Ilene Cooper

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Pursuant to the provisions of EPTL 5-1.1-A, every surviving spouse of a domiciliary decedent is entitled to a statutory right of election. The elective share statute is intended to provide a decedent’s surviving spouse with a requisite minimum amount of his/her estate. While a surviving spouse may be disqualified from an elective share under any one of the circumstances enumerated in EPTL 5-1.2, the Surrogate’s and Appellate Courts have crafted a further ground for forfeiture when equity so requires. This was the result achieved by the Second Department’s opinion in Campbell v. Thomas, 73 AD3d 103 (2d Dept 2010), and more recently, by the opinion rendered by the Surrogate’s Court, King’s County, in Matter of Berk, NYLJ, July 2, 2018, p. 31 (Sur Ct, Kings County), discussed below.

In In re Berk, the court held, after trial, that by virtue of her wrongdoing, the decedent’s surviving spouse had forfeited her right of election against his estate. Prior to thihttps://www.nyestatelitigationblog.com/wp-admin/post.php?post=16851&action=edit#edit_timestamps result, the Berk estate had been the subject of two opinions by the Appellate Division, Second Department. In the first, the Court reversed an order of the Surrogate’s Court, Kings County (Johnson, S.) granting summary judgment to the petitioner, finding that there was an issue of fact as to whether the petitioner had forfeited her right of election by her alleged wrongdoing. The Court further ruled that the appellants’ counterclaims alleging undue influence were improperly dismissed. In the second opinion, the Court modified an order of the same court by (1) adding as an issue of fact to be tried the question of whether the petitioner, the decedent’s surviving spouse, exercised undue influence upon the decedent to induce him to marry her for the purpose of obtaining pecuniary benefits from his estate, and (2) replacing so much of the order, as imposed the burden of proof on appellants, the executors of the estate, by clear and convincing evidence, with a provision that placed the burden of proof on appellants by a preponderance of the credible evidence.

At the trial of the matter that followed, the Surrogate’s Court framed three issues to be heard, lodged principally in whether the decedent possessed the requisite mental capacity to marry the petitioner, or alternatively, whether the petitioner unduly influenced the decedent to marry her for her own pecuniary benefit.

On the issue of capacity, the court found the record replete with credible evidence that the decedent suffered from both physical and mental impairments, and manifested significant hearing loss, and periods of confusion. Additionally, the court noted that on the day prior to his purported marriage to the petitioner, the decedent was unable to accurately complete the marriage license application, and made critical mistakes in the listing of his address, his place of birth, and his mother’s maiden name. Moreover, the court noted that in a photograph taken on his wedding day, the decedent appeared dazed and confused.

The court opined that the standard of capacity for marriage is whether each party to the contract was able to understand the nature, effect, and consequences of his or her actions. Within this context, and based on the “plethora” of credible evidence presented, the court concluded that the decedent was incapable of understanding or consenting to his marriage to the petitioner, and that the petitioner was well aware of his incapacity at the time the marriage was entered. Indeed, in view of the fact that the petitioner was the decedent’s primary caretaker and had ample opportunity to observe him in his daily routine, as well as the fact that she had experience in the medical field, the court found “it impossible to believe that the petitioner did not know of the decedent’s mental incapacity.”

Moreover, after considering the indicia of undue influence including the decedent’s physical and mental condition, the secrecy in which the marriage was entered, the petitioner’s control over the decedent’s daily needs, and her direction over his lifetime affairs as evidenced by the decedent’s handwritten notes that petitioner had apparently dictated, the court held that petitioner had the motive and opportunity to influence the decedent’s actions, and that she actually exercised undue influence over him in procuring their marriage.

Relying on the opinion by the Appellate Division, Second Department, in Campbell v. Thomas, 73 AD3d 103 (2d Dept 2010), the court observed that where a marriage has been wrongfully procured, the statutory right of election which would have emanated from such marriage will be forfeited. Accordingly, based on the record, the court denied petitioner’s request for an elective share of the decedent’s estate.

 

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.

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

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

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

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

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

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

Surcharge of Fiduciary, Sua Sponte

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

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

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

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

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.

