Who May Serve as Fiduciary?
The newly elected Surrogate for Nassau County, Edward W. McCarty III, recently issued a decision in what appears to be a gut-wrenching case involving an infant decedent. In the Estate of Jessica Fernandes, Surrogate McCarty attempts to get to the bottom of two commonly encountered issues in an infant decedent’s estate, that is 1) who should serve as administrator of the decedent’s estate; and 2) whether one of the decedent’s parents should be barred from receiving estate assets.
In most estates, the answer to the question of who will serve as fiduciary is straightforward. Where a decedent dies having executed a last will and testament, the will identifies the nominated executor (or co-executors). The nominated executor will serve unless the Court finds that he or she is ineligible to serve for the reasons set forth in SCPA § 707. Every person interested in the estate has the opportunity, pursuant to SCPA § 709, to object to the appointment of the nominated executor. Where a person dies intestate, a person interested in the estate may object to the appointment of an administrator on one or more of the grounds set forth in SCPA § 707. Article 10 of the SCPA governs the order of priority of who is entitled to serve as an administrator of an intestate estate.
In Fernandes, the decedent was a 12 year-old girl who succumbed to respiratory failure. She had been incapacitated since birth, and her mother had been appointed her personal needs guardian, as well as co-guardian of her property along with an attorney, pursuant to Article 81 of the New York Mental Hygiene Law. The decedent had recovered in excess of $3.5 million in the settlement of a medical malpractice action. All else being equal, the decedent’s mother and father have equal priority to serve as administrator of her estate pursuant to SCPA § 1001, and the Court may appoint, in its discretion, one or both of them.
Following the decedent’s death, her mother petitioned for letters of administration and requested that the decedent’s father be disqualified, pursuant to EPTL § 4-1.4, from taking an intestate share of decedent’s estate on the basis of his alleged failure to provide for, and abandonment of, the decedent. The decedent’s father struck back, denying that he had abandoned the decedent, objecting to the decedent’s mother’s appointment as administrator of the decedent’s estate pursuant to SCPA § 707 on the grounds that the decedent’s mother had engaged in fraud and dishonesty, and cross-petitioning for letters of administration. The decedent’s mother appears to have also alleged that the decedent’s father is a non-domiciliary alien and thus ineligible to serve as administrator pursuant to SCPA § 707 (1) (c), and that he cannot read or write in English, and that the Court should thus, in its discretion, find him ineligible to serve pursuant to SCPA § 707 (2). The decedent’s mother also alleged that decedent’s father’s open hostility to her rendered him ineligible to serve.
Judge McCarty’s decision indicates that he is poised to address the factual allegations that the parties have made. He explained that summary judgment was inappropriate; the papers before him left several issues of fact to be resolved at a hearing (the hearing may have already been held). Aside from untangling the issue of the decedent’s father’s immigration status, it seems that the Surrogate will be faced with determining whether each of the decedent’s parents can read and write in the English language, and, if not, whether this should affect their ability to serve. In this inquiry, he may be informed by a recent decision from the Surrogate’s Court, New York County, Matter of Torbibio.
Moreover, while dishonesty is one of the grounds set forth in SCPA § 707 (e) as a basis to render someone ineligible to receive letters, dishonesty as contemplated by the statute is not dishonesty in answering questions such as “how big was that fish that you caught last fall?” but, as the First Department recently explained, dishonesty in money matters from which a reasonable apprehension may be entertained that the funds of the estate would not be safe in the hands of the contemplated fiduciary. As for the decedent’s mother’s claim that the decedent’s father’s hostility renders him ineligible, as countless Surrogate’s Court practitioners have explained to their clients, mere hostility is simply not enough. It is well-settled that an individual will only be barred from being appointed fiduciary where friction or hostility interferes with the proper administration of the estate, and future cooperation is unlikely.
Barring a settlement, it appears that the Court will reach the second issue, whether the decedent’s father should be disqualified from sharing in the decedent’s estate, at the close of discovery. His decision contains a granular analysis of disputes among the parties as to documentary discovery - the kind of analysis that is helpful to lawyers when they get down to the task of drafting demands for documents.
