While most decisions rendered by the Surrogate’s Court result from an affirmative request for relief, occasionally the court will address an issue on its own motion when justice or the exercise of its inherent or statutory power requires. One of the better known instances in which the Surrogate’s Court undertook this role was Stortecky v. Mazzone, 85 NY2d 518 (1995), a case that addressed the court’s inherent authority to fix and determine legal fees. This post examines two recent opinions wherein the Surrogate’s Court, again, acted on its own initiative to achieve what it considered the proper result.

SCPA 1408 and the Duty to Admit a Valid Will to Probate

In In re Friedman, NYLJ, Mar. 13, 2017, at 22, the Surrogate’s Court, New York County, was confronted with two petitions requesting the admission to probate of a purported will of the decedent, dated April 5, 2011. The initial petition was filed by the nominated executor under the instrument and objections to probate were filed by the decedent’s daughter. Thereafter, the daughter withdrew her objections to probate, and filed a cross-petition for probate requesting that she, and not the nominated executor, be appointed fiduciary.

Despite the absence of objections to probate, the court noted several deficiencies on the face of the instrument, as well as evidence in the record that created “serious” concerns regarding its execution and the decedent’s testamentary capacity. More specifically, the court observed that the instrument arguably failed to dispose of any testamentary property, that the decedent’s name was misspelled, and that while the instrument contained a detailed listing of over 30 stock holdings and accounts, a year before the execution date, the decedent had been found by an examining psychiatrist to have cognitive limitations, and was unaware of his income.

In view thereof, and in accord with the provisions of SCPA 1408(1), the court scheduled a hearing in order to satisfy itself as to the genuineness of the propounded will and the validity of its execution. Petitioner, who was the only witness to testify, stated that the decedent drafted and typed the instrument, and later executed the document, without the supervision of an attorney, in the presence of two of petitioner’s friends. No explanation was given regarding the discrepancies in the instrument, or to mitigate the court’s concerns about the decedent’s mental capacity. Moreover, no explanation was provided as to the reference in the instrument to a date and event that occurred after the date of its execution, and the existence of the pre-typed names and addresses of the witnesses, despite petitioner’s contention that the decedent had never met them prior to the will being signed.

Accordingly, based on the foregoing, and the record as a whole, the court held that it was not satisfied that the will was valid, and denied the petition and cross-petition for its probate.

Surcharge of Fiduciary, Sua Sponte

Because a fiduciary is presumptively entitled to statutory commissions, an objectant in a contested accounting proceeding generally has the burden of demonstrating that fiduciary commissions should be denied. In In re Colt, NYLJ, Apr. 14, 2017, at 22 (Sur. Ct. New York County), the court seemingly deviated from this rule when it exercised its authority to review sua sponte the fiduciary’s commissions as executor and trustee.

Before the court were contested accountings of the fiduciary as executor of the decedent’s estate and successor trustee of a revocable trust created by the decedent in 2006. Following the dismissal of certain objections and the withdrawal of others, the court held a hearing on the remaining issue of the legal fees payable to the fiduciary’s counsel. The record at the hearing revealed that much of the work performed by counsel related to conflicting claims to the assets of the estate and trust. More specifically, it appeared that in 2004, the decedent had executed a pour over will and revocable trust into which he transferred his condominium and brokerage account. Two years later, he executed the subject 2006 trust, as well as a new will, which, again, contained a direction that his residuary estate pour over into the trust. The 2004 trust and 2006 trust essentially had the same legatees, however, the beneficiaries of the decedent’s residuary estate differed.

Significantly, the draftsperson of both wills and trusts was the fiduciary, who was the decedent’s estate planning attorney. Of equal note was the fiduciary’s acknowledgment that the decedent intended his assets to pass pursuant to the 2006 trust, and his admission that he failed to have the decedent revoke the 2004 trust and fund the 2006 trust with the assets with which the 2006 trust had been funded. Although the controversy regarding the rightful owners of these assets was settled, the court found that the decedent’s estate had a claim against the fiduciary for the legal fees incurred to resolve the trust issues that were created from his failure to properly advise the decedent. Indeed, regardless of whether the statute of limitations on any claim for malpractice had expired, or whether fiduciary had been shielded from claims based upon the privity doctrine, the court concluded that the fiduciary’s duty as executor required that he make the estate whole for the legal fees resulting from his negligence. His failure to fulfill this duty was exacerbated by his affirmative approval of the considerable legal fees incurred, which he apparently made no attempts to control.

In view thereof, the court held that the fiduciary had demonstrated a gross neglect of his duty and a substantial disregard of the rights of the beneficiaries warranting a denial of his commissions both as executor and trustee.

