The newly elected Surrogate for Nassau County, Edward W. McCarty III, recently issued a decision in what appears to be a gut-wrenching case involving an infant decedent. In the Estate of Jessica Fernandes, Surrogate McCarty attempts to get to the bottom of two commonly encountered issues in an infant decedent’s estate, that is 1) who should serve as administrator of the decedent’s estate; and 2) whether one of the decedent’s parents should be barred from receiving estate assets. 

In most estates, the answer to the question of who will serve as fiduciary is straightforward. Where a decedent dies having executed a last will and testament, the will identifies the nominated executor (or co-executors). The nominated executor will serve unless the Court finds that he or she is ineligible to serve for the reasons set forth in SCPA § 707. Every person interested in the estate has the opportunity, pursuant to SCPA § 709, to object to the appointment of the nominated executor. Where a person dies intestate, a person interested in the estate may object to the appointment of an administrator on one or more of the grounds set forth in SCPA § 707Article 10 of the SCPA governs the order of priority of who is entitled to serve as an administrator of an intestate estate. 

In Fernandes, the decedent was a 12 year-old girl who succumbed to respiratory failure. She had been incapacitated since birth, and her mother had been appointed her personal needs guardian, as well as co-guardian of her property along with an attorney, pursuant to Article 81 of the New York Mental Hygiene Law. The decedent had recovered in excess of $3.5 million in the settlement of a medical malpractice action.   All else being equal, the decedent’s mother and father have equal priority to serve as administrator of her estate pursuant to SCPA § 1001, and the Court may appoint, in its discretion, one or both of them.

Following the decedent’s death, her mother petitioned for letters of administration and requested that the decedent’s father be disqualified, pursuant to EPTL § 4-1.4, from taking an intestate share of decedent’s estate on the basis of his alleged failure to provide for, and abandonment of, the decedent. The decedent’s father struck back, denying that he had abandoned the decedent, objecting to the decedent’s mother’s appointment as administrator of the decedent’s estate pursuant to SCPA § 707 on the grounds that the decedent’s mother had engaged in fraud and dishonesty, and cross-petitioning for letters of administration. The decedent’s mother appears to have also alleged that the decedent’s father is a non-domiciliary alien and thus ineligible to serve as administrator pursuant to SCPA § 707 (1) (c), and that he cannot read or write in English, and that the Court should thus, in its discretion, find him ineligible to serve pursuant to SCPA § 707 (2). The decedent’s mother also alleged that decedent’s father’s open hostility to her rendered him ineligible to serve. 

Judge McCarty’s decision indicates that he is poised to address the factual allegations that the parties have made. He explained that summary judgment was inappropriate; the papers before him left several issues of fact to be resolved at a hearing (the hearing may have already been held). Aside from untangling the issue of the decedent’s father’s immigration status, it seems that the Surrogate will be faced with determining whether each of the decedent’s parents can read and write in the English language, and, if not, whether this should affect their ability to serve. In this inquiry, he may be informed by a recent decision from the Surrogate’s Court, New York County, Matter of Torbibio.   

Moreover, while dishonesty is one of the grounds set forth in SCPA § 707 (e) as a basis to render someone ineligible to receive letters, dishonesty as contemplated by the statute is not dishonesty in answering questions such as “how big was that fish that you caught last fall?” but, as the First Department recently explained, dishonesty in money matters from which a reasonable apprehension may be entertained that the funds of the estate would not be safe in the hands of the contemplated fiduciary.   As for the decedent’s mother’s claim that the decedent’s father’s hostility renders him ineligible, as countless Surrogate’s Court practitioners have explained to their clients, mere hostility is simply not enough. It is well-settled that an individual will only be barred from being appointed fiduciary where friction or hostility interferes with the proper administration of the estate, and future cooperation is unlikely. 

Barring a settlement, it appears that the Court will reach the second issue, whether the decedent’s father should be disqualified from sharing in the decedent’s estate, at the close of discovery. His decision contains a granular analysis of disputes among the parties as to documentary discovery – the kind of analysis that is helpful to lawyers when they get down to the task of drafting demands for documents.       

