Judicial oaths require that judges rule on the law, putting their personal feelings aside.  Indeed, judges’ personal opinions are presumed to be non-factors in judicial decision making as judges are charged to uphold the letter of the law regardless of their personal beliefs. The decision in Matter of the Estate of Durcan is a case in point.

Before the Surrogate’s Court, New York County was a petition by James Durcan (“James”), the administrator of the decedent’s estate, seeking the turnover of certain IRA proceeds.   In Durcan, Joan Durcan (the “Decedent”), was survived by two siblings, her brother James, and her sister Mary Anney Cunney (“Cunney”). Following Decedent’s death, Merrill Lynch & Co., Inc. (“Merrill Lynch”) distributed the proceeds of four IRA accounts (“Accounts”) owned by Decedent to Cunney.   Shortly thereafter, James petitioned for the turnover of the Account proceeds, claiming that they belonged to Decedent’s estate (the “Estate”).

The Accounts were created by the Decedent in 2002, designating Cunney as the sole beneficiary. In 2014, Decedent sought to have the Accounts transferred from Merrill Lynch to Morgan Stanley. To effectuate the transfer Morgan Stanley sent Decedent certain transfer forms, which she completed and sent back, once again designating Cunney as her one hundred (100%) beneficiary.   Shortly thereafter, additional transfer forms were sent to Decedent, including an IRA Adoption Agreement. The Adoption Agreement included a provision for designating a beneficiary for the new accounts. At his deposition, the Decedent’s financial advisor testified that when discussing the forms with the Decedent, she reiterated her desire to designate Cunney as the sole beneficiary. Decedent died unexpectedly a few days later. Critically, the second set of documents sent by Morgan Stanley, including the beneficiary designations contained in the Adoption Agreement, were neither received by Morgan Stanley nor found among Decedent’s papers. Following Decedent’s death, Morgan Stanley transferred the proceeds of the IRAs, valued at approximately $2 million, to Cunney, as Morgan Stanley recognized Cunney as the beneficiary on the basis of the information provided by Decedent.

Relying on EPTL 13-3.2 (e), James argued that Decedent failed to execute a valid beneficiary designation for her IRAs after the new accounts were opened at Morgan Stanley and, therefore, that the proceeds of each of the accounts should be paid to Decedent’s estate to be distributed among her intestate distributees. Section 13-3.2 specifically requires that a beneficiary designation be made in a writing signed by the person making the designation (id.). The Morgan Stanley transfer documents failed to comply with this requirement.  In her own motion and in opposition to James’s motion, Cunney asked the court to apply the equitable doctrine of substantial compliance and determine that Morgan Stanley’s decision to waive its right to require strict compliance with the beneficiary designation provisions of its IRA Plan should not be disturbed (Durcan, at 4). Surrogate Mella ruled in James’s favor, and directed Cunney and Morgan Stanley to turn over to James, as administrator of Decedent’s estate, the proceeds of the IRAs (id. at 8).

The result in Durcan exemplifies the longstanding belief that it is a judge’s duty to set aside one’s personal feelings so that he or she can blindly administer justice according to the letter of the law. Judges take oaths to uphold the law, regardless of personal beliefs. Faced with this onerous burden, Surrogate Mella “reluctantly conclude[d] that compliance with the statutory requirement that a beneficiary designation be in writing and signed by the designator may not be disregarded  As explained by the Court of Appeals in McCarthy, such requirement is critical to serve the essential goal of preventing the courts and parties from speculating regarding the wishes of the deceased” (id. at 7).

 

With a specific statute (Domestic Relations Law §236(3)) mandating that pre-nuptial agreements must be acknowledged, and with a specific statutory form of acknowledgment (Real Property Law §309-a(1)), it is surprising that there has been so much litigation over missing or defective acknowledgements and whether they can be cured after the fact.

In Matter of Koegel, 2018 NY Slip Op 00833 (2d Dept 2018), recently decided by the Appellate Division Second Department, husband died in 2014. Surviving spouse filed a Notice of Spousal Election under EPTL 5-1.1-A.   The estate petitioned to set aside the right of election on the basis of a waiver contained in a pre-nuptial agreement. The spouse moved to dismiss claiming that the acknowledgment on the agreement was invalid in that it omitted the standard language contained in the statutory form to the effect that the signers were known to the respective notaries.

On the motion, each notary submitted an affidavit to the effect the he “did not have to provide me with any identification of who he was because he was well known to me at the time.” The Second Department affirmed the decision of the court below that the defect could be remedied, distinguishing the case from Matisoff v Dobi, 90 NY2d 127 (1997) where the agreement had not been acknowledged at all and Galetta v Galetta, 21 NY3d 186 (2013) where the agreement was acknowledged but defective in the same respect as in this case, but the notary did not know the decedent and although he could describe his usual procedure, could not categorically swear that he took the steps to identify the party acknowledging the agreement in this instance.

