Continuing the discussion of tax considerations in settling probate contests, the following additonal issues should be considered.

Marital Deduction

In determining the taxable estate, a deduction is allowed for the value of property which “passes” from the decedent to his surviving spouse.

If, as a result of a controversy involving the decedent’s will, or involving any bequest or devise thereunder, the surviving spouse assigns or surrenders a property interest in settlement of the controversy, the interest so assigned or surrendered will not be considered to have passed from the decedent to the surviving spouse and, so, will not qualify for the marital deduction.

Conversely, if a property interest is assigned or surrendered to the surviving spouse, the interest will be considered as having passed from the decedent to the spouse and, so, may qualify for the marital deduction, but only if the assignment or surrender was a bona fide recognition of the rights of the surviving spouse in the decedent’s estate that are enforceable under state law, and it meets the other requirements for the marital deduction (for example, the QTIP requirements for a transfer in trust). Thus, a transfer to a surviving spouse may qualify if it is made in settlement of her claim arising under an alleged failure by the estate to fulfill the decedent’s obligations under a prenuptial agreement; in that case, the transfer represents a bona fide settlement of enforceable rights. Such a bona fide recognition is presumed where the transfer is pursuant to a decision of a local court rendered upon the merits in an adversarial proceeding following a genuine contest. 

Charitable Deduction

 

In general, a deduction is permitted for federal estate tax purposes for bequests or other transfers to or for a charitable purpose. In determining whether an interest in property has passed from a decedent to a charity, the rules relating to marital bequests, described above, are applicable.

 

Thus, an amount distributed from an estate to a charity pursuant to a settlement agreement following a bona fide will contest is deemed to have passed directly to the charity from the decedent, and is eligible for a charitable deduction where the charity had a recognizable and enforceable right to a portion of the estate. However, the amount of the deduction cannot be greater than the value of what the charity would have received under the original will if it had litigated its claim to conclusion.

 

If a charitable organization assigns or surrenders a part of a transfer to it pursuant to a compromise agreement in settlement of a controversy, the amount so given up is not deductible as a transfer to that charitable organization. Thus, an estate which settles a will contest from funds in a residuary charitable bequest is required to pay tax on the settlement amount.

 

Gift and Income Taxes

 

The settlement of a will contest may involve several transfers of property, either between the estate and a beneficiary or claimant, on the one hand, or between beneficiaries or claimants, on the other. While each of these transfers may have certain estate tax consequences, as described above, the various parties must also consider the possible gift tax and income tax consequences.

 

In general, it is unlikely that a transfer made pursuant to the settlement of a will contest will be treated as a taxable gift if it is the product of a bona fide, arm’s-length transaction that is free of donative intent. Where that is not the case – as where two beneficiaries agree to “revise” the decedent’s will as it concerns dispositions of properties to themselves ‑ the readjustment of their property interests may be deemed a taxable gift.

 

In light of the facts and circumstances, a payment by the estate to a claimant may be treated, under the terms of a settlement, as taxable compensation for services rendered to the decedent, rather than as a non-taxable bequest.

 

Alternatively, the payment (or distribution) to a beneficiary may result in taxable income to the beneficiary if the estate has distributable net income.

 

It is also possible that beneficiaries who transfer or exchange property, as part of a settlement, will be treated as having sold such property, thereby realizing taxable gain (some of which may be treated as ordinary income, depending upon the asset).

 

If the property is an interest in a pass-through entity, such as an S corporation or a partnership, the transfer of such an interest will effect a change in its ownership (presumably effective from the date of the decedent’s death) which may necessitate the amendment of the returns of both the entity and the owners. This, in turn, may require additional economic outlays among the parties in order to restore any benefits lost (including distributions), or to indemnify any losses incurred by any of the parties.

 

Finally, where the estate holds items of income in respect of a decedent (“IRD”), such as retirement funds, it may behoove the estate to consider distributing such items to a charitable organization in settlement of the organization’s claim to a share of the decedent’s assets; in this way, the estate and its non-charitable beneficiaries may avoid the income tax thereon. 

 

Conclusion

 

The foregoing discussion highlights some of the tax considerations that are attendant to the settlement of a will contest. The manner in which each of these is addressed can have a significant impact on the net economic results realized by the parties to the settlement. It is imperative that the parties and their advisors be aware of the tax implications of their actions throughout the will contest, and especially during the negotiation of the settlement. In this way, the parties may better understand their true economic goals and costs, and their advisors may better manage their client’s expectations.

The period following someone’s death can be an emotional time. Unfortunately, the period of administration of the decedent’s estate can be just as emotional, though for different reasons. As the intended disposition of the decedent’s assets becomes “public,” the estate’s beneficiaries, and others, may challenge such disposition. The manner in which these challenges are resolved can have significant tax and economic consequences for the decedent’s estate.

Estate Tax

The estate tax is imposed upon the transfer of the assets comprising a decedent’s estate. The taxable estate is determined by subtracting from the value of the gross estate certain deductions authorized by the Internal Revenue Code. Under various conditions and limitations, deductions are allowable for administration expenses, charitable transfers, and transfers to a surviving spouse. Once the taxable estate has been ascertained, the estate tax rates are applied to arrive at the gross estate tax (before authorized credits).

