently, one of Ms. Cohen’s sisters, Leah Kunkel, apparently came across information on the internet that led her to believe that a Will existed. She contacted Mitchell, Silberberg & Knupp to inquire, and an archivist located the Will in a firm file. Reportedly, under the Will, one-third of Ms. Cohen’s estate would have passed to her mother, who is now deceased, and ultimately would have passed to Ms. Kunkel and a brother -- the plaintiffs.
Ironically, at the time it might hardly have been worth the search for the missing testamentary instrument; Ms. Cohen’s estate was insolvent when she died. However, royalties payable to the estate over the years have been substantial, the article reports, and the plaintiff’s lawyer claims his clients are entitled to “seven figures.”
Not surprisingly, the law firm has denied that it concealed the existence of the Will, calling the allegation “utterly absurd.” It also commented that the lawsuit was barred by the statute of limitations.
 According to urban legend, the singer died choking on a ham sandwich because a partially eaten ham sandwich was found by her bed. Prior to an autopsy, the police speculated that she might have choked to death on the sandwich; she did not. She officially died of a heart attack (see http://www.imdb.com/name/nm0254177/bio).
In Matter of Ross, the Nassau County Surrogate’s Court canceled the recording of a deed pursuant to which the decedent allegedly conveyed ownership of his residence to his wife, Gladys. The court did so because it determined, after a three-day trial on the merits, that while the decedent executed the deed, he did not deliver it to his wife during his lifetime. Thus, the alleged transfer was ineffective.
Hard cases, it is said, make bad law. It is not unusual, especially in matters concerning decedents’ estates, that the facts of a case are such that a court’s rigid adherence to the law results in injustice and hardship. Ross, however, was not one of those cases. I submit that it is impossible to review the facts of the case and feel sympathy for the decedent’s widow.
The decedent executed a Will in November 2004. At that time, the decedent rejected his attorney’s suggestion that he simply bequeath his house outright to Gladys, indicating that it was not his desire at that time to do so. However, about a month later, the attorney prepared a deed at the decedent’s direction conveying the property to Gladys. The decedent did not ask his attorney to record the deed, however; the decedent told his attorney that he intended to take the deed with him. It was clear to the decedent’s attorney that the decedent “was not going out to record it himself".
The evidence elicited at trial concerning non-delivery of the deed was, simply put, overwhelming.
First, two years after executing the deed, the decedent executed another Will -- which was ultimately admitted to probate. That Will provided that the residence be placed in a marital deduction trust for Gladys’ benefit. Notably, the attorney draftsman of the Will testified that Gladys was present at all of the meetings with the decedent regarding his estate plan, and never made any mention of a deed purporting to convey the property to her. The attorney draftsman testified that she gave no indication during the meetings that she believed she already owned the property which the decedent intended to place in trust for her benefit.
Second, Gladys signed the probate petition indicating that the residence was an asset of the decedent’s estate at the time of his death. She also participated in obtaining an appraisal of the property, consistent with the proposition that the property was an estate asset.
Third, after friction arose among the co-executors and they retained separate counsel, Gladys insisted that the house be sold. She executed a contract of sale of the property to a third party. Her co-executors also executed the contract. That contract, prepared by Gladys’ attorney, initially identified Gladys as the seller of the property because the person preparing the contract was under the mistaken impression that Gladys was the owner. However, after discussing the same “at length” with Gladys and her sons, the contract was modified to reflect that the estate was the seller.
Fourth, Gladys made various demands against the estate in connection with her possibly agreeing to forego her statutory right of election. One of those demands was that the subject property be turned over to her.
Fifth, Gladys commenced a proceeding seeking the removal of her co-executors and co-trustees. Among other things, Gladys’s petition alleged that she had been attempting to sell the residence, an asset of the estate, but her co-executors refused to sign a contract of sale.
This was not a “hard case”.
The Court explained that the law presumes that an executed deed was delivered and accepted as of the date of its execution. It further noted, however, that that presumption is rebuttable and “may be repelled by proof of attendant facts and subsequent circumstances, such as . . . declarations of the supposed grantee which are inconsistent with the transfer of the title. . . .”
According to the Court, there was “not a shred of objective evidence” that the deed was ever delivered to Gladys. It noted that, on the contrary, the evidence was overwhelming that Gladys was completely unaware of the deed’s existence until she, in effect, stumbled onto it sometime after the decedent’s death.
Moreover, the Court apparently had serious issues with Gladys’ credibility. At her deposition, Gladys testified under oath that she located the deed in a piece of furniture while packing for her move to California. However, in a prior sworn statement, she alleged that she found the deed while unpacking in California.
Based on all of this, the Court determined that the deed was not delivered to Gladys during his lifetime. The transfer, therefore, was ineffective.
In a recent case, a New York County Surrogate denied a motion for summary judgment, holding that a trial was necessary to determine whether the founder of the Benihana restaurant chain, Rocki Aoki, was the victim of constructive fraud perpetrated by his conflicted lawyers. The issue in Estate of Aoki, 5/17/2010 NYLJ 18 (col 3), was the enforcement of releases to a testamentary power of appointment, which, if valid, would deny Mr. Aoiki’s surviving spouse any interest in the Benihana restaurant empire. The movants were two of Mr. Aoki’s children, Devon and Steven.