A recent post to this blog titled You’ve Got (E-)Mail! Can Your Survivors Access It After Your Death?, discussed New York’s recently-enacted digital assets legislation, and Surrogate Mella’s decision in Matter of Serrano, regarding whether the fiduciary of a decedent’s estate had a statutory right to access his deceased spouse’s Google email, contacts and calendar information in order to ‘be able to inform friends of [the decedent’s] passing’ and ‘close any unfinished business’” (see Serrano, supra).

As readers may recall, Surrogate Mella found that the requested disclosure was warranted and directed Google to make it (see id.). The Surrogate explained that “disclosure of the non-content information is permitted, if not mandated, by Article 13-A of the EPTL and does not violate [the governing federal privacy law]” (see id.). However, Surrogate Mella denied the fiduciary’s request to access the contents of the decedent’s Google email account.

In a recent decision, Surrogate Czygier of Suffolk County addressed this very issue. In Matter of White,10/3/2017 NYLJ p. 25, col. 1, a fiduciary sought access to a decedent’s Google e-mail account, contending the information would identify assets and aide in the administration of the estate. The fiduciary believed that the decedent may have owned a business at the time of his death and that an assessment of the business could not be completed without obtaining access to the information contained in the decedent’s Google account. She indicated that there were no other authorized users to the account and that Google refused to grant her access without a court order. No one appeared in opposition.

The court noted that Article 13-A of EPTL sets forth the grounds for access, as it is applicable to an administrator acting for a decedent who died after the enactment of the statute. The court further noted that although Google “provides an ‘online tool’ to grant access to ‘trusted contacts’ after a period of inactivity, it does not appear that decedent activated this feature; nor did decedent address disclosure of his digital access via a will, trust or other record” (see id.). Petitioner averred that access should be granted as there was no state or federal law prohibiting disclosure of the contents stored in decedent’s account.

Surrogate Czygier disagreed, denying the fiduciary’s request to access the contents of the decedent’s Google account. The Surrogate wrote: “Although no one has appeared in opposition to the requested relief, in this evolving area, the undersigned is concerned that unfettered access to a decedent’s digital assets may result in an unanticipated intrusion into the personal affairs of the decedent or disclosure of sensitive or confidential data, for example, information unrelated to his business or corporation. Thus, the court must balance the fiduciary’s duty to properly administer this estate, while avoiding the possibility of unintended consequences” (see id.).

Consistent with Surrogate Mella’s decision in Matter of Serrano, the Court granted the relief solely to the extent that Google should disclose the contact information stored and associated with the account, noting that to the extent greater access to the account appeared warranted an application may be made to expand the authority. This decision reaffirms Surrogate Mella’s application of Article 13-A in Matter of Serrano. 

 

A person who executes a valid agreement to make a testamentary disposition as to a specific item of property is precluded from making an alternative disposition, either during lifetime or upon death. This blog post discusses Schwartz v Bourque, 2017 NY Slip Op 31621(U) (Sur Ct, Nassau County June 14, 2017), a recent decision involving an agreement to make a testamentary disposition as to a specific parcel of real property, a later agreement between the same parties concerning that property (that was alleged to have superseded the earlier agreement), and a deed transferring that same property which was contrary to the terms of the earlier agreement, but not the later one. In vacating the deed, Surrogate Reilly engaged in a comprehensive analysis of the applicable rules of contract construction, agreements to make testamentary dispositions, the termination of joint tenancies, and the statutory and case law governing fraudulent conveyances.

Schwartz involved three generations of women in one family and a dispute over title to the real property where they all resided together. The property was initially owned by the Decedent alone. The agreements and deeds Decedent executed concerning that property led to the dispute between her daughter, Brenda, and her granddaughter, Christine (Brenda’s daughter), both individually and as executor of Decedent’s estate.[1]

The 1978 Agreement

Brenda claimed Decedent was unable to pay the carrying charges on the residence which led to Brenda assuming responsibility for those expenses. Brenda’s concern that she had no ownership interest or contractual assurance that she could remain living there, despite her financial investment in the property, led to the execution of an agreement with her mother in 1978 (the “1978 Agreement”). The 1978 Agreement provided that Brenda agreed to pay all carrying charges on the property and, in return, she could reside there as long as she desired. The 1978 Agreement contained a provision whereby Decedent agreed to make a will giving the premises to Brenda in fee simple absolute.

The 1984 Agreement and 1984 Deed

Brenda claimed that, as time passed and her financial stake in the property continued to increase, she was concerned that she did not have any current ownership interest in the property. The Decedent and Brenda executed another agreement in 1984 (the “1984 Agreement”) which provided that in consideration of Brenda’s past payment of carrying charges, and her promise to do so in the future, Decedent would convey one-half of her interest in the property to Brenda. A deed from Decedent to Decedent and Brenda, as joint tenants with right of survivorship, was recorded (the “1984 Deed”).