Powers of attorney and trust instruments have each been the subject of many an estate plan. They each have also been the subject of multiple estate litigations. In combination, the two have served as fodder for controversies surrounding the agent’s authority over the trust and its terms. Pursuant to the provisions of Uniform Trust Code §602(c), a settlor’s agent acting under a power of attorney can revoke  or amend a revocable trust, when authorized by the terms of the trust or the terms of a power of attorney.[1]  New York has no comparable statute under the EPTL or the SCPA, or, for that matter, under the General Obligations Law. Stemming from this silence, came two decisions that addressed the issue, albeit with different results; the first, Matter of Goetz, 8 Misc 3d 200 (Sur Ct, Westchester County 2005), in the context of a revocable trust, and the second, Matter of Perosi v. LiGregi, 98 AD3d 230 (2d Dept 2012) in the context of an irrevocable trust. Both decisions provide valuable instruction for drafters and litigators.

In Goetz, the petitioner, a child of the decedent, contended that the decedent’s spouse lacked authority, as his attorney-in-fact,  to amend a revocable trust created by the decedent, in order to confer upon herself a limited power of appointment over the trust remainder. The subject power of attorney was executed in 1995 and provided the agent with the full authority included in the form at the time.

While the terms of the trust instrument, as originally executed, divided the trust principal equally among the grantor’s four children, the amendment in issue provided the grantor’s spouse with a limited power of appointment over the principal exercisable in favor of any one or more of the children as she determined. Several days after the amendment was drafted, it was signed by the decedent’s spouse, as his agent. Shortly thereafter, the decedent, who was ill at the time, passed away. Two years following the decedent’s death, his spouse passed away leaving a last will and testament expressly disinheriting the petitioner, and exercising the power of appointment in favor of her other three children.

The petitioner maintained that the trust amendment was invalid and exceeded the authority granted the decedent’s spouse under the power of appointment. The respondent, the executor of both the decedent’s and his spouse’s estates, claimed that the trust amendment was consistent with the decedent’s expressed wishes and testamentary plan, and was within the scope of the powers conferred upon the decedent’s spouse as his attorney-in-fact.

The court rejected the respondent’s position, and declared the trust amendment invalid, opining that a grantor’s power of revocation is generally a personal right that terminates upon death, unless otherwise provided in the trust instrument. The subject trust contained no such provision. Moreover, recognizing a revocable trust as the lifetime equivalent of a will, the court was troubled by a ruling that would sustain an agent’s authority to essentially alter a principal’s testamentary plan.

Finally, and most importantly, the court held that neither the trust instrument nor the power of attorney at issue explicitly granted the extent of authority sought to be invoked by the agent in amending the trust (see EPTL §7-1.17(b)), concluding “[i]nstruments must be construed as written by their terms, and courts may not add to or alter their provisions in the guise of interpreting them, nor interpolate into them broad grants of authority not included by the parties.”

In Matter of Perosi, the Second Department took a different view from the court in Goetz on the issue of the agent’s authority, and distinguished the opinion in reaching its result. It is questionable whether the distinctions drawn upon the Court are sound, given the rationale of Goetz, and the rules of construction invoked in Goetz in interpreting the subject trust and power of attorney.

As compared to the trust in Goetz, the trust instrument in Perosi was irrevocable, and was established for the benefit of the creator’s three children, one of whom was his attorney-in-fact. The trustee of the trust was the creator’s brother. The power of attorney executed by the creator granted his agent the authority to act with respect to “all matters”, as well as with respect to “estate transactions.” Additionally, the major gifts rider to the power authorized the agent to establish and fund revocable or irrevocable trusts, transfer assets to a trust, make gifts and act as grantor and trustee.

The attorney-in-fact, with the consent of the beneficiaries, executed an amendment to the trust pursuant to EPTL §7-1.9, which removed the named trustee and his successor, and designated two others, including the son of the attorney-in-fact, in their place. Two weeks thereafter, the creator of the trust died.

A petition was then filed by the new trustee and the attorney-in-fact for an accounting by the predecessor trustee, who moved to set aside the trust amendment on the grounds that the trust was irrevocable. The petitioners opposed, relying upon the provisions of EPTL §7-1.9, which permitted the amendment during the creator’s lifetime, with the beneficiaries’ consent.

The Supreme Court granted the trustee’s motion and denied the petition, finding that the power of attorney did not authorize the amendment of estate planning devices created prior to its execution. Further, the court held that the statutory right to revoke or amend an irrevocable trust was a personal right, which was not expanded by the terms of either the trust instrument or the power of attorney. The Second Department reversed.

The Court found that although the trust was irrevocable, the creator nevertheless possessed the authority to amend or revoke the instrument pursuant to EPTL §7-1.9. In view of the beneficiaries’ consent to the amendment, the Court was confronted with the issue of whether the power of attorney empowered the attorney-in-fact to effectuate the amendment on the creator’s behalf. Notably, despite the authority granted to the agent with respect to “estate transactions” and “all other matters”, the Court concluded that neither the power of attorney nor the General Obligations Law specifically authorized the attorney-in-fact to amend the trust. (cf. Goetz).

Nevertheless, as compared to the analysis in Goetz, this did not end the inquiry for the Court, which went on to observe that an attorney-in-fact is an alter ego of the principal, authorized to act with respect to any and all matters, with the exception of those which by their nature, public policy, or otherwise, require personal performance. The Court noted that these matters would include the execution of a principal’s Will, the execution of a principal’s affidavit upon personal knowledge, or the entrance into a principal’s marriage or divorce.