Mr. Aoki died in 2008 at age 69, survived by his third wife, Keiko, and six children from various relationships. Not bad for a guy who gained notoriety by flipping shrimp tails into his hat and shirt pockets.
Given his less than traditional family tree, it is hardly surprising that Mr. Aoki’s heirs are now litigants in the Surrogate’s Court.
The power of appointment in issue pertained to the Benihana Protective Trust (“BPT”), to which Mr. Aoki transferred all of his rights in Benihana of Tokyo, Inc., a publicly traded company of which he was the sole owner. The trust instrument named Mr. Aoki and his children as discretionary beneficiaries, and provided him with an unlimited testamentary power of appointment over the corpus. Trust and estates attorney Norman Shaw drafted the agreement. He was retained by, and received instructions from, Darwin C. Dornbush, Mr. Aoki’s personal lawyer for 30 years. Mr. Shaw had never met Mr. Aoki.
Mr. Aoki married Keiko in July 2002, four years after the BPT was created. Not surprisingly, Mr. Aoki’s children were concerned that his new wife might influence him to deprive them of some or all of the inheritance they expected. Two of them -- Kevin and Kana -- discussed their concerns, including the lack of a pre-nuptial agreement, with Dornbush. They then proposed to Keiko that she and the decedent sign a postnuptial agreement, apparently acting on Dornbush’s advice. Mr. Aoki did not participate in the conversation, and Keiko refused the request. Kevin and Kana then approached Dornbush and Shaw about protecting their interests as potential beneficiaries of the BPT.
Following a meeting at Dornbush’s office attended by the decedent, Kana and Kevin, the four met again, on September 24, 2002, for Mr. Aoki to sign a codicil to his will and an unrelated consent to an amendment of the BPT. During that brief meeting, Shaw arrived and presented the decedent with a one-page document entitled “Partial Release of Power of Appointment Under New York Estates, Powers & Trust Law §10-9.2.” By signing that document, the decedent “irrevocably” limited his power of appointment to permit him to appoint only his descendants.
Nobody advised the decedent that the release was irrevocable, nor did anyone advise him of the substantial tax consequences of foregoing the marital deduction.
A few months later, the decedent signed another release document, eliminating as potential donees those descendants who were non-resident aliens. Shaw, again the attorney drafter, testified that the sole basis for this release was for tax purposes, although no evidence demonstrated that the legal effect of the document was explained to the decedent, or that he understood it.
It was undisputed that Dornbush and Shaw were the decedent’s attorneys and consequently had a fiduciary obligation to him. It was also not disputed that Kana and Kevin sought Dornbush’s legal advice and assistance for the purpose of limiting or denying the decedent’s ability to provide for his new wife on his death. This, according to the Court, placed Dornbush in an impermissible conflict of interest, of which the decedent was not informed.
In July 2003, the decedent retained a new attorney, Joseph Manson, who advised Dornbush that the decedent had executed a codicil to his will, changing beneficiaries and removing Dornbush as Executor. Manson requested a meeting with Dornbush to discuss the will and other matters affecting the Aokis. In preparation for that meeting, Shaw drafted a memo raising additional questions, reiterating the conflicts he, Dornbush and the Dornbush firm had, and continued to have, in their ongoing representation of the decedent.
At the meeting with Dornbush, Manson requested a legal opinion as to the changes in Mr. Aoki’s estate plan as reflected in the most recent codicil, based on Dornbush’s drafting of the original will. Immediately thereafter, Dornbush wrote another memo, stating that he “questioned Manson as to why Rocky was asking our firm to express an opinion as to the validity of the codicil”. He went on to write, “[m]y guess is that Kevin, in discussions with his dad, made mention of the fact that Rocky has signed ‘some paper’ when in [Dornbush's] office, giving up his right to leave assets of the Benihana Protective Trust to anyone other than his children and their descendants.” He continued, “Undoubtedly, the fur will fly when Manson and his clients, Keiko and Rocky, discover the existence of the executed Partial Release.”
Shaw subsequently informed Mason that Mr. Aoki was still a client of his firm, and stated that the firm would provide a legal opinion, which it did in by letter dated September 8, 2003. It opined that the codicil the decedent executed, in which he appointed 25 % of the BPT corpus outright to Keiko, was invalid because of the release documents.
Keiko claimed that this was the first time that the releases were brought to the decedent’s attention and to the attention of his new counsel. The decedent stated, in a roughly contemporaneous affidavit, this was the first time he realized he had executed irrevocable releases, and that he had never had any intention of doing so.
Keiko asserted various defenses to the motion to enforce the releases. The court opined that the core question was “whether, when signing the September and December Releases, Rocky knew that he was irrevocably limiting the persons to whom he could leave the stock in the BPT.” Keiko relied on the decedent’s statement that he did not, and argued that he had been the subject of fraud by his attorneys, on behalf of his children, because of their conflict of interest.
