Construction of Wills and Trusts

It is easy to be cynical about the “pots and pans,” “tchotchkes,” and “junk” – – the property that is often divided in a contentious manner at the bitter end of an estate litigation, or sometimes forgotten after years of litigation. An ongoing dispute in one of my cases led me to reflect on a New York Times piece by Annie Correal, which explores a very personal account of the Great Migration through a discarded item of what estate lawyers might call “personalty” or “tangible personal property” – – a photo album. The photo album belonged to the late Etta Mae Taylor, and through good fortune, it caught the eye of a journalist before it could be collected by DSNY. The story is remarkable. While Etta Mae Taylor’s photo album may not be of tremendous pecuniary value, it is arguably a treasure of a different sort.

 

Etta Mae Taylor’s photo album may cause some reflection about our own personal effects, whether they are of pecuniary value, sentimental value, or both.  Ms. Taylor’s photo album is also an invitation to a mundane but perhaps useful discussion about tangible personal property in the law of trusts and estates.

 

What does “tangible personal property” mean? It depends. It generally means furniture, clothing, household goods, tools, jewelry, antiques, and other like personal effects. However, it can be up for interpretation. Quite often, wills and trusts dispose of personal effects with a general provision similar to the following:

 

I bequeath to Jane Doe all personal effects, household effects, automobiles, and other tangible personal property, whether located as at present at 40 Park Avenue, New York, NY, or elsewhere, at the time of my demise.

 

In an oft-cited case, the Surrogate’s Court held that cash in a safe deposit box did not fall within the definition of a tangible personal property in the face of the foregoing provision. As the Court explained “cash is not ordinarily thought of as ‘tangible personal property’ and here, under the familiar doctrine of ejusdem generis, the words ‘tangible personal property’ should be limited to property of the same or similar character as that described by the preceding words, to wit, personal effects, household effects and automobiles.”

 

What about a valuable stamp collection? Reggie Jackson’s rookie card? Fine art? Etc. . . Sometimes, the testator is detailed – – you will see a provision similar to the following:

 

I bequeath my jewelry, silverware, furs, leather goods, china, and any art to Jane Doe, if she shall survive me, and all my other tangible personal property shall be distributed to my children, in equal shares, or all to the survivor. If none of my children shall survive me or shall not desire any such property, I authorize my Executor to sell such property at such time or times, at such prices and on such terms as he or she shall deem advisable and to distribute the net proceeds of sale thereof as part of my residuary estate. However, my Executor shall be empowered to retain for the benefit of my children and any other family members any item of such property deemed to have a personal, a family or sentimental character such as pictures, memorabilia, keepsakes or the like, and he or she shall distribute such property among my children and any other family members at such time or times and in such proportions as he or she shall, in his or her sole and absolute discretion, deem advisable.

 

A fairly recent, and again, oft-cited and discussed decision of the Bronx County Surrogate’s Court, Estate of Rothschild, illustrates why specificity and clarity might avoid wasteful estate litigation. There, the petitioner received a bequest of tangible personal property pursuant to the following provision:

 

I give all of my tangible personal property (other than currency) including without limitation, wearing apparel, personal effects, jewelry, furniture, furnishings, pictures, paintings and other objects of art, silver, china, glassware and other household effects, books and automobiles to my wife, or if she does not survive me, to [the petitioner]. . .

 

The petitioner maintained that the decedent’s collections of stamps, platinum, gold, and silver coins (worth millions of dollars) passed to her under the foregoing provision as “tangible personal property.” Petitioner relied on a New York case, where the court held that collections of medallions, stamps and coins were “tangible personal property.”

 

The Bronx County Surrogate’s Court ruled against the petitioner, holding that the decedent’s collections were not items of “tangible personal property” that passed to the petitioner, but rather were residuary assets. The Court explained that “tangible personal property” is generally understood and construed “as being limited to tangible property having an intimate relation to the testator and ordinarily used by him.” It distinguished the principal case that petitioner relied upon – – in that case there was a disposition of tangible personal property “of every kind” (expansive language), while the foregoing will provision contained the language “and other household effects” (limiting language). The Court held that the tangible personal property identified in the will did not embrace items beyond the kind of household effects that the decedent used on a daily basis, and that the decedent’s collections were of a different character of property.

 

Notably, the disposition of valuable tangible personal property of the kind encountered in Rothschild could have a drastic effect on estate tax apportionment in a taxable estate. If the will directs against apportionment, and provides that estate tax is to paid from decedent’s residuary estate, and a tremendously valuable tangible item is disposed of as a pre-residuary bequest of “tangible personal property” (perhaps contrary to decedent’s true wishes), the residuary estate could be significantly depleted by estate tax, perhaps even leading to an interrelated computation.   The tax allocation clause can sometimes be a very important provision in a will – – as illustrated in another blog post – – and perhaps in further blog posts.