Powers of attorney and trust instruments have each been the subject of many an estate plan. They each have also been the subject of multiple estate litigations. In combination, the two have served as fodder for controversies surrounding the agent’s authority over the trust and its terms. Pursuant to the provisions of Uniform Trust Code §602(c), a settlor’s agent acting under a power of attorney can revoke  or amend a revocable trust, when authorized by the terms of the trust or the terms of a power of attorney.[1]  New York has no comparable statute under the EPTL or the SCPA, or, for that matter, under the General Obligations Law. Stemming from this silence, came two decisions that addressed the issue, albeit with different results; the first, Matter of Goetz, 8 Misc 3d 200 (Sur Ct, Westchester County 2005), in the context of a revocable trust, and the second, Matter of Perosi v. LiGregi, 98 AD3d 230 (2d Dept 2012) in the context of an irrevocable trust. Both decisions provide valuable instruction for drafters and litigators.

In Goetz, the petitioner, a child of the decedent, contended that the decedent’s spouse lacked authority, as his attorney-in-fact,  to amend a revocable trust created by the decedent, in order to confer upon herself a limited power of appointment over the trust remainder. The subject power of attorney was executed in 1995 and provided the agent with the full authority included in the form at the time.

While the terms of the trust instrument, as originally executed, divided the trust principal equally among the grantor’s four children, the amendment in issue provided the grantor’s spouse with a limited power of appointment over the principal exercisable in favor of any one or more of the children as she determined. Several days after the amendment was drafted, it was signed by the decedent’s spouse, as his agent. Shortly thereafter, the decedent, who was ill at the time, passed away. Two years following the decedent’s death, his spouse passed away leaving a last will and testament expressly disinheriting the petitioner, and exercising the power of appointment in favor of her other three children.

The petitioner maintained that the trust amendment was invalid and exceeded the authority granted the decedent’s spouse under the power of appointment. The respondent, the executor of both the decedent’s and his spouse’s estates, claimed that the trust amendment was consistent with the decedent’s expressed wishes and testamentary plan, and was within the scope of the powers conferred upon the decedent’s spouse as his attorney-in-fact.

The court rejected the respondent’s position, and declared the trust amendment invalid, opining that a grantor’s power of revocation is generally a personal right that terminates upon death, unless otherwise provided in the trust instrument. The subject trust contained no such provision. Moreover, recognizing a revocable trust as the lifetime equivalent of a will, the court was troubled by a ruling that would sustain an agent’s authority to essentially alter a principal’s testamentary plan.

Finally, and most importantly, the court held that neither the trust instrument nor the power of attorney at issue explicitly granted the extent of authority sought to be invoked by the agent in amending the trust (see EPTL §7-1.17(b)), concluding “[i]nstruments must be construed as written by their terms, and courts may not add to or alter their provisions in the guise of interpreting them, nor interpolate into them broad grants of authority not included by the parties.”

In Matter of Perosi, the Second Department took a different view from the court in Goetz on the issue of the agent’s authority, and distinguished the opinion in reaching its result. It is questionable whether the distinctions drawn upon the Court are sound, given the rationale of Goetz, and the rules of construction invoked in Goetz in interpreting the subject trust and power of attorney.

As compared to the trust in Goetz, the trust instrument in Perosi was irrevocable, and was established for the benefit of the creator’s three children, one of whom was his attorney-in-fact. The trustee of the trust was the creator’s brother. The power of attorney executed by the creator granted his agent the authority to act with respect to “all matters”, as well as with respect to “estate transactions.” Additionally, the major gifts rider to the power authorized the agent to establish and fund revocable or irrevocable trusts, transfer assets to a trust, make gifts and act as grantor and trustee.

The attorney-in-fact, with the consent of the beneficiaries, executed an amendment to the trust pursuant to EPTL §7-1.9, which removed the named trustee and his successor, and designated two others, including the son of the attorney-in-fact, in their place. Two weeks thereafter, the creator of the trust died.