 

In theory, the process of compiling the necessary information for determining the tax is straightforward. In practice, however, it can become challenging. The fiduciary must: identify and “collect” the decedent’s assets; determine the decedent’s outstanding liabilities; and dispose of the decedent’s estate.

 

The starting point for directing the disposition of the decedent’s assets, including the identification of deductible transfers, is the decedent’s last will or revocable trust. These instruments may provide for an outright transfer of property to the decedent’s spouse or a charity. In some cases, they will grant the fiduciary authority to select a charitable recipient. Rather than an outright transfer, the instrument may create a split-interest trust for the benefit of the spouse or a charity, and certain non-marital and non-charitable beneficiaries (usually from the decedent’s family).

 

The Contest

What happens, however, when the validity of the will or trust, or of the dispositions of property provided therein, are challenged? The fiduciary will certainly incur additional legal, accounting and other fees and expenses in defending the instrument. As a result of the legal proceedings, the disposition of the decedent’s assets may change – either by court decision or through a settlement by the parties – and, consequently, the value of the taxable estate. For example, it may be determined that an asset does not belong to the estate, or that a disposition under the will should not have been made to a specific charity. 

 

These determinations have estate tax and other tax consequences of which the fiduciary should be aware because they impact the economic result of the settlement. Frequently, however, not enough attention is paid to the tax treatment of the settlement and, consequently, the economic cost may become more expensive than it otherwise could have been.

 

Estate Tax Return and Payment

The timing of the will contest raises a number of tax considerations. In general, the estate tax return must be filed, and the estate tax paid, within nine months after the decedent’s date of death. If a timely extension application is made, the estate will have an additional six months to file the return. Extensions of time to pay the tax are granted less frequently, and require a showing of good cause.

 

In the event the will contest cannot be resolved before the due date for the return, the fiduciary should disclose the nature of the dispute on the return, since the resolution thereof will likely affect the amount of estate tax owed by the estate. Similarly, the fiduciary will have to determine how much estate tax to remit while the contest is pending. This necessitates consideration of the merits of the claims and of the expected litigation costs. In the case of an “overpayment,” the fiduciary must be mindful of the possibility of claiming a refund. If it appears that the litigation will continue beyond the limitation period for a refund, the fiduciary should consider filing timely a protective refund claim.  

 

Will the IRS respect the Settlement?

Whether the IRS will respect the settlement is an issue characterized by the intersection of state property law and federal tax law.

 

The determination of the federal estate tax is based upon the respective property rights of the decedent (what assets did he own at his death), of his creditors (what liabilities do the decedent and/or his estate owe), and of the beneficiaries of his estate (to whom do the decedent’s assets pass after the satisfaction of these liabilities). These various property rights arise under state law. In the case of a will contest, the adversarial nature of the proceeding is an important factor in determining the federal tax consequences of the settlement, though it may not be determinative; the IRS is generally free to review the applicable state law for the purpose of determining whether the terms of the settlement are, in fact, consistent with the property rights of the parties under such state law. It is important to bear in mind that the IRS may not be bound by a settlement agreement.

 

Litigation-Related Expenses

Administration expenses are those that are actually and necessarily incurred in the administration of the decedent’s estate; for example, for the collection of assets, payment of debts, and distribution of property. These may include legal fees incurred by the fiduciary, which are usually deductible for estate tax purposes. However, expenditures that are not essential to the settlement of the estate, but that are incurred for the individual benefit of the decedent’s heirs, may not be taken as deductions. For the expenditure to be allowable as an administration expense, it must have benefited the estate as a whole, as contrasted with the personal benefit of a beneficiary. This distinction is often difficult to make.

 

A settlement may establish the amount of a claim or expense for tax purposes, provided that the expenditure is allowable under local law, the settlement resolves a bona fide issue in a genuine contest, and it is the product of arm’s-length negotiations by parties having adverse interests with respect to the claim or expense. No deduction will be allowed for amounts paid in settlement of an unenforceable claim. A consent decree should be accepted as fixing a claim when the consent was a bona fide recognition of the validity of the claim – not a mere “cloak” for a gift to a family member – and was accepted by the court as satisfactory evidence upon the merits. However, if a local court does not adjudicate the merits of a claim, its decision as to its deductibility will not necessarily be accepted by the IRS.

 

The foregoing assumes that the settlement payment represents an expense. A review of the underlying claim may indicate otherwise. For example, if a payment is made by the estate to someone claiming a share of the estate as a beneficiary, it is likely that the payment will not be deductible as an expense for estate tax purposes (though it may qualify for the marital or charitable deduction).

In probate proceedings involving the issue of testamentary capacity, parties frequently present testimony at trial from an expert psychiatrist.  It is often the case that that psychiatrist never saw or treated the testator, and develops his or her expert opinion solely by reviewing various documents, including the testator’s medical records.  

This expert psychiatric testimony is admissible, but courts have routinely and consistently held that it is afforded very little weight, if any, and is unreliable.  This appears to be an “equal-opportunity” standard. In other words, this type of testimony is given little weight regardless of which party relies on it. For example, in Matter of Swain, 125 AD2d 574 (2d Dept 1986), the objectant’s expert psychiatrist testified that based solely on an examination of the medical records, which notably did not include the month when the will was executed, the testator was so impaired by a stroke that she could not have known the nature and extent of her assets or the natural objects of her bounty. The jury returned a verdict denying the will to probate on the grounds, inter alia, that the testator lacked testamentary capacity. The Second Department reversed, finding that the psychiatrist’s testimony was purely speculative, contradicted by the testimony of the testator’s treating physician, and was entitled to no weight. Thus, it concluded that the objectant failed to rebut evidence that the testator possessed testamentary capacity.