In construing an in terrorem provision, or any part of a will, the paramount consideration is identifying and carrying out the testator’s intent.  Although paramount, the testator’s intention will not be given effect if doing so would violate public policy.  For example, an in terrorem provision that purports to prevent a beneficiary from questioning a fiduciary’s conduct is void as contrary to public policy (see Matter of Egerer, 30 Misc 3d 1229[A], at *1-4 [Sur Ct, Suffolk County 2006]).  The recent decision in Matter of Sochurek, NYLJ, July 20, 2016, p. 31 (Sur Ct, Dutchess County June 30, 2016), illustrates the difficulty in reconciling the testator’s intention in respect of an in terrorem condition with the rights of beneficiaries to obtain an accounting or otherwise challenge the actions of their fiduciary.

Sochurek involved a dispute between the decedent’s spouse, who was the executor of his estate, and his two daughters from a prior marriage.  Decedent owned a 50% membership interest in an LLC that owned real property and a business.  The will bequeathed “an estate for life” in the LLC to decedent’s wife, including the right to receive income therefrom.  Upon his wife’s death, “her life interest shall terminate” and the LLC was bequeathed to his two daughters.  The will also contained provisions, likely boilerplate, regarding the executor’s powers to sell estate assets.

After the will had been admitted to probate, the executor/spouse sold the LLC’s real property and business.  The executor and decedent’s daughters entered into a “standstill agreement” providing that any funds the executor received from the sale would be held in a segregated “Life Estate Account” from which no withdrawals would be made for a period while the daughters had an opportunity to appraise the LLC assets and negotiate a reasonable treatment of the proceeds.

Before the standstill agreement expired, the daughters commenced an action against the executor in Supreme Court.  The daughters asserted causes of action for, inter alia, breach of fiduciary duty and an accounting.  An order to show cause enjoined the executor from withdrawing any funds in the “Life Estate Account.”  The ultimate relief sought in the order to show cause was a temporary restraining order and an accounting.  These claims were grounded in the executor’s sale of estate property (assets of the LLC) and actions thereafter as to the proceeds.

The in terrorem provision in the will was directed toward any person who “shall, directly or indirectly, institute or become a party to any proceedings to set aside, interfere with, or make null any provision of this Will, or to offer any objections to the probate thereof . . .” (emphasis added).

The executor commenced a construction proceeding in the Surrogate’s Court contending the daughters’ Supreme Court action interfered with her authority as executor and prevented her from accessing/managing estate assets, thereby triggering the in terrorem clause.  In response, the daughters contended they never contested their father’s will and, to the contrary, conceded its validity.  The daughters asserted that their lawsuit is focused on the executor’s “egregious abuse of her fiduciary duties” and breach of the standstill agreement.

In ascertaining the testator’s intent, the Court reviewed the fiduciary powers article in the Will which gave the executor broad powers to sell, exchange or otherwise dispose of all estate property on such terms as the executor deemed advisable.  Thus, the Court concluded, the executor undoubtedly had the power to dispose of the LLC.  The Surrogate held:

The clear intent of the testator upon a complete reading of the will was to give the executrix of his estate the necessary and broad powers to manage the property as she saw fit.  The Court finds the [daughters] have violated [the in terrorem provision] by commencing an action in the Supreme Court, Westchester County challenging the executrix’s action with regard to the disposition of estate assets, thereby “interfer[ing] with any provision of this Will” [quoting the in terrorem provision]. By interfering with the executrix’s management and ultimate sale of [the LLC], the [daughters] have violated the in terrorem clause of the will and have forfeited their legacies (Matter of Sochurek, NYLJ, July 20, 2016, p. 31 at *8).

The daughters had a beneficial interest in the assets of the LLC which the executor held in a fiduciary capacity.  The relief sought by the daughters in Supreme Court included an accounting and damages for mismanagement of estate assets, including alleged self-dealing.  In Egerer, supra, the Surrogate’s Court held, “any attempt by a testator to preclude a beneficiary from questioning the conduct of the fiduciaries, from demanding an accounting from said fiduciaries or from filing objections thereto will result in a finding that the pertinent language is void as contrary to public policy and the applicable statutes of the State of New York” (Matter of Egerer, 30 Misc 3d 1229[A], *3 [Sur Ct, Suffolk County 2006]).

Thus, following Egerer, had the daughters petitioned the Surrogate’s Court successfully for a compulsory accounting and objected to the executor’s accounting alleging the sale of the LLC assets was self-interested, that the executor misappropriated estate assets and breached an agreement as to the management of estate assets, it does not appear the in terrorem condition would have been triggered.

What about obtaining a provisional remedy, such as a TRO, in the context of the accounting?  It would seem inconsistent to allow beneficiaries the right to pursue objections to an accounting without forfeiting an interest in the estate by triggering an in terrorem condition, but deprive them of the ability to seek a provisional remedy securing their interests in the subject of the proceeding.  While the daughters in Sochurek obtained a TRO that interfered with the executor’s management of estate assets, it was in the context of a plenary action seeking an accounting and otherwise challenging the executor’s conduct (cf. Egerer, supra).

As the Sochurek decision illustrates, the case law on the scope and validity of in terrorem conditions continues to develop, and the outcome of each proceeding depends on the particular provisions of the will and the unique, fact-specific circumstances related to the conduct of the party alleged to have violated the condition.