In furtherance of their motion, Devon and Steven Aoki cited the general rule of law that an individual who has failed to read an instrument prior to signing will not be heard to complain that the terms of the instrument were misrepresented. But the court noted that the rule does not apply “where a fiduciary relationship exists between parties to the transaction such that it is reasonable for the weaker party to rely upon representations made by the party in whom he reposed trust and confidence. . . .” Indeed, when a fiduciary relationship exists, the element of scienter, necessary in ordinary fraud cases, need not be proved. Instead, the issue becomes one of constructive (as opposed to actual) fraud, and the burden shifts to the party alleged to have taken unfair advantage of “trust justifiably reposed.”
The court went on to explain that constructive fraud is the theory by which “the law seeks to protect a party who, by virtue of an unequal relationship, places his trust and confidence in another and thereby ‘relax[es] the care and vigilance he would ordinarily exercise in the circumstances’” [citation omitted]). The court deemed this theory potentially applicable to the relationship among the decedent and his conflicted attorneys.
Accordingly, the court concluded that triable issues of fact existed regarding (1) whether the decedent was unaware that he was irrevocably giving up his power to assign his interest in the BPT to anyone (including his wife Keiko) other than certain of his descendants and, (2) if he was unaware, whether the proponents of the releases can meet their burden of showing that his signature was nevertheless voluntary and not the result of misrepresentation or omission by his counsel and fiduciaries, Dornbush and Shaw. The motion for summary judgment was denied.
A recent decision emanating from the Appellate Division, Second Department, Matter of Venezia, implicates two fundamental -- and seldom conflicting -- legal principles. The first of these is that a testator has the right to designate a legally qualified person to administer his or her estate, and that designation is entitled to great deference. And, secondly, a party’s entitlement to be represented by counsel of its choice is a valued right, and any attempt to restrict that right must be carefully scrutinized.
Matter of Venezia was a probate proceeding in which the Surrogate’s Court, Kings County, after a hearing, granted the motion of the objectant to disqualify the nominated executrix from serving as such and reinstated letters of administration previously issued to the objectant.
The objectant’s proffered basis for removal of the petitioner as executrix -- which was accepted by the Surrogate’s Court -- was that the petitioner’s selection of counsel rendered her unqualified to serve. The objectant argued that he and the petitioner’s counsel had been adversarial in a prior conservatorship proceeding and that they had a hostile relationship.
The Appellate Division began its analysis by noting that “the right of a testator or testatrix to designate, among those legally qualified, who will settle his or her affairs, is not to be lightly discarded[,]” although “the Surrogate may disqualify an individual from receiving letters of administration where friction or hostility between such individual and a beneficiary or a co-administrator or co-administratrix, especially where such individual is at fault, interferes with the proper administration of the estate, and future cooperation is unlikely” (citations omitted).
The court noted, however, that the evidence adduced at the hearing demonstrated that the objectant -- not the petitioner’s counsel -- was the source of the hostility between them. That fact, combined with the fact that there was no evidence that the petitioner was unqualified to serve as executrix or that she committed misconduct, lead to a determinations that the Surrogate’s Court erred in disqualifying the petitioner from serving as executrix.
Nevertheless, the Appellate Division directed that the petitioner retain new counsel to represent her, “given the hostility the objectant harbors for the petitioner’s counsel, and since it is unlikely that the objectant will cooperate with counsel in the future. . . .” Notably, the court made this determination notwithstanding its observation that “the record does not demonstrate that counsel retained by the petitioner acted improperly[.]”
So, let’s get this straight. The duly nominated fiduciary of a decedent’s estate hired an attorney of her choice. That attorney did nothing improper. Yet, due to “hostility” between the attorney and the objectant -- hostility created by the objectant -- and the fact that the objectant was not likely to cooperate with the petitioner’s counsel in the future, the court directed the petitioner to retain new counsel.
The Court of Appeals has made clear that a party’s entitlement to be represented by counsel of its choice is “a valued right and any restrictions [thereto] must be carefully scrutinized” (S&S Hotel Ventures Ltd. Partnership v 777 S.H. Corp., 69 NY2d 437 ). It is not clear from the Appellate Division’s decision that it adequately considered this principle when it deprived the petitioner of her counsel of choice.
In Matter of Gilmore, 1/19/2010 NYLJ 21 (col 1), Nassau County Surrogate John B. Riordan declined to expand the reach of EPTL 5-3.2 (the so-called “after-born statute”) to non-marital children known to, or acknowledged by, the decedent after execution of his will.
In Gilmore, a probate proceeding, two non-marital children sought to have their status as beneficiaries determined as a preliminary matter. The parties consented to have the Court assume the truth of the claimants’ allegations for a determination of whether as a matter of law those allegations stated a cause of action entitling the claimants to after-born status.
The decedent died in January, 2007, survived by eleven children, including three from a first marriage, four from a second marriage, and four alleged non-marital children. The propounded will, however, benefited only one child from the first marriage. That child, also the petitioner and named executor, was to inherit the several-million-dollar estate. The claimants were two non-marital children born prior to the decedent’s execution of the will, but allegedly became known to and were acknowledged by the decedent only subsequent to the will’s execution.
