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.

As parties prepare for trial before the Surrogate’s Court, a question that oftentimes arises is whether the parties have a right to a trial by jury. The right to a jury trial is anything but universal in Surrogate’s Court proceedings, and, in fact, does not exist in a proceeding concerning the removal of a fiduciary. This blog post explains why no right to a jury trial exists in a Surrogate’s Court removal proceeding.

The Surrogate’s Court Procedure Act (“SCPA”) provides that a party is only entitled to a jury trial in a proceeding “in which any controverted question of fact arises as to which [the] party has a constitutional right of trial by a jury, in any proceeding for the probate of a will in which a controverted question of fact arises, and in any proceeding commenced after the death of the creator of a revocable lifetime trust to contest the validity of such trust in which a controverted question of fact exists” (see SCPA § 502[1]). Under Article 1, Section 2 of the Constitution of the State of New York, a constitutional right to a jury trial only exists in those “cases in which it has heretofore been guaranteed by constitutional provisions” (see N.Y. Const. Art. 1, § 2; Matter of Mastro’s Will, 100 Misc2d 866, 867 [Sur Ct, Suffolk County 1979] [citations omitted] [“The result of (that) constitutional provision, enacted in 1938, is that the constitutional guarantee of a jury trial continues only to the degree that such jury trials were authorized prior to the 1938 Constitution”]).

Based upon the foregoing, in Matter of Ruggiero, the Second Department held that a party did not have a right to a jury trial in a removal proceeding (see Matter of Ruggiero, 51 AD2d 969, 969-71 [2d Dep’t 1976]). There, the petitioner sought a trial by jury in the proceeding she commenced to remove the decedent’s sister as the fiduciary of the decedent’s estate (see id.). The Surrogate’s Court and Appellate Division both found that a jury trial was unwarranted, mindful that there is no right to a trial by jury in a removal proceeding under the New York State Constitution or the SCPA (see id.).

In light of the foregoing, a party preparing for trial in a Surrogate’s Court removal proceeding should plan to proceed before the Surrogate. Such a party does not have a right to have its trial heard by a jury.

Although one of the many duties and responsibilities of an executor is to marshal and appraise estate assets, and, depending upon the dispositive terms of the governing instrument, liquidate them for purposes of distribution, the fulfillment of these duties may, at times, result in fiduciary liability. In Matter of Billmyer, 142 AD3d 1000 (2d Dept 2016), the Appellate Division, Second Department, considered this issue, in an appeal from an Order of the Surrogate’s Court, Kings County (Lopez Torres, S.), which surcharged the executor for selling certain real property of the estate below fair market value.

The decedent died with a brownstone residence, located in Brooklyn, New York, valued at approximately $1.5 million. In her Will, she named four Lutheran charities and Adelphi University as residuary beneficiaries of her estate.

Two years after the decedent’s death, the executor entered a contract for the sale of the Brownstone residence to an acquaintance of his for the sum of $670,000. Prior to the closing, the purchaser assigned his rights under the contract to an LLC, and the sale was consummated shortly thereafter between the estate and the LLC. Three days after this sale, the LLC sold the subject property to an unrelated third party for the sum of $1,300,000, pursuant to the terms of a contract dated one month prior to the date of the contract that it had entered with the estate.

The executor then accounted, and objections were filed by the charitable beneficiaries and the Attorney General of the State of New York, as the statutory representative of the charities. Following depositions, Adelphi University and the Attorney General moved for summary judgment determining that the sale of the real property was for less than its fair market value, and surcharging the executor accordingly. The executor opposed, alleging that the property required extensive repairs prior to its initial sale, albeit without an explanation as to how the property resold three days later for almost twice the price. The Surrogate’s Court granted the motion, and surcharged the executor in the sum of $630,000, plus 6% interest from the date of the estate’s sale to the date of remittance.

The Appellate Division affirmed, opining that in performing his fiduciary duty, the executor was required to employ good business judgment. Further, the Court explained that to the extent the executor failed to satisfy this standard in the sale of estate property, he could be surcharged. However, the Court cautioned that a surcharge did not result simply upon a showing that the estate fiduciary did not obtain the highest price obtainable for an asset. Rather, it had be demonstrated that the executor “acted negligently, and with an absence of diligence and prudence which an ordinary [person] would exercise in his [or her] own affairs” (Billmyer, citing Matter of Lovell, 25 AD3d 386, 387 [2d Dep’t 2005]).