The 2012 Deed

In 2012, Decedent executed a deed by which she purported to convey her remaining one-half interest in the property to her granddaughter Christine, thereby severing the joint tenancy between Decedent and Brenda that was created by the 1984 Deed.

Did the 1984 Agreement Supersede the 1978 Agreement?

A later contract will not supersede an earlier contract unless either: (1) the later contract contains definitive language reflecting the parties’ intent to supersede the earlier contract or (2) the two contracts deal with precisely the same subject matter (Globe Food Services Corp. v Consolidated Edison Co., 184 AD2d 278 [1st Dept 1992]).

As the 1984 Agreement contained no language expressing an intent to supersede the 1978 Agreement, the only issue was whether the two agreements deal with “precisely” the same subject matter. Christine argued that they do, that being what consideration Decedent would provide Brenda in recognition of Brenda’s past payments towards the residence and her promise to continue those payments. Brenda argued that they do not deal with “precisely” the same subject matter because the 1978 Agreement was intended to assure Brenda that the property would be hers upon Decedent’s death, while the 1984 Agreement was intended to provide Brenda with a current interest in the property without affecting the earlier 1978 Agreement.

The court noted, “[b]oth arguments are plausible but only one can prevail.” Although there was no integration and merger clause and while the two agreements appear to address the same general rights, the Court found, “it is clear that there is nothing that would prevent the two agreements from coexisting or working in tandem.” The Court found the 1978 Agreement is clearly a contract to make a testamentary disposition and satisfies all the criteria necessary to establish an enforceable agreement, that is, the agreement is in writing and subscribed by the party to be charged (EPTL § 13-2.1[a]). Moreover, the 1978 Agreement identifies the specific property that is to be the subject of the testamentary disposition, thereby precluding Decedent from making an alternate disposition, either during lifetime or upon death.

The Surrogate then proceeded to analyze Brenda’s arguments in support of her summary judgment motion.

Breach of Contact Claims

As to Brenda’s cause of action for Decedent’s breach of the 1978 Agreement, the Court found the proof established all of the elements, except as to Brenda’s performance. Because Brenda offered no proof in admissible form that she complied with her obligations under that contact (i.e., paying all expenses associated with the upkeep of the premises), the Court denied summary judgment.

As to Brenda’s cause of action for Decedent’s breach of the 1984 Agreement, the Court noted while Decedent transferred 50% of her interest in the property to Brenda under that contract, it is silent regarding Decedent’s other 50% interest. Although the 1984 Deed conveyed the property to Decedent and Brenda “as joint tenants with right of survivorship”, such a conveyance did not constitute a promise not to sever the joint tenancy. The Court noted Real Property Law § 240-c provides to the contrary and allows a joint tenancy to be terminated by a deed that conveys legal title to the severing joint tenant’s interest to a third person. Thus, the Court found if the 2012 Deed to Christine is a breach of contract, it is of the 1978 Agreement, not the 1984 Agreement.

The Fraudulent Conveyance Claims

Brenda alleged Decedent’s making of the 2012 Deed, and Christine’s acceptance of that deed, constituted a breach of the 1978 Agreement and sought the application of Debtor and Creditor Law §§ 275 and 276 to vacate the deed.

Debtor and Creditor Law § 275 provides:

“Every conveyance made and every obligation incurred without fair consideration when the person making the conveyance or entering into the obligation intends or believes that he will incur debts beyond his ability to pay as they mature, is fraudulent as to both present and future creditors.”

The Court noted that where a transfer is made without consideration, as was true of the 2012 Deed, a rebuttable presumption arises of insolvency and a fraudulent transfer, thereby placing the burden on the transferee, Christine, to overcome the presumption.

Debtor and Creditor Law § 276 provides:

“Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors.”

As to the actual fraudulent intent contemplated by that statute, courts recognize the difficulty of proving actual fraudulent intent and permit the pleader to rely on “badges of fraud” (Wall Street Assoc. v Brodsky, 257 AD2d 526, 529 (1st Dept 1999). Among these “badges of fraud” are: a close relationship between the parties to the transfer; inadequate or no consideration; the transferor’s knowledge of the creditor’s claim; and retention of the property by the transferor after the conveyance (id.).

The Court found Decedent and her granddaughter Christine had a close family relationship; the conveyance was without consideration; the 2012 Deed was executed days after Brenda filed her original complaint evincing that Decedent was aware of Brenda’s claim when the transfer was made; and Decedent continued to reside in the property after the conveyance to Christine. The Surrogate noted that the only explanation given for the transfer is that Decedent had the right to do so. Thus, defendants failed to offer any legitimate explanation for the conveyance, rendering the defendants’ actual fraudulent intent “readily inferable” (Machado v A. Canterpass, LLC, 115 AD3d 652, 654 [2d Dept 2014]).

