Infants as Parties to Stipulations of Settlement in Surrogate's Court Proceedings
Generally, where an infant or someone under another disability is a necessary party to an action, it is the parent or guardian of the property who represents him in that action. If the disabled individual has no such guardian, then the court shall appoint a guardian-ad-litem to represent his interests (see CPLR 1201). It is the appropriate guardian who will have the authority to enter into a stipulation of settlement on behalf of the incapacitated individual, but he or she must seek court approval of said agreement by motion pursuant to CPLR 1207 prior to its becoming enforceable.
Particularly relevant to the trusts and estates practitioner, the corresponding procedure in Surrogate Court is very similar. Pursuant to SCPA 315, an adult competent party who has a similar economic interest to another necessary party who suffers from a disability (i.e., an infant) may represent the latter by virtual representation. However, the statute restricts virtual representation to court proceedings and informal accounts, and thus, it does not apply with respect to a typical out of court settlement. Instead, where an individual under a disability is a necessary party to a settlement agreement that falls outside of SCPA 315[8], the parties must file a compromise proceeding pursuant to SCPA 2106.
Pursuant to SCPA 2106[5], a compromise proceeding requires the petitioner to outline for the court the facts that caused the dispute, identify the various disagreeing positions and the interests of the parties, and establish the necessity for court approval of the agreement. A guardian-ad-litem will then be appointed to represent the interests of the infant or other individuals under disabilities, and it is his responsibility to determine whether the proposed settlement is in the best interests of his ward(s). If it is, then the guardian-ad-litem must obtain authority from the court to enter into the settlement. However, it is only if the court deems the relief obtained through the settlement to be “just and reasonable,” that it will enter the requisite final decree binding on all interested parties, including those under a disability. (see Charles F. Gibbs and Colleen F. Carew, Surrogate’s Practice and Proceedings: SCPA 315 and Out-of-Court Settlements: Risk v. Reward, New York Law Journal, Nov. 6, 2006).
Although SCPA 2106 and CPLR 1207 provide vehicles by which necessary parties who are under a disability can be bound by a settlement, these statutes create additional hurdles to creating enforceable stipulations. Indeed, the proposed agreement may be rejected by the guardian-ad-litem, his or her appointment may result in the filing of objections, or the court may not find the agreement to be “just and reasonable.”
Validity of Decedent's Marriage the Focus of Application to Vacate Stipulation of Settlement
The validity of a decedent’s marriage is a topic that is litigated in Surrogate’s Courts with increasing frequency. A determination on the issue has multiple implications for those interested in an estate, including the surviving spouse’s right to an elective share, distributee status and consequential standing of other family members to participate in probate proceedings if the marriage were invalid, and priority in obtaining letters of administration. In the recent case of Matter of Cheek, decided by Surrogate Holzman of Bronx County, the decedent’s sister – motivated, at least in part, to obtain distributee status - challenged the validity of her brother’s marriage to the respondent as a basis to vacate a stipulation of settlement.
Specifically, the decedent’s sister, who had previously commenced a proceeding alleging that she was a creditor of the estate, sought to vacate the stipulation that had previously been entered into on the record in open court, settling her claim. She alleged that she had been in an emotional and volatile state when the agreement was made because it occurred on the one year anniversary of the decedent’s death. She further argued that the agreement was void based upon a mutual mistake of fact regarding the validity of the decedent’s marriage at the time of his death. To this extent, the sister alleged that after entering into the agreement, she learned that the decedent’s divorce from his first wife had been invalid, thus rendering his second marriage to the respondent invalid as well. The sister further claimed that the invalidity of the marriage eliminated the respondent’s status as sole distributee of the estate, and meant that either she or the first spouse, if living, were the sole distributees.
Opposing the sister’s application, the respondent provided an original certified copy of her marriage certificate, which recognized the decedent’s divorce from his first wife. The respondent further alleged that the sister lacked standing to contest the validity of her marriage; but even if standing existed, the decedent’s first wife, not his sister, would be the sole distributee. The respondent additionally asserted that there existed no grounds to vacate the stipulation of settlement for mutual mistake inasmuch as she had provided proof of her marriage, and the sister provided no proof to the contrary.
In response to the foregoing, the court explained that an original certificate of marriage in New York is generally prima facie evidence that the marriage existed (id., citing CPLR 4526), and also stated that absent contrary evidence, there exists a presumption of the validity of a second marriage; the burden of proving otherwise lies with those who assert it. The court went on to state that that burden is even greater where the party challenging the validity is a stranger to the marriage, such as the sister in the subject case (id. relying on Matter of Esmond v Lyons Bar & Grill, 26 AD2d 884 [3d Dept 1966]).
The court further explained the longstanding rule that “stipulations of settlement are favored by the courts and not lightly cast aside” (Hallock v State of New York, 64 NY2d 224 [1984]), “particularly where, as here the stipulation was entered on the record in open court, its terms are unambiguous, the parties were represented by counsel, and the court conducted a proper allocution of the petitioner and determined that she voluntarily and knowingly accepted the terms of the stipulation’” (Matter of Cheek, quoting Matter of Siegel, 29 AD914, 915 [2d Dept 2006]). Considering the sister’s allegations – which the court characterized as conclusory – in view of that standard, the court opined that there was no basis to vacate the stipulation of settlement.
The holding in Cheek is not surprising given the high standard one must meet to vacate a valid stipulation of settlement. Indeed, “only where there is cause sufficient to invalidate a contract, such as fraud, collusion, mistake or accident, will a party be relieved of the consequences of a stipulation made during litigation” (Hallock v State of New York, 64 NY2d 224, 230 [1984]). Nonetheless, the court refused the respondent's request for affirmative relief of attorney’s fees against the sister in connection with her application for vacatur, and despite describing her allegations as conclusory, opined that it had not been a frivolous proceeding.
Was it a Convenience Account?
A convenience account is exactly as it sounds – an account on which the holder adds someone else’s name for purposes of convenience only, i.e., check writing, bill paying, transfers, and withdrawals. It is a frequently litigated topic , as the issue often arises as to whether a joint account had really been intended as such, or whether it was created merely for convenience. If it is the latter, then all of the funds contained in the account will pass to the estate of the initial account holder.
It is generally recognized that Section 675 of the Banking Law creates a presumption that a right of survivorship is intended for each named account holder, but some courts have held that this presumption only arises where the signature card on the account contains the requisite survivorship language (see e.g. Matter of Coon, 148 AD2d 906 [3d Dept 1989]; Matter of Seidel, 134 AD2d 879 [4th Dept 1987]; Matter of Ancell, 5/2/2002 NYLJ 28 [col 4] [Sur Ct, Westchester County]; cf. Sutton v Bank of New York , 250 AD2d 447 [1st Dept 1998]). Regardless, it is the burden of the person alleging that such an account had been for convenience to come forth with sufficient evidence to rebut any existing presumption, and establish that a convenience account had been intended (see Viggiano v Viggiano, 136 AD2d 640 [2d Dept 1988]). In deciding the issue, courts typically look to the following factors:
- Whether the decedent was the sole depositor to the account;
- Whether the creation of a survivorship interest would deviate from the decedent’s testamentary plan;
- Whether the account was used exclusively by the decedent during his lifetime;
- Whether the decedent retained the right to withdraw the proceeds; and
- The conduct of the surviving joint tenant (In re Zorskas, 20 Misc 3d 1110[A], [Sur Ct, Nassau County 2008]).
These considerations will ultimately determine the outcome of Estate of Sanabria, 2011 NY Slip Op 51802(U), a recent case emanating from Bronx County. Surrogate Holzman issued an initial decision in Sanabria last week, granting the temporary administrator’s application for a preliminary injunction against a daughter of the decedent, prohibiting her from withdrawing funds from a bank account that she had held jointly with the decedent during his lifetime. The temporary administrator, who also happened to be a son of the decedent, asserted that the joint account had been for convenience only. The daughter, on the other hand, claimed that the subject account had been held jointly with right of survivorship. Her position was not supported by the signature card, which lacked survivorship language and listed the decedent “or” the daughter as the account holders. Therefore, even if the account were not a convenience account but merely a co-tenancy, principles of moiety would entitle the daughter to no more than half of the funds contained therein (see Estate of Hamburg, 151 Misc 2d 1034 [Sur Ct, Bronx County 1991]).
On the return date, counsel for the petitioner informed the court that the daughter had withdrawn approximately $358,000 from the joint account, which was then closed. Accordingly, he requested broader relief enjoining the daughter from transferring or disposing of all funds that had been in the joint account, regardless of their current location. The Court granted this relief because the temporary administrator met the requisite elements for preliminary relief, demonstrating (1) a likelihood of success on the merits (by virtue of the signature card); (2) irreparable harm to the estate if the preliminary injunction were not granted; and (3) the balance of equities of his favor (the daughter removed the funds from the account after being on notice of the estate’s claim against her). Notably, the Court’s consideration of the signature card as probative of a likelihood of success on the merits indicates that it is following the line of cases holding survivorship language on the card to be determinative as to whether a presumption of a joint tenancy will arise (see supra).
If, after a hearing, the Court decides that the account was in fact for convenience only, the daughter will be liable for the entire balance of the account as of the date of the decedent’s death.
19 Year-Old Instrument Denied Probate as Ancient Document
Generally, the testimony of at least one attesting witness is required to probate a will. But practitioners will sometimes face a situation where all of the witnesses to a propounded instrument are unavailable or cannot be located to testify in support of the document. In such cases, the common law “ancient document rule” may be relied upon to probate the instrument if it is of a certain age.
New York Courts have been utilizing the ancient document rule as a practical basis for probate since the early nineteenth century (see In re Hehn’s Will, 6 Misc 2d 801 [Sur Ct, Nassau County 1957]). But in the recent case of Matter of Santoro, 2011 NY Slip Op 50920(U), Surrogate McCarty of Nassau County addressed the question of whether the rule can be relied upon where the propounded instrument is only nineteen years old; he held that it cannot.
The basis for the ancient document rule has been explained as twofold: (1) “after a long lapse of time, ordinary testimonial evidence from those who saw the document’s execution or knew the style of handwriting or heard the party admit the execution is practically unavailable, and a necessity always exists for resorting to circumstantial evidence”; and (2) “the circumstance of age-or long existence-of the document, together with its place of custody, its unsuspicious appearance, and perhaps other circumstances, suffice, in combination, as evidence to be submitted to the jury” (In re Hehn’s Will, 6 Misc 2d 801 [Sur Ct, Nassau County 1957], quoting VII Wigmore on Evidence [Third Ed.] §2137]).