Finding that the amendment of the trust by the attorney-in-fact did not fall into any one of these categories, the Court concluded that since the trust did not prohibit the creator from amending the trust by way of his attorney-in-fact, “the attorney-in-fact, as the alter ego of the creator”, properly did so.

Notably, in reaching this result, the Court distinguished Goetz on two grounds; the first, to the extent that it relied on the principal that the power of revocation was a personal, not delegable right; and the second, that the Goetz trust specifically reserved to the creator the right to amend or revoke the trust. Nevertheless, despite these purported distinctions, it is difficult to reconcile the results in in Perosi and Goetz.

Indeed, both courts were concerned with the fact that neither the language of the trusts or the powers of attorney at issue authorized the agent to amend or revoke the trust instrument. Moreover, the fact, mentioned by the Perosi court, that the creator in Goetz reserved in the instrument a power to revoke or amend its terms, should not be considered a distinguishing factor that would justify a contrary result, since the trust in Perosi was irrevocable, and thus, would not have given the creator that right. Nevertheless, like the instrument in Goetz, the statute, EPTL §7-1.9, relied upon in Perosi, which authorized the trust amendment, also did not confer that right upon an attorney-in-fact.  However, rather than end the inquiry, as the court did in Goetz, that omission served as a basis for the Perosi court to find that the attorney-in-fact could amend the trust, a result antithetical to the principle enunciated in Goetz, which cautioned against “interpolating instruments into broad grants of authority not included by the parties.”

With the foregoing in mind, it would seem that the more critical distinction between the opinions in Goetz and Perosi is the fact that the former involved a revocable trust- – a testamentary substitute — and, as such, the equivalent of a will, which both the courts in Perosi and Goetz, recognized could not be amended or revoked by an attorney-in-fact.

The distinction aside, the lesson to be learned from both Goetz and Perosi is to insure that the language of a trust and/or power of attorney be specific as to the extent of the agent’s authority to amend or revoke the instrument.

[1] Although not yet adopted in New York, a New York Uniform Trust Code has been the subject of significant analysis by the New York State Bar Association and the New York City Bar Association.

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

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

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

In 2010, the Appellate Division, Second Department, made it clear that principles of equity grounded in rules of forfeiture can adversely impact a surviving spouse’s entitlement to an elective share. In Campbell v. Thomas, 73 AD3d 103 (2d Dept 2010),  the Appellate Division rendered a decision of first impression when it denied the right of election asserted by the decedent’s surviving spouse based on the equitable principle that a party may not profit from his or her own wrongdoing.  In Matter of Berk, 71 AD3d 883 (2d Dept 2010), the Appellate Division adhered to the foregoing principles when it reversed a decree of the Surrogate’s Court, Kings County, which granted the petitioner, the surviving spouse of the decedent, summary judgment determining the validity of her right of election against the decedent’s estate. Following the 2010 opinion in Matter of Berk, the case continued to wind its way through the Surrogate’s Court as it headed towards trial.

Recently, the Appellate Division, Second Department, had the opportunity to readdress the parties in Matter of Berk, and provide practitioners with further instruction on the issues impacting the claimed elective share. Specifically, the Court modified an order of the Surrogate’s Court, Kings County (Johnson, S.) by (1) adding as an issue of fact to be tried the question of whether the petitioner, the decedent’s surviving spouse, exercised undue influence upon the decedent to induce him to marry her for the purpose of obtaining pecuniary benefits from his estate, and (2) replacing so much of the order, as imposed the burden of proof on appellants, the executors of the estate, by clear and convincing evidence, with a provision that placed the burden of proof on appellants by a preponderance of the credible evidence (see Matter of Berk, 133 AD3d 850 [2d Dept 2015]).

As readers may recall, the underlying proceeding involved a petition by the surviving spouse of the decedent for a determination of the validity and effect of her exercise of her right of election against his estate pursuant to EPTL 5-1.1-A.  In their answer, the appellants, the executors of the estate, asserted as an affirmative defense that the decedent was incompetent to enter into a marriage, that the petitioner knew that he was incapable of entering into a marriage, and that the petitioner had exercised undue influence over the decedent to convince him to marry her.

As stated, on a prior appeal, the Appellate Division, Second Department, reversed an order granting summary judgment to the petitioner, finding that there was an issue of fact as to whether the petitioner had forfeited her right of election by her alleged wrongdoing; that is, by marrying the decedent knowing that he was mentally incapable of consenting to a marriage for the purpose of obtaining pecuniary benefits from his estate. The Court further ruled that the appellants’ counterclaims alleging undue influence were improperly dismissed.

On remitter to the Surrogate’s Court, Kings County, the parties submitted proposed statements of the issues to be determined at trial, as well as proposals concerning the burden and quantum of proof on the issues. In the order appealed from, the Surrogate’s Court limited the issues for trial to whether the decedent was mentally incapacitated and incapable of consenting to his marriage to the petitioner, and if so, whether the petitioner took unfair advantage of him by marrying him for the purpose of availing herself, as his surviving spouse, of his estate at death. The Surrogate further ruled that the appellants/executors had the burden of proof on the issues by clear and convincing evidence. The Surrogate did not include the issue of undue influence as a matter to be determined.  The executors appealed.