A petition was then filed by the new trustee and the attorney-in-fact for an accounting by the predecessor trustee, who moved to set aside the trust amendment on the grounds that the trust was irrevocable. The petitioners opposed, relying upon the provisions of EPTL §7-1.9, which permitted the amendment during the creator’s lifetime, with the beneficiaries’ consent.

The Supreme Court granted the trustee’s motion and denied the petition, finding that the power of attorney did not authorize the amendment of estate planning devices created prior to its execution. Further, the court held that the statutory right to revoke or amend an irrevocable trust was a personal right, which was not expanded by the terms of either the trust instrument or the power of attorney. The Second Department reversed.

The Court found that although the trust was irrevocable, the creator nevertheless possessed the authority to amend or revoke the instrument pursuant to EPTL §7-1.9. In view of the beneficiaries’ consent to the amendment, the Court was confronted with the issue of whether the power of attorney empowered the attorney-in-fact to effectuate the amendment on the creator’s behalf. Notably, despite the authority granted to the agent with respect to “estate transactions” and “all other matters”, the Court concluded that neither the power of attorney nor the General Obligations Law specifically authorized the attorney-in-fact to amend the trust. (cf. Goetz).

Nevertheless, as compared to the analysis in Goetz, this did not end the inquiry for the Court, which went on to observe that an attorney-in-fact is an alter ego of the principal, authorized to act with respect to any and all matters, with the exception of those which by their nature, public policy, or otherwise, require personal performance. The Court noted that these matters would include the execution of a principal’s Will, the execution of a principal’s affidavit upon personal knowledge, or the entrance into a principal’s marriage or divorce.

Finding that the amendment of the trust by the attorney-in-fact did not fall into any one of these categories, the Court concluded that since the trust did not prohibit the creator from amending the trust by way of his attorney-in-fact, “the attorney-in-fact, as the alter ego of the creator”, properly did so.

Notably, in reaching this result, the Court distinguished Goetz on two grounds; the first, to the extent that it relied on the principal that the power of revocation was a personal, not delegable right; and the second, that the Goetz trust specifically reserved to the creator the right to amend or revoke the trust. Nevertheless, despite these purported distinctions, it is difficult to reconcile the results in in Perosi and Goetz.

Indeed, both courts were concerned with the fact that neither the language of the trusts or the powers of attorney at issue authorized the agent to amend or revoke the trust instrument. Moreover, the fact, mentioned by the Perosi court, that the creator in Goetz reserved in the instrument a power to revoke or amend its terms, should not be considered a distinguishing factor that would justify a contrary result, since the trust in Perosi was irrevocable, and thus, would not have given the creator that right. Nevertheless, like the instrument in Goetz, the statute, EPTL §7-1.9, relied upon in Perosi, which authorized the trust amendment, also did not confer that right upon an attorney-in-fact.  However, rather than end the inquiry, as the court did in Goetz, that omission served as a basis for the Perosi court to find that the attorney-in-fact could amend the trust, a result antithetical to the principle enunciated in Goetz, which cautioned against “interpolating instruments into broad grants of authority not included by the parties.”

With the foregoing in mind, it would seem that the more critical distinction between the opinions in Goetz and Perosi is the fact that the former involved a revocable trust- – a testamentary substitute — and, as such, the equivalent of a will, which both the courts in Perosi and Goetz, recognized could not be amended or revoked by an attorney-in-fact.

The distinction aside, the lesson to be learned from both Goetz and Perosi is to insure that the language of a trust and/or power of attorney be specific as to the extent of the agent’s authority to amend or revoke the instrument.

[1] Although not yet adopted in New York, a New York Uniform Trust Code has been the subject of significant analysis by the New York State Bar Association and the New York City Bar Association.

On August 19, 2016, Governor Cuomo signed into law an amendment to CPLR §4503(b) which creates another exception to the attorney-client privilege in the case of revocable trusts. The first such exception, initially enacted pursuant to the provisions of CPA 354 (the predecessor to CPLR §4503[b]), provides that the privilege will not apply “in any action involving the probate, validity or construction of a will” (see CPLR §4503[b]).  The 2016 exception expands CPLR §4503(b) to now include actions, after the grantor’s death, involving revocable trusts.