 

In Matter of Slade, 106 AD2d 914 (4th Dept 1984), however, the proponent of the will relied on a psychiatrist’s testimony that the testator possessed testamentary capacity.   That witness had never examined the testator, nor discussed her condition with any treating physicians. He simply reviewed her medical records. At the close of the proponent’s case, the objectant’s moved for a directed verdict pursuant to CPLR § 4404, which the court granted on the issue of lack of testamentary capacity, because the proponent failed to meet his burden. Affirming that decision, the Fourth Department stated that “such testimony is the weakest and most unreliable kind of evidence,” and noted that it contradicted the facts—which must prevail.

Most estate attorneys are familiar with the concept of the so-called “slayer rule” whereby a person responsible for the murder of an individual cannot benefit from the murdered individual’s estate. This rule has its genesis in the Court of Appeals decision of Riggs v Palmer, in which the Court stated “[n]o one shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime” (Riggs v Palmer, 115 NY 506, 511 [1889]).

Though this equitable rule would appear to be relatively unambiguous in application, questions of its interpretation arise from time to time in the Surrogate’s Courts. Previous entries on this blog have discussed the Suffolk County Surrogate’s Court’s decision to expand the rule by barring a murderer from benefitting not only from his victim’s estate but also the estate of a post-deceased legatee of the victim. 

In an upcoming Nassau County Surrogate’s Court hearing, Surrogate McCarty, on the other hand, will be tasked with assessing the possible boundaries of the slayer rule vis a vis the insanity defense. The hearing, scheduled for August 15, 2013, concerns the case of Leatrice Brewer who in 2008 drowned her three children in a bathtub (see Newsday July 12, 2013). Ms. Brewer admitted to killing her children and in 2010 entered a plea of “not responsible by reason of mental disease or defect” in her criminal proceeding. Thereafter, Innocent Demesyeux, the father of two of the deceased children, received limited letters of administration concerning his children’s estates and sued Nassau County for wrongful death. The suit settled for $250,000 and the father petitioned the Nassau County Surrogate’s Court to compromise the wrongful death action and settle his account. As part of his petition, Mr. Demesyeux has requested that Ms. Brewer be held to have forfeited any interest in her children’s estates by virtue of the slayer rule. The hearing this month will determine this request. 

In a recent pre-hearing decision concerning access to Ms. Brewer’s court files, Surrogate McCarty addressed and previewed some of the issues that will likely be argued in the upcoming hearing (see Matter of Demesyeux, 350391/A, NYLJ 1202598464881, at *1 [Sur Ct, Nassau County, Decided March 29, 2013]). In order to respond to Mr. Demesyeux’s petition, the guardian ad litem assigned to represent Ms. Brewer’s interests in the proceeding attempted to view Ms. Brewer’s Family Court and criminal proceeding records but was told such records were sealed. The guardian ad litem thereafter filed a report in Surrogate’s Court seeking a court-order to unseal the records.

In his decision concerning the guardian ad litem’s request, Surrogate McCarty surveyed the history of the slayer rule under Riggs and its progeny noting that, though there is no express statutory statement of the rule, “numerous cases since Riggs v. Palmer have reaffirmed the applicability of the common-law general principle that one should not be permitted to profit by taking the life of another and, in particular, that one who feloniously murders shall not be entitled to share in his victim’s estate” (Matter of Demesyeux at 2). Conversely, the Surrogate noted that application of the rule is not always straightforward and “there is some authority that if the killing was unintentional or accidental, the rule will not be applied” (id. at 3). For instance, the Surrogate cited Matter of Eckhardt (184 Misc 748 [Sur Ct, Orange County 1945]) concerning a somnambulist who killed her husband but was found not to have known the nature and quality of her act.

In connection with the guardian ad litem’s request to view Ms. Brewer’s criminal court files, the Surrogate considered the application of CPL §160.50, which requires that records be sealed if a criminal action is terminated in favor of the accused, ostensibly to spare the accused the social stigma of a criminal prosecution. The question, according to the Surrogate, is whether a termination by reason of an insanity plea can be construed as ‘favorable’ to the accused. Surrogate McCarty quoted the decision of Matter of Anonymous (174 Misc 2d 333 [Sup Ct, Kings County 1997]), which described persons acquitted of a crime via the insanity defense as occupying a special class. Such persons have been proven or have admitted to performance of criminal acts that would ordinarily be subject to punishment. Nevertheless, due to “society’s compassionate belief” that persons with mental defects not be criminally punished, they are spared the penalization they would otherwise justifiably receive. Then again, because they have undisputedly committed criminal acts and are dangers to society, such persons, while spared incarceration, are held in state custody. Balancing the policy considerations of the insanity defense, the court in Anonymous ruled that persons acquitted by reason of an insanity defense have not had their case terminated in their favor. Surrogate McCarty agreed, opining that Ms. Brewer’s criminal records should not be sealed.