Within this context, the Court noted that the executor chose a real estate agent for the sale of the brownstone, who was based in Staten Island, had no knowledge about the Brooklyn real estate market, and did not actively market the property for sale. Moreover, the record indicated that the executor did not obtain an appraisal of the property at the time of sale or learn the fair market value of comparable properties, failed to visit the property for an extended period of time prior to sale, and was unaware of how the property was being marketed.  In addition, he sold the property to an acquaintance of his, when there was an unrelated third party ready and willing to buy the property for nearly double the price paid by the LLC.

In view thereof, the Court found that the objectants had established, prima facie, that the executor had breached his fiduciary duty and acted negligently with respect to the sale of the property. Further, it concluded that the executor had failed to submit evidence in opposition sufficient to raise a triable issue of fact. Finally, the Court held that the Surrogate’s Court had properly exercised its discretion in awarding interest upon the surcharge, based upon proof that three days after the executor had sold the property, it was resold for nearly twice the original purchase price.

A nominated executor is obliged to secure estate assets even before the issuance of letters testamentary, or preliminary letters testamentary (see Matter of Schultz, 104 AD3d 1146 [4th Dept. 2013]).  Courts have recognized that “an executor’s duties are derived from the will itself, not from the letters issued by the Surrogate” (Estate of Skelly, 284 AD2d 336 [2d Dept. 2001]).  Thus, as we have noted in a prior post, executors have been subject to surcharge for a loss sustained to estate property in the period between the decedent’s death and the executor’s receipt of letters from the Surrogate’s Court (see, e.g., Matter of Donner, 82 NY2d 574 [1993] [surcharging nominated executors for investment losses based on date of death values]; Matter of Kranzle, N.Y.L.J. 11/7/1991 p. 28, col. 1 [Sur Ct, Suffolk Co.] [surcharging nominated executor for interest and penalties on taxes due several months after decedent’s death, but before the probate proceeding commenced]).

Decisions addressing a nominated executor’s obligations in respect of estate assets before formal appointment by the Court usually arise from the fiduciary’s failure to act. A recent case, however, addressed the nominated executor’s obligations not in the context of an omission, but, instead, involved the fiduciary’s expenditure of funds to safeguard property that ended up not being estate property (Matter of Timpano (Brough), 2016 NY Slip Op 51770(U) [Sur Ct, Oneida Co.]).  Although the nominated executor’s actions may have been misdirected, the Surrogate permitted an allowance from the estate for these expenses as the actions were undertaken in good faith and, further, the Court cited the need to avoid deterring other nominated executors from taking immediate measures to safeguard estate property.

In Estate of Skelly, supra, the fiduciary was notified at the decedent’s funeral in May 1995 that she had been named executor.  It was undisputed that she failed to probate the will until November 1996, over one year after decedent’s death.  During that time, decedent’s real property, which was bequeathed under the will, was vandalized and damaged.  The person to whom the property was bequeathed sought damages for the loss.

The Surrogate denied the executor’s motion for summary judgment dismissing the objections, and the Second Department affirmed.  Even though title to the real property may have vested with the objectant on the death of the decedent, the Second Department found “there are issues of fact as to whether the [executor] failed to assess the assets of the estate and neglected to preserve the premises prior to probate.” (Skelly, 284 AD2d at 337).

In Timpano, the decedent’s sister, Georgianna, lived in a mobile home in Florida across the street from one in which decedent resided. Decedent died in April 2010 survived by his three children, Mark, Kelly and Robert. His will named Georgianna as executor.

Probate of decedent’s will was delayed by SCPA 1404 examinations and, following the testimony of one attesting witness, Georgianna withdrew her probate petition. Ultimately, the Oneida County Chief Fiscal Officer (the “CFO”) was appointed as administrator of the estate.

Believing decedent owned the mobile home in which he lived, beginning in April 2010 (the month of decedent’s death), Georgianna used her personal funds to pay lot rent to avoid confiscation of the mobile home and its contents. She further paid for electrical service to run the air conditioning to avoid mold and mildew so as to further protect the mobile home and decedent’s possessions therein. At no time did any of decedent’s children object to her covering these expenses.

In January 2011, decedent’s son Robert informed Georgianna that he had searched the title to the mobile home and found that his name was on the title. Upon learning this, Georgianna removed the decedent’s possessions from the mobile home and placed them in storage. She further stopped paying lot rent and electric bills.