As the year draws to a close, I sometimes recall the stresses of final exam season from my law school days. In the spirit of reminiscence, I’ll pose a quick final-exam-like fact pattern:

Jane owned a parcel of real property in New Hyde Park, title to which she transferred in June 2002 to her irrevocable lifetime trust. Jane listed the New Hyde Park property on Schedule A to the trust agreement, and also executed and recorded a deed transferring the property to her trustees. The trust agreement provides that upon Jane’s death, the remaining corpus of the trust is to be divided among her two children, Nancy and Thomas, in equal shares per stirpes. Nancy and Thomas are specifically named as remainder beneficiaries under the trust agreement.

In February 2013, Thomas predeceased Jane, leaving no spouse or issue, and having no will.

In January 2014, Jane created a will which included a general bequest of all of her real property and her residuary estate to her three grandchildren, Scott, John and Jessica, the children of Nancy.

Jane died in July 2014. At Jane’s death, her irrevocable trust was still in existence and the deed to the New Hyde Park property was still in the name of the trustees of Jane’s trust. Scott sought admission of Jane’s January 2014 will to probate and received preliminary letters testamentary. Assuming admission of Jane’s January 2014 will to probate, who will receive title to the New Hyde Park property?

If you want to cheat, the answer can be found in a recent Nassau County Surrogate’s Court decision, Matter of Wilder (NYLJ, September 3, 2015, p.25, col.6). The crux of the dispute decided by Surrogate McCarty was that both Nancy, as trustee and beneficiary of Jane’s irrevocable trust, and Scott, as preliminary executor and a legatee of Jane’s estate, claimed an interest in the New Hyde Park property.

Nancy asserted that the property was owned solely by the trust and should pass 100% to her. As the trust distribution is to be per stirpes, she referred to EPTL 1-2.14, which provides:

“The property so passing is divided into as many equal shares as there are (i) surviving issue in the generation nearest to the deceased ancestor which contains one or more surviving issue and (ii) deceased issue in the same generation who left surviving issue, if any. Each surviving member in such nearest generation is allocated one share.”

Nancy claimed that the per stirpetal division and distribution should be made at her generation level, as it was the nearest to Jane and contained both surviving and deceased members. Since Thomas did not leave issue, Nancy argued only one share should be created, passing entirely to her as the sole surviving trust beneficiary.

Conversely, Scott asserted that 50% of the New Hyde Park property was owned by Jane at her death and should pass to her grandchildren pursuant to her January 2014 will. Scott claimed that because the trust was irrevocable and the remainder over to Nancy and Thomas was not conditioned upon their survival, a 50% interest in the New Hyde Park property vested immediately and absolutely in Thomas upon transfer of the real property to the trust. When Thomas died, his estate owned that 50% real property interest and it ultimately passed by intestacy to his sole intestate distributee, his mother Jane. Thus, Scott argued, when Jane bequeathed her real estate by her will, this 50% interest in the New Hyde Park property passed to her grandchildren.

Who was right? Neither, party entirely. As with many final exam questions, the fight over interests in the New Hyde Park property was a red herring. The Surrogate clarified that the dispute at issue was properly over a 50% remainder interest in Jane’s trust, not a 50% interest in the New Hyde Park property. Whether Thomas had any interest when he died, it would only have been an interest in the remaining trust property, not the New Hyde Park property transferred to the trust. For example, the New Hyde Park property could have been sold by the trustee and neither Thomas, nor his estate, would have standing to prevent that.

But the question still remained whether Thomas had any remainder interest in Jane’s trust even though he predeceased Jane. Surrogate McCarty noted EPTL 2-1.15 which provides that when the remainder of a trust passes to two or more designated beneficiaries and such remainder provision is ineffective in part, without an alternative disposition, the ineffective portion passes to the remaining designated beneficiaries. Thus, if the trust remainder provision was ineffective as to Thomas, due to his predeceasing Jane, the trust remainder would pass entirely to Nancy as the sole remaining beneficiary. If, however, the trust remainder portion for Thomas vested both immediately and indefeasibly, the trust remainder provision would have been effective despite Thomas’ death, and EPTL 2-1.15 would not apply.

The Surrogate next determined that Thomas’ remainder interest in the trust vested immediately upon the trust’s creation because Thomas was specifically named, and this creates a strong inference of vesting. As for whether the vesting was indefeasible, the words “per stirpes” created a potential condition for defeasance of Thomas’ vested interest, because they indicated Jane’s intent that Thomas’ death might lead to his issue taking his previously vested share. Thus Thomas’ lack of issue became the deciding factor.

The Surrogate rejected Nancy’s interpretation of the per stirpes provision under EPTL 1-2.14. The term per stirpes provides for division among a class of persons, and it is not possible to make a per stirpetal ‘division’ among one person. If Thomas had died with issue, then a class would have existed and a per stirpetal division could have been made. Since Thomas had no issue, the per stirpes provision is not operative. Moreover, the “per stirpes” qualification language in the trust agreement meant that Thomas’ vested interest would only be defeated if Thomas both (1) died before Jane, and (2) died leaving issue surviving him. Since both conditions were not satisfied, Thomas’ previously vested interest in the trust remainder was not defeated by his death. As a result, Thomas’ estate would be entitled to a 50% remainder interest in the trust, which would pass to Jane by intestacy and be disposed of by her will.