No doubt, the upcoming hearing will involve a similar balancing of the equities and policies behind the slayer rule against those behind the insanity defense. Based upon the cases quoted by the Surrogate in Matter of Demesyeux, it appears that the parties will focus on whether or not Ms. Brewer acted with intent and knew the nature of her act. I do not envy the difficult decision Surrogate McCarty will have to make in looking beyond the strong emotional underpinnings of this case. 

Can a surviving spouse be guilty of abandonment, consequently forfeiting the presumptive right to administer her deceased spouse’s estate, if she was effectively in a “marriage of convenience”? In her recent decision in Estate of Shoichiro Hama, 2009-4505 NYLJ 1202579753326, at *1 (Sur Ct, New York County, Decided November 26, 2012) former New York County Surrogate Glen decided in the affirmative. In considering the issue of abandonment, the Surrogate also called for a general re-examination of the concept of a ‘surviving spouse’ as it pertains to intestate succession and other spousal rights under the EPTL.

The problematic facts of the case may have spurred Surrogate Glen’s more general contemplations. It is relatively clear from the court’s decision that the decedent married the spouse primarily for tax reasons and, during the marriage, the spouse lived with another man, publicly holding herself out to be married to this second man, with the decedent’s knowledge and consent.

Shoichiro Hama, the decedent, owned a condominium apartment in Manhattan and sought to sell it. In June 2006, he consulted his accountant who informed the decedent that he would incur significant capital gains taxes on the sale. When the decedent inquired how he could mitigate these taxes, the accountant joked that he could get married. A few weeks following this discussion, on July 7, 2006, the decedent married Yuko Machida, an employee of his company. Two months thereafter, on September 6, 2006, the decedent sold his apartment. In November 2006, the decedent told his accountant that he wished to obtain a divorce and the accountant advised against it. The decedent asked how long the accountant recommended he stay married to preserve his tax benefit, and the accountant advised two years.

In 2007, the decedent moved to Japan and Machida also moved to Japan, but to live with another man, Travis Klose, with whom she had maintained a relationship prior to her marriage to the decedent. Facing parental stigma for living with a man with whom she was not married, Machida registered in Japan as being married to Klose. The decedent was aware of this and, in fact, assisted in Machida’s registration as Klose’s wife by signing and affixing his personal seal to their marriage certificate, as a witness.

In August 2009, the decedent inquired of his accountant whether he could then divorce Machida. As the decedent was contemplating the sale of another apartment in Manhattan, the accountant advised him that he should remain married. The decedent subsequently died intestate on September 4, 2009. Thereafter, Machida petitioned for issuance of letters of administration, via a designee, and the decedent’s parents cross petitioned for the same, via a designee. Temporary Letters of Administration issued to Machida’s designee. The designee of the decedent’s parents filed a motion for, among other things, summary judgment revoking Machida’s designee’s letters, and dismissing Machida’s administration petition, based on a claim of spousal abandonment.

EPTL 5-1.2 (a)(5) provides that a husband or wife is disqualified as a surviving spouse under the EPTL, for purposes of intestate distribution, among other things, if it is established that the husband or wife abandoned the deceased spouse and such abandonment continued until the time of death. Former Surrogate Glen noted that while the EPTL contains no definition of abandonment, it is generally and historically understood that the concept was imported from the Domestic Relations Law, such that if a spouse would have been entitled to a decree of divorce based on the grounds of abandonment, such spouse would be subject to a viable claim of abandonment under the EPTL.

The long-standing Court of Appeals decision in Matter of Maiden (284 NY 429 [1940]), holds that to constitute abandonment, a spouse’s departure from the marital home must be both “unjustified and without the consent of the other spouse” (id. at 432). As Surrogate Glen noted, the decedent’s participation in Machida’s ‘marriage’ to Klose in Japan was “the very opposite of ‘lack of consent’” and the decedent’s parents’ claim of abandonment would fail under this test (Estate of Shoichiro Hama at *7).

Nevertheless, Surrogate Glen based her decision on another case, Matter of Oswald (43 Misc 2d 774 [Sur Ct, Nassau County 1964], affd 24 AD2d 465 [2d Dept 1965], affd 17 NY2d 447 [1965]). In that case, the parties allegedly entered into a common law marriage, but later exchanged mutual releases and each married another. The Surrogate found abandonment, quoting Matter of Bingham (178 Misc 801 [Sur Ct, Kings County 1942], affd 265 AD 463 [2d Dept 1943], rearg denied and lv denied 266 AD 669 [2d Dept 1943]), that “[t]he court knows of no more convincing evidence of abandonment than the public ceremonial remarriage of the petitioner to another woman in the lifetime of the decedent and his cohabitation with such woman as husband and wife” (id. at 805). The Appellate Division affirmed Oswald “on the opinion of the Surrogate” and the Court of Appeals affirmed without decision. Thus, it is not clear whether public remarriage, valid or not, qualifies as abandonment and stands as an exception to the Maiden requirement that abandonment be without consent. Based on the ambiguity created by the Court of Appeals’ affirmation of Oswald, in seeming conflict with its earlier rule in Maiden, Surrogate Glen ultimately held for the decedent’s parents and found abandonment by Machida.