Lessons From the Bench: Remedies for Breach of Fiduciary Duty
The role of a fiduciary - an executor, an administrator, a trustee, and even a guardian - brings with it essential duties and responsibilities of loyalty, honesty, and good faith. Through the decision in In re Brissett, 7/26/2010 NYLJ 26 (col 6) (Sur Ct, Bronx County) we learn that a fiduciary who fails to fulfill this role can be removed from office, or worse yet, held in contempt of court and face imprisonment.
In In re Brissett, the Surrogate’s Court, Bronx County, held the executrix of the estate in contempt for failing to timely file an accounting. The record revealed that the decedent died in 2004 survived by her spouse, who post-deceased her. Her Will was admitted to probate several years after her death, and letters testamentary issued to her niece, as the named executrix.
Following the issuance of letters testamentary, a proceeding was instituted to compel the executrix to account. The application was granted, and the executrix was ordered to account within thirty days of service upon her of a certified copy of the court’s order. When no account was filed, a petition was filed requesting that the executrix be held in contempt. The application was granted upon the default of the executrix, and the court authorized the issuance of a warrant of commitment without further notice in the event the executrix failed to account within thirty days of service upon her of the court’s order with notice of entry.
Thereafter, a warrant of commitment issued and the executrix was brought before the court by the Sheriff of the City of New York. At that time, counsel for the executrix stated that the their client’s failure to account was attributable to their law office failure rather than her willful disregard of the court’s order. Based on counsel’s representations, the court temporarily vacated the order of commitment, provided that in the event the executrix failed to account by a date certain, the warrant would once again issue. A warrant of commitment was again issued as a result of the executrix’s failure to account, and yet another stay was granted until a date certain.
However, in lieu of filing her account, the executrix moved for an extension of time to file her account and for another stay of the warrant of commitment pending the outcome of the application.
In opposition to the relief requested by the executrix, the respondents maintained that she transferred to herself all estate assets, contrary to the provisions of the decedent’s Will, and requested that the court, inter alia, issue an order revoking the letters testamentary of the executrix, appointing one of them as the fiduciary of the estate, and imposing sanctions.
The court opined that although a warrant of commitment remained outstanding, the remedies afforded by the provisions of SCPA §2205 were likely to prove more fruitful than the imprisonment of the executrix for failure to comply with the court’s directives. Accordingly, the court denied the request by the executrix for another extension of time to account, suspended the letters testamentary issued to her, directed that a hearing be held on the issue of whether the executrix’s letters testamentary should be revoked and one of the respondents be appointed in her place and stead, and ordered that on the hearing date the parties be prepared to discuss a turnover of the books and records of the estate, and whether a trial date should be fixed for the successor fiduciary to take and state the account of the suspended executrix.
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Practice Tip: Absent grounds for disqualification, a duly nominated executor is entitled to preliminary letters testamentary to provide for the immediate administration and protection of the assets of the estate in instances where there may be a delay in probate. See In re Rullan, 11/15/2010 NYLJ.19 (col 2) (Sur. Ct. Bronx County).
Estate Fiduciary Wrongly Deprived of Counsel of Choice?
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 [1987]). 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.
Beneficiary Participation Irrelevant to Allocation of Trustees' Litigation Costs
Beneficiaries often question the circumstances under which a trustee or executor’s legal fees are chargeable against their inheritance, especially when those fees are incurred in defending the fiduciary’s alleged misconduct.
The law provides that fiduciaries who are guilty of a breach often remain entitled to have their litigation costs covered by the estate or trust for which they serve (see Estate of Casey, 6/21/93 NYLJ 33 [col 6][Sur Ct, Westchester County]; Matter of Kettle, 73 AD2d 786 [4th Dept 1979]). Although Surrogate’s Courts have the discretion to charge legal fees against the fiduciary personally “as an expense caused by their wrong”, these determinations are generally limited to cases where the court finds an act of bad faith (see Matter of Hidden, 243 NY 499 [1926]). It is therefore logical that the legal fees of a fiduciary who is not guilty of any misconduct are chargeable to the estate or trust. This was the case in Matter of Hyde, 2009 N.Y. Slip Op 02491(3d Dept 2009). There, however, the beneficiaries who had not contested the trustees’ accounting sought to have the trustees’ litigation costs borne solely by the shares of the objecting parties.