How did you score on the exam? More importantly, perhaps, despite the legal logic of the result, do you think this is the result Jane intended? Jane’s property ultimately remained in her family, but would your answer to that final question have been different if Thomas had made a will giving his property to a non-family member? As with most exam-type fact patterns, careful trust drafting could have prevented the dispute.

In a March 6, 2015 decision in Levien v Johnson, NYLJ 1202721296511, at *1 (Sur Ct, New York County), the New York County Surrogate’s Court enjoined the trustees of a testamentary trust from proceeding in Texas to challenge the adoptions of two adults, Parvin Johnson, Jr. and Kenneth Ives, by the grandsons of the Decedent, Arnold Levien. As the great-grandsons of the Decedent, Messrs. Johnson and Ives would be members of the class of remainder beneficiaries of the trust entitled to distributions. If this story sounds familiar, it should. This blog’s May 2014 post discussed the Court’s April 4, 2014 decision which dismissed the trustees’ argument that the court should disregard the “unique and unforeseeable” adoptions because they were contrary to the Decedent’s intent and were fraudulently kept secret from the trustees during settlement negotiations that occurred just months before.

In that April 2014 decision, the Court recognized the Texas adoptions, but explicitly stated that it could not opine on their validity, as that was an issue for the Texas Court.  So, following that decision, and despite the dismissal of their claim that the grandsons fraudulently failed to disclose the adoptions, the trustees commenced an action in Texas to void the adoptions of Messrs. Johnson and Ives. However, in their Texas petition, the trustees alleged that the grandsons “committed fraud by failing to disclose their intentions to adopt two adults, Ives and Johnson, while litigating and negotiating the terms of the July 20, 2012 Stipulation of Settlement,” and asked the Texas Court to void the adoptions based on that alleged fraud (id. at *3).  The Surrogate found that that was the very same claim that the trustees had previously made before it, and which was dismissed on the merits in the Court’s April 4, 2014 decision.  Indeed, while the validity of the adoptions was an issue for the Texas Court, the issue of who benefits from the trust, the Surrogate found, was appropriately determined by the Surrogate’s Court, which continued to have jurisdiction.  The Court then determined that because the Texas Court could issue a decision regarding the alleged fraud that conflicts with its April 2014 decision, an injunction was warranted. The Court thus enjoined the trustees from seeking any relief in Texas concerning the July 2012 Stipulation of Settlement with the grandsons, or who benefits under the trust.  Interestingly, the Court “continue[d] to defer to the Texas court on the question of whether the Texas orders of adoption at issue can be vacated or voided based on any theory pled, cognizable, and proved in Texas” (id. at *5).  The Court appears to have left open the possibility that the trustees could challenge the adoptions based on theories not previously advanced in the Surrogate’s Court involving Texas adoption law.

In terrorem clauses generally provide that, where a beneficiary under a testamentary instrument unsuccessfully challenges the instrument’s validity, the beneficiary will forfeit any interests obtained under the instrument.  Testators include in terrorem clauses in their wills in order to dissuade estate beneficiaries from taking action that is contrary to the testators’ wishes, as expressed in their testamentary instruments.  While a paramount objective of the Surrogate’s Court is to act according to testators’ wishes, in terrorem clauses must be narrowly construed, and certain in terrorem provisions are violative of public policy.  This post provides examples of in terrorem clauses that contravene public policy and, thus, are unenforceable under New York law.

Though in terrorem clauses are intended to prevent attacks on the validity of a will, Surrogate’s Courts have recognized that in terrorem provisions which purport to preclude a beneficiary from seeking the removal or suspension of a fiduciary nominated in the governing instrument, based upon the fiduciary’s misconduct, are violative of public policy (Matter of Rimland, 2003 WL 21302910, at *1-2 [Sur Ct, Bronx County 2003]; Matter of Fromartz, NYLJ, Oct. 22, 2005, at 29, col. 1 [Sur Ct, Kings County]).  Indeed, it “is disingenuous for [a party] to contend that [a testator] intended that [a fiduciary acting under a will] serve [as a fiduciary] even if [the fiduciary] violated [his or] her obligations under [the governing instrument] and [his or] her sacred duties of undivided loyalty” (see Rimland, 2003 WL 21302910, at *1-2). 

Former Surrogate Holzman’s decision in Matter of Rimland is highly instructive.  There, the petitioner, the income beneficiary of a testamentary trust, commenced a proceeding for the appointment of a fiduciary to pursue claims against the trustee (see id.).  In response, the trustee argued that the petitioner had triggered the governing will’s in terrorem clause and, therefore, forfeited her interest in the trust (see id.).  Surrogate Holzman was not persuaded by the trustee’s arguments, holding that the trustee’s interpretation of the in terrorem clause was violative of public policy (see id.).