Significantly, as an exception to the so-called “American Rule” on attorneys’ fees, where intent to defraud under Debtor and Creditor Law § 276 has been established, Debtor Creditor Law § 276-a provides an award of attorneys’ fees to plaintiff against defendants which the Court granted.

Thus, although Brenda did not succeed in vacating the 2012 Deed based upon a breach of the 1978 Agreement to make a testamentary disposition, she succeeded in doing so based upon the fraudulent conveyance causes of action which resulted in her being awarded counsel fees, relief she may not have received based upon the breach of contract claim.

 

[1] Brenda commenced the action in Supreme Court during Decedent’s lifetime and it was transferred to the Surrogate’s Court following Decedent’s death.

In the past, New York Courts have demonstrated a willingness to apply the theory of promissory estoppel, to overcome the legal requirements of the Statute of Frauds. The Restatement (Second) of Contract, Section 139, endorses this principle, providing:

“A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise”

However, a recent decision from the New York Court of Appeals, limited the purview of applying the theory to overcome the statutory requirements of the Statute of Frauds.

In the Matter of Hennel, the Court of Appeals rendered a decision, reversing an order of the Appellate Division, holding that Petitioners’ claim against the decedent’s estate seeking to enforce an oral promise was barred by the Statute of Frauds. In overturning the Appellate Division, the Court held that the most important factor in overcoming the Statute of Frauds is whether the resulting injustice is in fact unconscionable.

In Hennel, the decedent’s grandsons allegedly reached an oral agreement with the decedent, whereby the parties agreed that the grandsons would ultimately acquire ownership of a parcel of real property in exchange for assuming all management and maintenance duties of the property. The Petitioners further asserted that the parties reach an agreement whereby the mortgage on the property would be satisfied from the estate’s assets.

To effectuate the oral bargain, Petitioners and decedent executed a warranty deed in which decedent granted ownership of the property to Petitioners. At the same meeting, the decedent executed a will which contained terms supporting the alleged oral agreement – namely that any mortgage in existence at the time of the decedent’s death would be paid off from the assets of the decedent’s estate. Following the meeting, the Petitioners assumed all management and maintenance duties in accordance with the agreement with decedent. However, in 2008, the decedent executed a new will, revoking all prior wills and codicils, which omitted all provisions concerning the satisfaction of the mortgage.

Following the decedent’s death, the Petitioners commenced a proceeding, pursuant to SCPA 1809, seeking to determine the validity of their claim against decedent’s estate.   The Respondent objected, asserting that the claim was barred by the Statute of Frauds. However, the Surrogate’s Court ordered the estate to pay off the mortgage and satisfy the claim, reasoning that the claim fell “squarely within that limited class of cases where promissory estoppel should be applied to remedy a potential injustice.” The Appellate Division later affirmed the Surrogate Court’s decision.

However, the Court of Appeals disagreed, reasoning that even assuming the Petitioners were able to satisfy the elements of promissory estoppel, they would not suffer unconscionable injury if the Statute of Frauds were enforced. The Court went on to state:

“The strongly held public policy reflected in New York’s Statute of Frauds would be severely undermined if a party could be estopped from asserting it every time a court found that some unfairness would otherwise result. For this reason, the doctrine of promissory estoppel is properly reserved for that limited class of cases where the circumstances are such as to render it unconscionable to deny the promise upon which the plaintiff has relied”

(Hennel, 2017 WL 2799828 [2017]).

Applying those principals to the facts before it, the Court found the Petitioners’ evidence was insufficient to demonstrate an unconscionable injury to overcome the Statute of Frauds. Importantly, the Petitioners were able to make all mortgage payments entirely from the rental income generated by the property. Moreover, the court noted that the Petitioners had the option of selling the property, satisfying the balance of the mortgage, and claiming the $150,000 of equity remaining in the property.

The Court conceded that the Petitioner’s loss was unfair. However, in overturning the Appellate Court’s decision, the Court reasoned that wherever an oral agreement is rendered void by the statute of frauds, some unfairness will typically result.   The Court concluded that “what is unfair is not always unconscionable.   For these reasons, cases where the party attempting to avoid the statute of frauds will suffer unconscionable injury will be rare” [id.].

Consequently, it is clear that applying the principles of promissory estoppel, to overcome the legal requirements of the Statute of Frauds, is a high standard that places a significant burden on the promisee.   The promisee must demonstrate not merely gross injustice or unfairness but the showing of an unconscionable injury.

