Estate litigation oftentimes arises when parents favor one or more of their children over others in their estate plans. Fortunately, at least for the parents, they typically do not have to deal with the issues involved in the litigation, as they are deceased by the time that it arises. As the Second Department’s decision in Sharrow v. Sheridan demonstrates, however, disfavored children do not always wait for their parents to pass before commencing litigation concerning the parents’ assets. Indeed, some disfavored children have gone so far as to sue their parents and siblings as “potential heirs” of the parents’ estates. This blog entry explains why such a strategy will prove unsuccessful.
In Sharrow, the plaintiff commenced an action against his mother and his sister, seeking to impose a constructive trust on certain assets that the mother transferred to the sister (see Sharrow v. Sheridan, 91 AD3d 940, 940-41 [2d Dept 2012]). The plaintiff alleged that a constructive trust was warranted because the sister exercised duress and undue influence on the ailing mother in pressuring her to transfer the assets to the sister (see id.). When the mother and sister moved to dismiss the plaintiff’s complaint, the plaintiff asserted that he had standing to seek a constructive trust over the assets formerly belonging to his mother as a “potential heir” of her estate (see id.).
The Supreme Court granted the defendants’ motions to dismiss and the Appellate Division affirmed (see id.). In affirming, the Second Department found that the plaintiff lacked standing to seek to impose a constructive trust on the assets that his mother transferred to his sister (see id.). As the court explained, for as long as she was alive, the mother had “the absolute right to change her intentions regarding the distribution of her assets” (see id.). Accordingly, the court concluded that the plaintiff’s interest as a “potential heir” of his mother’s estate was a “potential, speculative interest” that did not vest him with standing to prosecute a constructive trust claim concerning his mother’s former assets (see id.).
Of course, Sharrow is not the only case in which a child sought to void an inter vivos transfer made by a parent as a potential heir of the parent’s estate. In Schneider v. David, the plaintiff commenced an action to impose a constructive trust on real property that her mother transferred to her brother (see Schneider v. David, 169 AD2d 506, 506-08 [1st Dept 1991]). Among other things, the plaintiff alleged that her brother had fraudulently induced their elderly mother to convey the properly to him by telling the mother that the deed she signed only permitted him to manage the property while she was out-of-state (see id.). The defendant moved to dismiss, arguing – with his mother’s support – that the plaintiff lacked standing to seek a constructive trust (see id.).
Although the Supreme Court denied the defendant’s motion, the First Department reversed (see id.). The Appellate Division reasoned that the plaintiff was not a party to her mother’s conveyance of the property and could not void it simply because she considered herself to be an heir of her living mother’s estate (see id.). In short, the plaintiff’s self-serving description of herself as a potential heir of her mother’s estate did not cloak her with standing to sue or exercise rights on her mother’s behalf (see id.).
There are several lessons to take away from Sharrow and Schneider, the most obvious of which is for children to respect the wishes of their parents as those wishes relate to the parents’ assets during life. Putting the obvious aside, however, disfavored children and their attorneys should take note of the well-reasoned legal principle that, as “potential heirs” of their parents’ estates, they lack standing to take legal action concerning their parents’ assets. During their lives, the assets belong to the parents and are subject to the parents’ absolute right to dispose of their property as they wish.
It might well be an understatement to characterize New York’s Dead Man’s Statute (CPLR 4519) as somewhat “enigmatic,” at least to those practitioners who do not often encounter it. Indeed, the leading treatise on the statute is over three-quarters of a century old (see Greenfield on Testimony under Sec. 347 (CPA) § 61 ).
This article contains a brief overview of the statute and more thorough discussion of its application to motions for summary judgment.
Generally -- and perhaps overly simplistically -- the Dead Man’s Statute renders an interested person incompetent to testify concerning a personal transaction (including a communication) with a deceased or mentally ill person. Such evidence is freely discoverable, however, and may be the subject of testimony at a deposition. Indeed, the rule applies only “upon the trial of an action or the hearing upon the merits of a special proceeding” (CPLR 4519).
But what about a motion for summary judgment, which is the procedural equivalent of a trial on the merits? It has long been the rule in New York that evidence excludable under the Dead Man’s Statute may not be used in support of a motion for summary judgment, although it may be offered in opposition to such a motion, to raise an issue of fact for trial. In Phillips v. Joseph Kantor & Co., 31 NY2d 307 (1972), the New York Court of Appeals held that the general rule permitting the use of such evidence in opposition to summary judgment motions is premised on the rationale that it would be difficult to predict with certainty whether such evidence might be rendered admissible at trial by virtue of a waiver -- intentional or inadvertent -- of the protection of the statute.
However, the Court opened the door slightly to granting summary judgment in a case where the only evidence offered in opposition to the motion would be subject to exclusion under the statute. The Court stated that, “[a]dmittedly, a trial would seem unnecessary if it were certain, in an absolute rather than a pragmatic sense of the term, that there would be no waiver of the statute and that all the proof would be excludable” (id. at 314).
Such was the case in Estate of Steger, NYLJ 11/17/08 (Sur Ct Nassau County Nov. 5, 2008), recently decided by the Surrogate’s Court, Nassau County.
In Steger, a contested accounting proceeding, the objectant -- John -- sought leave to reargue a prior decision of the Court denying his motion for summary judgment. He had asked the Court, among other things, to set aside transfers made by the decedent during her lifetime. John was one of the decedent’s four sons. The transfers weres made to another of the sons, Mark, who was also the executor of the decedent’s estate. Not only were the transfers made to Mark, they were made by Mark. He had the decedent’s power of attorney and utilized it, among other things, to transfer assets from the decedent’s individual accounts to an account held jointly, with right of survivorship, by them both. In opposition to the motion, Mark maintained that this was done at the direction of the decedent. John sought to set aside those transfers.
The Court began its analysis by stating the elements of a gift; the donee of a gift has the burden of proving, by clear and convincing evidence, that there was delivery of the property and acceptance by the donee. In addition, the recipient must also prove the decedent’s donative intent. It was this final element, according to John, that Mark could not satisfy. John argued that the sole evidence offered in connection with that element was Mark’s own testimony concerning the decedent’s intent.
The Court agreed, noting that the sole proof offered by Mark in support of his position was his own statements contained in his affidavit that, “for her own reasons, my mother directed me to make these transfers.”
Discussing the Phillips case, the Court noted that, generally speaking, evidence otherwise precluded by the Dead Man’s Statute can be utilized by a party seeking to oppose a motion for summary judgment. However, it further noted that such proof is deemed insufficient where it is the sole proof submitted in support of the opposing party’s claim. Moreover, the Court noted that John, in his motion papers, repeatedly cited the Dead Man’s Statute, “thus indicating his intent to invoke the statute to exclude the statements at trial.” The Court granted reargument regarding the pre-death transfers, and upon reargument, granted John’s motion for summary judgment.
This decision should serve as a warning to practitioners advising clients with respect to gifts: Think about evidentiary hurdles that might be encountered down the road. Take care to properly document the gift (through writings, gift tax returns, etc.). And, of course, be particularly cautious in advising a client with respect to the use of a power of attorney to make a gift (see generally Matter of Ferrara, 7 NY3d 244  [gifts made pursuant to a power of attorney must be in the best interest of the principal, including minimization of income, estate, inheritance, generation-skipping transfer or gift taxes]).