In his analysis, Surrogate McCarty did not raise any basis to dispute the genuineness of the instrument, and noted that the application was uncontested. However, he explained that the common law ancient document rule requires the propounded instrument to be at least thirty years old, although some liberal courts have adopted the federal twenty-year rule. Application of the rule to a nineteen-year old instrument was unprecedented. Accordingly, it was held that the instrument could not be probated as an ancient document.
Despite its failure to qualify as an ancient document, the Court explained a statutory basis upon which the instrument may be probated absent the testimony of any witnesses. SCPA §1405[4] provides that the will may be admitted to probate based solely upon “the handwriting of the testator and of at least one of the attesting witnesses and such other facts as would be sufficient to prove the will”. To satisfy this requirement, the Surrogate noted that the handwriting of the predeceased attorney draftsman could be obtained from his original will that was on file with the Court, and proved based upon an affidavit from a handwriting expert that the signature on the propounded instrument was written by the same person who executed his will. Similarly, he stated that the Court would be satisfied with the genuineness of the subject decedent’s signature based upon an affidavit from one of her children or other relatives. Thus, it appears that the propounded instrument will ultimately be admitted to probate upon the Court’s receipt of the requisite testimony.
The decision in Matter of Santoro serves as a reminder to practitioners that there may often be more than one approach to probating an instrument absent the requisite support from witnesses, and perhaps introduces a method for doing so that may not have otherwise been considered. If a predeceased witness died testate, his will is (in most cases) a public record from which a handwriting expert should be able to testify in satisfaction of SCPA §1405[4]. Nonetheless, contested proceedings of this kind are unlikely to be so simple, especially if the surviving witness were to testify against the instrument (see SCPA §1405[3]).
What is a Constructive Trust?
Most simply explained, a constructive trust is an equitable remedy imposed to prevent unjust enrichment (see Simonds v Simonds, 45 NY2d 233, 242 [1978]; Sharp v Kosmalski, 40 NY2d 119 [1976]). According to the Court of Appeals, the constructive trust is “the formula through which the conscience of equity finds expression. Where property has been acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee” (Beatty v Guggenheim Exploration Co., 225 NY 380, 386 [1919]).
It is an amorphous doctrine, as the constructive trust is “not limited by rigid definition and its very purpose requires flexibility in its application” (In re Alpert, 9 Misc 3d 1102[A], *10). It therefore follows that the constructive trust “has been famously described as a remedy applicable to ‘whatever knavery human ingenuity can invent’” (In re Alpert, 9 Misc 3d at *7 [Sur Ct, New York County 2005], quoting Bogert, Trusts and Trustees Sec. 471 at 29 [2d ed rev]). In fact, it is of such broad scope that attempted precise definitions have been deemed inadequate (see Simonds v Simonds, 45 NY2d 233, 241 [1978]).
Even applicable in the case of an innocent donee, no wrongful act is necessary to find unjust enrichment warranting the imposition of a constructive trust. However, in the case of a bona fide purchaser, he or she takes property free of a constructive trust that would otherwise be imposed (5 Scott, Trusts [3d ed] sec.468).
A constructive trust “is perhaps more different from an express trust than it is similar”, in that “the constructive trustee is not compelled to convey the property because he is a constructive trustee; it is because he can be compelled to convey that he is a constructive trustee” (Simonds v Simonds, 45 NY2d 233, 241 [1978], relying on 5 Scott, Trusts [3d ed], sec. 461-462]). Generally, the following elements must be established to state a claim for this type of relief: (1) a confidential or fiduciary relation; (2) a promise; (3) a transfer in reliance thereon; and (4) unjust enrichment (see Sharp v Kosmalski, 40 NY2d 119, 121 [1976]). Nonetheless, unlike most causes of action, courts do not require strict satisfaction of each element, but rather use them more as flexible considerations (Lester v Zimmer, 147 AD2d 340, 341 [3d Dept 1989]).
Courts most often impose constructive trusts where traditional remedies prove inadequate or unavailable. Perhaps most illustrative in the context of trusts and estates is the landmark case of Latham v Father Divine, 299 NY 22 (1949), where the facts seemed appropriate for a claim for tortious interference with wills, a cause of action that is not recognized by New York law (see Restatement (Second) of Torts §774B [1979-2010], citing Vogt v Witmeyer, 87 NY2d 998, 999 [1996]).
In Latham, the decedent had executed a will, but later expressed a desire to create a new testamentary instrument to contain bequests to other individuals. However, due to fraud, undue influence, and ultimately murder committed by the defendant, the decedent was prevented from executing her new will.
As is often the case where a constructive trust proves to be the appropriate remedy, the Court of Appeals recognized that there was no precedent precisely on point to address the facts presented. But the Court relied upon other well-respected authorities and explained that “[w]here a devisee or legatee under a will already executed prevents the testator by fraud, duress or undue influence from revoking the will and executing a new will in favor of another or from making a codicil, so that the testator dies leaving the original will in force, the devisee or legatee holds the property thus acquired upon a constructive trust for the intended devisee or legatee” (Latham v Father Divine, 299 NY 22 , 26 [1949]).
In light of that rule, along with other analogous Court of Appeals decisions, the Court held that the imposition of a constructive trust was appropriate, as “its applicability is limited only by the inventiveness of men who find new ways to enrich themselves unjustly by grasping what should not belong to them” (299 NY at 27). The Court further stated that “a constructive trust will be erected whenever necessary to satisfy the demands of justice” (see id.).
In coming to its conclusion, the Court cited Matter of O’Hara’s Will, 95 NY 403 (1884), noting that the plaintiffs in that case successfully obtained a constructive trust in their favor, notwithstanding the fact that “disappointed hopes and unrealized expectations were all that the secretly intended beneficiaries, not named in the will, had,” as well as Williams v Fitch, 18 NY 546 (1859), in which the fraud “consisted of the legatee’s failure or refusal to carry out the testator’s designs, after tacitly or expressly promising so to do” (see Latham, 299 NY at 27). Notably, in Latham, there was no discussion of a fiduciary or confidential relationship, one of the elements generally considered in determining the appropriateness of imposing a constructive trust.
In sum, the constructive trust is a remedy that may be applied in a variety of situations where equity demands, despite the feasibility of strictly satisfying its elements, and should be kept in mind as a potential claim to correct a wrong that may not fit squarely within any other cause of action.
Exception to the American Rule: Shifting Objectants' Legal Fees to the Surcharged Fiduciary
Jurisdictions within the United States have generally rejected the British concept of the prevailing party’s shifting the burden of litigation expenses to the losing party. Instead, we follow what is commonly known as the American Rule, under which each party typically bears the burden of his own legal fees, win or lose. However, like most other rules we face in the legal profession, certain circumstances are considered exceptions. Surrogate Glen of New York County recently addressed the question of whether a particular situation rose to the level of such an exception in Matter of Lasdon, 11/19/10 NYLJ 25 (Sur Ct, New York County).
In Lasdon, objectants to two trust accountings sought leave to reargue three of the Court’s rulings in its June decision that addressed the conduct of one of the co-trustees, and resulted in a surcharge. At the core of the contested accounting was the co-trustee’s delay in making the final distribution upon each trust’s termination, which resulted in trust assets declining in value. His delay was intentional, attributable to his desire to resolve certain issues pertaining to other family trusts with his sister and co-trustee, prior to making the distribution.
In seeking reargument, objectants contended that the Court erred in denying their requests that (1) the co-trustee be barred from receiving his attorneys’ fees from the trust; (2) that the co-trustee be disallowed commissions; and (3) that the co-trustee be directed to absorb the objectants’ legal fees. Addressing the objectants’ motion, the Court explained that it did not misapprehend the law or overlook the facts in determining that the surcharged co-trustee is entitled to annual commissions and to have his legal fees and costs paid by the trusts. Nonetheless, Surrogate Glen noted that the issue that objectants raised in connection with the co-trustee’s payment of their legal fees warranted further discussion.
Although New York courts generally follow the American Rule, Surrogate Glen explained there are some exceptions. Hence, a prevailing party’s litigation costs may be shifted to the loser in situations where there is a statutory or contractual provision that when strictly construed, supports such a shift. Further, and most relevant here, a prevailing party’s legal expenses may be shifted when the losing party is a fiduciary who has been surcharged for causing harm to his estate or trust (Matter of Lasdon, 11/19/10 NYLJ 25 [Sur Ct, New York County], citing Matter of Garvin, 256 NY 518 [1931]; Matter of Hidden, 243 NY 499 [1926]; Matter of Marsh, 265 AD2d 253 [1st Dept 1999]).
The court referred to the Court of Appeals’ holding in the seminal case of Matter of Hidden, supra, as instructive. There, it was determined that the estate of an incompetent suffered a loss as “direct results of wrong found” on the part of her committee. Accordingly, the Court held that the expenses of litigating to protect the estate’s interests were “amounts ‘for which the delinquent fiduciary may be held accountable’” (Matter of Lasdon, supra, at *5 quoting Matter of Hidden, 243 NY 499 [1926]).
The Surrogate went on to explain that the Hidden decision itself gave no indication that every surcharged fiduciary should pay the legal expenses of every objectant, nor have the cases that followed it. Rather, Surrogate Glen interpreted Hidden and its descendant line of cases as warranting exceptions to the American Rule when fiduciaries enrich themselves “at the expense of the funds with which they have been entrusted” (id. at *6), or, in at least one case that did not involve bad faith, where the fiduciary’s actions caused “manifest . . . deficiencies in the administration of the estate” (id. quoting Matter of Campbell, 134 Misc 2d 960 [Sur Ct, Columbia County 1987], aff’d 138 AD2d 827 [3d Dept 1988]).
Applying the foregoing rationale to Lasdon, the court noted that while the co-trustee had been surcharged for his misconduct, there had been no self-dealing. Further, applying the reasoning of Campbell, the court stated that the Lasdon co-trustee’s delaying in the final distribution “[did] not unequivocally bespeak a malign or self-serving purpose” (Matter of Lasdon at *8). Consequently, it held that the facts did not warrant the imposition of the objectants’ litigation expenses upon the surcharged co-trustee.
It appears that the rationale for applying the exception to the American Rule in fiduciary situations is extremely similar to that applied when analyzing whether a fiduciary’s misconduct is so egregious as to result in his individual responsibility for his own legal fees. Indeed, if a fiduciary’s malfeasance rises to the level contemplated by Hidden and he must individually compensate the prevailing party for his litigation expenses, why should the cost of defending his improper actions be borne by the trust or estate that he was entrusted to serve? I would submit that in the vast majority of cases it should not. Thus, litigators should keep this exception to the American Rule in mind. Perhaps requests that a fiduciary be individually charged with his legal expenses when appropriate should routinely be coupled with requests to shift to the fiduciary the litigation costs of the prevailing objectant as well.
Witness Beneficiary Rule Applicable to Instrument Executed Outside of New York?