The fiduciary who thinks a receipt and release is the answer to all future claims for an accounting and liability may have a surprise in store. Over the past several months, Surrogates have explored the issue of receipts and releases, and have provided insight into just how far they will go to “save the day.” The decision in Matter of Ingraham, NYLJ, June 16, 2017, at p. 28 (Sur. Ct., New York County) is a case in point.

Before the Surrogate’s Court, New York County, was a petition by the successor trustee of two separate inter vivos trusts to compel two former trustees of the trusts to account. One of the trustees, who had been removed by the Grantor, filed his accountings; the other trustee, who had resigned, objected to the petitions relying on language in the trust instruments, which she claimed relieved her of any duty to account, as well as releases executed by the Grantor and the other trustee.

At the time the objectant resigned, the Grantor executed instruments by which the objectant was released from any and all claims related in any way to her role as trustee, with the exception of claims arising from fraud or willful misconduct. The release further acknowledged that the Grantor desired to forego a formal account. The accounting trustee signed a similar release, and assented to any account (former or informal) rendered by the objectant. Further, it appeared that the terms of each trust instrument dispensed with the need for the trustees to file periodic judicial accountings.

The court held that the objectant’s reliance on the releases to insulate her from her duty to account was misplaced, inasmuch as the instruments reserved the releasors’ rights to seek relief for any fraud or willful misconduct. Further, the court rejected any claim by the objectant that the releases relieved her of her duty to account, a responsibility that was incidental to the trustee’s duty and fundamental to any fiduciary relationship. Indeed, the court found that while the release executed by the Grantor may have arguably consisted of a waiver of the Grantor’s right to an accounting, the court found that it did not constitute a clear and unambiguous waiver of an accounting by the other trustee and trust beneficiaries.

Additionally, the court held that the provisions of the trust instruments only exempted the objectant from filing periodic accountings, but did not relate to the final accounting sought by the proceedings. Finally, the court observed that where a former trustee has failed to account within a reasonable time and full releases do not relieve her of the duty to account, the court may sua sponte direct an accounting pursuant to SCPA 2205.

Accordingly, the objectant was directed to account with respect to each of the subject trusts.

Based on the foregoing, counsel should take heed that a release may not, despite its intended purpose, always serve to insure the complete and final discharge of a fiduciary. As Ingraham instructs, a release should, at the very least, be comprehensive in its terms and clear and unambiguous as to the scope of its application, most especially if it is designed to constitute a waiver of an accounting. But of course, it should always be borne in mind that regardless of the language of the instrument, the court may invoke the provisions of SCPA 2205, and direct an accounting on its own motion — if it deems it to be in the best interests of the estate to do so.

One of the most important considerations in creating a trust is selecting the appropriate trustee. Oftentimes this involves determining whether a corporate trustee is appropriate as either the sole trustee or together with one or more individual co-trustees. A corporate trustee’s experience and sophistication in both investment and administrative matters are commonly cited reasons for appointing such a trustee. A corporate trustee may further provide a level of objectivity that may be difficult for family members or other individual trustees to match.

In Matter of Sinzheimer, 2017 NY Slip Op 31379(U) (Sur Ct, New York County 2017), the Court held a corporate co-trustee that had been “removed” pursuant to the terms of the trust agreement was not required to deliver the trust’s assets to the sole individual trustee where the individual defied the instruction in the trust instrument to appoint a successor corporate co-trustee. The perceived objectivity on the part of the removed corporate trustee figured prominently in the Court’s decision sustaining its decision to withhold delivery of trust assets to the individual trustee until a new corporate trustee had been appointed.

The relevant facts in Sinzheimer are as follows. Ronald and Marsha, husband and wife, established an irrevocable trust which provided for income and principal to be paid to Marsha in the discretion of the trustees for her “health, support maintenance and education.” On Marsha’s death, the trust remainder is payable to a further subtrust which terminates after the death of the last surviving issue of the parents of Ronald and Marsha. The remainder is payable to certain named individuals or their estates.

Ronald died in 1998, about a year after the trust was established. Thereafter, an individual trustee resigned and Andrew, the son of the grantors, Ronald and Marsha, was appointed in his place. Before Andrew’s predecessor resigned, he exercised his power to remove the corporate co-trustee (the “Bank”), but no corporate co-trustee was appointed to serve in its place.

Andrew maintained that a successor corporate co-trustee is not required and declined to appoint one. With respect to the issue before the Court as to the Bank’s turnover of trust assets to Andrew, the Court noted, “[t]he issue is consequential because Andrew has announced his intention to exercise his discretion to distribute all principal to Marsha if permitted to serve alone, thereby terminating the Trust” (id. at 2). The Court further noted that after Andrew became a trustee, but before his refusal to appoint a corporate co-trustee, he and his mother, Marsha, requested a discretionary distribution to Marsha of all the assets in the trust. A Bank officer asked for the standard documentation to initiate the discretionary request process, but Andrew and Marsha refused to provide the information.