Much like in terrorem clauses which purport to prevent a beneficiary from seeking the removal or suspension of a fiduciary on the basis of the fiduciary’s wrongdoing are violative of public policy, so too are in terrorem clauses which attempt to preclude a beneficiary from questioning the fiduciary’s conduct (see Matter of Egerer, 30 Misc3d 1229[A], at *1-4 [Sur Ct, Suffolk County 2006]).  As Surrogate Czygier has explained, “any attempt by a testator to preclude a beneficiary from questioning the conduct of the fiduciaries, from demanding an accounting from said fiduciaries or from filing objections thereto will result in a finding that the pertinent language is void as contrary to public policy and the applicable statutes of the State of New York” (see id.).

For example, in Matter of Egerer, Surrogate Czygier construed an in terrorem clause which purported to disinherit a beneficiary under the testator’s will who filed “objections to [the] fiduciaries’ conduct, bad faith or for any other basis” (see id.).  The Surrogate found that the in terrorem clause was unenforceable as a matter of public policy, to the extent that it could be interpreted as preventing the beneficiaries from objecting to the fiduciaries’ conduct (see id.).

The lesson to take away from this post is that, while testamentary intentions are entitled to great respect, there are limits to which the Surrogate’s Courts will adhere to the wishes expressed by testators, especially concerning in terrorem clauses.  Practitioners should be mindful of the limitations, including the public-policy based concerns discussed in this article, in advising their clients with respect to in terrorem provisions.

Two recent decisions from the New York County Surrogate’s Court attempt to answer this question.  In Estate of Weisberg, decided on April 8, 2014, the court addressed the issue of marriage. Faced with competing petitions for letters of administration, the court was asked to find as a matter of law, that the cross-petitioner was the decedent’s wife and sole distributee of the decedent’s estate.  In Levien v Johnson, 2014 NY Slip Op 30995(U), decided on April 14, 2014, the court considered whether two adults adopted by the decedent’s grandchildren constituted “great-grandchildren” under the decedent’s will.  In both cases, the court was asked to find that these familial relationships existed as a matter of law. However, as these cases demonstrate, that is not always the case.

In Estate of Weisberg, the cross-petitioner moved for summary judgment for a determination that she was the decedent’s surviving spouse, and thus entitled to letters of administration. The movant made the following two arguments: (1) the court was bound by a judicial finding in Family Court that she and the decedent were married; and (2) she and the decedent were married in an Islamic ceremony which created a legal marriage under New York law.  The court was not persuaded by either position.

First, it declined to apply the doctrines of res judicata or collateral estoppel to the Family Court determination because that finding was not on the merits. Rather, it was an administrative action made solely for the purpose of assigning the matter to a referee. Indeed, because the parties reconciled, the Family Court never rendered any finding, either on the merits or as necessary to the relief sought, that the parties were married. Without that determination, the court was not bound by the Family Court’s determination, and it refused to consider it.

Regarding the validity of the Islamic ceremony, the court found that there was no material issue of fact that the petitioner and decedent participated in an Islamic marriage ceremony. The court noted, however, that it could not, as a matter of constitutional law, decide that the ceremony constituted a valid religious marriage ceremony. On the other hand, the court could consider whether that religious ceremony constituted a valid marriage under New York law.  However, it found that the movant’s proof in that regard was deficient because there was no evidence that the requirements for a valid marriage under the Domestic Relations Law were complied with; to wit, that the petitioner and decedent solemnly declared that they take each other as husband and wife, or that the Imam who performed the ceremony had the religious authority to do so. Thus, the court could not rule as a matter of law that the cross-petitioner was the decedent’s spouse.  

The issue in Levien was different, but raised an interesting question about familial relations in the estate context. The proceeding centered around a trust created under the decedent’s will which provided that upon the termination of the trust, distribution of the remainder would go to the decedent’s great-grandchildren per capita. Approximately  2½ years before the trust terminated by its terms, two of the decedent’s grandchildren (Stephen and Harlan) brought a proceeding to compel the trustees to invade the trust and make distributions to them from the trust principal to pay for ongoing medical expenses (they both suffered from muscular dystrophy).  That proceeding was resolved by a stipulation of settlement in July 2012, in which Stephen and Harlan agreed to relinquish all rights as beneficiaries of income and/or principal of the trust.  Three months later they each adopted an adult in Texas. They notified the trustees of the adoptions and sought to have those adopted adults declared the decedent’s great-grandchildren who were entitled to share in the remainder of the trust. It should come as no surprise that the trustees refused to recognize the adoptions, and they commenced a proceeding seeking a decree that the adopted children were not entitled to share in the trust. Interestingly, the trustees did not challenge the validity of the adoptions in the Surrogate’s Court proceeding.  They argued instead, among other grounds, that recognizing the adopted children as the decedent’s great-grandchildren would violate the terms of the decedent’s will and the decedent’s intent; that the adoptions were “unique and unforeseeable” which should have been disclosed during the settlement negotiations; and Stephen and Harlan were using the adoptions as a means to circumvent the settlement agreement.