An interesting issue recently arose in an uncontested probate proceeding before the Bronx County Surrogate’s Court, namely, whether the disqualifying provision of EPTL §3-3.2(a)(1) is applicable to an instrument executed outside of this jurisdiction.
In Estate of Alford, 2010 NY Slip Op 51707(U) (Sur Ct, Bronx County 2010), the sole beneficiary of the decedent’s estate was a Canadian citizen and was one of two attesting witnesses to the subject will. The execution of the instrument occurred in Ontario, Canada.
Pursuant to EPTL §3-3.2(a)(1),
(a) An attesting witness to a will to whom a beneficial disposition or appointment of property is made is a competent witness and compellable to testify respecting the execution of such will as if no such disposition or appointment had been made, subject to the following:
(1) Any such disposition or appointment made to an attesting witness is void unless there are, at the time of execution and attestation, at least two other attesting witnesses to the will who receive no beneficial disposition or appointment thereunder.
In other words, the statute mandates the invalidation of a bequest to the witness beneficiary if he or she is one of two attesting witnesses whose testimony would be required to probate the instrument. While a distributee, such as the beneficiary this case, remains entitled to his intestate share of the estate even if he is a witness to the execution of the will (EPTL §3-3.2(a)(3)), this beneficiary would inherit more under the will than his intestate share.
In making its determination, the court considered the following factors: (1) that EPTL § 3-5.1(c) provides that a will is valid in New York if it was validly executed in another jurisdiction; (2) that in Canada, a bequest to a witness beneficiary is void only if there was undue influence over the testator, which was not alleged here; and (3) in this particular case, no interested party contested the will or requested that the beneficiary testify. Thus, because it was determined that the instrument was validly executed pursuant to the laws of Ontario, Surrogate Holzman held that EPTL §3-3.2(a)(1) was inapplicable. Accordingly, the beneficiary’s devise was not reduced to his intestate share by statute.
The court’s analysis begs the question of whether the conclusion would have been the same if the probate proceeding had been contested. Although the witness’ testimony would be necessary if that were the case, the fact remains that absent a finding of undue influence, the will and the bequest itself would be valid pursuant to the laws of the jurisdiction in which it was executed. However, if any allegations of undue influence had been made, such claims would call into question the validity of the instrument in Ontario, Canada, and thus, undermine two of the bases for Surrogate Holzman’s decision.
Consequently, it appears that the applicability of EPTL §3-3.2(a)(1) in the case of wills executed outside of this jurisdiction is
highly fact sensitive and must be determined on a case by case basis.
Motion to Dispense with Testimony of Uncooperative Attesting Witness Denied
In Matter of Smith, 2010 NY Slip Op 20381 (Sur Ct, Bronx County), Surrogate Holzman recently addressed a proponent’s motion to dispense with the testimony of an attesting witness at the SCPA §1404 stage of a probate proceeding. The subject witness had relocated to Florida since the date of the execution of the propounded instrument, and had been uncooperative with the attorney-draftsman, also the attorney for the proponent, for reasons unbeknownst to him. One of the respondent’s daughters opposed the motion.
Ultimately, after being contacted by an investigator hired by the proponent, the witness agreed to a deposition via video conference, assuming she would remain in Florida. Nonetheless, presumably due to disobliging nature of the witness, the proponent sought to dispense with her testimony.
In support of her motion, the proponent argued that that a commission to obtain the subject witness’ testimony was unnecessary in view of the fact that the attorney-draftsman and one attesting witness had already been deposed, and the uncooperative witness had signed a self-proving affidavit at the time of the execution. She further asserted that she would consent to a commission to obtain the witness’ testimony in Florida only if the cost were borne by the party opposing the motion. Indeed, the proponent claimed that funding the commission would be a hardship for the estate because its only asset was a parcel of real property.
In response, the opposing party argued that the cost of the commission could be covered by the sale of the estate’s real property, and that testimony of the second attesting witness was pertinent to clarify the events of the execution ceremony.
SCPA §1405 provides that the testimony of an attesting witness can be dispensed with under limited circumstances. Specifically, pursuant to statute the court must be satisfied that, if living, the witness “cannot with due diligence be found within the state or cannot be examined by reason of his physical or mental condition . . .” (SCPA §1405[1]). Thus, the only scenario in which an out-of-state witness’ testimony may be dispensed with is if his examination cannot be obtained with reasonable diligence; but if the testimony can be obtained, SCPA §1405(2) mandates that it proceed by commission upon the demand of any party. Accordingly, Surrogate Holzman denied the motion, granting the respondent’s daughter’s request that the testimony of the Florida witness proceed by commission.
With respect to the issue of which party would bear the costs of the examinations, the court explained that SCPA §1404(5) provides that the estate is to pay for either, “(1) the first two attesting witnesses within the state or (2) if there is no competent witness within the state, the witness without the state who resides closest to the county in which probate proceedings are pending” (Matter of Smith, 2010 NY Slip Op 20381 , *2 [Sur Ct, Bronx County]). The costs of all other examinations are to be governed by Article 31 of the CPLR (see SCPA §1404[5]). Thus, because one of the witnesses in issue resided within the state, the subject examination fell into the latter category.
According to CPLR 3116(d), “unless the court orders otherwise, the party taking the deposition shall bear the expense thereof”. Consequently, the court opined that because the respondent failed to present good cause to persuade it to deviate from that rule, respondent was to pay for the examination. The court further held that the respondent may proceed with the examination by video conference if she were to find it more cost effective than a commission, and, notably, that the proponent may renew her motion to dispense with the testimony if the examination were not arranged within 90 days of the decision and order.
It appears that the latter portion of this holding is simply a logical extension of the statute. If the party who demanded the examination neglects to ensure its occurrence, it is arguably deemed abandoned. Interestingly, however, the statute includes no such provision.
Court of Appeals: Fiduciary's Legal Fees to be Equitably Allocated among Beneficiaries
In Matter of Hyde, 2010 NY Slip Op 05676, decided June 29, 2010, the Court of Appeals held that SCPA 2110 gives Surrogate’s Courts discretion to determine the allocation of attorneys fees paid from the trust or estate to the fiduciary in defending against objections, assuming the fiduciary’s conduct was not deemed so egregious as to require him to be individually responsible for payment.
The facts in Hyde are summarized in detail in a prior post that addressed the Appellate Division’s decision, which has now been modified by the high court. In short, the beneficiaries who decided not to interpose objections to the trustees’ accountings sought an order directing that the trustees’ legal fees in defending against the objections be deducted solely from the objecting beneficiaries’ shares – not from the trust estates generally. That way, the beneficiaries who did not object would not have their inheritance diminished by litigation in which they decided not to participate, and from which they would not benefit.
Although the Surrogate’s Court dismissed all objections to the accountings, it relied on the Court of Appeals’ earlier holding in Matter of Dillon, 28 NY2d 597 (1971), and held that the trustees’ legal fees were to be paid from the trusts generally, and not simply from the objecting beneficiaries’ shares. The Appellate Division affirmed.
Surprisingly, the Court of Appeals did not simply distinguish Dillon from the case before it; the Court reconsidered Dillon. It opined that its decision in Dillon, where it held that SCPA 2110 mandated that the entire estate or trust be charged with the fiduciary’s legal fees, apparently ignored the plain meaning of the statute.
SCPA 2110[2] provides that “ . . . [t]he court may direct payment for [a fiduciary’s legal fees] from the estate generally or from the funds in the hands of the fiduciary belonging to any legatee, devisee, distributee, or person interested.” Noting that legislative intent should be ascertained from the plain meaning of the statute, the Court explained that there exists a presumption against legislative intent for an unjust or unreasonable result. It further stated that its decision in Matter of Ungrich, 201 NY 415 [1911], rather than Dillon, should be used as a guide. Matter of Ungrich, like the Court’s holding in Hyde, focused on fairness. There, it was held that courts should have the discretion to direct whether a fiduciary’s legal fees should be paid by him individually, from the estate generally, or from individual beneficiaries’ shares.
In deferring to the plain meaning of the statute, the Hyde Court directed that Surrogates should assess the sources from which fees are to be paid, considering various factors such as:
(1) whether the objecting beneficiary acted solely in his or her interest or in the common interest of the estate; (2) the possible benefits to individual beneficiaries from the outcome of the underlying proceeding; (3) the extent of an individual beneficiary’s participation in the proceeding; (4) the good or bad faith of the objecting beneficiary; (5) whether there was justifiable doubt regarding the fiduciary’s conduct; (6) the portions of interest in the estate held by the non-objecting beneficiaries relative to the objecting beneficiaries; and (7) the future interests that could be affected by reallocation of fees to individual beneficiaries instead of to the corpus of the estate generally.
According to the Court, none of the above factors are determinative.
In view of the foregoing, the Court of Appeals remanded Hyde to the trial court for an analysis in accordance with its newly established guidelines, and an ultimate determination as to who would bear the cost of the trustees’ legal fees in defending their accountings.
This decision has clearly implemented a process that should result in more equitable allocations of a fiduciary’s legal expenses where applicable. But it may also have the effect of causing potential objectants to weigh the pros and cons of litigation even more carefully, especially when all beneficiaries are not on board with the decision.
Estates May Pursue Legal Malpractice Claims on Behalf of Decedents
The Court of Appeals has rendered a landmark decision, chipping away at privity in holding that an estate fiduciary may maintain a legal malpractice claim against its decedent’s estate tax planning attorneys for negligent representation. Until now, privity, i.e., a legal connection between two parties, was a strict condition precedent to maintaining a legal malpractice claim.
In Estate of Schneider, 2010 NY Slip Op 05281, decided June 17, 2010, the estate argued that the decedent should have been provided advice that would have decreased his estate’s tax liability. Specifically, it was asserted that the decedent’s attorneys should have advised him to transfer, or not to transfer, his $1 million life insurance policy to or from an entity of which he was the principal owner in order to reduce his gross taxable estate.
The Supreme Court dismissed the claim for failure to state a cause of action, but the Court of Appeals reversed. In upholding the claim, the high court equated the relationship between an estate and its decedent to one of privity, or one “sufficiently approaching privity” for purposes of pursuing a legal malpractice action. It aligned its reasoning with that of the Texas Supreme Court, and opined that “‘the estate essentially stands in the shoes of the decedent’ and therefore ‘has the capacity to maintain the malpractice claim on the estate’s behalf’”.
In determining the foregoing, the Court stated that its holding complies with EPTL 11-3.2(b), which permits the fiduciary of an estate to “maintain an action for ‘injury to person or property’ after that person’s death”. The Court further noted that its decision had no altering effect on the strict privity rules against beneficiaries bringing legal malpractice claims against a decedent’s estate planning attorneys.
It would not be surprising if the natural outgrowth of this decision is an increased number of legal malpractice claims against estate planning attorneys.