When the CFO submitted its final accounting, decedent’s daughter Kelly objected to Georgianna being reimbursed for the expenses for lot rent and electric service. Kelly testified in support of her objections and, significantly, acknowledged that she too believed the mobile home was estate property before being told otherwise in January 2011

The Surrogate found Georgianna’s actions following decedent’s death evidenced her understanding that a nominated executor has an obligation to secure assets of an estate prior to formal appointment, citing Schultz, supra. Even though the will was not ultimately admitted to probate, the Surrogate noted, “Georgianna would have had no basis to anticipate this outcome when she acted to preserve decedent’s assets throughout 2010 and into early 2011.”

The Surrogate recognized that Kelly’s claim that if the estate did not own the property, it could not be responsible for related expenses, is true in a technical sense. The Surrogate, however, noted that to rule in Kelly’s favor would ignore the circumstances of the case.

After reviewing the cases holding that an individual who expends personal funds in good faith in furtherance of her fiduciary responsibilities is entitled to reimbursement, the Surrogate found Georgianna acted in good faith and should be entitled to reimbursement from the estate.[1] The Court reinforced its decision by reference to the following policy consideration: “to sustain the objections would be to instill a chilling effect on the work of nominated executors who are tasked with preserving an asset believed in good faith…to belong to the estate” (Timpano, supra).

 

 

[1] The Court directed that part of the expenses be charged against Robert’s share of the estate.

A recent decision of the Kings County Surrogate’s Court[1] demonstrates the importance of thoroughly analyzing all aspects of a statute of limitations defense prior to making a dismissal motion.  In Matter of Coiro, 5/6/2016 NYLJ p.23, col. 2, the court denied such a motion, determining that an SCPA § 2104 turnover proceeding was timely.  Notably, the parties disputed both the applicable limitations period and the date of the claim’s accrual.  Side-stepping both those issues, the court determined that a statutory toll rendered the claim timely in any event.

Determining whether a claim has been timely asserted requires analysis of at least three factors – the applicable limitations period, the date of the claim’s accrual, and whether any toll applies.  (I say “at least” three factors because, in an appropriate case, a court may determine other matter – such as whether a defendant/respondent is equitably estopped from asserting the statute of limitations, where specific actions by the defendant/respondent “somehow kept [the plaintiff] from timely bringing suit” [see Zumpano v Quinn, 6 NY3d 666, 674 (2006)].) Coiro involved all three factors.

Janet Coiro died on January 16, 2012. Some 19 months later, one of her daughters, the executor nominated in her last will and testament, offered the will for probate, receiving letters testamentary on December 18, 2013.  On June 12, 2015, more than three years after the decedent’s death, the executor brought a turnover proceeding pursuant to SCPA § 2104,[2] alleging that on the day after the decedent died, January 17, 2012, the respondent (the decedent’s son) submitted a power of attorney to the bank at which the decedent maintained several accounts, adding his name to those accounts.  Allegedly, respondent also deposited a matured Treasury bill (of which the executor claimed to be the beneficiary) into one of the accounts, and later withdrew or transferred all the funds from the accounts.  Respondent moved to dismiss the proceeding as time-barred.

The parties disputed the applicable limitations period. Respondent argued that the three-year period applicable to conversion claims governed, while the executor argued that respondent’s action in improperly adding his name to the decedent’s bank accounts after her death warranted application of the six-year limitations period applicable to fraud-based claims.

Petitioner also argued, alternatively, that even if the three-year “conversion” limitations period applied, the claim accrued not on the date on which the respondent added his name to the bank accounts, but on the date he transferred the balances thereof, to wit, May 17, 2013, and thus the proceeding was timely in any event.

While noting that discovery and turnover proceedings are usually subject to the three-year statute of limitations applicable to actions in replevin and conversion, i.e., CPLR 214(3), the court further noted that it was not required to decide whether that period or a six-year period applied.  It also noted that it was not required to decide the date of accrual of the claim.  The court determined that the proceeding was timely in any event, by reason of the toll provided in CPLR § 210(c).

Section 210(c) provides that “[i]n an action by an executor or administrator to recover personal property wrongfully taken after the death [of a decedent] and before the issuance of letters,  . . . the time within which the action must be commenced shall be computed from the time the letters are issued or from three years after the death, whichever event first occurs.”