The court explained that EPTL 5-3.2 creates a rule of presumed intent for a testator who may have inadvertently omitted as a beneficiary a child born after he executed his will -- “If he gave something to existing children and the after-born is neither provided for nor mentioned in the will and unprovided for by some settlement, the after-born shares in the gift to existing children.” Pursuant to an amendment to the statute (which merely codified existing case law), non-marital after-born children who can duly establish their inheritance rights are entitled to the same benefits under the statute as marital children.
The claimants in Gilmore alleged -- and it was accepted as true for purposes of the motion -- that nearly a decade after the decedent executed his will he underwent DNA tests which revealed to him for the first time that he was their biological father. Although the claimants were born long before the execution of decedent’s will, they claimed that as they were only known or acknowledged by their father after execution of his will, they should be accorded the same presumption of inadvertent disinheritance as after-born children.
The Court rejected the claimants’ argument, however, noting that pursuant to the clear and unambiguous language of the statute, a child is entitled to after-born rights only if born after execution of the will. The only reported exception to this rule -- for a child adopted after the execution of a will, even though born previously -- had no application to the case at bar.
Because the language of the statute was clear, speaking only of a “child born after the execution of a last will” (EPTL 5-3.2 [a]), the Court refused to extend the scope of the statute to a non-marital child who is known or acknowledged by a decedent only after execution of his will. “To engraft exceptions where none exist,” according to the Court, “are trespasses by a court upon the legislative domain”
One of the great things about contributing to a legal blog is that you get to write about court decisions that, although not particularly noteworthy for the legal ground they break, are really entertaining to read. One such decision recently emanated from the United States District Court for the Southern District of New York.
In Kennedy v. Trustees, Will of President John F. Kennedy, 08 Civ. 8889 (S.D.N.Y. June 19, 2009), Judge William H. Pauley III dismissed an action in which the plaintiff, John Fitzgerald Kennedy, alleged that he was the illegitimate son of the late President John F. Kennedy and Marilyn Monroe. Although not the basis for its dismissal of the action, the court noted that the plaintiff had no documentary evidence of his kinship claim, despite the fact that he attached a photograph of himself to his complaint, showing his resemblance to President Kennedy. And, in case you were wondering, the plaintiff’s name at birth was John Ruben Burton; he changed it in 1994. You really can’t make this stuff up.
The plaintiff’s initial complaint sought an order directing genetic testing of two members of the Kennedy family (Robert Fitzgerald Kennedy, Jr. and Congressman Patrick Joseph Kennedy) and, upon confirmation of his claim through such genetic testing, an order compelling the Trustees of the testamentary trust created under President Kennedy’s Last Will and Testament to “honor their fiduciary duties.” The Trustees moved to dismiss the action, for lack of subject-matter jurisdiction and for failure to state a claim upon which relief can be granted. The plaintiff’s amended complaint, filed after the motion to dismiss was briefed and argued, dropped the claim for genetic testing, instead requested an order compelling the Trustees to investigate his claim of kinship and his entitlement to an inheritance.
The court dismissed the action because plaintiff’s claim, for breach of fiduciary duty, was legally insufficient. The court first considered whether the Trustees would owe the plaintiff a fiduciary duty if he were successful in establishing that he was in fact President Kennedy’s son. In doing so, the court applied Massachusetts law, as President Kennedy was domiciled in Massachusetts at the time of his death, and section 3-5.1 of the New York Estates, Powers & Trusts Law provides that “[i]nterpretation of a testamentary disposition of personal property shall be made in accordance with the local law of the jurisdiction in which the testator was domiciled at the time the will was executed.”
The court explained that prior to 1987, Massachusetts law provided that words as such as issue, children, and the like meant only children born of a lawful marriage, absent anything indicating a contrary intent (see Decision at 7 [quoting and citing Massachusetts authority]). And the will at issue (executed long prior to 1987) contained nothing to suggest that President Kennedy intended to include non-marital children as beneficiaries. Therefore, the court concluded, the plaintiff would not be entitled to inherit under the will even if he were able to prove that he was President Kennedy’s son. As the Trustees could not owe the plaintiff a fiduciary duty, the claim for a breach thereof was legally insufficient and subject to dismissal.
From the perspective of the trust and estate litigator, the court’s analysis of the probate exception to federal diversity jurisdiction warrants some discussion. The probate exception was once described as “one of the most mysterious and esoteric branches of the law of federal jurisdiction” (Dragan v. Miller, 679 F.2d 712, 713 [7th Cir. 1982]). A full discussion of the probate exception is beyond the scope of this blog entry, although you can click here for an article providing more information. Suffice it to say that the exception prohibits federal courts from “interfering with [a] probate proceedings or assum[ing] general jurisdiction of the probate or control of the property in the custody of the state court”(Marshall v. Marshall, 547 U.S. 293, 126 S. Ct. 1735, 1747 ).
Judge Pauley analyzed the scope of the probate exception, determining that the plaintiff’s request for an order compelling the Trustees to investigate his kinship claim was not barred by the probate exception because it neither sought to have the court interference with a probate matter nor exercise control over a res in the custody of a state court (see Decision at 6). If such investigation ultimately established that that the plaintiff was President Kennedy’s son, however, the court would not be permitted to determine the plaintiff’s claim to his inheritance under the President’s will, as to do so would be to exercise control of a res in the custody of a state court (see id.).