The purpose of the attorney-client privilege is to promote the use of legal representation by assuring clients that they may freely confide in their counsel without concern that such confidences may be divulged to outsiders (see Matter of Colby, 187 Misc 2d 695 [Sur Ct, New York County 2001], citing Priest v Hennessey, 51 NY2d 62, 67-68 [1980]). Nevertheless, to the extent it shields evidence from disclosure, it obstructs the fact-finding process (see Matter of Colby, 187 Misc 2d 695, 697).

With this balanced approach in mind, the recent bill amending CPLR §4503(b) finds its justification in the pre-existing exception to the attorney-client privilege in the case of probate contests, and the fact that revocable trusts serve as the equivalent of wills.  However, it should be noted that the exception only applies after the death of the grantor, in recognition of the fact that a party, other than the grantor, has no standing to challenge a revocable trust during the grantor’s lifetime (see N.Y.S. Assembly Memorandum in Support of Legislation, citing Matter of Davidson, 177 Misc 2d 928, 930 [Sur Ct, New York County 1998]).

In 2010, the Appellate Division, Second Department, made it clear that principles of equity grounded in rules of forfeiture can adversely impact a surviving spouse’s entitlement to an elective share. In Campbell v. Thomas, 73 AD3d 103 (2d Dept 2010),  the Appellate Division rendered a decision of first impression when it denied the right of election asserted by the decedent’s surviving spouse based on the equitable principle that a party may not profit from his or her own wrongdoing.  In Matter of Berk, 71 AD3d 883 (2d Dept 2010), the Appellate Division adhered to the foregoing principles when it reversed a decree of the Surrogate’s Court, Kings County, which granted the petitioner, the surviving spouse of the decedent, summary judgment determining the validity of her right of election against the decedent’s estate. Following the 2010 opinion in Matter of Berk, the case continued to wind its way through the Surrogate’s Court as it headed towards trial.

Recently, the Appellate Division, Second Department, had the opportunity to readdress the parties in Matter of Berk, and provide practitioners with further instruction on the issues impacting the claimed elective share. Specifically, the Court modified an order of the Surrogate’s Court, Kings County (Johnson, S.) by (1) adding as an issue of fact to be tried the question of whether the petitioner, the decedent’s surviving spouse, exercised undue influence upon the decedent to induce him to marry her for the purpose of obtaining pecuniary benefits from his estate, and (2) replacing so much of the order, as imposed the burden of proof on appellants, the executors of the estate, by clear and convincing evidence, with a provision that placed the burden of proof on appellants by a preponderance of the credible evidence (see Matter of Berk, 133 AD3d 850 [2d Dept 2015]).

As readers may recall, the underlying proceeding involved a petition by the surviving spouse of the decedent for a determination of the validity and effect of her exercise of her right of election against his estate pursuant to EPTL 5-1.1-A.  In their answer, the appellants, the executors of the estate, asserted as an affirmative defense that the decedent was incompetent to enter into a marriage, that the petitioner knew that he was incapable of entering into a marriage, and that the petitioner had exercised undue influence over the decedent to convince him to marry her.

As stated, on a prior appeal, the Appellate Division, Second Department, reversed an order granting summary judgment to the petitioner, finding that there was an issue of fact as to whether the petitioner had forfeited her right of election by her alleged wrongdoing; that is, by marrying the decedent knowing that he was mentally incapable of consenting to a marriage for the purpose of obtaining pecuniary benefits from his estate. The Court further ruled that the appellants’ counterclaims alleging undue influence were improperly dismissed.

On remitter to the Surrogate’s Court, Kings County, the parties submitted proposed statements of the issues to be determined at trial, as well as proposals concerning the burden and quantum of proof on the issues. In the order appealed from, the Surrogate’s Court limited the issues for trial to whether the decedent was mentally incapacitated and incapable of consenting to his marriage to the petitioner, and if so, whether the petitioner took unfair advantage of him by marrying him for the purpose of availing herself, as his surviving spouse, of his estate at death. The Surrogate further ruled that the appellants/executors had the burden of proof on the issues by clear and convincing evidence. The Surrogate did not include the issue of undue influence as a matter to be determined.  The executors appealed.