This holding lead Surrogate Glen to question general policy issues regarding surviving spouses. First and foremost, Surrogate Glen noted that New York has done away with the fault-based divorce system from which the concept of abandonment first sprung. She then traced the historical evolution and reappraisals of spousal relationships under New York’s divorce law. One of the primary factors in this evolution, she noted, has been the shift in the understanding of marriage from being a sacred bond for life to being an economic partnership. She called for a similar reappraisal in estate law.

The concept of a surviving spouse, according to the Surrogate, was originally used as a proxy for the person closest to and/or most dependent on the deceased spouse, that is, the natural object of the deceased spouse’s bounty. Thus a surviving spouse has priority to administer an estate, priority of intestate distribution, and the right to elect against an estate. But what of spouses who remain married but live apart for years? What of married partners who develop fulfilling and committed relationships with other persons, without formally divorcing their spouse? Who is the more natural object of bounty in this case? According to Surrogate Glen, the current estate concept of a surviving spouse “no longer reflects reality, at least for a large number of people.” She concluded that “[c]hanging understandings of what constitutes family, demographic shifts, and alterations in economic dependence strongly suggest the need both to reappraise the spousal disqualification statute and the interests it serves: administration, intestacy and spousal election. One may hope that the bar and the legislature will hear and heed this call” (Estate of Shoichiro Hama at *16-*17).

In light of the radically changing societal and legal conceptions of marriage, does the current standard of spousal abandonment, which is itself grounded in a fault-based divorce system that, for the most part, no longer exists, continue to serve the purposes for which it was intended or the premises on which it was based? It remains to be seen whether the legislature will consider or address Surrogate Glen’s thought-provoking questions.

 

 

Estate litigation oftentimes arises when parents favor one or more of their children over others in their estate plans. Fortunately, at least for the parents, they typically do not have to deal with the issues involved in the litigation, as they are deceased by the time that it arises. As the Second Department’s decision in Sharrow v. Sheridan demonstrates, however, disfavored children do not always wait for their parents to pass before commencing litigation concerning the parents’ assets. Indeed, some disfavored children have gone so far as to sue their parents and siblings as “potential heirs” of the parents’ estates. This blog entry explains why such a strategy will prove unsuccessful.

In Sharrow, the plaintiff commenced an action against his mother and his sister, seeking to impose a constructive trust on certain assets that the mother transferred to the sister (see Sharrow v. Sheridan, 91 AD3d 940, 940-41 [2d Dept 2012]). The plaintiff alleged that a constructive trust was warranted because the sister exercised duress and undue influence on the ailing mother in pressuring her to transfer the assets to the sister (see id.). When the mother and sister moved to dismiss the plaintiff’s complaint, the plaintiff asserted that he had standing to seek a constructive trust over the assets formerly belonging to his mother as a “potential heir” of her estate (see id.).

The Supreme Court granted the defendants’ motions to dismiss and the Appellate Division affirmed (see id.). In affirming, the Second Department found that the plaintiff lacked standing to seek to impose a constructive trust on the assets that his mother transferred to his sister (see id.). As the court explained, for as long as she was alive, the mother had “the absolute right to change her intentions regarding the distribution of her assets” (see id.). Accordingly, the court concluded that the plaintiff’s interest as a “potential heir” of his mother’s estate was a “potential, speculative interest” that did not vest him with standing to prosecute a constructive trust claim concerning his mother’s former assets (see id.).

Of course, Sharrow is not the only case in which a child sought to void an inter vivos transfer made by a parent as a potential heir of the parent’s estate. In Schneider v. David, the plaintiff commenced an action to impose a constructive trust on real property that her mother transferred to her brother (see Schneider v. David, 169 AD2d 506, 506-08 [1st Dept 1991]). Among other things, the plaintiff alleged that her brother had fraudulently induced their elderly mother to convey the properly to him by telling the mother that the deed she signed only permitted him to manage the property while she was out-of-state (see id.). The defendant moved to dismiss, arguing – with his mother’s support – that the plaintiff lacked standing to seek a constructive trust (see id.).

Although the Supreme Court denied the defendant’s motion, the First Department reversed (see id.). The Appellate Division reasoned that the plaintiff was not a party to her mother’s conveyance of the property and could not void it simply because she considered herself to be an heir of her living mother’s estate (see id.). In short, the plaintiff’s self-serving description of herself as a potential heir of her mother’s estate did not cloak her with standing to sue or exercise rights on her mother’s behalf (see id.).

There are several lessons to take away from Sharrow and Schneider, the most obvious of which is for children to respect the wishes of their parents as those wishes relate to the parents’ assets during life. Putting the obvious aside, however, disfavored children and their attorneys should take note of the well-reasoned legal principle that, as “potential heirs” of their parents’ estates, they lack standing to take legal action concerning their parents’ assets. During their lives, the assets belong to the parents and are subject to the parents’ absolute right to dispose of their property as they wish.

 

Stacey Castor (“Stacey”) made national news in 2007, arising from the 2005 murder of her husband, David Castor, Sr., (“Decedent’) as well as the attempted murder of her own daughter. Stacey was convicted of the murder. Having apparently also murdered a prior husband, Stacey became known as the “Black Widow.”