Matter of Hyde dealt with two trusts, the Hyde Trust and the Cunningham Trust, of which two families, the Renz family and the Whitney family, were beneficiaries. Specifically, the Hyde Trust provided that the Hyde grandchildren, Louis Whitney (“Whitney”) and Mary W. Renz (“Renz”), were each to receive equal shares of trust income during their respective lifetimes. Upon the death of either beneficiary, the principal of the deceased beneficiary’s share was to be distributed to each of Hyde’s great-grandchildren. Whitney died in January 2008, providing each of Hyde’s five great-grandchildren with a one-fifth interest in the remaining principal of Whitney’s half.
The Cunningham Trust also provided income for Whitney and Renz, each receiving a one-sixth interest therein, with a contingent remainder of one-sixth of the principal upon termination of the trust if the beneficiary were still living.In 2001, the trustees of the Hyde Trust commenced a proceeding for an intermediate accounting. Thereafter, in 2003, the trustees of the Cunningham Trust commenced a proceeding to settle their intermediate accounts. The Whitney children filed objections to each accounting, seeking to deny trustees’ commissions and to surcharge for failure to diversify investments. The Warren County Surrogate’s Court dismissed the objections, and said dismissal was affirmed on appeal.
Because the objections and subsequent trial were pursued solely by the Whitney children, the Renz children sought to charge only the Whitney portion of the trust with legal fees in connection with the defense of said objections. The Surrogate denied the motion, and charged each of the trusts as a whole with all litigation expenses.
SCPA 2110[1] authorizes the Surrogate to fix litigation costs in connection with legal services provided to a fiduciary. In addition, pursuant to SCPA 2110[2], the Surrogate may “direct payment therefor from the estate generally or from the funds in the hands of the fiduciary belonging to any legatee, devisee or person interested.” Here, the Surrogate charged the trusts as a whole with the attorneys’ fees incurred defending in both accounting proceedings, despite the nonparticipation of the Renz beneficiaries. The Third Department affirmed.
In upholding the Warren County Surrogate’s decision, the Appellate Division relied on both SCPA 2110, and the Court of Appeals holding in Matter of Dillon, 28 NY2d 597 (1971). Dillon provides that “SCPA 2110 does not authorize payment for legal services rendered a party to be charged against the share of other individual parties” (see Matter of Dillon, 28 NY2d 597, 599). The Renz beneficiaries’ attempt to distinguish Dillon was without avail.
Court Rejects Executor's Attempt to Sell House To Herself For $10
The real estate market might be bad, but it’s not that bad.
In Matter of Karr, NYLJ 2/5/09 (Surrogate’s Court, Kings County), Surrogate Maria López Torrez canceled a deed by which the executor of an estate attempted to convey to herself, in consideration of $10, a house owned by the estate. You can’t make this stuff up.
The defendant in the action, Joan Melluso, was the executor of her father’s estate. He died in 1977, leaving his house in equal shares to his daughter and son, Joan and Donald. He also granted Joan a life estate in the house, and included a clause in his will providing that “[t]he choice when and if to sell shall be hers.” In 2004, Donald died intestate, leaving a wife and four children. In 2007, Joan, in her capacity as the executor of her father’s estate, conveyed the property outright to herself for $10.
Donald’s wife and children filed an action in Supreme Court seeking, among other things, a declaration that the deed conveying the house to Joan was invalid and that they retained a 50-percent tenancy-in-common interest in the house. They moved for summary judgment. Joan cross-moved to transfer the action to Surrogate’s Court. The court denied the motion for summary judgment without prejudice and granted the cross-motion to transfer. Ultimately, the fully briefed motion for summary judgment was submitted for decision to the Surrogate.
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.
Powers of a Nominated Executor to Litigate Prior to the Issuance of Letters
Questions often arise regarding a nominated executor’s authority to commence an action on behalf of the estate prior to the issuance of letters testamentary. These must be answered on a case-by-case basis.