While this case may not break any new legal ground, it is worth reading for the court’s analysis of the probate exception to federal diversity jurisdiction -- always an interesting read for the estate litigator -- and for pure entertainment value. Whoever said that life is stranger than fiction was right on the money.
The real estate market might be bad, but it’s not that bad.
In Matter of Karr, NYLJ 2/5/09 (Surrogate’s Court, Kings County), Surrogate Maria López Torrez canceled a deed by which the executor of an estate attempted to convey to herself, in consideration of $10, a house owned by the estate. You can’t make this stuff up.
The defendant in the action, Joan Melluso, was the executor of her father’s estate. He died in 1977, leaving his house in equal shares to his daughter and son, Joan and Donald. He also granted Joan a life estate in the house, and included a clause in his will providing that “[t]he choice when and if to sell shall be hers.” In 2004, Donald died intestate, leaving a wife and four children. In 2007, Joan, in her capacity as the executor of her father’s estate, conveyed the property outright to herself for $10.
Donald’s wife and children filed an action in Supreme Court seeking, among other things, a declaration that the deed conveying the house to Joan was invalid and that they retained a 50-percent tenancy-in-common interest in the house. They moved for summary judgment. Joan cross-moved to transfer the action to Surrogate’s Court. The court denied the motion for summary judgment without prejudice and granted the cross-motion to transfer. Ultimately, the fully briefed motion for summary judgment was submitted for decision to the Surrogate.
Joan, who was represented by counsel, opposed the motion on numerous grounds. She submitted an affidavit that the court, in its decision and order granting the motion, quoted at length. I do so here as well, mostly in the interest of entertainment:
I believe that the disputed clause in the will allows me to take title to the Property. The clause says that the choice “if or when to sell” shall be mine. There is not time limit, price limit, or other consideration. The interest given to me and my brother is subject to the “condition.” The deed says that there was a consideration of ten dollars. There is no other way to interpret the will than to say that this is a sale allowed under the will. There is no proof that the price is in anyway unfair. The truth is that all parties concede I have a life estate, and that I have to pay to maintain the property. Given my life expectancy, and the money I have already paid, the present value of a remainder interest, even if there is one, is nothing. Certainly, there is no evidence to the contrary on this motion. Furthermore, plaintiff assume in paragraph 8 of the moving affirmation that there is a “tenancy in common” created by the will. If there was, then the will would have said so. It was drafted by a lawyer, and if this was the intended result, it would be there. As I stated above, it was my belief that if I survived my brother the house would be mine. If I sold when we were both alive, then the profits would be divided. Also even though I was “responsible” for expenses, it is my belief that if my brother were alive, I would get my money back that I spent before we divided the profits. If the maintenance costs were some sort of rent, the will would have so stated.
Of course, in interpreting a will, courts are guided, primarily, by the intent of the decedent. “There are many instances wherein the Court is called upon to render its interpretation of will provisions that are ambiguous. Fortunately, this is not one of those instances,” wrote the Surrogate. On the contrary, the court determined that the decedent’s intent was crystal clear from the language of the will; he wanted to make a gift of the house equally to both his children.
Addressing Joan’s reliance on the provision of the Will stating that “[t]he choice if and when to sell shall be hers,” the court noted that “there is nothing to indicate that plaintiffs’ interest in the property would be lost or forfeited should defendant decide to exercise this option.”
The court also rejected self-serving, hearsay evidence offered by Joan -- the only evidence offered in opposition to the motion -- consisting of her own affidavit stating that Donald had promised her that the house would be hers, that she would be reimbursed for expenses, and that his heirs told her that they wanted to give her the house. (The court noted that this evidence would have been inadmissible at trial under the Dead Man’s Statute, but could be considered for the purpose of opposing a motion for summary judgment. For more on this topic see this article.
Finally, Joan argued that inasmuch as she had sold the house to herself, it was no longer an asset of the decedent’s estate and, therefore, the court lacked jurisdiction to entertain the matter. Talk about chutzpah. The court found this argument “especially egregious” and “untenable.” It noted that it had “rarely encountered such a blatant attempt to subvert a testator’s intent.” Moreover, the court quite appropriately characterized the argument as “baffling” because Joan herself had successfully petitioned the Supreme Court to transfer this matter to Surrogate’s Court in the first place.
Accordingly, the court summary judgment in the plaintiffs’ favor, directed the cancellation of the subject deed, and directed defendant -- in her individual capacity-- to pay plaintiffs $5,000 as reimbursement for the costs of bringing the litigation. (Curiously, the court -- without much explanation -- denied that branch of the plaintiff’s motion that sought removal of the defendant as executor of the decedent’s estate.)
There is much to be learned from this case. But perhaps the most important lesson is this: “An executor must discharge his or her fiduciary duties so that all legatees are treated in like manner and without prejudice or discrimination” (quoted from decision). As the court noted, “[d]efendant failed this test.” Another lesson might be, if it sounds too good to be true, it probably is.
This post concerns a decision issued by a Supreme Court Justice in a complex corporate dissolution proceeding. It highlights the importance of familiarity with estate practice, even if you never plan to step foot into a Surrogate’s Court.