In Terrorem Clause Construed to Apply to Revocation Proceeding
In a decision issued yesterday by the First Department, the Appellate Division affirmed the Surrogate’s holding that a proceeding pursuant to SCPA §711 to revoke letters testamentary and letters of trusteeship would trigger an in terrorem clause. The petitioner alleged that the fiduciaries failed to inform the decedent of the benefits to which they would be entitled as a result of their fiduciary positions.
The subject in terrorem clause in Hallman v Bosswick, 2010 NY Slip Op 03486 (1st Dept 2010) provided that it would be triggered by any beneficiary who was to commence a proceeding “‘to void, nullify or set aside all or any part’ of the will”. Noting that a revocation proceeding did not fall within the safe harbor provisions of EPTL §3-3.5(b), the Court stated that its determination would be based upon the decedent’s expressed intent.
The respondents, the co-executors and co-trustees whose letters would be placed in issue by the proposed revocation proceeding, had no familial relationship to the decedent. Based on this fact, the petitioner, a child of the decedent, argued that because the will provided no bequests for respondents, the decedent must have intended to limit the scope of the in terrorem clause to challenges against his family members. The Court disagreed. It opined that the decedent’s choice to leave his estate in trusts for his children and grandchildren, as opposed to making outright devises, illustrated an intent to deprive them of complete control over his assets; an intent that was furthered by his nominating non-relatives as co-executors and co-trustees.
The Court also disagreed with the petitioner’s alternate assertion that if the testator had intended the clause to be triggered by the commencement of a SCPA §711 proceeding, public policy should prevent its enforcement. According to the Court, this argument was conditioned upon a rule that the safe harbor provisions of EPTL §3-3.5 are not exclusive, and despite the recent decision of the Court of Appeals in Matter of Singer, 13 NY2d 447 (2009) which stated as much (as discussed in a prior entry), the First Department opined that the language was dicta. Thus, the Court rejected the petitioner’s public policy argument, reasoning that a court’s expansion of the safe harbor provisions should not originate with a lower or intermediate court, but instead with the Court of Appeals.
This last argument is an interesting perspective on Singer, and may pave the way for a conservative interpretation of the Court of Appeals’ decision. Accordingly, we may have to wait for the Court of Appeals to implement its own rule as law before the lower courts will follow suit.
Appellate Division Cites Equitable Factors In Denying Entitlement to Elective Share
This month, the Second Department has issued two important decisions on entitlement to an elective share when a marriage occurred while the decedent lacked the requisite mental capacity to enter into a marital contract. Matter of Berk and Campbell v Thomas were both cases in which a caregiver secretly married the incapacitated individual for whom she worked, in an effort to manipulate a testamentary scheme for her own financial gain. Although the statutory limitations on disqualification from the right of election did not infringe upon the “surviving spouses’” rights to inherit from their respective “husbands” (see EPTL §5-1.2), the Appellate Division followed equitable principles in determining the parties’ respective rights.
In Matter of Berk, 20 Misc 3d 691 (Sur Ct, Kings County 2008), summary judgment was granted to the “surviving spouse” on the issue of her entitlement to an elective share, despite the suspicious circumstances surrounding her marriage to the decedent. A discussion of the lower court’s decision can be found in a prior entry. To briefly recap, the decedent’s “spouse” had been the decedent’s live-in caretaker since 1997. By the time the two secretly married in 2005, he had become completely dependent upon her. In fact, the marriage occurred almost exactly one year prior to his death, when he was 99 years old (she was 47), was suffering from dementia, and had been deemed by a physician to be incapable of entering into binding contracts or managing his social affairs. The lower court dismissed these facts as irrelevant for purposes of determining entitlement to the right of election. Rather, it limited its inquiry to (1) whether the petitioner was the decedent’s surviving spouse upon his death, i.e., whether the marriage was void under the circumstances; and (2) whether any of the disqualifying factors of EPTL §5-1.2 had been met. Because the petitioner demonstrated that she was the surviving spouse at the time of the decedent’s death, as the marriage was potentially voidable but not void according to DRL §7, the Surrogate held that she was entitled to judgment as a matter of law. Indeed, the result of the determination that the marriage was voidable, not void, foreclosed inquiry into the validity of the marriage because no steps were taken to void the marriage during the decedent’s lifetime. But under the circumstances, where the marriage in issue had been kept a secret by the petitioner while the decedent was alive, no such steps could possibly have been taken.
In overturning the Surrogate’s decision, the Second Department recognized the existence of “a triable issue of fact as to whether the petitioner had forfeited the statutory right of election” on equitable grounds. In particular, relying on Campell v Thomas (2010 NY Slip Op 02082 [2d Dept 2010]), the Court stated that the estate had presented evidence that could prove the petitioner was aware of the decedent’s incapacity and inability to consent to marriage, and deliberately took “unfair advantage . . . by marrying that person for the purpose of obtaining pecuniary benefits that becomes available by virtue of being that person’s spouse, at the expense of that person’s intended beneficiaries" (Matter of Berk, 2010 NY Slip Op 02139 [2d Dept 2010]). Thus, the order was modified, denying the petitioner’s motion for summary judgment, and reinstating counterclaims.
In sum, while the lower court’s holding was based upon statutory authority, equity was the cause for its reversal. The Appellate Division explained its rationale for this determination in further detail in its simultaneous decision in the very similar case of Campbell v Thomas.
In Campbell, the decedent was suffering from severe dementia and terminal cancer when he and his short-term caregiver, Nidia, who stayed with the decedent while his daughter went on vacation, were married. Immediately thereafter, while the decedent’s daughter was still away, Nidia transferred the decedent’s Citibank account from the decedent’s name to the couple jointly, and named herself the sole beneficiary of his retirement account.
The decedent died in August 2001, less than two years after the purported marriage. Unlike the situation in Berk, however, the decedent’s daughter learned of the marriage prior to his death, and the decedent had allegedly had a prior romantic relationship with his new spouse. But when his daughter confronted him about getting married, it was clear that the decedent had no understanding of what had occurred.
Soon after the his death, the decedent’s children commenced an action against Nidia in Supreme Court, seeking a judgment declaring the marriage, as well as the subsequent asset transfers, to be null and void. Their argument was that the decedent lacked the capacity to marry or make the subject conveyances due to his severe dementia, the progression of his cancer, and the effects of powerful medications that he had been taking. Following some motion practice and a subsequent appeal, in 2007 the Second Department remitted of the matter to the Supreme Court for the entry of a judgment declaring the marriage, the beneficiary change on the retirement account, and the transfer of the Citibank account, all null and void for the decedent’s inability to consent for want of understanding (see DRL §7[2]). The Supreme Court, Putnam County then issued an order consistent with Appellant Division’s ruling. It directed, among other things, that the decedent’s estate was to receive ownership of all property in his name as of October 1, 2000, and that the estate was to distribute those funds to the decedent’s children and grandson. Thereafter, Nidia moved to modify or vacate the order, claiming entitlement to an elective share. The Supreme Court denied the motion, and Nidia appealed.
On appeal, Nidia contended that pursuant to the relevant statutes, she was to be considered the surviving spouse even after the marriage was voided. In addressing this claim, the Court explained that the marriage in issue was considered voidable, which meant that it was “void from the time its nullity [was] declared by a court of competent jurisdiction” [DRL §7]. Voidable marriages are distinct from marriages that are void, and therefore deemed nonexistent from the beginning; the latter falling within the categories of EPTL §5-1.2, enumerating those circumstances under which the right of election is extinguished. As we learned from the lower court’s decision in Matter of Berk, a voidable marriage is not within the realm of the disqualification statute (see also Bennett v Thomas, 38 AD2d 682 [4th Dept 1971]).
Unlike the Surrogate’s Court that decided Berk, the Second Department did not end its inquiry at the statutory level. Instead, the Court acknowledged that “[t]he literal terms of a statute should not be rigidly applied if to do so ‘would be to ordain the statute as an instrument for the protection of fraud’” (Campbell v Thomas, quoting Citizens Util. Co. v. American Locomotive Co., 11 NY2d 409, 420 [1962]).
Acknowledging the equitable authority of the Supreme Court pursuant to the New York State Constitution, the Second Department stated that it “was empowered to grant relief consistent with the equitable principle that ‘[n]o one shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime’” (Campbell v Thomas, citing Riggs v Palmer, 115 NY 506, 511 [1889]). It is this notion that formed the basis for the now well-known rule that a murderer cannot inherit from the victim of his crime (see id.). While the Court recognized that the conduct in issue was much less severe than the aforementioned, the evidence revealed that Nidia had been aware of the decedent’s mental incapacity, had been in a position of trust, and abused that trust to wrongfully alter the decedent’s testamentary plan in her favor. Accordingly, the Court held that she was not entitled to benefit from her own misconduct, and therefore was not entitled to an elective share. However, it should be noted that Nidia’s actions did bar her from inheriting that portion of the decedent’s retirement account that had originally been designated by the decedent for her benefit, as her receipt of that particular share was not a product of her wrongdoing (Campbell v Thomas, relying on Matter of Covert, 97 NY2d 68, 74 [2001]). This serves to further differentiate this particular line of cases from those considered to be more egregious (see e.g., Riggs v Palmer, supra).
Interestingly enough, despite the clear parameters of spousal disqualification pursuant to EPTL §5-1.2, the Court deemed its determination to be complementary, not contrary, to statutory authority, finding that “the Legislature did not contemplate the circumstances presented by this case” when enacting the law. To support its conclusion, the Court explained that in many voidable marriages in which the deceased spouse may have lacked the capacity to marry, the surviving spouse may have been unaware of the disability; or alternatively, where the surviving spouse may have perpetrated a fraud upon the decedent, the deceased spouse may have ratified the marriage prior to his or her death. But in Campbell, neither of those scenarios was applicable. By virtue of this fact, and the Court’s confidence that the legislature intended EPTL §5-1.2 to protect a surviving spouse but never to “provide refuge for a person seeking to profit by means of a nonconsensual marriage”, the decisions of both Campbell and Berk have established new standards in the area of estate law.
It is likely that the impact of these decisions will not be limited to circumstances in which a decedent was incapacitated upon entering into a marriage. The equitable principles applied by the Second Department should transcend to situations in which a decedent may have had diminished capacity, or was simply unduly influenced into entering into the marital contract. In all cases, the rules set forth in both decisions should serve to curb some of the unfortunate abuses of the elderly, and will protect families from the injustices that could have previously followed such misconduct.
Summary Judgment Granted, Dismissing Objections and Admitting Will to Probate
In recent years, Surrogate’s Courts have become increasingly inclined to grant motions for summary judgment in contested probate proceedings when warranted. A decision issued last week in Monroe County is yet another example of this trend. While the evidence presented by the objectants in this particular case appears to be exceptionally weak, the following analysis provides a cohesive illustration of the considerations and standards that Surrogates routinely utilize in analyzing typical objections.