The court determined that the limitations period applicable to the claim asserted in the proceeding was tolled until December 18, 2013 (the earlier of the date of issuance of letters or three years from the date of death). The executor commenced the proceeding on June 12, 2015, less than three years after the end of the toll.  Thus, even applying the shorter, three-year limitations period, the proceeding was timely.

When performing a statute of limitations analysis, care must be taken to determine whether a toll is applicable. Aside from the toll provided in CPLR 210(c), a practitioner should consider whether any other toll applies.  Such tolls might include the “insanity” toll provided in CPLR § 208, or the “fiduciary toll” applied in cases such as 212 Inv. Corp. v Kaplan, 44 AD3d 332 (1st Dept 2007).  Continuing undue influence or duress can also operate to toll a limitations period (see Pacchiana v Pacchiana, 94 AD2d 721 [2d Dept 1983]).

[1] The version of this decision that appears on lexis.com erroneously refers to this decision as emanating from the New York County Surrogate’s Court.

[2] The Court’s decision states that the proceeding was brought pursuant to section 2104; it was likely brought pursuant to section 2103.

A recent decision of the Richmond County Surrogate’s Court addressed a frequently litigated issue in Surrogate’s Court litigation – – whether the proposed or nominated fiduciary should be disqualified from serving in a fiduciary capacity on the grounds of “dishonesty” or “improvidence.” In the Estate of George Mathai a familiar dynamic was in play – – there was a dispute between the decedent’s children from a prior marriage and the decedent’s surviving spouse. The decedent’s two children from a prior marriage objected to the appointment of their step-mother as Administrator of the decedent’s estate. They claimed that she was unfit to serve as fiduciary on the grounds of dishonesty, hostility, and improvidence.

At the outset, the court noted that the decedent’s surviving spouse was first in the order of statutory priority to serve as Administrator under SCPA §1001(a). However, the statute gives parties interested in a decedent’s estate the opportunity to object to the appointment of a fiduciary, where the fiduciary “does not possess the qualifications required of a fiduciary by reason of substance abuse, dishonesty, improvidence, want of understanding, or…is otherwise unfit for the execution of the office.”

With the decedent’s children objecting to the appointment of their step-mother, the question became what, in this context, do the statutory terms “dishonesty,” and “improvidence” mean?

Addressing “dishonesty,” the Surrogate explained that in order to prove that a potential fiduciary is dishonest “it must be shown that the person has a tendency or ‘habit of mind’ toward wrongful action.”   An act of isolated wrongdoing is not enough to disqualify a fiduciary from serving on the basis of “dishonesty.” It must be shown that there was dishonesty in money matters to such an extent that it would lead to a reasonable apprehension that the estate would not be safe.

Addressing “improvidence” the court quoted earlier decisions where it was observed that “the quality of being improvident does not necessarily involve moral turpitude,” and that defined improvident acts as those that “would be likely to render the estate unsafe and liable to be lost or diminished.” The court further explained that misappropriation or mishandling of the decedent’s property falls within the meaning of improvidence.

In the Estate of George Mathai, the decedent’s children could not meet their burden of showing dishonesty or improvidence to disqualify their step-mother. Additionally, while they claimed that their step-mother should not be appointed on the grounds of hostility, the court dismissed their objection, repeating the rule that mere hostility between the fiduciary and the beneficiaries is not grounds for disqualification; hostility will only serve as a basis for disqualification where it jeopardizes the proper administration of the estate.

In this regard, it is worth noting that courts are mindful of beneficiaries or distributees seeking to impose their preference of fiduciary contrary to the testator’s choice of fiduciary (or contrary to the statutory order of priority) through their own misconduct. In this regard, beneficiaries are not permitted to bootstrap their own unreasonableness, hostility, and misconduct into a claim for disqualification or removal on the grounds of friction and hostility. As the New York County Surrogate’s Court has pointed out:

Courts are also loathe to indulge a beneficiary’s wish to dictate, at will or at whim, who the fiduciary should or will be. After all, where there is a clash between beneficiary and fiduciary, it is the latter who faces the potential for liability; it may be presumed therefore that the prospect of a surcharge will chasten the fiduciary to try to do right on an issue as to which the beneficiary him/herself is free to be wrong. As a corollary, a beneficiary should not be allowed to bootstrap his or her way to a new fiduciary by intentionally antagonizing the current fiduciary.