In the end, the court rejected all of the trustees’ arguments.  On the issue of the decedent’s intent, the court stated that EPTL § 2-1.3(a) makes clear that the term “children” includes adopted children, unless the decedent “expresses a contrary intention.” The court then determined that there was nothing in the will indicating that the decedent intended for his great-grandchildren to be only those who were blood relations.  The court found that the will’s silence on the issue of adoption did not create an ambiguity. The court similarly rejected the trustees’ “unforeseeability” argument, given New York’s long-standing recognition of adoption as a means to create a parent-child relationship as a matter of law, and here, that the adoptions did not affect the rights of the remainder beneficiaries, but merely added to the class thereof.  Even if Stephen and Harlan had a duty to disclose the adoptions during the settlement negotiations, the court found that their failure to do so was not a basis for the court’s determination as to the status of the adopted children as remainder beneficiaries under the trust.

Rejecting the “sham adoption” argument, the court found that to the extent the trustees were claiming that the adoptions resulted from fraud, they needed to address that in the Texas courts. Unless and until that issue is determined in Texas, the court would give full faith and credit to the Texas adoptions. Furthermore, it found that the only way in which the adoptions would circumvent the settlement agreement, thereby paving the way for Stephen and Harlan to share in the assets of the decedent’s estate, is if their adopted children voluntarily share those assets with them, which the court was powerless to prevent.

 

In Trotta v. Ollivier, the Appellate Division, Second Department, decided an issue of first impression in any New York State appellate court, to wit, whether the estate of a joint tenant may sue a surviving joint tenant to recover one-half of payments made by the decedent for the purchase and upkeep of property. The court answered this question in the negative.

The facts of the case, as alleged in the complaint, were not particularly remarkable. In 1992, the decedent, Susan Leone, and the defendant, Charles Ollivier, purchased real property as joint tenants with the right of survivorship. Thereafter, they lived together for a period of time as an unmarried couple.  From her own funds, Leone allegedly paid $90,000 toward the purchase price, a construction loan, and other closing costs and expenses, and thereafter paid $102,000 for the mortgage, $20,000 for property insurance, $11,000 for repairs, $2,500 for utilities, and $1,000 for replacement appliances. In total, Leone allegedly expended $226,500 from her own funds in connection with the property. Allegedly, Ollivier did not contribute to the purchase and carrying charges of the property or, if he did, his contributions were not equal to those of Leone. At no time did either Leone or Ollivier seek a partition of the property.

Leone died unexpectedly in 2008.  Subsequent to her death, the plaintiff, the executor of Leone’s estate, made mortgage and other payments on the property totaling $7,500.

The executor commenced an action against Ollivier in Supreme Court alleging unjust enrichment and seeking a judgment reimbursing the estate for one-half of the purchase price of the property and the carrying charges of the property, and full reimbursement of the $7,500 in carrying charges paid by the estate.

The trial court granted Ollivier’s pre-answer motion to dismiss the complaint for failure to state a cause of action, holding that the estate’s reimbursement claim did not survive Leone’s death, and that RPAPL 1201 — discussed below — was inapplicable. The Appellate Division reversed, agreeing that the complaint failed to state a cause of action as to any of the expenses paid by Leone prior to her death, but holding that the estate stated an unjust enrichment claim against Ollivier for reimbursement of the $7,500 paid post-death.

The court began its analysis by noting that Leone, while she was alive, could have sought to partition the property, effectively severing her joint tenancy with Ollivier, and in that regard could have sought an equitable adjustment of the interests she and Ollivier held in the property.  She never did so. The court further noted that “Leone, during her lifetime, was free to manage her finances and spend her money as she saw fit, even if, with the benefit of hindsight, her decision to purchase the subject property and hold title with Ollivier as a joint tenant, and to continue to pay its ongoing expenses after Ollivier moved to another address, inured to the financial benefit of Ollivier.” Thus, according to the court, the estate had no claim for unjust enrichment for reimbursement of Leone’s pre-mortem expenditures.

The court further rejected plaintiff’s argument that RPAPL 1201 provided the basis for a claim for reimbursement. That statute provides that “[a] joint tenant or a tenant in common of real property, or his executor or administrator, may maintain an action to recover his just proportion against his co-tenant who has received more than his own just proportion, or against his executor or administrator.” Despite a “paucity” of case law interpreting the statute, the court determined that RPAPL 1201 vests joint tenants and tenants in common, or their estates, with the right to recover monies “received” by a co-tenant that exceed his or her proportionate share; it does not extend the right of recovery to expenses “paid” by a tenant beyond his or her equitable share means.

Accordingly, the court held that no claim existed against Ollivier with respect to pre-death payments made by Leone.

The court reached a different determination with respect to the $7,500 the estate paid toward the property’s expenses after Leone’s death.  When those payments were made, ownership of the property had already passed to Ollivier by operation of law.  The estate, according to the court, had a valid claim for unjust enrichment in connection with those payments, as it would be “against equity and good conscience to permit Ollivier to retain the value of those payments.”

 

In a recent decision in the Matter of Lally, the Schenectady County Surrogate’s Court decided an issue of standing on a set of particularly interesting facts.

The case involved a charitable trust agreement that directed that “St. Clare’s Hospital of Schenectady, New York Foundation Inc. Schenectady, New York” (along with various other charitable beneficiaries) receive a portion of the remainder of the subject trusts. 