In Matter of Feller, 2010 NY Slip Op 50001(U), eight of the decedent’s eleven known distributees filed objections to probate, alleging the customary lack of due execution, lack of testamentary capacity and undue influence. The decedent executed a last will and testament nine months prior to her death, leaving her estate to ten charities and four individuals in equal shares, and naming the attorney-draftsman as executor. The New York State Attorney General’s Office filed a motion for summary judgment, seeking to dismiss the objections.
Due Execution
The objectants contended that the will was not duly executed within the requirements of EPTL 3-2.1 because the attorney-draftsman/proponent, not the testator, requested that that the witnesses act. But the testimony of the attorney-draftsman demonstrated that the testatrix responded in the affirmative when questioned as to whether she wanted those present to witness the execution of the instrument. The Court opined that this conduct coupled with the circumstances surrounding the execution ceremony satisfied the due execution requirements of EPTL 3-2.1. Indeed, “[a]ttorneys routinely lead their clients through the will execution formalities in order to ensure that the requirements of EPTL 3-2.1 are satisfied . . . and . . . publication and instruction . . . is not required to be in any ‘ironclad ceremonial or ritualistic language’” (Matter of Feller, supra, citing In re Douglas’ Will 193 Misc 623, 631-632 [Sur Ct, Broome County 1948]).
Testamentary Capacity
With respect to testamentary capacity, the Court noted the presumption in favor of capacity when a will is drafted by, and the execution supervised by, an attorney. In this case, the Court held that the proponent established a prima facie case of the requisite capacity based upon the following facts:
· The decedent herself sought the services of the attorney-draftsman;
· The decedent personally met with the attorney-draftsman and brought detailed notes as to her desired estate plan;
· The decedent told the attorney-draftsman about her familial situation;
· The witnesses were aware of the decedent’s involvement in her estate planning, and testified that she appeared to have no visual, auditory or cognitive difficulties; and
· The decedent made specific and accurate changes to the draft of the will.
In fact, the only basis for the allegation of lack of capacity was one of the objectant’s observations that the decedent had appeared preoccupied, reserved and distracted during a visit that occurred around the time that the will had been executed. Citing holdings of the Appellate Division that evidence of sadness or confusion alone is insufficient to prove lack of capacity, the Court rejected this contention. The Court further explained that a diagnosis of dementia, Alzheimer’s, or simply old age, without more, would also be insufficient to override a prima facie showing of capacity (id., citing Matter of Nofal, 35 AD3d 1132 [3d Dept 2006]; Matter of Castiglione, 40 AD3d 1227 [3d Dept 2007]; Matter of Minasian, 149 AD2d 511 [2d Dept 1989]; Matter of Hedges, 100 AD2d 586 [2d Dept 1984]).
Undue Influence
Addressing the claims of undue influence, the court reiterated that it is an objectant’s burden to demonstrate by a preponderance of the evidence, (1) motive, (2) opportunity, and (3) actual undue influence. Undue influence must amount to “a moral coercion, which restrained independent action and destroyed free agency or which . . . constrained the testator to do that which was against his free will and desire . . .” (id.,quoting Children’s Aid Society of NY v Loveridge, 70 NY 387, 394 [1877])., The Court further noted that undue influence may proved by circumstantial evidence, “but the circumstances must lead to it not only by a fair inference but as a necessary conclusion” (id., quoting In re Will of Henderson, 253 AD 140 [4th Dept 1937]).
The objectants’ claim of undue influence alleged that the proponent persuaded the testator to change her funeral home of choice to one that was a client of the proponent. However, the proponent testified that he made no recommendations regarding the decedent’s testamentary plan, but tried to persuade her to choose another executor. In addition, the record demonstrated that every time the decedent met with the proponent regarding her estate plan, she was not accompanied by anyone. In view of these facts, the Court held that the Objectants failed to meet their burden in connection with their allegations of undue influence (see Matter of Feller, supra).
Interestingly enough, there was no discussion of a confidential relationship between the decedent and proponent in this case, and thus, the burden of proof did not shift. After all, an attorney-client relationship often gives rise to a confidential relationship, and a consequential presumption of undue influence (see e.g., Weber v Burman, 22 Misc 3d 1104[A] [Sup Ct, Nassau County 2008]; Estate of Olson, 5/16/2006 NYLJ 33 [col 4] [Sur Ct, Richmond County]). Perhaps this was not considered because the attorney-draftsman was not a beneficiary, but I would submit that such a relationship is arguably relevant here, in light of the allegations.
Court of Appeals: Extra Deposition Did Not Violate In Terrorem Clause
In a rare venture into the world of trusts and estates and its most significant recent ruling regarding in terrorem clauses, the Court of Appeals in Matter of Singer, 2009 NY Slip Op 09265, reversed both the Surrogate’s Court and the Appellate Division, holding that a beneficiary’s conduct in deposing the testator’s former attorney regarding drafts of prior wills did not violate the in terrorem clauses in the propounded will. Specifically, the Court held that the safe harbor provisions of SCPA 1404 and EPTL 3-3.5 are not exclusive, and must be applied on a case-by-case basis. The decision has essentially set forth a two-prong analysis to determine whether a beneficiary’s conduct triggers an in terrorem clause, consisting of the following inquiries: (1) whether the conduct falls within the statutory safe harbor provisions, and if not (2) whether it violated the testator’s intent.
In Singer, the decedent had executed a last will and testament approximately one year prior to his death, in which he appointed his daughter, Vivien, as executor. He also created a corresponding revocable trust through which he bequeathed to Vivien his home, most of his tangible personal property, and the sum of $200,000. In the trust instrument, the decedent stated that Vivien’s inheritance was in recognition and gratitude for her extreme dedication and constant care. The decedent’s son, Alexander, received one-half of the remainder of the estate, to be split with Vivien, and each of Alexander’s sons was given a $15,000 bequest.
The will contained a typical, broad in terrorem clause, which stated, “if any beneficiary, shall, in any manner, directly or indirectly, contest, object to or oppose, or attempt to contest, object to or oppose the probate or validity of [the] will or revocable trust created by [the decedent], or any part of [his] estate plan, or any gifts made by [him], . . .” that beneficiary’s share of the estate would be forfeited (id. at *2). The decedent also included a second in terrorem clause that was explicitly directed at Alexander. That clause directed that Alexander “not take [decedent’s] daughter . . . to a . . . (religious court) or to any other court for any reason whatsoever . . . ,” and stated that if he did, the result would be the forfeiture of his and his sons’ inheritance (id.).
Immediately after Viven submitted the will for probate, Alexander served a notice for discovery and inspection pursuant to SCPA 1404 and Article 31 of the CPLR. He sought documents and the deposition of certain individuals, including the decedent’s previous attorney, Mr. Katz. Alexander pursued this particular deposition despite a warning from Vivien’s attorney that this examination was outside of the scope of SCPA 1404 exams and would result in a violation of the in terrorem clause.
At his examination, Mr. Katz testified that he had drafted seven prior wills for the decedent, and stated that he did not believe the decedent lacked testamentary capacity or was unduly influenced by Vivien. In light of this information, Alexander decided not to contest his father’s testamentary plan. The will was subsequently admitted to probate by a decree that explicitly stated that it had not been contested. Notwithstanding this fact, Vivien commenced a construction proceeding seeking a determination that Alexander’s deposition of Mr. Katz resulted in a violation of the in terrorem clauses, as he was the decedent's prior attorney, not the attorney-draftsman of the propounded instrument. The Surrogate agreed, holding that the deposition of anyone aside from those specified in SCPA 1404 triggered the clauses. The Appellate Division affirmed, and further opined that the deposition of Mr. Katz was not protected by any of the safe harbor provisions in EPTL 3-3.5 or SCPA 1404.
EPTL 3-3.5 enumerates specific conduct of a beneficiary that will not trigger an in terrorem clause. Relevant to Singer is the statute’s provision that protects a beneficiary from forfeiting his or her bequest as a result of examining the following individuals (see EPTL 3-3.5[b][3][D]):
· The nominated executor(s) and proponent of the will
· Witnesses to the will
· The attorney-draftsman or other individual who prepared the propounded instrument
Although the statutory safe harbor provisions limit permissible depositions to the above-listed individuals, the Court of Appeals recognized that there might be circumstances that render it permissible to examine individuals outside of the foregoing parameters without an in terrorem clause violation. In so concluding, it was held that the safe harbors of EPTL 3-3.5 are not exclusive, and that if a beneficiary exceeds these parameters, a court must then inquire as to whether there has been a violation of the testator’s intent. This is an analysis that must occur on a case-by-case basis, looking to the language of the clause in issue. As always, such language must be strictly construed.
Applying this rule to the facts in Singer, the Court of Appeals noted that the language of the subject in terrorem clauses demonstrated that the decedent sought to prevent Alexander from commencing any type of court proceeding against, or attempting to contest, the estate plan. Construing the clauses narrowly, the Court held that the deposition of Mr. Katz, an attorney who had a long history of representing the decedent in connection with his testamentary plans, was simply a method of information gathering, not disputing the estate plan.
Indeed, because Alexander decided not to object to the instrument, the Court explained that the purpose of the in terrorem clauses, as well as the general public policy in favor of permitting broad investigation to allow a beneficiary to weigh the risk involved in contesting a will, was actually satisfied by the additional deposition. According to the Court, “[a] broader construction of these clauses as manifesting testator’s intent to preclude the examination of this witness would essentially cut off all other persons from being asked for information, no matter the potential value or relevance . . .” (Singer at *5).
In a concurring opinion, Judge Graffeo noted that the decision has implied that a testator may draft his will to explicitly limit the scope of permissible inquiries to the statutory safe harbor provisions. Thus, he interpreted this decision as granting further latitude to the testator to determine exactly how strict he really intends his in terrorem clause to be (id. at *5-*6).
While this case permits more relevant inquiries into an estate plan when the language of an in terrorem clause allows, it is also likely to result in many more construction proceedings at the Surrogate’s Court level. Notwithstanding this potentially inconvenient consequence, Singer is a landmark decision that implements and emphasizes the concept that testamentary intent must be the paramount consideration in any will construction proceeding.
Potential Court Approval of Religious Divorce Is Irrelevant to Right of Election
A recent decision emanating from the Kings County Surrogate’s Court provides another interesting application of the rules on entitlement to an elective share. In Matter of Atiram, 2009 NY Slip Op 52356(U), the petitioner sought a determination as to her right of election under EPTL 5-1.1A. She had married the decedent in 1952, but thirty-eight years later, the couple participated in a Jewish religious divorce under the supervision of the Rabbinical Alliance of America in New York. The Ministry of Religion of the State of Israel allegedly recognizes this type of divorce. New York, however, does not.