A donor writes in a pledge amount, signs the pledge card, hands it over to the charity, and is absolutely committed to that amount; end of story, right?  Not necessarily.  A recent case emanating from Kings County Surrogate’s Court, Matter of Kramer, N.Y.L.J. April 21, 2014, p. 24 (col. 6), shows that certain charitable pledges may not be as binding as they appear on paper.  The case provides an excellent primer on the operation of specific charitable pledges under the theory of unilateral contracts, and serves as a stark reminder to charities that to have the right to enforce a pledge that they must do more than just secure a signature on a pledge card.  The case also underscores to estate administrators the importance of scrutinizing and potentially challenging seemingly credible claims against an estate.

Kramer involved a motion by a charity, Educational Institute Oholei Torah-Oholei Menachem, for summary judgment dismissing objections to its petition to determine the validity and enforceability of its claim against the estate of Isaac Kramer.  The charity’s claim was based upon a pledge card and promissory note, in the face amount of $1,800,000, allegedly signed by the decedent approximately a year and a half before his death, and ostensibly payable six months prior to the decedent’s death.  The pledge was allegedly given for the purpose of supporting a building campaign proposed by the charity to construct a new ritualarium, or mikveh, for use of the charity’s members.  No payment on the pledge had been made by the decedent or demanded by the charity prior to the decedent’s death.  Representatives of the charity claimed they consciously withheld demands for payment because of the decedent’s illness shortly before his death.

Objections to the charity’s petition were filed by each of the Kings County Public Administrator, as fiduciary of the decedent’s estate, and four additional groups representing various purported testamentary legatees and distributees.  The respective objections raised multiple theories for rejection of, and affirmative defenses against, the charity’s claim including (i) forgery of the decedent’s signature, (ii) lack of due execution, (iii) lack of consideration, (iv) lapse upon the decedent’s death, (v) laches and unclean hands, (vi) expiration of the statute of limitations, (vii) fraudulent inducement, and (viii) the decedent’s lack of capacity.  Upon the charity’s summary judgment motion, two of the respondents cross moved for summary judgment upon an additional theory of the charity’s failure to demonstrate acceptance of the pledge by taking action in reliance thereon.

The Court granted the charity’s motion for summary judgment concerning the objections based upon lack of due execution, laches, unclean hands, expiration of the statute of limitations, and fraudulent inducement, because none of the respondents supported or addressed these objections in their responsive papers.  Thus, these objections were deemed abandoned.  The Court also found that no triable issue of fact was raised concerning the decedent’s capacity, and that the burden of proving the decedent’s incompetence was not met.  Accordingly, the charity’s motion for summary judgment was granted concerning the objections based upon capacity.  The charity also prevailed concerning objections based upon forgery of the decedent’s signature, as the Court found that the handwriting analysis report raised no triable issue of fact concerning its genuineness.

The final objection considered by the Court, lack of consideration, however, turned out to be dispositive against the charity.  It was clear from the facts and on the face of the pledge that it was made in furtherance of a specific purpose, namely a building project, rather than for the charity’s general educational and religious work.  As such, the Court noted that the pledge must be examined under the theory of a unilateral contract.  Under this theory, the signed pledge card is not the contract itself, but merely an offer to make a contract which the charity must then accept by taking action in reliance upon the offer.  The pledge, then, will not become binding until the charity has sufficiently acted upon the pledge so as to incur liability on the part of the donor. 

The Court stated that it has been the “noted policy of the courts to sustain the validity of subscription agreements whenever a counter promise of the donee can be sustained from the actions of the parties or it can be demonstrated that any legal detriment has been sustained by the promise in reliance upon the promised gift.”  For instance, charitable subscriptions have been deemed enforceable where the donee has made some substantive progress towards the charitable goal for which the pledge was made.  This would include starting construction, employing architects and paying for plans, raising additional pledges based upon the disputed pledge, or taking on a construction loan for the project.  The donor’s partial payment of the pledge, whether alone or in conjunction with concrete action on the part of the charity, has also been deemed sufficient to indicate acceptance of the unilateral contract.