The Court found it was clear from the trust instrument that the settlors intended that a corporate trustee would serve at all times after Ronald’s death. The authorities on which Andrew relied were distinguished because none involved a direction in the instrument to replace a corporate trustee with another corporate trustee, as was the case here, which, the Court stated, was “a significant difference because the professional management and independence uniquely afforded by a bank could affect a court’s analysis of such a provision” (id. at 5).

The Court next proceeded to dismiss Andrew and Marsha’s claim that the Bank converted the trust assets by not turning them over to Andrew as trustee. The Court found that the Bank never asserted title to the trust account which is an essential element of a claim for conversion. Rather, the issue was the Bank’s right, under these facts and circumstances, to temporarily withhold delivery of the trust assets to Andrew. The record established that the Bank never unequivocally denied that Andrew, as trustee, had a right to the assets, but asked only that he first appoint a corporate co-trustee to serve with him or obtain a court order determining his right to serve alone. The Court held:

Particularly given Andrew’s stated intent to terminate the Trust without regard to the rights of the remainder beneficiaries – a class that does not include himself, a measuring life – the Bank’s position was reasonable. … The Bank’s uncontroverted conduct here was prudent and appropriate in the circumstances, particularly in consideration of its fiduciary duty to the remainder beneficiaries… (id. at 8)

Although the Bank had been purportedly removed pursuant to the terms of the instrument, it, nevertheless, had an ongoing fiduciary duty to the remainder beneficiaries. The Court found the Bank fulfilled that duty by resisting its removal and not turning the trust assets over to the sole individual trustee.

Notably, the Bank’s withholding of the trust assets from Andrew was found prudent notwithstanding that co-fiduciaries have an equal right to custody of an estate fund (Matter of Slensby, 169 Misc. 292, 295 [Sur Ct, Kings County 1938] (“every estate fiduciary, by virtue of his office, is entitled to the custody of the assets of the estate or fund. When there are two or more fiduciaries, each possesses an equal right in this regard …”); see also Matter of Schwarz, 240 AD2d 268, 269 [1st Dept 1997]). The justification for departing from this rule in Sinzheimer was clear. The Bank faced potential exposure to claims from the trust’s remainder beneficiaries if it delivered property to the individual trustee who may later be found to be without the authority to exercise discretion alone, as he said he would by terminating the trust in favor of his mother.

Having a corporate trustee is not appropriate for all trusts. The cost of a corporate trustee’s services is an important factor to consider in determining if one is appropriate. The personal family knowledge possessed by a family member or dear friend of the grantor usually serves as a compelling basis to select such an individual to administer a trust for his or her family. On the other hand, a corporate trustee is less likely to be influenced by emotions, personal agendas, conflicts of interest and bias, all of which can impair the orderly administration of a trust consistent with the grantor’s intentions.

E-mail is seemingly omnipresent. Day in and day out, we use it in our business, social, and personal affairs. Yet, the improvements to the technology associated with e-mail have far outpaced the development of the law concerning our e-mail accounts and the rights that our survivors may have to access those accounts upon our deaths. This post addresses New York’s recently-enacted digital assets legislation, as well as Surrogate Mella’s well-reasoned decision in Matter of Serrano, which appears to be the first reported case to apply that legislation.

In 2016, the New York Legislature enacted a version of the Uniform Law Commission’s Revised Uniform Fiduciary Access to Digital Assets Act in Article 13-A (“Article 13-A”) of the Estates, Powers and Trusts Law (“EPTL”) (see Matter of Serrano, 2017-174, NYLJ 1202790870327 [Sur Ct, New York County June 14, 2017]). Article 13-A seeks to balance the tension that may exist between (a) the well-settled notion that the fiduciary of a decedent’s estate stands in the decedent’s shoes after the decedent’s death, and (b) the public policy that favors respecting the decedent’s privacy upon the decedent’s demise (see Legislative Memorandum in Support of Article 13-A).

Under Article 13-A, except where a deceased user has prohibited disclosure of digital assets before death, or a court orders otherwise, the custodian of electronic records has a statutory duty to disclose to the personal representative of the decedent’s estate “a catalogue of electronic communications sent or received by a deceased user (other than the content of the electronic communications)” upon receipt of the following from the personal representative: (a) a written request for such disclosure; (b) a copy of the deceased user’s death certificate; and (c) a certified copy of the letters appointing the fiduciary (or a small-estate certificate or court order) (see Serrano, supra; EPTL § 13-A-3.2). A custodian of electronic records may request: (a) the username for the deceased user’s account, among other identifying information; (b) “evidence linking the account to the [deceased] user”; (c) “an affidavit stating that disclosure of the [deceased] user’s digital assets is reasonably necessary for administration of the [deceased user’s] estate”; or (d) a judicial determination that the deceased user had an account with the custodian, or that “disclosure of the [deceased] user’s digital assets is reasonably necessary for administration of the estate” (see id.). Critically, Article 13-A defines the term “catalogue of electronic communications” as “information that identifies each person with which a user has had an electronic communication, the time and date of the communication, and the electronic address of the person” (see EPTL § 13-A-1[d]).