The Appellate Division opined that the issue of whether the petitioner had forfeited her elective share under the circumstances raised by the proceeding was based on the equitable doctrine that the petitioner should not profit from her own wrongdoing. Where a claim of wrongful conduct is made, the parties asserting same, i.e., the appellants, have the burden of proving the wrongdoing by a preponderance of the evidence.  The Court further held that evidence of a confidential relationship between the petitioner and the decedent, by virtue of their marriage, was not, in itself, proof of the petitioner’s wrongdoing, and, as such, did not shift the burden of proof to the petitioner to prove otherwise.

Additionally, the Court held that an alternative ground for forfeiture of the right of election was whether the petitioner exercised undue influence upon the decedent to induce him to marry her. Again, the Court determined that the appellants had the burden of proof on this issue by a preponderance of the credible evidence.

The Berk matter is now primed for trial. Stay tuned for what is sure to be an instructive outcome.

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

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

           

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

           

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

 

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

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

Gifting, a fundamental tool of estate planning, is often fodder for estate litigation. This blog post will address two decisions, in particular, respecting the validity of purported gifts that were the subject of motions for summary relief.

As discussed below, the court in In re Rella, NYLJ, Apr. 10, 2012 , at 22 (Sur. Ct. New York County)(Sur. Anderson) granted an application for partial summary judgment and recognized the validity of the alleged gift, while in In re Goodwin, NYLJ, Apr. 10, 2012, at 31 (Sur. Ct. Suffolk County)(Sur. Czygier), the court granted summary judgment finding the alleged gifts to be invalid, and directed the return of the assets to the decedent’s estate.

In re Rella was a contested accounting proceeding in which the executor moved for partial summary judgment dismissing the objections contesting a gift that was made to him several months before the decedent’s death.

The decedent died, testate, survived by 5 children. Her husband had predeceased her in 1992. Pursuant to the terms of her Will, the decedent divided her estate equally among four of her children, and named her fifth child, Gilbert, together with Gilbert’s daughter, who died during the pendency of the proceeding, as co-executors. Prior to her death, the decedent purportedly transferred to Gilbert her 50% interest in a real estate holding company, the sole asset of which was a business operated by Gilbert. The remaining 50% interest in the company had been purchased by Gilbert from her late father’s business partner.

The decedent’s transfer of her interest to Gilbert was implemented by her as a corporate officer pursuant to a donative plan crafted by her attorney. A gift tax return was filed in connection with the transaction.

The objectant maintained that the decedent lacked the capacity to effect the foregoing transfer, and that it was procured by undue influence. The court disagreed.

With respect to the issue of capacity, the court opined that the donee bears the burden of proving by clear and convincing evidence that the donor knowingly made a present transfer of property. This burden is buttressed by the presumption that every individual has capacity, and the law’s recognition that mere old age or even mental weakness is not necessarily inconsistent with a lack of capacity to transfer property.

Assessing the record within this context, the court found the deposition transcripts of three disinterested individuals reinforced the presumption of capacity. Notably, the testimony of the decedent’s internist of more than 15 years revealed that he had examined the decedent two days before the subject transfer, and had found the decedent to be alert and cogent. Additionally, the decedent’s attorney of more than 50 years, who had handled the transfer on her behalf, testified that he and the decedent’s accountant had met with the decedent to discuss the gifts for two hours, during which time the decedent stated that she had wanted to transfer the property for some time. Based upon this record, together with the presumption of capacity, the court concluded that Gilbert had established a prima facie case that the decedent had the capacity to make the subject gift. On the other hand, the court noted that the objectants lacked personal knowledge of facts regarding the subject transfer. Moreover, the court found upon review of the objectants’ proof, that the objectants had failed to submit any evidence that would create a question of fact regarding the capacity of the decedent to make the subject transfer.

As for the issue of undue influence, the court found that Gilbert had established prima facie that the decedent had made the transfer in issue freely and voluntarily. The court rejected objectants’ claims that a confidential relationship existed between Gilbert and the decedent, as well as objectants’ contention that an inference of undue influence arose by virtue of the fact that Gilbert was present for a part of the time that the decedent had discussed the subject gift with her attorney and accountant. Significantly, the court concluded that any inference of undue influence in this regard was countermanded by the fact that the professionals were the decedent’s long-time advisors. Indeed, the court found none of the indicia of undue influence present; there was no evidence that Gilbert had isolated the decedent from family and friends, nor was their proof that the decedent was so dependent upon Gilbert as to be subject to her control.

Accordingly, based on the totality of evidence, partial summary judgment was granted in the executor’s favor.