Despite this broad policy in favor of enforcement, the charity in Kramer was unable to meet the burden to show that it had meaningfully acted in reliance upon the pledge.  Indeed, it was undisputed that no actual construction had begun on the proposed building project.  Nor was there any specific date upon which construction was to begin, or any reasonable timeframe for completion of the project.  The Court characterized the construction project as more of a “hoped-for occurrence” than an actual plan.  Moreover, despite its claims to the contrary, the charity could not prove that it had expended any sums of money on any construction related expenses, such as soil samples or architectural plans.  Nor could the charity produce any contracts or engagement letters from architects, engineers, or contractors.  There was also no proof of building permit or zoning applications.  Finally, though the charity claimed to have used the decedent’s pledge to solicit other pledges, no independent evidence of receipt or fulfillment of such additional pledges was offered.  In sum, the Court found that the charity had done nothing meaningful or substantive in reliance on the decedent’s pledge.  Thus, the charity’s motion for summary judgment on the consideration issue was denied and the cross-motions dismissing the charity’s petition were granted.

 The Kramer case should serve as a useful guide for charities in satisfying the requirements for establishing enforceability of specific charitable pledges.  It also gives estate administrators helpful factors to look for when challenging charitable pledges

Sometimes language contained in wills and trusts can be misleading to the lay person. 

For example, while they are good for a chuckle, provisions in wills that unequivocally and forcefully direct the executor to hire a certain lawyer in connection with the testator’s estate’s administration are unenforceable.  Who would believe that such will provisions usually direct that the executor hire the lawyer who drafted the will?

As my colleagues explain, “exoneration clauses,” which are provisions in wills and trusts that purport to provide ironclad insulation from liability to an executor or trustee, are “not all they are cracked up to be.” 

What about a trust that grants the trustee “absolute discretion” to make distributions?  What do those words mean to a beneficiary who is seeking a distribution?

As the New York County Surrogate’s Court held in Matter of Hammerschlag, NYLJ April 26, 2013 at p.37, the broad grant of  absolute discretion to a trustee to make distributions is “not unbounded.”   The court explained the well-settled law that a court is empowered to review the exercise or non-exercise of a discretionary power (such as the absolute discretion to make distributions of principal and income from a trust) conferred upon a trustee so as to prevent any abuse in the exercise of that power. 

In Hammerschlag, a beneficiary of a trust sought to compel trust distributions.  The beneficiary alleged that she was in dire straits, homeless and with no means of support.  She asserted that the trustee improperly exercised his absolute discretion when he declined to make distributions.  Specifically, the beneficiary argued that the trustee merely relied on information (or misinformation) received from her estranged mother in deciding whether to make distributions – that he acted arbitrarily and without appropriate inquiry into relevant circumstances.  The trustee argued that he was acting in good faith and desiring to preserve trust assets, guarding against the beneficiary’s improvidence.  The court scheduled a hearing on the issue of whether the trustee failed to exercise his independent judgment or adequately evaluated the beneficiary’s needs in good faith before exercising his absolute discretion and refusing to make distributions. 

Matter of Mark, C.H., 83 Misc 3d 363 (Sur Ct, New York County 2012), provides an example of what the New York County Surrogate’s Court viewed as an indefensible attempt to rely on the broad grant of “absolute discretion.”  In that case, at trust beneficiary was one of the most vulnerable among us, suffering from profound disabilities.  There, Court first observed that the trust at issue empowered the trustees with absolute discretion to withhold or pay out income, and, in the event of an income shortfall, to pay trust principal for the “care, comfort, support and maintenance” of the beneficiary and his descendants. Then the Court found as follows:

The trustees left [the beneficiary] to languish for several years with inadequate care, despite the fact that the [trust] had abundant assets. In so doing, the trustees failed to exhibit a reasonable degree of diligence toward [the beneficiary]. Courts will intervene not only when the trustee behaves recklessly, but also when the trustee fails to exercise judgment altogether (“even where a trustee has discretion whether or not to make any payments to a particular beneficiary, the court will interpose if the trustee, arbitrarily or without knowledge of or inquiry into relevant circumstances, fails to exercise the discretion”) (citation omitted). That is, sadly, precisely what occurred here.

 Absolute discretion is the broadest grant of discretion, and courts are deferential to a trustee’s exercise of such discretion– courts do not lightly substitute their own judgment for that of a trustee.  However, in exercising absolute discretion, a trustee must not act arbitrarily, but must use his judgment and act in good faith with knowledge of or inquiry into relevant circumstances.  In a case like Hammerschlag,  the trustee’s decision-making process is critical.  Was the decision to decline to make distributions arbitrary or the result of a process of consideration and the exercise of the trustee’s independent judgment, or was it arbitrary and made without consideration or inquiry?