With a specific statute (Domestic Relations Law §236(3)) mandating that pre-nuptial agreements must be acknowledged, and with a specific statutory form of acknowledgment (Real Property Law §309-a(1)), it is surprising that there has been so much litigation over missing or defective acknowledgements and whether they can be cured after the fact.

In Matter of Koegel, 2018 NY Slip Op 00833 (2d Dept 2018), recently decided by the Appellate Division Second Department, husband died in 2014. Surviving spouse filed a Notice of Spousal Election under EPTL 5-1.1-A.   The estate petitioned to set aside the right of election on the basis of a waiver contained in a pre-nuptial agreement. The spouse moved to dismiss claiming that the acknowledgment on the agreement was invalid in that it omitted the standard language contained in the statutory form to the effect that the signers were known to the respective notaries.

On the motion, each notary submitted an affidavit to the effect the he “did not have to provide me with any identification of who he was because he was well known to me at the time.” The Second Department affirmed the decision of the court below that the defect could be remedied, distinguishing the case from Matisoff v Dobi, 90 NY2d 127 (1997) where the agreement had not been acknowledged at all and Galetta v Galetta, 21 NY3d 186 (2013) where the agreement was acknowledged but defective in the same respect as in this case, but the notary did not know the decedent and although he could describe his usual procedure, could not categorically swear that he took the steps to identify the party acknowledging the agreement in this instance.

While the Court of Appeals last year upheld the validity of contingency fee agreements in estate matters, especially in litigation, where it approved contingency fees of over forty million dollars when the actual time spent was a fraction of that value (see Matter of Lawrence 24 NY3d 320 [2014]), a recent New York County Surrogate’s Court case, Estate of Fanny Goldfarb, NYLJ, Oct. 14, 2015, p.22 col.2, confirms that the size of an estate can still be a major factor in determining the reasonableness of a contingent fee, even though the services rendered and the result achieved were exemplary.

In Goldfarb, litigation counsel was retained by the executor to pursue a SCPA 2103 turnover proceeding to recover a co-op apartment that had been transferred to the decedent’s cousin prior to her death.  The fee arrangement was formalized in a written retainer agreement which provided for a contingent fee of one-third of any recovery relating to the transfer of the apartment.  The attorney commenced the proceeding on behalf of executor, and within six months a settlement was reached, whereby the coop apartment was returned to the estate plus $75,000 cash, waiver of a $100,000 bequest, and $6,163 in purported commissions relating to other transfers discovered to have been made to the respondent, which had not yet been brought before the court.

The attorney sought a contingent fee of $251,995, representing one-third of the value of the apartment plus the other monies and waivers recovered. The Attorney General opposed the fee, arguing that it was “extremely excessive.”

Relying primarily on the “size of the estate” criteria enunciated a Matter of Potts, 213 AD 59 (4th Dept 1925), aff’d 241 NY 593 (1925), the court reduced the contingent fee to $115,000, and ordered the attorney to refund the excess without interest.  The court concluded that “such allowance recognizes that the value of respondent’s services outweighs the time he spent in the matter, yet also recognizes that the other factors discussed above do not support a fee that, as the Attorney General notes, would make respondent ‘in effect the major beneficiary of the estate.’”

Fee cases are fact specific. However, contingency fee arrangements are particularly important for smaller estates where a fiduciary may be unable to find counsel who would handle the matter on an hourly basis, and without whom there might be no recovery.

The Pre-Nuptial Agreement entered into by decedent provided that on his death, 70% of the value of his gross estate would be left to trusts to be established for his children “upon such terms and conditions as husband shall specify in his Last Will and Testament.” He died a number of years later at a young age as a result of an accident, leaving two infant children. He died without a Will. 

The Westchester County Surrogate’s Court in Matter of Bruan, 2012 NY Slip Op 22020 decided on January 26, 2012, granted an application to permit payment from the Estate to a proposed inter vivos trust to be created for the children despite the lack of specificity in the Pre-Nuptial Agreement as to the terms of the Trust. In what appears to have been an uncontested application, the Court was asked to approve the transfer of funds to two proposed irrevocable trusts for each of the infant children, each of which provided the Trustees with full discretion to pay or apply income or principal for the benefit of the particular child with payments of principal at ages 25, 30 and 35. The beneficiaries were granted a Power of Appointment, and in default the remainder is payable to his or her descendants and if none, to the surviving sibling. Citing Matter of Topping, 36 Misc 2d 991 (Sur Ct, Suffolk County 1962), the Court stated that “no particular words are required in order to create a trust. What matters is that decedent’s intent to create a trust relationship is established” (Matter of Bruan at *3). The Court found that the agreement clearly set forth three of the necessary elements of a trust: (1) designation of beneficiaries; (2) identification of trustees; and (3) the subject matter of the trust.

The Court, however, noted that the proposed inter vivos trust contained clauses which the Court believed would not be enforceable had the decedent created them under a will. These included an exoneration of the fiduciary under certain circumstances (not permitted in a will under EPTL §11-1.7); Waiver of Court approval for resignation (SCPA §715); waiver of the duty to account; and a prohibition from removing Trust assets from New York (SCPA §710(4)).

The Court granted the application to fund the Trust subject to the revisions noted. 

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

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

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

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

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

In Estate of Homelsky, 1/20/2010 NYLJ 27 (col 1), a Nassau County Surrogate’s Court case, the Trustee, an attorney, moved to amend his final accounting to include Trustee commissions claimed to be due him.

The Trustee’s proposed amendment sought only that portion of annual Trustee’s commissions allocable to principal, not the income portion. The amount claimed was in excess of $183,000. A Trust beneficiary objected to the proposed amendment, asserting that in a Receipt and Release Agreement circulated prior to the judicial accounting, the Trustee had stated that he was waiving all Executor and Trustee commissions.  The beneficiary further asserted that the Trustee was not entitled to commissions because he failed to provide the beneficiaries with the annual statement required under SCPA §2309(4).

The Court granted the motion. It found that a statement in the proposed Receipt and Release Agreement waiving commissions clearly indicated that it was made to settle the Account without the need for a judicial accounting proceeding. Since not all of the interested parties signed the agreement, the Trustees had to commence a judicial proceeding, which indeed became contested. The Court stated that “under these circumstances . . . the Trustee should not be held to the terms of the agreement.” As to the argument concerning failure to provide an annual statement, such an annual statement under the statute is to be provided to a person receiving income from the Trust. The Court found that since the Trustee was not seeking the commissions chargeable to income, this argument provided no basis upon which to estop the Trustee from seeking commissions.

The Court decided, but did not pass on the assertion made by Petitioner’s counsel that even if the Trustee were deemed to have waived commission, such a waiver may be withdrawn, citing a number of cases such as Matter of Grace, 61 Misc 2d 51 (Sur Ct, Nassau County 1970); Matter of Grace Candis Parris, 5/17/2005 NYLJ 32 (col 2) (Sur Ct. Kings County).