The Castor case recently moved from the criminal to a civil forum, in the form of a lawsuit brought by the son of the Decedent, David Castor, Jr. (“David” or “Plaintiff”), against Stacey and Lynn and Paul Pulaski ("Pulaskis”). David brought the suit in Supreme Court, Onondaga County, seeking recovery from the Pulaskis and from Stacey for fraud and conspiracy surrounding the probate of the Last Will and Testament of the Decedent. After the death of Decedent, Stacey had convinced the Pulaskis to sign their names as witnesses to a false will, benefiting her. The forged Will left Decedent’s estate to Stacey, and was considered in the criminal prosecution of Stacey as a prime motive for the murder of her husband.

The Supreme Court, Onondaga County handed down its decision on December 14, 2011.

During the course of the trial, the Pulaskis had testified that they had been duped by Stacey, and that their motives were good. Lynn Pulaski testified that Stacey had been her best friend. She had felt terrible because of what she had then thought was the suicide of Stacey’s husband, and she wanted to help Stacey out settling the Decedent’s estate.

The Supreme Court Justice (Paris, J.) was not buying it, concluding that,

[b]ased on the evidence and all the pleadings that make up the record of this particular case, including their testimony, it is obvious that Defendants Pulaski were not innocent pawns. They knew what they were doing was wrong and bore false witness to both the Will and Attestation Clause without any hesitancy or reservation. Thereafter, they executed the Attesting Witness Affidavits that they also knew were false. From the record, it is clear that they kept these falsehoods from the Surrogate’s Court and Plaintiff to his detriment throughout the estate proceedings. Defendants Pulaski only ‘came clean’ when the District Attorney’s investigators came knocking on their door and they were given immunity in return for their cooperation and testimony in the criminal prosecution of Co-Defendant Stacey Castor.

The Court continued:

[w]hile the genesis of this action is the heinous crime committed by Defendant Stacey Castor, Defendants Pulaski compounded the crime through their admitted dishonesty… Plaintiff was contesting the purported Last Will and Testament of his father, David W. Castor, Sr., being offered for probate by Defendant Stacey Castor. He withdrew his objections, as he credibly testified, in the face of Defendant Pulaskis’ subsequent execution of the Attesting Witness Affidavits… Defendants Pulaski admitted that they signed in 2005 as witnesses to Decedent’s Will which was dated 2003. Their reaffirmance of this falsehood by signing the Attesting Witness Affidavits, not only harmed Plaintiff, but also subjected the Surrogate’s Court to needless and unwarranted proceedings, thereby detracting from the orderly administration of that Court’s normal, proper and legitimate proceedings.

The Supreme Court went on to find that all three Defendants, the Pulaskis and Stacey, were jointly and severally liable to Plaintiff. The Court assessed both compensatory and punitive damages against all the Defendants, and not just against Stacey, the murderer. As to the Pulaskis, the Court noted that their actions had “compelled Plaintiff to withdraw his objections to the probate of the Will and hoodwinked and deceived the Surrogate’s Court into probating a fraudulent instrument.” Their conduct “was so repugnant and reprehensible so as to satisfy the threshold of moral culpability necessary to allow the imposition of punitive damages."
 

Finally, in an interesting and significant further holding, the Court determined that the Plaintiff was entitled to the recovery of his attorney fees against the Defendants, including the Pulaskis.

Undue influence is an issue commonly associated with Surrogate’s Court proceedings. Indeed, it is often the linchpin to the outcome of a matter, and as such, relevant to its strategy. This is most pointedly revealed by opinions rendered by the Surrogates of New York and Kings County this year, in which the issue of undue influence played a primary role in connection with a contested probate proceeding.

In In re Moles, N.Y.L.J., Apr. 18, 2011, p. 23 (Sur Ct, New York County), the preliminary executors of the estate moved for summary judgment dismissing the objections of the decedent’s nephew, who was the beneficiary of a prior will executed thirty years earlier than the propounded instrument. The objections alleged, inter alia, that the instrument was not duly executed, and that the instrument was procured by the fraud and undue influence of the decedent’s long-time companion, who was the sole beneficiary of the estate, and the named executor along with the attorney-draftsperson.

The undisputed record revealed that the decedent had a history of alcohol abuse for which she was hospitalized and later rehabilitated. Upon completion of her rehabilitation, she returned to New York City where she retained the services of a personal aide whom resided with her until her death twenty years later.  Over the course of her employ, there was no dispute that the decedent and her aide became inseparable, spending every day together, and traveling domestically and overseas. Further, there was no dispute that the decedent was capable of making financial and personal decisions regarding her investments and health care.

The decedent’s treating physician testified that she always found the decedent fully responsive and rational. This was substantiated as well by the attorney-draftsperson of the instrument, who stated that he found the decedent alert, coherent and able to convey detailed information regarding her life situation and family.

Notably, the will execution was videotaped and supervised by the draftsperson’s colleague.

In granting the proponents summary relief, the court rejected the notion that the decedent’s early alcoholism impaired her capacity to execute a will, as well as the testimony of the videographer relied upon by the objectant, who testified that the decedent had difficulty identifying the President of the United States. The court held that this evidence paled in light of the reports and testimony of the professionals who treated and worked with the decedent during the period surrounding the execution of the instrument, all of which indicated that she possessed the minimal capacity required to make a valid Will.

As to the issue of undue influence, the court concluded that the objectant had failed to submit any evidence that the decedent’s aide had compelled or constrained the decedent to do anything against her free will. In fact, the objectant admitted that he saw the decedent at most one to two times a year, and that her other family members rarely visited her.