According to the petitioner, St. Clare’s Hospital of Schenectady, N.Y. Foundation, Inc. (the “Foundation”) is a not-for-profit corporation established to support and assist St. Clare’s Hospital of Schenectady (the “Hospital”) in expanding and developing its services to the community. However, in 2008, the New York State “Berger Commission” mandated that the Hospital close its doors. Allegedly, the commission required the Hospital to surrender its license to operate and to execute an Asset Transfer Agreement with Ellis Hospital (“Ellis”), which assumed the sole responsibility of providing hospital and other healthcare services previously provided by the Hospital, and is the sole remaining hospital in Schenectady County. While the Foundation remains in existence as a not-for-profit corporation, and holds significant assets, it no longer supports or assists the inoperative Hospital. 

          

The corporate trustee of the subject trusts, Trustco Bank, brought a cy pres proceeding in the Surrogate’s Court, to determine whether the Hospital’s relinquishment of its license to operate renders the administration of the subject trusts according to their literal terms impractical or impossible. Ellis filed a Notice of Appearance in the proceeding. The Foundation moved to “reject” the Notice of Appearance, in essence asking that the court rule that Ellis had no standing to participate in the proceeding. The Attorney General filed papers in support of the Foundation’s motion, and Ellis, naturally, opposed it. The trustee took no position.

 

By way of background, courts generally entertain cy pres proceedings when the intended recipients of a charitable donation can no longer be identified. In such cases, courts are authorized to release funds for purposes as close as possible to the wishes of the donors. As one court explained,

 

the cy pres doctrine takes its name from the Norman French expression, cy pres comme possible, which means “as near as possible.”  The doctrine originated to save testamentary charitable gifts that would otherwise fail.  Under cy pres, if the testator had a general charitable intent, the court will look for an alternate recipient that will best serve the gift’s original purpose.

                                (Airline Ticket Comm’n. Antitrust Litig. Travel Network, Ltd. v United Air Lines,

                                Inc., 307 F3d 679, 682 [8th Cir 2002]).

 

The court first addressed — and rejected — various procedural arguments. First, it rejected the Attorney General’s argument that it was premature to determine Ellis’ standing prior to the court deciding whether it would exercise its cy pres power in the first place. Second, it rejected the argument that the court should not reach the issue of standing because Ellis neither initiated the proceeding nor was suing to enforce its claim to the subject charitable gift. Having rejected those procedural arguments, the court went on to address the merits of the motion, i.e., the issue of Ellis’ standing to participate in the proceeding.

 

The parties agreed that the court should apply the standing rule enunciated by the Court of Appeals in Alco Gravure v. The Knapp Foundation, 64 NY2d 458 (1985). That case was a declaratory judgment action brought by corporate plaintiffs whose employees were the intended beneficiaries of a charitable foundation.  In deciding the issue of the plaintiffs’ standing to maintain the action, the Court held that one who is merely a possible beneficiary of a charitable trust, or a member of a class of possible beneficiaries, is not entitled to sue for enforcement of the trust. Rather, the Attorney General has the statutory power and duty to represent the beneficiaries of any disposition for charitable purposes. However, the Court also recognized an exception to the general rule, where a particular group of people has a special interest in funds held for a charitable purpose, as when they are entitled to a preference in the distribution of such funds and the class of potential beneficiaries is sharply defined and limited in number (see id. at 465).

 

The Surrogate noted that the facts in Alco Gravure differed from the facts of the case before it because, first, Alco Gravure was not a cy pres proceeding; second, the plaintiffs in Alco Gravure were members of a named class of beneficiaries (i.e., persons employed by the defendant corporation); and, third, the issue in Alco Gravure pertained to the plaintiffs’ standing to sue, not standing to appear and participate as an intervenor as in this case. Nevertheless, the court stated that it would apply the rules enunciated in Alco Gravure, there being no other authority providing any superior guidance.

 

Applying those rules, the court rejected the argument advanced by the Attorney General and the Foundation that Ellis is merely one of an undefined class of hundreds of potential beneficiaries of a cy pres-directed distribution of the trust, with no preferred status in a case. Instead the court determined that Ellis had a unique, contractual relationship with the Hospital that set it apart from all other potential charitable beneficiaries, and that therefore it was entitled to a preference in the distribution. The court based its determination on the facts regarding the Berger Commission’s mandate and the Asset Transfer Agreement between the Hospital and Ellis, by which Ellis acquired the Hospital’s assets and assumed its hospital services.

 

However, the court was careful to emphasize that its ruling should not be interpreted as meaning that in the event it determined to exercise its cy pres power, Ellis would be the likely recipient of the subject charitable disposition.  The court’s ruling only provided Ellis with the status of an interested party, with the right to file a responsive pleading, participate in discovery, make motions, and participate during the trial.

 

Although the importance of the court’s decision in Matter of Lally might not extend much further than the specific facts of that case, it certainly provides further authority for the proposition that the Surrogate’s Courts are, first and foremost, courts of equity.