Pursuant to EPTL 5-1.2, a divorce disqualifies an individual from obtaining an elective share when “a final decree or judgment of divorce . . . recognized as valid under the laws of this state [that] was in effect when the deceased spouse died.” New York does not recognize a rabbinical divorce as a valid termination of a marriage because the laws of this state require divorce by “due judicial proceedings.” In light of this rule, the objectant in Atiram sought a stay of the petitioner’s application pending an Israeli court’s determination of the validity of the divorce by the laws of that jurisdiction which, she argued, would qualify as the requisite “judicial proceeding” for New York. The Court disagreed, and opined that the outcome of the Israeli proceeding was irrelevant to the petitioner’s right of election.
1
Specifically, the Court held that even if the Israeli court were to ultimately recognize that the decedent and the petitioner had been divorced under the laws of that country, such a determination would not have been in effect upon the decedent’s death. Therefore, because the marriage existed on the date of the decedent’s death, petitioner remained entitled to her elective share (see Matter of Atiram, citing Bennett v Thomas, 38 AD2d 682 [1st Dept 1971]; Matter of Berk, 20 Misc 3d 691 [Sur Ct, Kings County 2008]).
Posthumously Voided Marriage Negates Right of Election
Last year, we posted an entry on Matter of Berk, 20 Misc 3d 691 (Sur Ct, Kings County 2008), a decision in which the court granted an elective share to a surviving spouse notwithstanding evidence that the marriage to the decedent, who was 99 years old at the time, occurred under highly questionable circumstances. The court’s rationale was that the marriage was voidable, not void. The Surrogate held that because the marriage was not invalidated prior to the decedent’s death, the right of election could not be disturbed.
In Matter of Kaminester, 2009 NY Slip Op 29429 (Sur Ct, New York County), the court addressed a similar set of facts, but with one distinguishing factor: prior to his death, the decedent had been adjudicated incapacitated in an Article 81 proceeding. This fact allowed for an entirely different result than that reached in Berk.
In Kaminester, the decedent’s estate sought a determination as to the validity of the elective share pursuant to SCPA §1421. As in Berk, the marriage remained a secret until the decedent’s death, and occurred mere months prior thereto. But in this case, the marriage also occurred two and a half months after a Texas court appointed a temporary guardian for the decedent, and during the pendency of an Article 81 proceeding in New York. Within the context of the Article 81, a temporary restraining order had been imposed with respect to removing the decedent from the State, among other things. The Article 81 proceeding resulted in the appointment of a temporary guardian, and a stipulation on the record that the decedent lacked capacity to marry. The decedent’s new “wife” was in the courtroom with her attorney at the time of the stipulation, but neither one revealed the existence of the couple’s recent marriage.
Notably, during this time period, the beneficiary designation on the decedent’s life insurance policy, worth over $1 million, was changed to favor his new “wife.” In addition, a deed was executed transferring the decedent’s Westhampton property to the couple as joint tenants with right of survivorship.
The “wife” filed a notice of election within weeks of the decedent’s death. Thereafter, the executor of his estate sought an order from the Article 81 court to hold her in contempt for violating its TRO. In response, the court invoked Section 81.29(d) of the Mental Hygiene Law, and “revoked and voided” the marriage, the designation of the “wife” as beneficiary on the decedent’s life insurance, and the deed that transferred to her a joint tenancy interest in his Westhampton property. The First Department affirmed these portions of the Article 81 court’s decision, accepting the posthumous voidance of the decedent’s marriage.
Surrogate Glen of New York County subsequently addressed the issue of the elective share, and thus the validity of the marriage, in light of these events. She discussed Section 7 of the Domestic Relations Law (“DRL”), the statute that had been relied upon in Berk, and compared it to Section 81.29(d) of the Mental Hygiene Law (“MHL”). DRL §7 provides that a marriage involving an individual “incapable of consenting to a marriage for want of understanding” is voidable, and becomes a nullity as of the date it is annulled. In contrast, Section 81.29(d) of the MHL “permits the court that appoints an article 81 guardian for an incapacitated person to “’revoke any previously executed . . . contract. . . . made by the incapacitated person prior to the appointment of the guardian if the court finds that the previously executed . . . contract. . . was made by the person was incapacitated’” (Matter of Kaminester, 2009 NY Slip Op 29429 at *5). Thus, the Article 81 adjudication was the lynchpin of the Kaminester decision.
In her decision, the Surrogate questioned whether the legislature had intended MHL §81.29(d) to override DRL §7. She also recognized that while she was bound by the First Department’s determination, the Second Department had previously taken the position that it had inherent power to override DRL § 7 by posthumously voiding a marriage due to the decedent’s mental incapacity (see Campbell v Thomas,36 AD3d 576 [2d Dept 2007]). Nonetheless, because of the First Department’s determination that the decedent’s marriage had been void ab initio as a result of his incapacity, the Surrogate opined that there existed no right to an elective share.
Notably, the result in Kaminester rendered the marriage in issue void, as opposed to voidable, which was the characterization in Berk. A voidable marriage is a nullity upon the court’s declaration, whereas a void marriage is deemed to never have existed. This distinction was based upon the fact that there had been an Article 81 adjudication in Kaminester, allowing for the application of MHL §81.29(d) after the decedent’s death.
Adoption Records Unsealed to Determine Distributee Status
A couple of months ago, we posted an entry discussing the unsealing of adoption records in New York State, and the manner in which courts must weigh the State’s interests of confidentiality and maintenance of the adoptive parent-child bond against an applicant’s interests in unsealing his or her records. Prompting that discussion was Matter of Victor M.I., 23 Misc 3d 1103A (Sur Ct, Nassau County 2009), a case in which the Nassau County Surrogate’s Court permitted the unsealing of adoption records for purposes of proving the petitioner’s Hungarian lineage to establish Hungarian citizenship.
More recently, in Matter of B.F., 674, an application was brought before the Nassau County Surrogate’s Court to unseal an adoption file and obtain a certified copy of the order of adoption to determine whether the adoptive child was distributee of an estate. Specifically, in a proceeding for letters of administration in a Queens County estate, the petitioner sought to demonstrate that a sibling of the decedent had been adopted out of the family in the late 1930’s or early 1940’s.
In its decision, the Court discussed its discretionary power to unseal records upon a showing of “good cause”. Although it recognized that “good cause” has no particular definition, it noted that section 114(4) of the Domestic Relations Law provides a statutory basis for the unsealing of adoption records for obtaining medical history when serious health issues arise. In non-medical situations, it appears that an applicant has a higher burden to prove that his or her interest outweighs that of the State, as applications are granted only on rare occasions (Matter of B.F., 674).
The Surrogate granted the application after an analysis of the State’s interest in confidentiality for purposes of maintaining anonymity for the natural parents, protecting the bond between the adoptive parents and child, and shielding the adoptive child from potentially unsettling information. It was noted that these factors were largely irrelevant in this case (id.).
The adoptive child was born in 1927, so the Court opined that both the natural and adoptive parents were likely deceased. In addition, confidentiality was not an issue inasmuch as the applicant already possessed all information in the one document requested from the file. The court distinguished between the more typical cases, in which an applicant seeks identifying information, and the circumstances presented; the petitioner was aware of the adoptive child’s identity but simply sought a document to legally determine the decedent's heirs at law (id.).
As Surrogate Riordan recited, “[w]hether [good cause] exists, and the extent of disclosure that is appropriate, must remain for the courts to decide on the facts of each case” (Matter of B.F., quoting Matter of Linda F. M.,52 NY2d 236, 240 [1981]). In view of this rule, it would be interesting to see how a court handled a petition with the same cause, i.e., a determination of a decedent's heirs at law, if the adoptive child were younger and some of the confidentiality concerns remained. But then again, if the applicant had enough information to pursue the inquiry, it is probable the he or she, like the applicant in Matter of B.F., already possessed identifying information.
Action Dismissed For Failure to Join Beneficiaries
A notable decision has been rendered by the Second Department, dismissing a trust rescission action as a result of Plaintiff's failure to join certain remainderpersons and charitable beneficiaries as parties.
In Estate of Nowitz v. Nowtiz, 2009 NY Slip Op 06660 (2d Dept 2009), the Decedent had commenced an action during his lifetime to rescind an irrevocable trust agreement without the consent of the trustee. After a jury trial entering a judgment in favor of the Plaintiff’s Decedent, the Defendant appealed seeking a dismissal for failure to join necessary parties and the expiration of the statute of limitations. The Second Department remitted the case to the Supreme Court for a determination (see Estate of Nowitz v. Nowtiz, 37 AD3d 788 [2d Dept 2007]).
According to the lower court, one of the remainderpersons and two of the charitable beneficiaries had waived any appearance on the matter. It further opined that plaintiff’s failure to join the remaining four beneficiaries was excusable due to their notice of the action before it proceeded to trial, and failure to intervene (Estate of Nowitz v. Nowtiz, 2009 NY Slip Op 066600 [2d Dept 2009]).
Relying on CPLR 1001(b), the Appellate Division reversed. It explained that according to statute, courts may excuse failure to join a necessary party upon consideration of five factors:
· Whether there exists another remedy for the petitioner if the action is dismissed due to nonjoinder;
· The prejudice to the party who has not been joined;
· Whether and by whom prejudice may have been, or may in the future be, avoided;
· Whether a protective provision in the judgment is feasible; and
· Whether an effective judgment may be rendered in the absence of the party that was not joined (see CPLR 1001[b]).
Although the Court recognized that the first factor was in favor of excusing the nonjoinder because the plaintiff had no other effective remedy, it determined that a consideration of the remaining factors weighed against proceeding in the absence of the beneficiaries that had not been joined (Estate of Nowitz v. Nowtiz, 2009 NY Slip Op 066600).
Specifically, in light of the second and third factors, the Court held that the beneficiaries would be greatly prejudiced if the trust were rescinded without their participation in the action, and that the plaintiff could have avoided prejudice to the beneficiaries by timely joining them as defendants. The Appellate Division rejected the Supreme Court’s conclusion that the nonjoinder was excusable because the beneficiaries could have avoided any prejudice by seeking to interve; instead holding that this fact was outweighed by the absence of a reasonable excuse for failure to join (id.).
In contemplating the forth CPLR 1001(b) factor, the Court opined that the facts were not in favor of proceeding in the absence of beneficiaries; a protective provision in an ultimate judgment was not feasible because rescission of the trust would directly affect their economic interests. Finally, the Court held that the efficacy of a judgment would be questionable without the participation of the beneficiaries who had not been joined, thus rendering the fifth factor against nonjoinder as well (id.).
Because four of the five CPLR 1001(b) factors weighed against proceeding without those who had not been joined in the action, the Appellate Division held that these beneficiaries were indispensible parties. Coupling this with the fact that the applicable statute of limitations had expired, the Court dismissed the action (id.).