The court found it significant that the attorney-draftsperson of the instrument testified that the provisions of the Will were derived from instructions given to him by the decedent with no involvement of the decedent’s aide. To this extent, the court opined that the lack of involvement by the proponent in a will’s drafting and execution is inconsistent with any inference of undue influence, even where the disinherited party is a close family member. Further, the court held that even assuming the existence of a confidential relationship between the proponent and the decedent, it was counterbalanced by the evidence of the strong affection between the decedent and her aide during their twenty year relationship, the decedent’s expressed desire to leave her aide her entire estate, and her aide’s lack of involvement in the drafting of the Will.

Finally, the court concluded that the objectant had failed to produce a modicum of proof that anyone induced the decedent to execute her Will based upon a false statement.

In comparison to the holding in In re Moles, the court in In re Carter, N.Y.L.J., Apr. 18, 2011, p. 25 (Sur Ct, Kings County), found that the inference of undue influence required that the propounded instrument be denied probate. The facts of the case are in stark contrast to those in Moles and substantiate the differing opinions.

In Carter, the propounded instrument left the decedent’s entire estate, but for 25% percent of any cash due and owing to the decedent’s sole surviving heir, her sister, to a complete stranger (Frazier), who was also named the executor,. The instrument also directed that in the event the decedent’s sister should be admitted to a nursing home, her share should pass instead to Frazier, and that Frazier pay an amount, not to exceed 11 % of the residuary estate, to charities of his choice.

The record revealed that Frazier was 40 years the decedent’s junior, was not related to the decedent, yet, was her self-described caretaker, and that he was an instrumental force behind the execution of the propounded instrument. The court held that, under these circumstances, as well as events described in its own files and through the testimony of Frazier, an inference of undue influence existed requiring a hearing. Notably, the court found that Frazier had been previously appointed as fiduciary in a number of other estates of women significantly older than him, and with whom he had no relationship, that were strikingly similar to the factual situation involving this decedent.

Based on the testimony and evidence adduced at the hearing, the court concluded that Frazier had engaged in a systematic course to take over the personal and financial affairs of the decedent, whom he knew had been diagnosed with dementia, much as he did in the case of countless other elderly and frail women to whom he ingratiated himself. He moved into her home, put his name on her bank accounts, monitored her telephone calls, put her under surveillance and held her health care proxy. Significantly, the record also disclosed that in 2006, when the decedent was overtly suffering mentally, and when no attorney would draft a Will for her, he allegedly acceded to her insistence upon executing a new Will by retyping a prior Will of the decedent, with the decedent’s handwritten changes, and taking the decedent to her doctor’s office to have it signed and witnessed. 

At the conclusion of the hearing, the court concluded, inter alia, that Frazier’s testimony gave rise to a strong inference of undue influence, based in particular, upon his complete insinuation into the decedent’s life and financial affairs, the decedent’s dependence upon him for her basic needs, and his involvement in the preparation and execution of the instrument which made him the primary recipient of her estate. The court held that Frazier offered nothing to rebut this proof, but rather buttressed the result that the Will of the decedent was the product of his own decision-making, and control over its preparation and execution.

Accordingly, probate was denied.

 

 

 

Attempting to determine the rightful intestate distributees of decedents in kinship hearings can be interesting. To illustrate, in the most general way, how the process works in Surrogate’s Court, let us take the simple case of Joe, an MTA switchman who never executed a Will, never married, and died at the age of 90, having lived in a modest apartment in Flushing, New York for the last 70 years (except for the years 1944 through 1949 when he served in the armed forces). There is no sign that Joe has any family. What happens to Joe’s $75,000 condominium and $2 million in cash and marketable securities?  

Joe’s assets will be administered by the Public Administrator – the Public Administrator will marshal Joe’s assets, pay all debts and administration expenses, and after due diligence, will render an accounting to whatever potential heirs the Public Administrator is able to locate through due diligence and the Attorney General of the State of New York. To get a bit of an idea as to what the Public Administrator does, check out these websites, http://queenscountypa.com/ http://www.nyc.gov/html/kcpa/html/home/home.shtml. (You can also follow the Queens County Public Administrator on twitter if you are interested).

In Joe’s case, the Public Administrator is able to determine through due diligence, e.g., talking to Joe’s neighbors, reviewing Joe’s birth certificate found among Joe’s personal effects, looking at census records, looking at Joe’s draft registration card, and looking at social security records, the identity of Joe’s long deceased mother, and two gentlemen who may be cousins of Joe on his mother’s side (maternal cousins). The Public Administrator is unable to obtain any information about Joe’s father.  The Public Administrator has not found any records showing that Joe was married or had any children. 

Because Joe’s intestate distributees are unknown, the Public Administrator will request that the Surrogate permit the Public Administrator to pay the assets of Joe’s estate to the Commissioner of Finance for the City of New York (Comptroller of the State of New York for Counties outside of New York City) in the absence of a determination of Joe’s intestate distributees. The Public Administrator would cite to the unknown heirs of Joe’s estate by publication, the two potential maternal cousins, and the Attorney General. If no-one appeared in the accounting proceeding, the assets would be deposited with the Commissioner of Finance and would be subject to being recovered by Joe’s heirs that come forward and prove heirship. If potential heirs appear in the accounting proceeding, there will be a kinship hearing in the context of the accounting proceeding. The kinship hearing in that SCPA § 2222 withdrawal proceeding would proceed in the same manner as a kinship hearing in the accounting proceeding. Those persons claiming to be heirs of Joe and seeking to receive Joe’s assets would be required to prove that they and Joe share a common ancestor and that there are no missing or unknown intestate distributees with an equal or superior right to inherit.