The Appellate Division opined that the issue of whether the petitioner had forfeited her elective share under the circumstances raised by the proceeding was based on the equitable doctrine that the petitioner should not profit from her own wrongdoing. Where a claim of wrongful conduct is made, the parties asserting same, i.e., the appellants, have the burden of proving the wrongdoing by a preponderance of the evidence.  The Court further held that evidence of a confidential relationship between the petitioner and the decedent, by virtue of their marriage, was not, in itself, proof of the petitioner’s wrongdoing, and, as such, did not shift the burden of proof to the petitioner to prove otherwise.

Additionally, the Court held that an alternative ground for forfeiture of the right of election was whether the petitioner exercised undue influence upon the decedent to induce him to marry her. Again, the Court determined that the appellants had the burden of proof on this issue by a preponderance of the credible evidence.

The Berk matter is now primed for trial. Stay tuned for what is sure to be an instructive outcome.

This month’s blog post will address a recent decision by the Appellate Division, First Department, entered in In re Perelman, that helps reiterate and define the parameters of discovery proceedings. The case is interesting not only for its facts and the issues they presented, but for its litigants: Ronald Perelman, of Revlon and corporate raider fame, and James Cohen, the President and CEO of Hudson News, and President of Hudson Enterprises.         

The Decedent, Claudia Cohen, a well-known gossip columnist at the time of her death, was the sister of James Cohen, and was Ronald Perelman’s former spouse. She died on June 15, 2007, with an estate amounting to approximately $68 million, survived by her daughter, Samantha, who was her sole surviving heir. Pursuant to the terms of her Will, Claudia, after making some specific bequests, left the residue of her estate to her daughter, in trust, until a stated age, and appointed Mr. Perelman, who was Samantha’s father, as the executor and trustee thereunder.

James and Claudia Cohen were the children of Robert and Harriet Cohen. Robert died several years after Claudia, in 2012, and Harriet is still living. Over the course of his life, Robert amassed a considerable fortune through his ownership and control of a number of family businesses, including Hudson News. James participated in these family businesses for his entire career.

In June 2010, Perelman commenced a discovery proceeding against James Cohen, his two sons, Justin and Robert II, Hudson News Company, and Robert Cohen, seeking information and a turnover of assets allegedly belonging to the Estate of the decedent within the knowledge, possession and/or control of the Respondents. Subsequent to the filing of his initial petition, Perelman amended his pleading in order to, more specifically, assert claims against James Cohen for fraud and undue influence in effectuating transfers of Robert Cohen’s business interests to himself to the detriment of his sister, Claudia, and her estate. The Amended Petition sought, amongst other things, to recover any interest of Claudia in one or more of the various Cohen family businesses, including but not limited to Hudson News, which may have been misappropriated by James.

It is significant that the amended petition failed to identify any specific property that Claudia owned at the time of her death that was being withheld by the Respondents, or any specific property that was converted from her by the Respondents. Rather, it was predicated upon Perelman’s supposition that Claudia owned an interest in the Hudson News group, based upon the allegations against James Cohen, and his desire to test that belief through an examination of the books and records of the company.

It is worth noting that the discovery proceeding came at the heels of multiple proceedings that had been instituted by Perelman in his fiduciary capacity against members of the Cohen family in the New Jersey State and Federal courts, all of which he lost. It is also important to note that in the context of the foregoing litigation, Perelman sought and obtained discovery of more than 2.1 million pages of documents, and conducted 30 depositions. That discovery revealed that the only interest Claudia had owned in the family business during her lifetime was .36% of 1 share of stock of Hudson News, which she sold in 1990.

The Respondents moved to dismiss the Amended Petition arguing that Perelman’s claims were barred by documentary evidence, and on the basis of the statute of limitations, res judicata and collateral estoppel. More specifically, the Respondents claimed that the unequivocal documentary proof established that the Decedent sold her entire interest in Hudson News in 1990, and owned no interest in any other Cohen family business at death. Further, they alleged that SCPA 2103 did not permit an unbridled search for unknown and unidentified assets based on nothing more than a surmise and a possibility that the Decedent may have owned those assets.