With respect to the content of electronic communications (i.e., the text of e-mails), Article 13-A provides that, where a deceased user has consented to, or a court orders, “disclosure of the contents of electronic communications of the [deceased] user,” the custodian of electronic records “shall disclose to the executor, administrator or personal representative of the estate of the [deceased] user the content of” the deceased user’s electronic communications, if the fiduciary of the deceased user’s estate provides the following to the custodian: (a) a written request for such disclosure; (b) a copy of the deceased user’s death certificate; (c) a certified copy of the letters appointing the fiduciary (or a small-estate certificate or court order); and (d) “unless the [deceased] user provided direction using an online tool, a copy of the [deceased] user’s will, trust or other record evidencing the user’s consent to disclosure of the content of [the deceased user’s] electronic communications” (see EPTL § 13-A-3.1[a]-[d]).[1] A custodian of electronic records may request: (a) the username for the deceased user’s account, among other identifying information; (b) “evidence linking the account to the [deceased] user”; or (c) a judicial determination that (i) the deceased user “had a specific account with the custodian”, (ii) “disclosure of the content of [the deceased user’s] electronic communications . . . would not violate [the federal Stored Communications Act, which Congress “enacted in 1986 as part of the Electronic Communications Privacy Act”,] or other applicable law”, (iii) “unless the [deceased] user provided direction using an online tool, the [deceased] user consented to disclosure of the content of electronic communications”; or (iv) “disclosure of the content of [the deceased user’s electronic communications] is reasonably necessary for administration of the [deceased user’s] estate” (see EPTL § 13-A-3.1[e]).

With the foregoing statutory provisions in mind, Surrogate Mella recently addressed whether the fiduciary of a decedent’s estate had a statutory right to “access his deceased spouse’s Google email, contacts and calendar information in order to ‘be able to inform friends of [the decedent’s] passing’ and ‘close any unfinished business’” (see Serrano, supra). Surrogate Mella was called upon to address this issue after the fiduciary contacted Google in order to obtain such access, prompting Google to request “a court order specifying that, among other things, ‘disclosure of the content [of the requested electronic information] would not violate any applicable laws, including but not limited to the Electronic Communications Privacy Act and any state equivalent” (see id.).

In considering the fiduciary’s right to access the contacts and calendar (i.e., the non-content material) associated with the decedent’s Google e-mail account, Surrogate Mella found that the requested disclosure was warranted and directed Google to make it (see id.). The Surrogate explained that “disclosure of the non-content information is permitted, if not mandated, by Article 13-A of the EPTL and does not violate [the governing federal privacy law]” (see id.).

With respect to the fiduciary’s request to access the contents of the decedent’s Google e-mail account (the actual text of the e-mail messages), Surrogate Mella reached a different result (see id.). The Surrogate wrote: “Authority to request from Google disclosure of the content of the decedent’s email communications – to the extent that [the fiduciary] requests such authority – is denied without prejudice to an application . . . , on notice to Google, establishing that disclosure of that electronic information is reasonably necessary for the administration of the estate” (see id.). Interestingly, the decision does not indicate that the decedent consented to granting the fiduciary of his estate access to the content of his e-mails (see id.).

In light of the foregoing, it appears that, absent a prohibition by the user, the fiduciary of a deceased user’s estate should, in most instances, be granted access to the non-content information associated with the deceased user’s e-mail account upon compliance with Article 13-A. Where the user consents to the fiduciary of his or her estate accessing the content of the user’s electronic communications, or a court orders otherwise, the fiduciary of the deceased user’s estate may be granted access to the content of the deceased user’s e-mail account under Article 13-A. It will be interesting to see how the Surrogates apply Article 13-A in the future.

[1] Article 13-A defines the term “online tool” as “an electronic service provided by a custodian that allows the user, in an agreement distinct from the terms-of-service agreement between the custodian and user, to provide directions for disclosure or nondisclosure of digital assets to a third person” (see EPTL § 13-A-1[p]). Facebook’s “legacy contact” feature appears to be an example of an online tool.

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

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

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

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

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

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

Surcharge of Fiduciary, Sua Sponte

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

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

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

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

thatIn some will contests, lawyers will speculate that the decedent may have misled people as to his true estate plan, either out of weakness, to keep the peace, to measure reactions, to avoid uncomfortable conversations, and perhaps, sadly, intending to cause pain and disappointment. When this happens, it may be easier, for example, for a son to believe that his sister was responsible for subverting their mother’s wishes than to even approach the idea that his mother was not being truthful when she told him that he would receive “everything.” Bitter litigation is often the result. We can speculate that there may have been a bit of that going on with the parties involved in Gersh v. Nixon Peabody LLP, 2017 NY Slip Op 30363(U), (Sup Ct, New York County 2017), outside of the context of a will contest.