In Matter of Pappas v Corifan Enterprises Ltd., NYLJ 2/19/09 (Sup. Ct. Kings County 2009), the issue was whether the Petitioner -- the surviving spouse of the decedent -- had standing to petition for dissolution of two closely held corporations. Respondent argued that the decedent -- and, thus, the Petitioner -- lacked the requisite 20 percent ownership interest in the corporations. He argued that he was the sole owner of the corporations. After a hearing limited to the issue of standing, at which the court heard 14 witnesses testify over eight days and admitted 48 documents into evidence, the court determined that the Petitioner met her burden of demonstrating an ownership interest in one corporation, but not the other.
The substantive legal aspects of the decision are beyond the scope of this post (although an article published by my colleague, Peter Mahler, on his New York Business Divorce blog, contains an excellent discussion of the same). What should be of interest to the trust and estate litigator is the evidence the court analyzed in reaching its determination.
First, the court started by addressing the evidentiary value of admissions made by the fiduciary of an estate:
Where, as here, one of the principals is deceased, “the admissions or declarations of administrators and executors may be evidence - where they are made while engaged in the performance of a duty pertaining to the estate in a representative capacity, in which the declaration is pertinent and accompanies the act so as to constitute a part of the res gestae.” Estate tax returns and certifications can, therefore, constitute admissions of the deceased. The probative value of the statement is to be assessed in the light of the personal knowledge of the representative, and, in any event, the statement is not conclusive, but constitutes “some evidence” (citations omitted).
Indeed, the court considered evidence of the Petitioner’s knowledge of her husband’s business interests. Curiously, the court made no mention in the decision of New York’s “Dead Man’s Statute” (CPLR 4519), which makes testimony by an interested witness “concerning a personal transaction or communication between the witness and [a] deceased person or mentally ill person” excludable “[u]pon the trial of an action or the hearing upon the merits of a special proceeding[.]” The surviving spouse is certainly an “interested witness”, notwithstanding that she is the fiduciary of the estate. Perhaps the court did not consider the “standing” hearing to be a trial or hearing “on the merits” of the proceeding. Or perhaps the court considered applicable the “fiduciary” exception to the rule (see John M. Greenfield, A Treatise of Testimony Under § 347, Civil Practice Act § 120  [“Where executors or administrators sue or are sued as representatives of the estate, and the adverse party is not a personal representative, the general rule is that the testimony of an executor or administrator in behalf of the estate is not considered to be in his own behalf or interest even though he has a personal interest in the estate as legatee or heir and to that extent might be said to be testifying in his own interest.]).
Second, the court considered documents prepared by the attorney who assisted the decedent with his estate planning. Specifically, the court considered an “Asset Questionnaire” that the attorney prepared using information provided by the decedent. The questionnaire was prepared approximately four months before the decedent’s death. The page in the questionnaire headed “Stocks” and the page headed “Interest in Corporation, Partnership and Limited Partnership” were both blank. The attorney testified that the decedent mentioned no businesses or properties in which he had an interest. But the attorney also testified that:
[T]here came a time when I started the information for the assets questionnaire and . . . I mentioned something about the fact that I understood that he was an employee of Mr. Fotinos. . . He stopped me immediately and said no, no not employee. Business partner. Business associates. Not employee.
Since the attorney was never asked, and did not explain, the apparent inconsistency between the decedent’s statement and the absence of information in the questionnaire, the court determined that the questionnaire was ambiguous at best.
The court also considered the probate petition and estate tax certification signed by the executor of the decedent’s estate. The petition, prepared by the same attorney discussed above, showed the value of personal property as zero, and the tax certification showed the value of stocks and bonds as zero. Those values, according to the court, were evidence as to the executor’s understanding of the decedent’s business interests. The court determined, however, that the probative value of the evidence was undermined by the ambiguous Asset Questionnaire in preparing the petition and tax certification.
In the end, the court determined that the decedent had an ownership interest in one corporation, but not the other. Again, how and why the court reached that determination -- which seems a lot like King Solomon’s threat to “split the baby” -- is not the focus of this article (again, Mr. Mahler’s article provides a detailed analysis of the merits of the case). But the fact that the court considered the estate planning documents significant should not be overlooked. Would a commercial litigator necessarily think to subpoena a decedent’s estate planning file in attempting to gather evidence of the decedent’s stock ownership? Probably not. But this case stands as an example of how “non-corporate” documents -- estate documents in particular -- can be useful in a corporate dispute.
My post dated December 31, 2008, concerned the trust created by Leona Helmsley, specifically, the two page “mission statement” in which she expressed her desire that the trust funds be used for the care and welfare of dogs and “such other charitable activities as the Trustees shall determine.” My previous post discussed the possibility that the mission statement would not be viewed as a legally binding directive.
While Leona may have been steadfast in her commitment to helping man’s best friend, an article in the New York Times dated February 25, 2009, reports that it is now official -- the mission statement is “all bark, no bite.” In an Order dated February 18, 2009, Surrogate Troy K. Webber (of Surrogate’s Court, New York County) confirmed that the trustees can distribute the money as they deem appropriate. Her determination was grounded in the fact that in addition to expressing Ms. Helmsley’s preference for canine causes, the mission statement also gave the trustees discretion in spending the money.
There really is no substitute for good old common sense.