Perelman, nevertheless, maintained that he was entitled and duty-bound as fiduciary to determine, amongst other things, whether Claudia transferred her entire interest in Hudson News and was paid in full for that transfer, and whether she held any interest in any of her family’s other businesses. Further, Perelman maintained that SCPA 2103 has been broadly construed so as to allow a “fishing expedition” in order to assist the fiduciary in recovering property or administering an estate.

In an opinion and Order, dated February 15, 2015, the Surrogate’s Court, amongst other things, denied the motion to dismiss finding that the documentary evidence left unresolved questions as to the interest of the Decedent in Hudson News and Hudson Enterprises, that dismissal on the basis of the statute of limitations was premature, since the Amended Petition did not identify a time when any alleged wrong occurred, and that the executor had a responsibility to marshal the decedent’s assets and the right to conduct discovery to satisfy himself and the beneficiaries that he diligently attempted to ascertain the scope of those assets.

Finally, the Court rejected the Respondents’ res judicata and collateral estoppel claims holding that the issues raised by the New Jersey litigation were distinct from those raised in the New York proceedings. An appeal followed.

Although the appeal addressed multiple issues, one of the principal issues was whether SCPA 2103 discovery is tantamount to a fishing expedition, or something more limited in scope.

The Respondents maintained that while discovery pursuant to SCPA 2103 is often labeled a “fishing expedition”, the authorities did not consider it to be a fishing expedition with an unlimited license. Rather, they argued that a discovery proceeding only lies where it is alleged that it relates to specific personal property or money or the value or the proceeds thereof.

On the basis of the foregoing, Respondents claimed that Perelman was simply on a mission to open up the books and records of Hudson News and its related entities rather than pursue estate assets, which he knew did not exist.

Moreover, to this extent, Respondents argued that the documentary evidence (consisting, in part, of the Shareholders Agreement for Hudson News, the decedent’s tax returns, and the balance sheet from her 1993 divorce from Perelman) unequivocally established that the Decedent sold her entire interest consisting of .36% of 1 share in Hudson in 1990, and that she had no other interest at death in the enterprise.

Perelman, on the other hand, argued SCPA 2103 affords a party broad latitude to explore a Decedent’s assets, tantamount to a fishing expedition. Given this scope, it was Perelman’s contention that the burden rested on the Respondent’s to show that regardless of what information might be elicited in discovery, it was inconceivable that the examination could lead to any information that would assist the fiduciary in recovering or administering estate assets.

To this extent, Perelman maintained that the documentary evidence failed to satisfy this burden.

The Appellate Division rejected Perelman’s argument, unanimously reversed the order of the Surrogate, and dismissed Perelman’s claim for discovery.

Notably, on the issue of 2103 discovery, the Court iterated and reminded us all that a fiduciary seeking discovery pursuant to the statute cannot go on an unabridged fishing expedition to search for assets of an undefined nature that he has a hunch belongs to the estate.

Rather, citing the decision in Matter of Castaldo, 180 AD2d 421 (1st Dept. 1992) the Court held that a fiduciary invoking the statute must demonstrate the existence of specific personal property or money which belongs to the estate, or even a reasonable likelihood that such specific property might exist.

Significantly, in this regard, the court held that, in light of the documentary evidence submitted by Respondents, Perelman had failed to satisfy his burden of establishing that the Decedent may have held an interest in the family business after the sale of her stock in 1990. The Court found that Perelman’s contentions that she did hold such an interest were speculative at best.

Perelman made a motion for leave to appeal this result to the Court of Appeals, which application was denied, with costs.

So, at least from the First Department’s perspective, and perhaps the perspective of the Court of Appeals, we are seemingly left with the lesson that unless a petition for SCPA 2103 discovery seeks specific property or money that is in the possession or knowledge of a Respondent, or with reasonable likelihood is in the possession or knowledge of the respondent, the proceeding must be dismissed.