Before the court in In re Goodwin was a motion for summary judgment in a proceeding by the decedent’s son, pursuant to SCPA 2105, to discover and compel the turnover of property withheld by the decedent’s daughter, the executrix of the estate. In support of the application, the petitioner alleged that the executrix, while acting as the decedent’s attorney-in-fact, made certain transfers of the decedent’s money to various bank accounts held jointly between herself and the decedent in violation of her fiduciary duties. Notably, the subject powers of attorney were silent as to the gift-giving authority of the agent.

In opposition to the motion, the executrix alleged that the transfers in question were made in accordance with the decedent’s directives and in the decedent’s best interests. Although the executrix provided the court with a copy of the deed relative to this transfer, the court noted that the attorney who prepared the deed, a disinterested witness to the transaction, had failed to provide any information as to the circumstances surrounding the transfer. Further, the executrix alleged that the decedent was mentally capable of making decisions, and was generous with her assets, as reflected in the gifts she had made to the petitioner.

In reply, the petitioner claimed that the decedent suffered from dementia at the time the transfers were made, and submitted the decedent’s medical records in support. In addition, the petitioner submitted a copy of a Family Contract that revealed that the subject transfers were made in order to qualify the decedent for government programs, that the assets thereof were to be for the sole benefit of the decedent, and that the funds were to be distributed at her death pursuant to the terms of her will. The agreement was signed by the executrix.

The court opined that gifts and pre-death transfers made by an agent to herself as power of attorney generally carry with them a presumption of impropriety and self-dealing that can be overcome by a clear showing of intent on the part of the principal to make the gift. Further, any such gifts must be made subject to the principal’s best interests to carry out her “financial, estate or tax plans” (see Matter of Ferrara, 7 NY3d 244).

Based upon the record, the court concluded that the petitioner had made a prima facie case in favor of summary judgment. Specifically, the court relied on the presumption of impropriety surrounding the transfers, and the requirement that the transfers be proven in the decedent’s best interests. To this extent, the court noted that by signing the Family Contract, the executrix acknowledged that she would be receiving the decedent’s assets and that such assets were not to be distributed to anyone other than the decedent.

The court found that given the proof submitted, the executrix was the primary witness to the facts and circumstances surrounding the subject transfers and her testimony was barred by the Dead Man’s Statute. Significantly, the court noted that while it could consider evidence otherwise excludable by the Statute in opposition to the motion, the executrix had failed to offer any other corroborating support for her position. Accordingly, the court directed that the assets represented by the transfers in issue be restored to the estate.


 

 

Undue influence is an issue commonly associated with Surrogate’s Court proceedings. Indeed, it is often the linchpin to the outcome of a matter, and as such, relevant to its strategy. This is most pointedly revealed by opinions rendered by the Surrogates of New York and Kings County this year, in which the issue of undue influence played a primary role in connection with a contested probate proceeding.

In In re Moles, N.Y.L.J., Apr. 18, 2011, p. 23 (Sur Ct, New York County), the preliminary executors of the estate moved for summary judgment dismissing the objections of the decedent’s nephew, who was the beneficiary of a prior will executed thirty years earlier than the propounded instrument. The objections alleged, inter alia, that the instrument was not duly executed, and that the instrument was procured by the fraud and undue influence of the decedent’s long-time companion, who was the sole beneficiary of the estate, and the named executor along with the attorney-draftsperson.

The undisputed record revealed that the decedent had a history of alcohol abuse for which she was hospitalized and later rehabilitated. Upon completion of her rehabilitation, she returned to New York City where she retained the services of a personal aide whom resided with her until her death twenty years later.  Over the course of her employ, there was no dispute that the decedent and her aide became inseparable, spending every day together, and traveling domestically and overseas. Further, there was no dispute that the decedent was capable of making financial and personal decisions regarding her investments and health care.

The decedent’s treating physician testified that she always found the decedent fully responsive and rational. This was substantiated as well by the attorney-draftsperson of the instrument, who stated that he found the decedent alert, coherent and able to convey detailed information regarding her life situation and family.

Notably, the will execution was videotaped and supervised by the draftsperson’s colleague.

In granting the proponents summary relief, the court rejected the notion that the decedent’s early alcoholism impaired her capacity to execute a will, as well as the testimony of the videographer relied upon by the objectant, who testified that the decedent had difficulty identifying the President of the United States. The court held that this evidence paled in light of the reports and testimony of the professionals who treated and worked with the decedent during the period surrounding the execution of the instrument, all of which indicated that she possessed the minimal capacity required to make a valid Will.

As to the issue of undue influence, the court concluded that the objectant had failed to submit any evidence that the decedent’s aide had compelled or constrained the decedent to do anything against her free will. In fact, the objectant admitted that he saw the decedent at most one to two times a year, and that her other family members rarely visited her.

The court found it significant that the attorney-draftsperson of the instrument testified that the provisions of the Will were derived from instructions given to him by the decedent with no involvement of the decedent’s aide. To this extent, the court opined that the lack of involvement by the proponent in a will’s drafting and execution is inconsistent with any inference of undue influence, even where the disinherited party is a close family member. Further, the court held that even assuming the existence of a confidential relationship between the proponent and the decedent, it was counterbalanced by the evidence of the strong affection between the decedent and her aide during their twenty year relationship, the decedent’s expressed desire to leave her aide her entire estate, and her aide’s lack of involvement in the drafting of the Will.