Two years ago, in “Tales from the Crypt: Disposing of Human Remains in New York”, I wrote that: “[i]n New York, the disposition of remains is presumptively governed by [Public Health Law ] section 4201; and that “[a]bsent a valid written instrument appointing an agent for that purpose, section 4201 sets forth which individuals shall have priority to make decisions concerning the disposition of remains” (see “Tales from the Crypt: Disposing of Human Remains in New York”). While those statements remain true today, a recent decision by Nassau County Supreme Court Justice Joel K. Asarch addresses the extent to which a decedent’s intent governs the disposition of his remains where surviving family members have expressed conflicting views on the issue and the individual who has priority to make the decision seeks to dispose of the decedent’s remains in a manner that is inconsistent with the decedent’s expressed intentions (see Matter of Grace D., 922 NYS2d 914 [Sup Ct, Nassau County 2011]).

Although “the common-law right of sepulcher gives [a decedent’s] next of kin the absolute right to the immediate possession of a decedent’s body for preservation and burial” (Melfi v M. Sinai Hosp., 64 AD3d 26, 31 [1st Dept 2009]), Public Health Law section 4201 “sets forth a prioritized list of [individuals] who shall presumptively have the right to direct the disposition of a decedent’s remains” (see Maurer v Thibeault, 20 Misc3d 631, 632 [Sup Ct, Cortland County 2008]; Public Health Law § 4201). At the top of the list is an agent appointed in a written instrument that is duly executed in accordance with section 4201 (see Public Health Law § 4201). Absent such a written instrument, the decedent’s surviving spouse, surviving domestic partner, surviving children who are eighteen years of age or older, and surviving siblings who are eighteen years of age or older, among others, in descending order, shall have priority (see id.). No matter who ultimately has priority, however, the individual charged with making a decision concerning the decedent’s final resting place must do so in a manner that is consistent with “the moral and individual beliefs and wishes of the decedent” (id.[c]).

In Matter of Grace D., the decedent’s surviving sister and niece were at odds as to how to dispose of the decedent’s remains (see Grace D., 922 NYS2d at 915-17). On the one hand, the decedent’s sister sought to have the decedent’s remains cremated and transported to her home in Vermont, where the decedent experienced artistic and musical inspiration during his life (see id.). Although she acknowledged that the decedent never expressed any intention to be cremated, the sister explained that, upon her death, she wished to be cremated and to have the decedent’s ashes combined with her cremains (see id.).

On the other hand, the decedent’s niece expressed her desire that the decedent be buried, as he intended, in the Catholic cemetery burial plot that he had purchased for himself thirty-five years before meeting his maker (see id.). The niece testified that the decedent “was a religious man, who served as the Choir Director at a local church for several decades, and expected that he would be buried in the customary garb of a Knight of the Order of the Holy Sepulchre of which he was a member” (see id.).

Noting that the decedent’s Last Will and Testament did not indicate his desire for the disposition of his remains; that there was no duly appointed agent to decide that issue; and that the decedent was survived by two sisters, including the one who sought to have his remains cremated, Justice Asarch found that the sisters would have statutory priority over all other surviving heirs to determine where the decedent’s final resting place would be (see id.). However, Justice Asarch also explained that since the decedent left a clear indication as to his wishes by purchasing a burial plot and paying for its permanent care, the court was bound to respect the decedent’s intentions (see id.). Justice Asarch, therefore, ordered that the decedent’s remains be buried in his cemetery plot, not cremated, as his sister, but not the decedent, wished (see id.).

In sum, a decedent’s testamentary intent is the paramount concern in cases concerning the disposition of human remains. To the extent that the decedent’s wishes can be ascertained, they must be honored by the decedent’s surviving relatives, most especially those who have priority to decide where the decedent’s final resting place will be.

Although acknowledging that the Appellants’ position was “sympathetic”,  on June 14, 2011, the Appellate Division, Second Department affirmed the decision of Surrogate Riordan of Nassau County, denying two children of the decedent the rights accorded after-born children under EPTL 5-3.2. (Matter of Roy Gilmore Sr., 2011 NY Slip Op 05272 [2d Dept 2011]) .

Mr. Gilmore executed a Will in June 1996. He left his entire estate to a daughter, Angela, although he was survived by eleven children. 

The Appellants were born prior to the execution of the Will, but the Decedent did not know that the they were his biological children until after the Will was executed in 1996.  The proof showed that Decedent, in 2006, learned that Appellants were his children and, in fact, introduced them “as his two children whom he had recently learned of.”

A parent in New York, of course, is under no obligation to leave any part of his estate to his children. However, to address situations where a child is inadvertently left out of a parent’s will because such child was born after the Will’s execution, the Legislature enacted EPTL 5-3.2 which provides that in such a case, after-born children will share with the children provided for in the Will.

Here the children were not after-born, but it was contended that Decedent’s lack of knowledge of the two children who were born prior to the Will, prevented him from benefitting them in his Will.  Appellants argued that children born prior to execution of a Will, but only later gaining status as children of a decedent by adoption, are included as children, thus evincing a policy in New York allowing pre-borns to take in some situations. The Court declined to treat these “after acknowledged” children in the same manner as “after adopted” children, relying on the literal language of the statute and saying that if rights are to be given to such so-called “after known children,” which some states have done, this is a matter for the Legislature, not the Courts.