While attorney’s fees incurred by the fiduciary are generally reimburseable from an estate as a reasonable and necessary expense of administration, this is not the rule with respect to the legal fees incurred by a beneficiary. The different standard that applies was recently examined by Surrogate Mella in In re Frey, NYLJ, July 25, 2013, p. 25 (Sur. Ct. New York County).

Before the court was an application brought by counsel for a beneficiary to have its legal fees fixed for services rendered to the beneficiary in connection with her interest in the estate of her late mother. The executor of the estate did not oppose the application provided that the fees were charged to the beneficiary’s interest in the estate.

           

The record revealed that the services performed by counsel over a two year period resulted in its client in receiving emergency and regular distributions from the estate, loans against her legacy, and personal property that she was unable to obtain previously.  Since completing its work, counsel has not been able to contact its client and has not been paid.

           

The court noted that in a proceeding for the fixation of fees pursuant to SCPA 2110, the court is authorized to direct the source of payment either from the estate generally, or from the funds in the hands of the fiduciary belonging to the legatee. In examining this issue, the court relied on the factors outlined by the Court of Appeals in Matter of Hyde, 15 NY3d 186 (2010), that is: (1) whether the objecting beneficiary acted solely in his or her own interest or in the common interest of the estate; (2) the possible benefits to the individual beneficiaries from the outcome of the underlying proceeding; (3) the extent of the individual beneficiary’s participation in the proceeding; (4) the good or bad faith of the beneficiary; (5) whether there was justifiable doubt regarding the fiduciary’s conduct; (6) the relative interest of the objecting beneficiary in the estate; and (7) the effect of allocating fees on the interest of the individual beneficiary.

 

Based on this criteria, the court concluded that in pursuing her claim against the fiduciary, the beneficiary was not seeking to benefit or enlarge the estate, but only to secure her legacy. The court determined that there was no possibility that the other beneficiaries of the estate would benefit from the legal services performed, and thus, that it would be unfair to assess the other beneficiaries with the fees incurred.

Accordingly, the court fixed the fees and disbursements of counsel and directed that they be paid from its client’s share of the estate.

Gifting, a fundamental tool of estate planning, is often fodder for estate litigation. This blog post will address two decisions, in particular, respecting the validity of purported gifts that were the subject of motions for summary relief.

As discussed below, the court in In re Rella, NYLJ, Apr. 10, 2012 , at 22 (Sur. Ct. New York County)(Sur. Anderson) granted an application for partial summary judgment and recognized the validity of the alleged gift, while in In re Goodwin, NYLJ, Apr. 10, 2012, at 31 (Sur. Ct. Suffolk County)(Sur. Czygier), the court granted summary judgment finding the alleged gifts to be invalid, and directed the return of the assets to the decedent’s estate.

In re Rella was a contested accounting proceeding in which the executor moved for partial summary judgment dismissing the objections contesting a gift that was made to him several months before the decedent’s death.

The decedent died, testate, survived by 5 children. Her husband had predeceased her in 1992. Pursuant to the terms of her Will, the decedent divided her estate equally among four of her children, and named her fifth child, Gilbert, together with Gilbert’s daughter, who died during the pendency of the proceeding, as co-executors. Prior to her death, the decedent purportedly transferred to Gilbert her 50% interest in a real estate holding company, the sole asset of which was a business operated by Gilbert. The remaining 50% interest in the company had been purchased by Gilbert from her late father’s business partner.

The decedent’s transfer of her interest to Gilbert was implemented by her as a corporate officer pursuant to a donative plan crafted by her attorney. A gift tax return was filed in connection with the transaction.

The objectant maintained that the decedent lacked the capacity to effect the foregoing transfer, and that it was procured by undue influence. The court disagreed.

With respect to the issue of capacity, the court opined that the donee bears the burden of proving by clear and convincing evidence that the donor knowingly made a present transfer of property. This burden is buttressed by the presumption that every individual has capacity, and the law’s recognition that mere old age or even mental weakness is not necessarily inconsistent with a lack of capacity to transfer property.