In general, the authority of an executor “is derived from the will, not from the letters issued by the Surrogate” (see Matter of Yarm, 119 AD2d 754 [2d
Pursuant to EPTL §11-1.3, a named executor of a will that has not yet been admitted to probate “has no power to dispose of any part of the estate of the testator before letters testamentary or preliminary letters testamentary are granted, . . . nor to interfere with such estate in any manner other than to take such action as is necessary to preserve it” (emphasis added). It is the language of this statute, and the similar words of its predecessor, Surrogate’s Court Act §223, that the courts have used as a guide in determining the circumstances under which named executors without letters may commence actions on behalf of the estate for which they are nominated to serve. Because the statute provides that a named executor may take actions that are necessary to “preserve” an estate, courts’ interpretations of the statute have established a fine line between those actions that are commenced for purposes of preservation, and those that constitute “active management” of estate affairs.
In Gaentner v Benkovich (18 AD3d 424 [2d Dept 2005]), the nominated executrix sought to set aside a conveyance of real property that occurred less than three months before the testator’s death, asserting that the transfer was the product of duress. The respondent moved to dismiss the claim alleging that the petitioner lacked standing because letters testamentary had not yet issued. The Second Department rejected this argument, stating that the designated executrix was entitled to maintain an action “to recover and preserve an asset alleged to have been wrongfully diverted from the decedent’s estate” (Gaentner v Benkovich, 18 AD3d 424, 426).
Similarly, in Estate of Pavese (NYLJ, Nov. 21, 2001, at 24, col 6 [Sur Ct, Nassau County]), the decedent had been in the midst of a divorce action at the time of his death. The individual named as the executor in the decedent’s will, which had not yet been probated, commenced an application to enjoin the decedent’s surviving spouse from withdrawing or transferring certain assets (id.). The Court entertained the application, recognizing the standing of the nominated executor to take action to preserve the assets of the estate. A comparable situation was presented by In re Del Principe’s Will, 157 NYS 2d 212 (Sur Ct, Westchester County 1956), where the decedent died holding all stock in a corporation. Upon his death, his spouse directed the company to pay her a weekly salary. At a subsequent corporate meeting, the nominated executor acted to nullify the widow’s instructions. The Surrogate upheld the executor’s actions, opining that they constituted a preservation of estate assets.
In contrast, Blood v Waszak (147 Misc 729 [Municipal Ct, Richmond County 1933]), addressed the issue of whether a named executor who had not yet received letters had the authority to bring suit to recover a debt due to the testator. The court held that this type of action could not be deemed instituted for the preservation of the estate (id.; see Carmody-Wait 2d §152:26 (2008) [citing Blood v Waszak for the proposition that an action to recover a debt due an estate will not be considered necessary for the preservation of an estate and thus must be dismissed for want of capacity to sue]; 16A McKinney’s Forms, Estates and Surrogate Practice §11:126 [2007]).
EPTL §11-1.3 and its predecessor statute have been applied to permit the commencement of actions by designated executors to ensure that assets, which are a part of the estate at the time of the decedent’s death, remain therein. This is the commonsensical definition of preserving estate assets. It should be noted, however, that such preservation extends to allow a named executor to commence an action to retrieve assets wrongfully diverted into the possession of others, yet does not apply to actions for the recovery of a debt due to the estate. The fine line between these scenarios appears to distinguish assets that were owed to the decedent or were legally outside of the decedent’s possession at the time of death, from those assets which may have been improperly obtained by others, but belong to the estate. Only the latter are actionable by an executor prior to the receipt of letters.
With respect to those situations in which litigation by a nominated fiduciary is appropriate, the Court of Appeals decision in Matter of Donner, 82 NY2d 574 (1993) should be considered. In Donner, it was held that the named executors breached their fiduciary duty by failing to act prudently to prevent losses in estate investments, despite the fact that letters had not yet issued. Thus, it is arguable that the statutory duty to preserve assets extends to require the nominated fiduciary to commence litigation when necessary.