In Matter of Goldberg, NYLJ 1/15/09, a recent case emanating from the Surrogate’s Court, Nassau County, the court was called upon to decide a fiduciary’s petition seeking the advance payment of his executor’s commission during the administration of the estate.
The court began its analysis with reference to SCPA 2311, which allows a fiduciary to make an ex parte application for advance payment of commissions during the administration of an estate. The court noted that a petition seeking advance payment must allege that absent such payment, either the fiduciary or the estate would “be deprived of substantial advantages under the income tax laws of the United States or the state of New York or that [the fiduciary would] suffer inconvenience or hardship or that all persons whose rights and interests would be affected by the payment applied for applied for are persons under no legal disability and have by acknowledged instrument consented thereto” (SCPA 2311).
In the case before the court, the petitioner alleged that he desired advance payment of commissions for purposes of income tax planning, and because of the potential income tax savings associated with payments spread out over separate calendar years. Moreover, the petitioner alleged that the federal and state estate tax returns were filed; that he elected to pay a portion of the estate taxes in installments pursuant to Internal Revenue Code section 6166; that the undeferred portion of the estate taxes has been paid; and that all specific bequests under the decedent’s will have been paid. Moreover, all the beneficiaries -- none of whom was under a disability -- consented in writing to the application.
Therefore, the court determined that advance payment of commissions was appropriate.
There was, however, one obstacle for the court. The decedent’s will required any fiduciary to serve without compensation. In the ordinary case, according to the court, a fiduciary would have two choices: either decline to serve at all, or serve without compensation. But the court noted that unlike other cases in which courts had so held, in the case before it all the beneficiaries had executed and submitted written waivers confirming their awareness of the provision in the will requiring that an executor serve without commissions, but nevertheless consenting to the payment of a full statutory commission.
This, according to the court, rendered the case before it one of first impression. However, other cases had permitted full statutory commissions upon the consent of the beneficiaries in instances where the executor would not otherwise have been entitled to a full commission, for example, where an attorney-executor would only be entitled to half a commission pursuant to SCPA 2307-a.
Accordingly, the court granted the petition on the consent of all beneficiaries under the will, i.e., the persons who would bear the cost of the commissions. Makes perfect sense, doesn’t it?
It might well be an understatement to characterize New York’s Dead Man’s Statute (CPLR 4519) as somewhat “enigmatic,” at least to those practitioners who do not often encounter it. Indeed, the leading treatise on the statute is over three-quarters of a century old (see Greenfield on Testimony under Sec. 347 (CPA) § 61 ).
This article contains a brief overview of the statute and more thorough discussion of its application to motions for summary judgment.
Generally -- and perhaps overly simplistically -- the Dead Man’s Statute renders an interested person incompetent to testify concerning a personal transaction (including a communication) with a deceased or mentally ill person. Such evidence is freely discoverable, however, and may be the subject of testimony at a deposition. Indeed, the rule applies only “upon the trial of an action or the hearing upon the merits of a special proceeding” (CPLR 4519).
But what about a motion for summary judgment, which is the procedural equivalent of a trial on the merits? It has long been the rule in New York that evidence excludable under the Dead Man’s Statute may not be used in support of a motion for summary judgment, although it may be offered in opposition to such a motion, to raise an issue of fact for trial. In Phillips v. Joseph Kantor & Co., 31 NY2d 307 (1972), the New York Court of Appeals held that the general rule permitting the use of such evidence in opposition to summary judgment motions is premised on the rationale that it would be difficult to predict with certainty whether such evidence might be rendered admissible at trial by virtue of a waiver -- intentional or inadvertent -- of the protection of the statute.
However, the Court opened the door slightly to granting summary judgment in a case where the only evidence offered in opposition to the motion would be subject to exclusion under the statute. The Court stated that, “[a]dmittedly, a trial would seem unnecessary if it were certain, in an absolute rather than a pragmatic sense of the term, that there would be no waiver of the statute and that all the proof would be excludable” (id. at 314).
Such was the case in Estate of Steger, NYLJ 11/17/08 (Sur Ct Nassau County Nov. 5, 2008), recently decided by the Surrogate’s Court, Nassau County.
In Steger, a contested accounting proceeding, the objectant -- John -- sought leave to reargue a prior decision of the Court denying his motion for summary judgment. He had asked the Court, among other things, to set aside transfers made by the decedent during her lifetime. John was one of the decedent’s four sons. The transfers weres made to another of the sons, Mark, who was also the executor of the decedent’s estate. Not only were the transfers made to Mark, they were made by Mark. He had the decedent’s power of attorney and utilized it, among other things, to transfer assets from the decedent’s individual accounts to an account held jointly, with right of survivorship, by them both. In opposition to the motion, Mark maintained that this was done at the direction of the decedent. John sought to set aside those transfers.
The Court began its analysis by stating the elements of a gift; the donee of a gift has the burden of proving, by clear and convincing evidence, that there was delivery of the property and acceptance by the donee. In addition, the recipient must also prove the decedent’s donative intent. It was this final element, according to John, that Mark could not satisfy. John argued that the sole evidence offered in connection with that element was Mark’s own testimony concerning the decedent’s intent.