Finally, the court concluded that the objectant had failed to produce a modicum of proof that anyone induced the decedent to execute her Will based upon a false statement.

In comparison to the holding in In re Moles, the court in In re Carter, N.Y.L.J., Apr. 18, 2011, p. 25 (Sur Ct, Kings County), found that the inference of undue influence required that the propounded instrument be denied probate. The facts of the case are in stark contrast to those in Moles and substantiate the differing opinions.

In Carter, the propounded instrument left the decedent’s entire estate, but for 25% percent of any cash due and owing to the decedent’s sole surviving heir, her sister, to a complete stranger (Frazier), who was also named the executor,. The instrument also directed that in the event the decedent’s sister should be admitted to a nursing home, her share should pass instead to Frazier, and that Frazier pay an amount, not to exceed 11 % of the residuary estate, to charities of his choice.

The record revealed that Frazier was 40 years the decedent’s junior, was not related to the decedent, yet, was her self-described caretaker, and that he was an instrumental force behind the execution of the propounded instrument. The court held that, under these circumstances, as well as events described in its own files and through the testimony of Frazier, an inference of undue influence existed requiring a hearing. Notably, the court found that Frazier had been previously appointed as fiduciary in a number of other estates of women significantly older than him, and with whom he had no relationship, that were strikingly similar to the factual situation involving this decedent.

Based on the testimony and evidence adduced at the hearing, the court concluded that Frazier had engaged in a systematic course to take over the personal and financial affairs of the decedent, whom he knew had been diagnosed with dementia, much as he did in the case of countless other elderly and frail women to whom he ingratiated himself. He moved into her home, put his name on her bank accounts, monitored her telephone calls, put her under surveillance and held her health care proxy. Significantly, the record also disclosed that in 2006, when the decedent was overtly suffering mentally, and when no attorney would draft a Will for her, he allegedly acceded to her insistence upon executing a new Will by retyping a prior Will of the decedent, with the decedent’s handwritten changes, and taking the decedent to her doctor’s office to have it signed and witnessed. 

At the conclusion of the hearing, the court concluded, inter alia, that Frazier’s testimony gave rise to a strong inference of undue influence, based in particular, upon his complete insinuation into the decedent’s life and financial affairs, the decedent’s dependence upon him for her basic needs, and his involvement in the preparation and execution of the instrument which made him the primary recipient of her estate. The court held that Frazier offered nothing to rebut this proof, but rather buttressed the result that the Will of the decedent was the product of his own decision-making, and control over its preparation and execution.

Accordingly, probate was denied.

 

 

 

Although exoneration clauses in a testamentary trust will not, as a matter of public policy, absolve a trustee of liability for failure to exercise reasonable care, diligence and prudence (EPTL §11-1.7(a)(1)), there is no comparable statutory provision with respect to exoneration clauses in lifetime trusts. Nevertheless, the court, in Matter of Accounting of Tydings, NYLJ, July 7, 2011, at p. 26 (Sur Ct, Bronx County), found reason, despite the exoneration clause in the inter vivos trust instrument, to hold the trustee liable.

In Tydings, the court had the opportunity to opine on the effect of the exoneration clause in the subject trust, commissions, and the legal fees incurred by the petitioner and objectant. The objectant in the proceeding was the grantor and income beneficiary of the trust, with a discretionary interest in the principal. The ultimate remainderman of the trust was the grantor’s infant son.

With regard to the issue of the exoneration clause, the trust instrument authorized, inter alia, the trustee to retain an original investment for any length of time without liability for such retention, and to act on behalf of the trust and herself or another entity with regard to any transaction in which the trustee and the trust or the other entity had an interest. The trust also provided that the trustee would not be responsible for any loss to the trust unless such loss resulted from bad faith or fraud on the part of the trustee, and that the trustee would not be disqualified from acting because the trustee held an interest in any property or entity in which the trust also held an interest. The court noted that several of the objections raised in the proceeding hinged, inter alia, on the enforceability of this exoneration clause.

To this extent, the court opined that despite the absence of a statute applicable to exoneration clauses contained in lifetime trusts (cf. EPTL 11-1.7(a)(1)), the enforceability of such clauses were nevertheless subject to certain defined limitations. For instance, the court observed that a trustee of a lifetime trust who is guilty of wrongful negligence, impermissible self-dealing, bad faith or reckless indifference to the interests of the beneficiaries will not be shielded from liability by an exoneration clause. Moreover, when an attorney, named as trustee, is the draftsperson of the instrument containing an exoneration clause, the clause limiting the trustee’s liability to bad faith acts is void as against public policy. Further, the court noted that while improper self-dealing will not come under the umbrella of an exoneration clause, the rule of undivided loyalty due from a trustee may be relaxed by appropriate language in the trust instrument which directly or indirectly recognizes the trustee may be in a position of conflict with the trust.