One of the first reported Surrogate’s Court decisions of 2011 comes from Monroe CountyThe decision is interesting in that the court addresses various legal issues in the context of what it describes as “a power-sharing arrangement that is rather unconventional, even by today’s standards of Trust and Estate practice.”   The decision addresses an exoneration clause, the delegation of investment responsibility, the overriding duty of loyalty of fiduciaries, the Prudent Investor Act, the construction of wills and trust instruments, and the status of an “advisor” as a de facto trustee.

The inter vivos trust at issue was created in 1945, in conjunction with the grantor’s outright gift to the University of Rochester to create a clinic under the auspices of the University’s Department of Psychiatry. The grantor directed that Trust income be used to operate and maintain the clinic. The grantor named an institutional trustee (“Trustee”) and also created an “Investment Advisory Committee” comprised of three individuals, two to be named by the University of Rochester and one by the Trustee.

By the provisions of the Trust instrument, the Advisory Committee has considerable power and control over the investment of Trust assets. The Advisory Committee was granted “sole and exclusive power and control over the investments making up this trust fund, the sale of securities, and the reinvestment of any funds at any time in the trust estate” and given the power to direct the Trustee in writing in connection with such power and control. The Trust instrument also contains an exoneration clause, and provides that “[t]he Trustee shall be charged with no responsibility or duties with respect to the investment or reinvestment of trust funds, other than to carry out the written directions or communications received by it from the Committee.”

Approximately 65 years after the Trust was created, a disagreement arose between the Advisory Committee and the Trustee that required judicial attention. Specifically, the Advisory Committee directed the Trustee to invest all of the Trust assets in the University’s long-term investment pool, and the Trustee sought advice from the Court. 

The Court made clear that its task was to determine whether the proposed investment in the long term investment pool would frustrate the intent of the grantor.  It first addressed the intent of the grantor and the purpose of the Trust. Reading the Trust instrument as a whole, the Court found that that the Advisory Committee and Trustee were required to work in concert to promote the goals of the grantor to fund the operation of the Psychiatry Department. Although the terms of the Trust instrument quoted above confer broad authority upon the Advisory Committee, the Court held that such authority could not be used in contravention of the stated purpose of the Trust, and that the Trustee and the Advisory Committee, as a de facto co-trustee, share the fiduciary obligation to invest and manage the assets in a manner consistent with the purpose of the Trust. 

In reaching this conclusion, the Court noted the limits of the Trust instrument’s allocation of investment responsibilities to the Advisory Committee and the concomitant exoneration clause. The Court found that the exoneration clause employed in the Trust instrument, an attempt to render the Trustee completely unaccountable in deference to the Advisory Committee, is inconsistent with the nature of a trust, and void as against public policy.   If the Advisory Committee’s control over investment decisions was completely dispositive, there would be little sense in having a trustee.   According to the Court, while the Trustee is under a duty to comply with the directions of the Advisory Committee with respect to investment decisions, the Trustee cannot ignore its fiduciary responsibility; the Trustee could be held liable for abiding by the direction of the Advisory Committee where there may be reason to believe that the Advisory Committee is not fulfilling its fiduciary duty. 

The Court had several problems with the proposed investment in the long term investment pool. The investment would remove both the Trustee and the Advisory Committee from any role in administering the Trust assets. Trust funds would be transferred to the University’s custodian bank, and such bank would have no fiduciary obligation to the Trust. The funds would be managed by numerous investment management firms under the oversight of a subcommittee of the University’s Board of Trustees.   Once the Trust’s funds were invested in the long term investment pool, neither the Advisory Committee, nor the Trustee, would have input concerning asset allocation, or the discretion to select, retain or sell off any individual assets. Such decisions would be overseen by the subcommittee of the University’s Board of Trustees. 

Quoting Meinhard v. Salmon, the Court first noted that two of the three members of the Advisory Committee were employed by the University, and that the proposed investment would place the majority of the Advisory Committee, owing a duty of loyalty to both the University and the Trust, in a position of conflict if questions were to arise as to the handling of Trust funds in the long term investment pool.   The Court was “hard-pressed” to allow the majority of the Advisory Committee to be allowed to direct the investment of Trust assets in the long term investment pool under these circumstances. The Court acknowledged that the third member of the Advisory Committee was also in a potential position of conflict as an employee of the Trustee, but found that this third member’s conflict was less of a concern considering the minority status.

The Court also held that while delegation of investment and management functions is permissible under the EPTL, the proposed investment constituted a delegation far afield from what is permitted by statute (EPTL § 11-2.3(c)), and would be inconsistent with the Trust instrument.