The Court agreed, noting that the sole proof offered by Mark in support of his position was his own statements contained in his affidavit that, “for her own reasons, my mother directed me to make these transfers.”
Discussing the Phillips case, the Court noted that, generally speaking, evidence otherwise precluded by the Dead Man’s Statute can be utilized by a party seeking to oppose a motion for summary judgment. However, it further noted that such proof is deemed insufficient where it is the sole proof submitted in support of the opposing party’s claim. Moreover, the Court noted that John, in his motion papers, repeatedly cited the Dead Man’s Statute, “thus indicating his intent to invoke the statute to exclude the statements at trial.” The Court granted reargument regarding the pre-death transfers, and upon reargument, granted John’s motion for summary judgment.
This decision should serve as a warning to practitioners advising clients with respect to gifts: Think about evidentiary hurdles that might be encountered down the road. Take care to properly document the gift (through writings, gift tax returns, etc.). And, of course, be particularly cautious in advising a client with respect to the use of a power of attorney to make a gift (see generally Matter of Ferrara, 7 NY3d 244  [gifts made pursuant to a power of attorney must be in the best interest of the principal, including minimization of income, estate, inheritance, generation-skipping transfer or gift taxes]).
If you don’t like dog puns, you might want to stop reading now.
Hotelier and real estate magnate Leona Helmsley loved dogs and she made no bones about it. Leona Helmsley left $12 million in her will in trust for her dog, Trouble. And, although Surrogate Renee Roth reduced the trust to $2 million, that amount should still be sufficient for Trouble to live, well, a dog’s life for her remaining years. (After all, Trouble's annual living expenses have been estimated at only $180,000.)
The amount of the Trouble Trust, however, pales in comparison to the full amount of the charitable trust Mrs. Helmsley created -- valued at between $5 billion and $8 billion. In a two page “mission statement,” Mrs. Helmsley expressed her desire that the money be used for the care and welfare of dogs. (Actually, it has been reported that she initially stated that the money should go to poor people and dogs, but she later turned tail on poor people, dropping them from the list.)
But are Mrs. Helmsley’s trustees required to honor her desire? Can they help the poor and still avoid the doghouse? Probably. It is likely that the expression of intent contained in the mission statement will be viewed as mere precatory language, not a legally binding directive. And, besides, the document reportedly gives the trustees discretion in distributing the money. So the trustees likely won’t have their tails between their legs if they decide to throw a bone to some underprivileged humans.
Precatory language contained in a will or other instrument is merely an expression of the testator’s or grantor’s wishes or desires; it is not legally binding on the person to whom the wish or desire is directed (see In re Samuelson, 110 AD2d 183, 187 [2d Dept 1985]). Whether a provision in a will or trust is mandatory or precatory depends on the language of the provision and the intent of the testator or grantor.
As explained in a leading New York treatise:
Normally words of wish or desire do not create an imperative charge nor limit a gift otherwise provided for in the will. In the absence of a clear expression that the testator intended the language to be dispositive, words indicating a wish or desire or request are ordinarily only words of entreaty that leave obedience, exercise, and performance to the sense of duty, gratitude, and discretion of the one to whom they are addressed. Such person can carry out the admonition of the testator or not as he sees fit. The court has no control over such person’s actions and may not substitute its judgment for that of the person to whom such words are addressed.
11 Warren’s Heaton on Surrogate’s Court Practice § 187.02 (2005).
Courts in New York have recognized that although words such as “request,” “wish,” and “desire” are ordinarily construed as precatory, “they will be taken to connote a hope or command depending on whether the author meant by them simply to advise or inform a discretion which is vested in somebody or to control or direct a certain disposition” (Spencer v Childs, 1 NY2d 103, 107, ).
The frequency with which Mrs. Helmsley used action verbs in her will might give her trustees a “leg up” in determining which provisions are mandatory directives and which are not. Cases from jurisdictions other than New York have concluded that when certain provisions of a will use mandatory language and others use traditionally precatory language, the distinction should be given significance in interpreting the will. In other words, where a testator uses a command verb in one part of his will -- for example, “I direct” -- and a permissive verb in another part -- for example, “I request” -- the permissive clause should be considered merely precatory (see Diana v Bentsen, 677 So 2d 1374, 1378 [Fla Dist Ct App 1996]; O’Brien v McCarthy, 285 F 917, 920 [DC Cir 1922]).
It should come as no surprise to anyone that Mrs. Helmsley was not shy about using command verbs. For example, in her will, Mrs. Helmsley “directed” that her mausoleum be acid washed or steam cleaned at least annually. She also “directed” that, upon Trouble’s death, her remains were to be buried next to Mrs. Helmsley’s remains, in her (presumably freshly acid washed or steam cleaned) mausoleum. And, she conditioned bequests to two of her grandchildren upon their visiting their father’s grave at least once a year -- preferably on the anniversary of his death (hint, hint -- “preferably” = precatory language) -- and directed her trustees to install a guest book inside the family mausoleum in order to enforce the visitation requirement.
While it is sometimes difficult to determine what is and what is not a mandatory directive, in the case of Mrs. Helmsley’s trust, it should not be all that difficult for the Trustees to sniff out the precatory language.