Kinship hearings often involve alleged heirs presenting documentary evidence, such as birth certificates, death certificates, social security applications, mortuary records, probate files, obituaries, baptismal certificates, marriage certificates, decrees of divorce, census records and any other publicly available documents that are useful in demonstrating kinship. The presentation of this documentary evidence will also be accompanied by the testimony of witnesses.  In Joe’s case, his birth certificate and his signed social security application indicate that his father is unknown. In Joe’s case, we might also hear from the fellow who lived in the apartment next to Joe, who would testify that he never saw anyone visit Joe, and that he spoke with Joe quite often and that Joe stated that he regretted that he was never married and never had children. The absence of any record of Joe being married or having children (after a thorough search of public records) together with Joe’s neighbor’s testimony, would be highly probative to the issue of whether Joe died with a spouse and issue, as these would be the first people to take in intestacy.  This testimony would be admissible over a hearsay objection based on the pedigree exception to hearsay. There are certain presumptions that a person claiming to be an heir can avail themselves of, such as the presumption that a person is deemed to have predeceased the decedent if he would have been 100 years old at the time of decedent’s death. Another oft employed presumption arises by statute, namely, the three-year presumption under SCPA § 2225. In some cases a professional genealogist will assist counsel in attempting to prove heirship, and even scientific evidence, such as DNA evidence, might come into play in a kinship hearing.  

Kinship proceedings, aside from telling sometimes compelling narratives of peoples’ lives, can be illuminating from a historical perspective. Census records reveal extended families struggling to make it in their new country in ethnic enclaves, and the chaos of World War II and the devastation of the Holocaust can present special challenges to those attempting to prove kinship to a decedent. With vast public records destroyed and the world having been robbed of the memories of millions of people, evidentiary hurdles may abound. In similar fashion, the legacy of slavery and racial discrimination present challenges when attempting to prove kinship to an African-American decedent.          

 

 

Generally, the testimony of at least one attesting witness is required to probate a will. But practitioners will sometimes face a situation where all of the witnesses to a propounded instrument are unavailable or cannot be located to testify in support of the document. In such cases, the common law “ancient document rule” may be relied upon to probate the instrument if it is of a certain age.

New York Courts have been utilizing the ancient document rule as a practical basis for probate since the early nineteenth century (see In re Hehn’s Will, 6 Misc 2d 801 [Sur Ct, Nassau County 1957]). But in the recent case of Matter of Santoro, 2011 NY Slip Op 50920(U), Surrogate McCarty of Nassau County addressed the question of whether the rule can be relied upon where the propounded instrument is only nineteen years old; he held that it cannot.

The basis for the ancient document rule has been explained as twofold: (1) “after a long lapse of time, ordinary testimonial evidence from those who saw the document’s execution or knew the style of handwriting or heard the party admit the execution is practically unavailable, and a necessity always exists for resorting to circumstantial evidence”; and (2) “the circumstance of age-or long existence-of the document, together with its place of custody, its unsuspicious appearance, and perhaps other circumstances, suffice, in combination, as evidence to be submitted to the jury” (In re Hehn’s Will, 6 Misc 2d 801 [Sur Ct, Nassau County 1957], quoting VII Wigmore on Evidence [Third Ed.] §2137]).

In his analysis, Surrogate McCarty did not raise any basis to dispute the genuineness of the instrument, and noted that the application was uncontested. However, he explained that the common law ancient document rule requires the propounded instrument to be at least thirty years old, although some liberal courts have adopted the federal twenty-year rule. Application of the rule to a nineteen-year old instrument was unprecedented. Accordingly, it was held that the instrument could not be probated as an ancient document.

Despite its failure to qualify as an ancient document, the Court explained a statutory basis upon which the instrument may be probated absent the testimony of any witnesses. SCPA §1405[4] provides that the will may be admitted to probate based solely upon “the handwriting of the testator and of at least one of the attesting witnesses and such other facts as would be sufficient to prove the will”. To satisfy this requirement, the Surrogate noted that the handwriting of the predeceased attorney draftsman could be obtained from his original will that was on file with the Court, and proved based upon an affidavit from a handwriting expert that the signature on the propounded instrument was written by the same person who executed his will. Similarly, he stated that the Court would be satisfied with the genuineness of the subject decedent’s signature based upon an affidavit from one of her children or other relatives.   Thus, it appears that the propounded instrument will ultimately be admitted to probate upon the Court’s receipt of the requisite testimony.

The decision in Matter of Santoro serves as a reminder to practitioners that there may often be more than one approach to probating an instrument absent the requisite support from witnesses, and perhaps introduces a method for doing so that may not have otherwise been considered. If a predeceased witness died testate, his will is (in most cases) a public record from which a handwriting expert should be able to testify in satisfaction of SCPA §1405[4]. Nonetheless, contested proceedings of this kind are unlikely to be so simple, especially if the surviving witness were to testify against the instrument (see SCPA §1405[3]).