The foregoing serves as a caveat to trust and estate litigators, emphasizing the importance of joining all beneficiaries in a proceeding. Although dismissal is never desirable for the petitioner or plaintiff, a dismissal predicated on failure to join an indispensible party is especially unpleasant considering the ease of avoiding such a result. Indeed, where the CPLR 1001(b) factors render a party to be necessary, a beneficiary’s failure to intervene upon notice of the proceeding is no excuse. Inclusion of all indispensable parties is the responsibility of the party commencing the action.
Court Cites Flaws in Article 17-A in Denying Guardianship Application
A recent decision from New York County in which Surrogate Glen denied an Article 17-A guardianship petition, Matter of Chaim, A.K., 8/26/2009 NYLJ 41 (col 1) (Sur Ct, New York County), has clarified the proper use of the proceeding.
The Court began its analysis by distinguishing the characteristics of guardianship proceedings brought pursuant to Article 17-A of the Surrogate's Court Procedure Act, and those brought under Article 81 of the Mental Hygiene Law. Specifically, the Court held that the Article 17-A proceeding is not necessarily appropriate in all circumstances where an individual has been diagnosed as developmentally disabled or mentally retarded.
Chaim presented facts typical of Article 17-A cases. Parents were petitioning for guardianship of their son who had reached majority and had been diagnosed by two physicians as developmentally disabled. He was unable to make medical decisions for himself. Indeed, both diagnosing physicians submitted affidavits supporting his parents’ application. However, the additional information before the Court, including psychiatric reports demonstrating psychological and emotional problems, led the Surrogate to question whether an Article 17-A guardianship was appropriate.
In her decision, Surrogate Glen explained the many factors that distinguish Article 17-A proceedings from those commenced under Article 81. She noted the following:
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Article 17-A was originally intended as a vehicle for parents of mentally retarded children to continue to exercise control after the child reached an age of majority, while Article 81 is directed at adults who have lost or diminished capacity;
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Article 81 grants no more power to the guardian than is necessary, while Article 17-A does not allow for the court to grant the guardian a particular degree of control over the ward;
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No hearing is required under Article 17-A, while a hearing is necessary under Article 81, providing the opportunity for cross-examination and independent counsel for the AIP;
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Article 17-A allows for the discretionary appointment of a guardian ad litem, while Article 81 mandates the appointment of an independent court evaluator;
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Article 17-A is silent as to burden of proof, whereas Article 81 requires clear and convincing evidence;
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Article 17-A is largely driven by forms, often providing the court with conclusory statements about the ward’s condition but resulting in ease for applicants who frequently petition pro se, while Article 81 is more complex and thus more likely to require the services of an attorney; and
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Article 17-A guardians are not required to report to the court with any updates after the appointment, whereas Article 81 guardians must file detailed reports ninety days later and subsequently on an annual basis (id.).
Considering Chaim’s particular situation in light of the “all or nothing” nature of an Article 17-A guardianship, Surrogate Glen denied the Petition and suggested that Article 81 may be more appropriate. Her rationale was that the evidence demonstrated that Chaim’s difficulties were attributable more to mental illness than mental retardation, and thus were likely treatable. As a result, the Court opined that it would be unnecessary and inappropriate to give a guardian complete power over Chaim’s affairs pursuant to Article 17-A. Instead, the Court held that “changes in his circumstances . . . may require altered powers in the guardian or perhaps even, someday, no guardian at all” (id.).
This decision has the potential to significantly change the landscape of guardianship proceedings in Surrogate's Courts. It is presently unknown whether Chaim will be the subject of an appeal, but we will keep you informed of any developments.
Trusts: Legally Protecting Assets from the Settlor's Creditors
New York law allows individuals to limit their liability to creditors by arranging their affairs in a manner that legally protects their assets. One of the ways this is accomplished is by “making irrevocable transfers of their assets, outright or in trust, as long as such transfers are not in fraud of existing creditors . . .” (Matter of the Joseph Heller Inter Vivos Trust, 613 Misc 2d 369 [Sur Ct, 1994]). The circumstances under which a trust’s assets will be validly protected are limited to the existence of specific parameters in the trust instrument.
According to EPTL §7-3.1, “[a] disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator.” In other words, an individual cannot transfer his or her assets to a trust and continue to retain control or enjoy the benefits of that trust, while simultaneously enjoying protection from creditors. Instead, transfers to irrevocable trusts will only be deemed valid for purposes of sheltering the assets from creditors where the grantor does not reserve a power to revoke the trusts or to dispose of the property during his lifetime, and where the transfers to the trust did not make the grantor insolvent (see Matter of Granwell, 20 NY2d 91 [1967]; Debtor Creditor Law §273).
A transfer resulting in the grantor’s insolvency or one that is made while the grantor is already insolvent may be deemed a fraudulent conveyance (see Debtor Creditor Law §273). In such cases, the creditors may set aside conveyances and reach the assets. But if trust assets remain available for the grantor’s benefit, creditors need not establish fraud to invalidate the transfer (see Vanderbilt Credit Corp. v Chase Manhattan Bank, N.A., 100 AD2d 544 [2d Dept 1984]; Colgate v Guaranty Trust Co. of New York, 159 Misc 664, 666 [Sup Ct, New York County 1936]). For example, in Vanderbilt Credit Corp. v Chase Manhattan Bank, N.A., 100 AD2d 544 (2d Dept 1984), the Appellate Division held that trust assets are not protected from creditors if the trustee has discretion to make payments to the grantor (see Vanderbilt Credit Corp. v Chase Manhattan Bank, N.A., 100 AD2d 544 [2d Dept 1984]).
Not surprisingly, this concept extends beyond the life of the trust settlor and remains applicable to his or her estate. Indeed, courts recognize that where an individual reserves the power to dispose of trust property during his or her lifetime, “he or she must be regarded as the absolute owner of the funds until death and those funds would be therefore available to pay estate debts” (Estate of Hughes, 3/20/2003 NYLJ 23 [col 2] [Sur Ct, Kings County], citing Matter of Granwell, 20 NY2d 91 [1967]; Matter of Batiste, 5/4/99 NYLJ 30 [col 6]). Also notable is the fact that, "any property covered by a general power of appointment which is presently exercisable, or a postponed power which has become exercisable, is subject to creditors' claims" (Estate of Chappell, 7/24/09 NYLJ 26 [col 1] [Sur Ct, New York County], citing EPTL §10-7.2).
In light of the foregoing, it is clear that individuals may legally protect their assets from the claims of creditors, provided they are willing to forego the control and benefits of the funds and of course, do not transfer their assets fraudulently.
Widow Barred from Bringing Legal Malpractice Action against Husband's Estate Planning Attorneys
Trusts and estates practitioners often provide joint representation to married couples as they create their estate plans. Questions as to the existence of joint representation may arise if husband and wife retain the same estate planning attorney, but do not meet or communicate with counsel together; instead, creating their own separate estate plans. These were the circumstances in the recent case of Leff v Fulbright & Jaworski, LLP, et. al. (Sup Ct, New York County 2009), in which a widow brought a legal malpractice action against her estate planning attorneys in the context of their actions as counsel to her late husband. The result is food for thought, and perhaps may encourage attorneys and their married clients to assume more clearly defined roles.
Joel B. Leff (“Decedent”) died in 2002 with an estate valued at approximately $90 million. In 1974, the Decedent entered into a Separation Agreement as part of a divorce settlement with his first wife, with whom he had a son. Said Agreement provided that the Decedent would bequeath to his son by Will no less than one-half of his probate estate, assuming his first wife remarried. Years later, the Decedent retained an estate planning attorney, who had no involvement in the drafting of the Separation Agreement. A copy of the Separation Agreement was given to the attorney, and remained in his file throughout his representation of the Decedent.
In 1998, the Decedent married Plaintiff. Prior to their marriage, they entered into a prenuptial agreement providing that each spouse “would have the right to dispose of his or her property . . . as each party sees fit,” but further stated that the Decedent would bequeath the marital residence and devise a specific amount to Plaintiff (id. at 2). Thereafter, the Decedent, represented by Defendants, executed a number of Wills and Codicils. At no time in the drafting of these instruments were the terms of the Separation Agreement considered by Decedent or his attorneys.
The Decedent’s testamentary instruments were drafted without his wife’s knowledge or involvement, with the exception of two instruments: (1) a codicil in anticipation of the couple’s trip to Cambodia, which, by its terms, expired upon their return; and (2) an unsigned Will bequeathing to Plaintiff one-half of his adjusted gross estate, which the Decedent gave to Plaintiff as an anniversary present. At the time of this gift, the Decedent reassured Plaintiff, by letter, that she would be informed if he were to execute a new Will that reduced her interest in his estate. Throughout this period, Plaintiff was also represented by Defendants in connection with her own estate plans, and jointly with her husband in connection with the purchase of an apartment.
It was only after the Decedent’s death that the Separation Agreement surfaced in Defendants’ file, in response to a claim by his son for one-half of the probate estate. The estate settled with the Decedent’s son, as a creditor of the estate, for approximately $20 million. Plaintiff subsequently sued Defendants for legal malpractice, claiming a loss of approximately $9 million due to their failure to inform Decedent about the existence of the Separation Agreement; she alleged that the Agreement should have been considered, resulting in alternative planning options to allow the Decedent to fulfill his intent as expressed in his Will. Defendants moved to dismiss, contending that they owed no duty to Plaintiff with regard to Decedent’s estate planning, as they never represented the couple jointly in this capacity. The Court agreed.
Despite Plaintiff’s contentions that she and the Decedent were represented jointly by Defendants, the Court explained that “[a] party’s ‘subjective belief as to the existence of an attorney-client relationship is not dispositive’” (id., quoting Weadick v Herlihy, 16 AD3d 223, 224 [1st Dept 2005]). Moreover, the Court rejected Plaintiff’s reliance on Prudential Ins. Co. of America v Dewey, Ballantine, Bushby, Palmer & Wood, 80 NY2d 377 (1992), in which it was recognized that the concept of privity was expanded to encompass the relationship between an attorney and a third party. In distinguishing Prudential, the Court explained that Plaintiff could not overcome the law that “a beneficiary has no cause of action against the attorney who negligently drafted a will” (Leff v Fulbright & Jaworski, LLP, et. al., citing Spivey v Pulley, 138 AD2d 563 [2d Dept 1988]).