Within this context, the court held that the petitioner would not be liable with respect to an interest-free loan that pre-existed the creation of the trust and that had been transferred into the trust by the grantor. On the other hand, the court found the petitioner liable for interest-free loans made by the trust subsequent to the inception of her stewardship. To this extent, the court concluded that petitioner’s conduct exhibited a complete indifference to the best interests of the objectant, mandating that she be surcharged for the income lost on the loan transactions.

Additionally, the court found that the exoneration clause in the instrument did not bar the objectant from recovering lost profits from the trustee attributable to her use of trust funds, without consideration, to benefit an entity in which she was personally interested.

As to the balance of the objections, the court concluded that the objectant was either estopped from raising the issues, or did not warrant the imposition of a surcharge.

With respect to the issue of commissions, the court opined that while not every surcharge warrants a denial of commissions, when the fiduciary has engaged in conduct evidencing bad faith, a complete indifference to his/her duties and responsibilities, or some act of malfeasance or misfeasance, commissions will be denied. Based on the record, the court found that the petitioner was lax with regard to managing the financial aspects of the trust. Indeed, although the court concluded that the petitioner had not acted in bad faith, it, nevertheless, held, particularly based on the interest-free loans that had been made, that she had exhibited indifference to her duties, and, accordingly, sufficient misfeasance to warrant a denial of commissions. Further, the court denied the petitioner annual commissions on the grounds that she had failed to establish that she had furnished the objectant with an annual statement pursuant to the provisions of SCPA 2309, that the objectant had waived her right to receive the statement, or that there was sufficient income retained by the trust in any particular year from which she could pay herself income commissions.

Finally, with regard to the issue of legal fees, the court held, in the exercise of discretion, that the petitioner and the objectant should each, individually, bear responsibility for their legal fees and expenses. The court observed that while many of the objections to the petitioner’s account had not been sustained, the petitioner could not seek payment of fees from the trust for defending objections for which she was surcharged. Moreover, the court opined that a strong case could be made for holding the petitioner responsible for the expert witness fees incurred by the objectant in proving petitioner’s liability in connection with the transactions for which she was surcharged. On the other hand, the court noted that the objectant vigorously pursued, and caused the petitioner to defend, numerous objections of which she was aware and had approved prior to their occurrence. Accordingly, under all the circumstances, the court determined it would be most equitable to have the petitioner and the objectant to personally satisfy their own legal fees in connection with the proceeding.

Over the past several months, the Appellate courts have been actively engaged in determining issues pertinent to the field of trusts and estates and providing guidance to the Surrogate’s Court practitioner. The following is a synopsis of but a few of the decisions rendered.

Discovery Proceedings

In Matter of Delgatto, 2011 NY Slip Op 02667, the Appellate Division, Second Department affirmed an order of the Surrogate’s Court, Kings County (Johnson, S.), which denied the petitioner’s motion for summary judgment in a proceeding pursuant to SCPA 2103 to recover real property. The petitioner, who was the administrator cta of the estate, alleged that the decedent transferred the subject property to a revocable trust for the benefit of his caregiver, as a result of undue influence. The Court noted that several of the exhibits submitted by the petitioner were not in admissible form, i.e. unsigned and unattested transcripts, and thus could not be utilized in support of the motion. Further, the Court opined that the admissible evidence submitted by the petitioner failed to establish the petitioner’s prima facie entitlement to judgment as a matter of law.

The Elective Share

On April 26, 2011, the Appellate Division, Second Department, affirmed the order of the Surrogate’s Court, Kings County (Johnson, S.), which granted the petitioner’s motion for summary judgment determining her right to an elective share of the decedent’s estate. In Matter of Atiram, 2011 NY Slip Op 03593, the Court found that the petitioner had established that she married the decedent in 1952 and that they remained legally married until the date of the decedent’s death. The Court concluded that the objectant had failed to raise any triable issue of fact as to whether the petitioner was disqualified on the grounds of abandonment, or equitably estopped from taking an elective share.

Compulsory Accounting

In Matter of Faggen, 2011 NY Slip Op 01413, the Appellate Division, First Department affirmed an order of the Surrogate’s Court, New York Count (Webber, S.), which dismissed a petition for a compulsory accounting by the co-fiduciaries of the estate of the decedent. The record revealed that the decedent was the fiduciary of the estate of her late husband, who was the executor of the estate which was the subject of the proceeding. The Court held that a compulsory proceeding by fiduciaries thrice removed from the subject estate was not authorized by the provisions of SCPA 2207.

Proceeding Against a Fiduciary to Recover Property

Before the Appellate Division, Third Department in Matter of Curtis, 2011 NY Slip Op 027773, was an appeal from an order and decree of the Surrogate’s Court, Rensselaer County (Hummel, S.), which partially granted the petitioner’s application to compel the delivery of property from the fiduciary, and from a decree of that court which judicially settled the fiduciary’s accounting. The parties were the decedent’s daughters and co-executors of her estate. Prior to the decedent’s death, the decedent moved in with one of her daughters, who became her attorney-in-fact. Acting in this capacity, the daughter transferred assets of the decedent into her name.