Decedent’s surviving spouse was the Plaintiff in Gersh, suing individually, and as executor of Decedent’s estate, for legal malpractice against Nixon Peabody LLP. She alleged that the firm committed malpractice in rendering planning services to her and to the Decedent, who jointly retained the Nixon firm in 2003. At that time, the Decedent — married for the third time, some forty years after his divorce from his first wife — decided to create a will and amend an existing revocable trust. When he did so, his obligations to the children of his first marriage under a separation agreement were seemingly unaccounted for in his estate plan.

Decedent and his first wife had two children, Laurie and Ellynn. The couple entered into a separation agreement 1963. The agreement provided that if the first wife survived Decedent, and if Laurie and Ellynn had reached the age of 21 at the time of Decedent’s death, then Decedent was obligated to leave 50% of his estate in trust for the first wife, with the remainder passing to Laurie and Ellynn upon their mother’s death. This provision is not a model of clarity. For example – – what are the terms of this “trust”? What is this separation agreement referring to when it refers to Decedent’s “estate”? Is it the Decedent’s probate estate? Or the Decedent’s net estate for estate tax purposes? Or something else?

If the Decedent had wanted his surviving spouse to receive all of his wealth despite the separation agreement, he could have employed trusts, life insurance, beneficiary designations, lifetime transfers and gifts, and other mechanisms to, at the very least, reduce what his first wife and children would receive . Arguably, it was possible to plan around the separation agreement, and for the Decedent to ensure that his surviving spouse received all of his assets, and that his first wife and Laurie and Ellynn received nothing. However, no such planning was done.

The Decedent died in 2014, and it appears that he died with a substantial probate estate. The Decedent’s first wife died shortly thereafter, and their children, Laurie and Ellynn, promptly claimed that they were entitled to 50% of their father’s estate pursuant to the separation agreement. Their claim against the Decedent’s estate ultimately settled for $2.367 million.

After compromising the claim, Plaintiff sued the Nixon firm. She alleged that the Nixon firm was aware that the Decedent had been divorced twice, but nevertheless neglected to perform a proper inquiry and investigation to determine the existence of the separation agreement. She maintained that the Nixon firm committed legal malpractice because it never inquired about or obtained a copy of the agreement, and never informed her and the Decedent that the Decedent’s first wife and children had a potential claim to as much as 50% of his estate. She further alleged that the Nixon firm did not provide her and the Decedent with advice to reduce exposure to such a claim in order to fulfill the Decedent’s wish to leave virtually all of his assets to Plaintiff. She claimed that if the Nixon firm had done so, the Decedent would have taken appropriate steps in planning and that she would have received the $2 million-plus that was paid to Laurie and Ellynn in settlement of their claim.

Examining Plaintiff’s claim on a motion to dismiss, the Court observed that it was undisputed that the Decedent was aware of the separation agreement at all relevant times, and that the Decedent did not inform the Nixon firm of the existence of the separation agreement. Citing well-settled law, the Court held that an attorney cannot be held liable for legal malpractice for failing to disclose facts already known to the client. Moreover, the Court held that even assuming that the Nixon firm had a duty to investigate separation agreements attendant to the Decedent’s prior marriages, and advise as to the effect of same, and was negligent in failing to do so, that Plaintiff could only speculate that this negligence was the proximate cause of her loss in the settlement paid to Laurie and Ellynn. Citing the familiar case of Leff v. Fulbright & Jaworski, LLP, 78 AD3d 531 (1st Dept 2010), the Court held that Plaintiff’s assertions as to what Decedent would have done had he received advice concerning the effect of the separation agreement on his estate plan were speculative and insufficient to support a legal malpractice claim.

In Gersh, it may have been that the Decedent had some sense of obligation to his first wife and Laurie and Ellynn. He may have known full well that his first wife and/or children might make a claim for 50% of his estate when he was working with the Nixon firm on his estate plan. He may have decided that it would be easier to let his first wife and children make a claim against his estate rather than talk to his wife about how he wanted to leave them something out of a sense of obligation. He may have wished to avoid a conversation, or a series of excruciating conversations, with his wife about whether and to what extent his children should receive assets upon his death. On the other hand, perhaps Decedent relished the idea of a fight between his surviving spouse and his first wife and children after his passing and his estate plan was so designed. Even if the Nixon firm had enlightened him as to the effect that the separation agreement would have had on his estate plan, he might have opted to do nothing. We can only speculate.