In its decision, the Court relied upon Mali v De Forest & Duer, 160 AD2d 297 (1st Dept 1990). There, it was held that estate planning attorneys had no duty to a decedent’s son, a beneficiary of his father’s Will, despite the fact that the attorneys advised the son as to his own estate planning and were longtime advisors to the family (id., citing Mali v De Forest & Duer, 160 AD2d 297, 298). The Court also rejected Plaintiff’s arguments that “near privity” was created between her and Defendants with respect to the Decedent’s estate planning because the Defendants explained to her the import of one of the Decedent’s Wills, and occasionally updated her about the amount of her legacy upon her husband’s death. This relationship with respect to the Decedent’s estate plan was interpreted by the Court to be merely “fleeting contacts” (Leff v Fulbright & Jaworski, LLP, et. al. at 15).
Additionally noteworthy is that, in a footnote, the Court refused to embrace the discussions by the American College of Trust and Estate Counsel and the American Bar Association that “in the absence of an agreement to the contrary’ a husband and wife represented by the same counsel be presumed as joint clients” (id. at 15, fn 2). Thus, it was held that Defendants could not be liable to Plaintiff for any mistakes that they may have committed in their representation of the Decedent.
Notwithstanding the lack of privity, the Court further determined that “[Plaintiff’s] case falters inexorably on the issue of causation, simply because Plaintiff cannot prove that she would have received more money from [Decedent] ‘but for’ Defendants’ failure to inform [Decedent] of the existence and import of the Separation Agreement” (id. at 16)
Query, if the Court had determined that an attorney-client relationship had existed, permitting Plaintiff’s claim of legal malpractice, should the Court have so quickly dismissed her case on the issue of causation? Perhaps a hearing would have been beneficial prior to making such a determination. Plaintiff may have had adequate evidence to demonstrate alternative actions that could have been taken by Defendants, i.e., writings demonstrating that lifetime gifts to the Decedent’s son were advancements, or maybe the creation of trusts. It is a moot point here, but something to be considered for future cases.
Amendments to Simultaneous Death Statute, EPTL 2-1.6
Legislative amendments to EPTL 2-1.6, the statute pertaining to disposition of assets under circumstances of apparent simultaneous deaths, are forthcoming. The new legislation has been approved by the New York State Senate and Assembly, and awaits Governor Paterson's signature.
The current version of EPTL 2-1.6 addresses the disposition of property where there is no evidence that individuals died other than simultaneously. Under these circumstances, absent a clause in the decedents' wills stating otherwise, the statute presumes that each individual predeceased the other. Thus, property is generally distributed as if each individual survived the other, with some exceptions.
The new EPTL 2-1.6 will repeal the former statute, and essentially provides that absent clear and convincing evidence that one individual survived the other by one hundred and twenty hours, that individual is treated as if he or she predeceased. In effect, this statute enacts the 1993 version of the Uniform Simultaneous Death Act.
Probate of a Lost Will
Every effort should be made to preserve an original will, assuming it is expected that the will may be offered for probate. If an original will is lost, however, the testator’s plan will not necessarily be frustrated.
Pursuant to SCPA 1407, a lost will may be admitted to probate when three conditions are met: “(1) it is established that the will has not been revoked, (2) execution of the will is proved in the manner required for the probate of an existing will, and (3) all provisions of the will are clearly and distinctly proved by each of at least two credible witnesses or by a copy or draft of the will proved to be true and complete.” The third requirement is often met by the production of a photocopy of the original will (see Estate of Tendler, 4/9/2009 NYLJ 42 [col 5] [Sur Ct, New York County]; Estate of Koontz, 4/8/2009 NYLJ 35 [col 5] [Sur Ct, New York County])
A will that is “shown to have existed” and was in the testator’s possession at the time of his or her death is presumed destroyed and thus revoked (see In re Evans, 264 AD2d 482 [2d Dept 1999]). This presumption is rebuttable, however, by satisfaction of the aforementioned statutory requirements (In re Demetriou, 48 AD3d 463 [2d Dept 2008]). In the event that the will were not in the testator’s possession at the time of his or her death, no presumption of revocation exists. Thus, if the attorney-draftsman retains the original will and it is ultimately lost or destroyed, the proponent may more easily prove that there was no revocation.
Consider the facts in Estate of Raymond, 3/25/2009 NYLJ 35 (col 3) (Sur Ct, Bronx County). There, the decedent’s original will had been maintained in the office of the attorney-draftsman. The attorney’s office was damaged following the July 2007 Manhattan steam pipe explosion, and the City of New York Department of Health ordered the destruction of all documents that had been stored there. The testator never executed another will, and upon his death, a conformed copy of the destroyed will was offered for probate. Noting that no rebuttable presumption of revocation existed because the original will was not in the testator’s possession, the court was satisfied that all three prongs of SCPA 1407 were met. It was held that the will would be admitted to probate.
Similar circumstances were presented in Estate of Castiglione, 40 AD3d 1227 (3d Dept 2007). The attorney-draftsman submitted an affidavit in support of probating a photocopy of the will, stating that the original had been kept with him, but that it had been lost when his office relocated. The attorney-draftsman of the decedent’s codicil corroborated this evidence, and further confirmed that the decedent had believed his will was still in existence upon executing his codicil. The Appellate Division was satisfied that the evidence presented satisfied SCPA 1407, and dismissed allegations that the will was invalid due to lack of testamentary capacity and undue influence. The Surrogate’s Order directing the probate of the will was therefore affirmed.
For a more in depth discussion of probating lost wills, see Necessary Requirements to Successfully Probate a Lost Will, Nassau Lawyer, November 1, 2008.
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.
Parents of Decedent Have No Rights to Preserved Reproductive Tissue
A unique issue was decided this week by the First Department. In Speranza v Repro Lab Inc., 2009 NY Slip Op 01543, Plaintiffs, as administrators of their deceased son’s estate, sought possession from Defendant, Repro Lab, Inc., of frozen semen specimens that the Decedent deposited prior to his death. He apparently chose to deposit the specimens to preserve his ability to have children in the event that his cancer treatments resulted in infertility. Plaintiffs sought the specimens after their son’s death, in hope of ultimately having a grandchild by a surrogate.
Upon being contacted by Plaintiffs after the Decedent passed away in 1998, the Lab advised them that the specimens were intended for the Decedent’s own use and thus had not undergone the requisite screening to be donated to a member of the public. Nonetheless, it agreed to maintain the specimens as long as Plaintiffs continued to pay the yearly fee, which they did for several years.
In 2005, Plaintiffs requested information from the Lab on obtaining the specimens for purposes of artificial insemination. Only at that time did Defendant produce a contract the Decedent signed, explicitly providing for the destruction of the specimens upon his death. This prompted litigation in which Plaintiffs alleged that the Lab’s acceptance of annual payments to preserve the specimens rendered them property of the estate, and requested a preliminary injunction to direct the Lab to continue preservation of the specimens pending the outcome of the action.
The lower court denied the injunction and dismissed the action sua sponte. The rationale: the Decedent did not receive the medical tests for disease that the New York State Department of Public Health requires for donors of reproductive tissue pursuant to 10 NYCRR 52-8.6[g]. Plaintiffs appealed.
Although the Appellate Division was sympathetic to the circumstances presented, it determined that the law prohibited the relief that Plaintiffs requested. The Decedent’s chosen use for the specimens, as reflected by his contract with the Lab, rendered him a “client-depositor” as opposed to a “directed donor,” based upon the regulations of the New York State Department of Health (see 10 NYCRR 52-8.1). Consequently, extensive medical screening and testing requirements applicable only to “donors” were not conducted on the Decedent while he was alive (see 10 NYCRR 52-8.6[g]). The court concluded that it could not overlook such serious health and policy concerns aimed at protecting the general public from disease, and therefore held that the specimens could not be released to the estate.
Despite the prohibitive restrictions imposed by the health regulations, Plaintiffs argued in favor of reforming or terminating the contract between the Decedent and the Lab to eliminate his direction to destroy the specimens upon his death. The court rejected this contention, explaining that reformation only applies where a contract fails to express the true agreement of the parties due to a mutual mistake. The agreement in issue was clear and unambiguous. Reformation could not be justified in light of such express terms.
The court also rejected Plaintiffs’ argument that Defendant’s acceptance of annual payments over a period of years without revealing the existence of the contract with the Decedent rendered the specimens property of the estate. While the court recognized that Plaintiffs may have a claim against the Lab because it did not destroy the specimens as it was required by contract to do, it determined that the applicable health regulations prohibited the estate from asserting any ownership rights.
In sum, the court opined that Plaintiffs failed to show either a likelihood of success on the merits to warrant a preliminary injunction, or any legal arguments to justify ultimate relief. Nonetheless, as empathetic as one may be to Plaintiffs’ plight, this decision appears to be consistent with the Decedent’s wishes, a factor always emphasized in cases affecting estates.
New Power of Attorney Legislation Effective September 1, 2009
Governor Paterson has signed legislation extending the effective date for the new Power of Attorney statute from March 1, 2009 to September 1, 2009. This provides an additional six months to learn about the significant amendments to GOL 5-1501, which were summarized in a previous posting.
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.
Right of Election Granted Despite Evidence of a Voidable Marriage
Should a surviving spouse remain entitled to an elective share even if the marriage was procured by fraud or undue influence exercised upon the decedent, or if the decedent was incapacitated at the time of the marriage? In a recent case, Matter of Berk (20 Misc 3d 691 [Sur Ct, Kings County 2008]), the decedent’s estate opposed his widow’s notice of election alleging that circumstances of the marriage rendered it null and void ab initio, thereby eliminating her rights pursuant to EPTL 5-1.1-A. She moved for summary judgment.
The decedent died in 2006, leaving a will dated
The Court explained that Domestic Relations Law Section 7 renders a marriage voidable, not void, when one of the parties was incapable of consenting for want of understanding, or consented by force, duress or fraud. Consequently, the Court noted that the decedent’s marriage was valid at the time of his death because a voidable marriage only becomes void upon a court’s declaration of its nullity. In light of these facts, the Court stated that “a surviving spouse’s right to elect against a will is not disturbed even if the marriage is annulled post-death,” and rendered summary relief considering only the terms of EPTL 5-1.1-A and 5-1.2 (id.).
Here, the widow was granted an elective share of an estate valued at over $5 million despite the Court’s recognition of the extremely suspicious facts surrounding the validity of her marriage. While the decision clearly adheres to well-established law, the result does not seem equitable.
It will be interesting to see what happens if the estate chooses to appeal. The Surrogate’s determination was not only in accordance with statute, but was also in compliance with a longstanding opinion rendered by the Fourth Department (see Bennett v Thomas, 38 AD2d 682 [4th Dept 1971]). Perhaps a spotlight on a decision such as this can prompt an amendment to EPTL 5-1.2, or direction from the Appellate Division or Court of Appeals granting trial courts discretion to disqualify a “surviving spouse” from a right of election when presented with clear evidence of fraud, undue influence, duress, or lack of capacity, even if the marriage was technically “valid” at the time of death.