After the decedent’s death, the decedent’s other daughter compelled her sister to account as attorney-in-fact and as co-executor of the estate. Both accountings were submitted and objections were filed. At the bench trial, the petitioner only pursued objections to the respondent’s accounting as attorney-in-fact, alleging that the transfers of assets by the decedent were the result of self -dealing and breach of fiduciary duty. The Surrogate’s Court disagreed, concluding that the respondent’s actions were undertaken with the express consent of the decedent, who was found competent at the time. The Appellate Division affirmed.

The Court held that while there was a presumption that the services provided by respondent’s husband in connection with the sale of certain realty were gratuitous in nature, that presumption was sufficiently rebutted by the testimony of the respondent and her husband that the decedent agreed to pay for her son-in-law’s services. To this extent, the Court deferred to the Surrogate’s assessment of the witnesses’ credibility, and expressly noted that the petitioner put forth no evidence to contradict the evidence presented.

Moreover, the Court found that the transfer of the decedent’s investment account to the respondent, and respondent’s inclusion as a mortgagee upon the sale of the decedent’s home constituted valid gifts, albeit made by the respondent as the decedent’s attorney-in-fact. The Court relied on the language of the power of attorney which authorized the making of the gifts in issue, as well as the testimony of the respondent who stated that the decedent was present when the subject transactions occurred.

 

The recent entry by Jaclene D’Agostino addressed the issue of constructive trusts. From that, we learned that a constructive trust is characterized by four elements: (1) a confidential or fiduciary relationship; (2) a promise; (3) a transfer in reliance thereon; and (4) unjust enrichment. While not an express trust in kind, a constructive trust is an equally useful device created by operation of law in order to promote equity. Although the Court of Appeals in Latham v. Father Devine, 299 NY 22 (1949) and Matter of O’Hara’s Will, 95 NY 403 (1884), cited by Ms. D’Agostino in her article, imposed a constructive trust under the circumstances presented, the Surrogate’s Court, Suffolk County in Dext v. Rorech III, Individually and as Executor of the Estate of William Rorech, Jr., NYLJ, 2/18/11, p.33 (col. 5) rejected that result for reasons explained below.

Before the court in Dext was a motion for summary judgment brought by the fiduciary in an action concerning the parties’ rights with respect to the decedent’s realty. The decedent’s Will was admitted to probate in Florida, and his son was appointed fiduciary of his estate. Thereafter, the fiduciary was appointed ancillary executor of the decedent’s estate in order to pursue an eviction in connection with the decedent’s home in Smithtown. The fiduciary alleged that the resident at the premises had been residing there rent-free for over a year since the decedent’s death.

Subsequently, the resident instituted an action, as plaintiff, in Supreme Court against the fiduciary alleging, inter alia, a cause of action in constructive trust, and requesting that she be given a life estate in the property. An answer was filed, and the fiduciary then moved for summary relief alleging, inter alia, that the decedent was the sole owner of the property, that there was no provision in the Will for plaintiff, that there was no written instrument evidencing the plaintiff’s right to occupy the premises, and that there was no proof of the promise(s) alleged. In opposition to the motion, plaintiff maintained that there were triable issues of fact as to whether the decedent had made an oral promise to plaintiff of a life estate in the premises, and, that there was part performance of same when decedent had plaintiff relocate from her home in Montauk to the Smithtown property. Further, plaintiff submitted her signed affidavit to support her claims, naming a number of witnesses who would testify on her behalf. The fiduciary replied.

 In the interim, the action was transferred to the Surrogate’s Court pursuant to a so-ordered stipulation of the parties.

In granting the fiduciary’s motion for summary judgment, the court opined that in order to establish a claim for constructive trust four elements must be proven: 1) a confidential or fiduciary relationship between the parties; 2) a promise; 3) a transfer in reliance on the promise, and 4) unjust enrichment. Although the court noted that plaintiff had a close, confidential relationship with the decedent, it found that plaintiff had failed to prove the other required elements of a constructive trust.

Significantly, the court found that plaintiff would be the primary witness in support of her claim, inasmuch as she failed to oppose the defendant fiduciary’s contention that these witnesses expressed no knowledge of the purported promise to plaintiff by the decedent. Further, the court noted that although plaintiff alleged that she had other witnesses to testify on her behalf, she failed to offer any proof regarding these witnesses other than her own self-serving affidavit. Additionally, the court opined that plaintiff’s contention that she gave up her home in Montauk based upon the decedent’s alleged promise was insufficient to demonstrate a transfer in reliance or unjust enrichment.

 Finally, the court held that plaintiff’s theory based upon part performance of an oral contract to give plaintiff a life estate also failed, on the grounds that her move from her Montauk home could not reasonably be viewed as unequivocally referable to the alleged agreement she had with the decedent.

Hence, it can be seen from the foregoing, that while a cause of action based in constructive trust may be a useful tool in obtaining equitable relief, the failure to prove the requisite elements thereof can prove fatal in some circumstances.