This case is certainly worth a read.

 

A recent decision from the Westchester County Surrogate’s Court, Edelman v Hatami is an entertaining read. The decision addresses the Statute of Frauds, and provides a good example of how litigants will attempt to employ the equitable doctrines of promissory estoppel and constructive trust in estate litigation. 

In Edelman the defendant sought recovery against a decedent’s estate, claiming breach of contract, promissory estoppel, and constructive trust. According to the decision, the defendant met the decedent sometime in 1995 or 1996, when the defendant became a tenant in a building owned by the decedent. At that time, the defendant was in her early 30s, and the decedent was in his late 60s. They developed what the Court described as an “intimate” relationship that lasted until the decedent died in September 2004 at the age of 77. According to the defendant, in exchange for certain services rendered on her part, the decedent orally agreed to pay her living expenses for a three-year period, to pay her law school tuition, and to transfer to her the apartment in which she resided. The services allegedly provided to the decedent included ensuring that decedent was cared for and fed healthy, nutritious meals; monitoring the decedent’s medical and physical condition; acting as the decedent’s personal confidant concerning all aspects of the decedent’s life; and, acting as decedent’s business confidant. The Court dismissed all of the defendant’s claims. 

The Court’s dismissal of the defendant’s breach of contract, promissory estoppel and quasi-contract claims was based, in part, on its determination that the services provided by the defendant were consistent with the “intimate” relationship that the decedent and the defendant shared. The Court also noted that the defendant received substantial benefits from the decedent in the course of their relationship, such as an allowance of approximately $5,000 per month, nearly $200,000.00 in credit card charges over a period of several years, and a year-long all-expense-paid trip to England.  The Court’s dismissal of the defendant’s constructive trust claim was based on the defendant’s failure to demonstrate a necessary element of a constructive trust; a transfer on the defendant’s part in reliance on a promise of the decedent. If you enjoy reading the decision, stay tuned, as it appears that the defendant may be taking an appeal. 

Be careful before you start answering this question.  When it comes to applying CPLR §4519, commonly referred to as the Dead Man’s Statute, easy answers are sometimes hard to find.

CPLR §4519 precludes testimony upon an objection at “the trial of an action or the hearing upon the merits of a special proceeding,” where 1) the witness has a financial  interest in the outcome of the litigation; 2) she is to be examined about a personal transaction or communication of the decedent; 3) she is to be examined as a witness on her own behalf; and, 4) the testimony sought to be elicited is against the fiduciary or survivor of the decedent or a person deriving his title from the decedent. The principle purpose of the statute is to prevent fraudulent claims which could easily be asserted against a decedent’s estate – since the decedent cannot give his version of the transaction or conversation, the financially interested witness is not permitted to give her version. There is no shortage of commentary concerning the Dead Man’s Statute and a great number of cases examine its application (see Matter of Wood 52 NY2d 139 [1981]; Sepulveda v Aviles, 308 AD2d 1 [1st Dept 2003];Matter of Radus, 140 AD2d 348 [2d Dept 1988]; Matter of Miller 97 AD2d 581 [3d Dept 1983]; Estate of Breitman, 4/7/99 NYLJ 35, [col. 5] [Sur Ct, Nassau County 1999]; Matter of Dunbar, 139 Misc 2d 955 [Sur Ct, Bronx County 1988]; See also Radigan, The Dead Man’s Statute – Alive and Well in the Surrogate’s Court, 50 NY St BJ 470 [1980];  Brooks, It’s Time to Kill the Dead Man’s Statute, NYLJ, July 18, 1988, at 1, col 1).   

By its plain language, CPLR §4519 has no application at any stage of a proceeding or action other than at “a trial or a hearing on the merits.” It is clear that the statute has no application during pre-trial discovery at a deposition pursuant to Article 31 of the CPLR. Similarly, it has no application in examinations held pursuant to SCPA §§1404, 2211, or at an examination during the inquisitorial stage of a discovery proceeding (see Philips v Kantor & Co., 31 NY2d 307 [1972]; Lemlich v Lemlich, 266 AD 748 [2d Dept 1943]; Wall Street Assoc. v Brodsky, 295 AD2d 262 [1st Dept 2002]). 

 

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