Assessing the record within this context, the court found the deposition transcripts of three disinterested individuals reinforced the presumption of capacity. Notably, the testimony of the decedent’s internist of more than 15 years revealed that he had examined the decedent two days before the subject transfer, and had found the decedent to be alert and cogent. Additionally, the decedent’s attorney of more than 50 years, who had handled the transfer on her behalf, testified that he and the decedent’s accountant had met with the decedent to discuss the gifts for two hours, during which time the decedent stated that she had wanted to transfer the property for some time. Based upon this record, together with the presumption of capacity, the court concluded that Gilbert had established a prima facie case that the decedent had the capacity to make the subject gift. On the other hand, the court noted that the objectants lacked personal knowledge of facts regarding the subject transfer. Moreover, the court found upon review of the objectants’ proof, that the objectants had failed to submit any evidence that would create a question of fact regarding the capacity of the decedent to make the subject transfer.

As for the issue of undue influence, the court found that Gilbert had established prima facie that the decedent had made the transfer in issue freely and voluntarily. The court rejected objectants’ claims that a confidential relationship existed between Gilbert and the decedent, as well as objectants’ contention that an inference of undue influence arose by virtue of the fact that Gilbert was present for a part of the time that the decedent had discussed the subject gift with her attorney and accountant. Significantly, the court concluded that any inference of undue influence in this regard was countermanded by the fact that the professionals were the decedent’s long-time advisors. Indeed, the court found none of the indicia of undue influence present; there was no evidence that Gilbert had isolated the decedent from family and friends, nor was their proof that the decedent was so dependent upon Gilbert as to be subject to her control.

Accordingly, based on the totality of evidence, partial summary judgment was granted in the executor’s favor.

Before the court in In re Goodwin was a motion for summary judgment in a proceeding by the decedent’s son, pursuant to SCPA 2105, to discover and compel the turnover of property withheld by the decedent’s daughter, the executrix of the estate. In support of the application, the petitioner alleged that the executrix, while acting as the decedent’s attorney-in-fact, made certain transfers of the decedent’s money to various bank accounts held jointly between herself and the decedent in violation of her fiduciary duties. Notably, the subject powers of attorney were silent as to the gift-giving authority of the agent.

In opposition to the motion, the executrix alleged that the transfers in question were made in accordance with the decedent’s directives and in the decedent’s best interests. Although the executrix provided the court with a copy of the deed relative to this transfer, the court noted that the attorney who prepared the deed, a disinterested witness to the transaction, had failed to provide any information as to the circumstances surrounding the transfer. Further, the executrix alleged that the decedent was mentally capable of making decisions, and was generous with her assets, as reflected in the gifts she had made to the petitioner.

In reply, the petitioner claimed that the decedent suffered from dementia at the time the transfers were made, and submitted the decedent’s medical records in support. In addition, the petitioner submitted a copy of a Family Contract that revealed that the subject transfers were made in order to qualify the decedent for government programs, that the assets thereof were to be for the sole benefit of the decedent, and that the funds were to be distributed at her death pursuant to the terms of her will. The agreement was signed by the executrix.

The court opined that gifts and pre-death transfers made by an agent to herself as power of attorney generally carry with them a presumption of impropriety and self-dealing that can be overcome by a clear showing of intent on the part of the principal to make the gift. Further, any such gifts must be made subject to the principal’s best interests to carry out her “financial, estate or tax plans” (see Matter of Ferrara, 7 NY3d 244).

Based upon the record, the court concluded that the petitioner had made a prima facie case in favor of summary judgment. Specifically, the court relied on the presumption of impropriety surrounding the transfers, and the requirement that the transfers be proven in the decedent’s best interests. To this extent, the court noted that by signing the Family Contract, the executrix acknowledged that she would be receiving the decedent’s assets and that such assets were not to be distributed to anyone other than the decedent.

The court found that given the proof submitted, the executrix was the primary witness to the facts and circumstances surrounding the subject transfers and her testimony was barred by the Dead Man’s Statute. Significantly, the court noted that while it could consider evidence otherwise excludable by the Statute in opposition to the motion, the executrix had failed to offer any other corroborating support for her position. Accordingly, the court directed that the assets represented by the transfers in issue be restored to the estate.