In a recent decision in the Estate of Grunwald (NYLJ Jan. 28 2019, at 33 [Sur Ct, Richmond County]), Surrogate Titone aptly noted that “the concept of domicile is … very important in the Surrogate’s Court.” True words indeed. Where a decedent is domiciled at the time of his or her death determines which court has subject matter jurisdiction over the decedent’s estate.

SCPA § 205(1) provides that every Surrogate’s Court has subject matter jurisdiction over an estate of a decedent who died a New York domiciliary, but the particular county of domicile is the proper venue for any proceeding. Under SCPA § 206, the Surrogate’s Court may have jurisdiction of a non-New York domiciliary if the decedent died owning property in New York, or there is a wrongful death claim against a New York domiciliary. If the decedent had real property in more than one county, then the county where a proceeding is first commenced shall be the proper venue and retain jurisdiction (SCPA § 206(2)).

Laymen often use the terms “domicile” and “residence” interchangeably, yet in the Surrogate’s Court there is a distinction between the two with a very big difference. SCPA § 103(15) defines domicile as “[a] fixed, permanent and principal home to which a person wherever temporarily located always intends to return.” “Residence,” on the other hand, just means “living in a particular place” (see King v Car Rentals, Inc., 29 AD3d 205, 210 [2d Dept 2006], quoting Matter of Newcomb, 192 NY 238 [1908]). A person can have several residences, but only one domicile.

Disputes over a decedent’s domicile—whether it is a different state, country, or county—typically arise at the early stage of a probate proceeding. These are very fact driven issues, and the courts have routinely recognized that where a decedent was domiciled is a “mixed question” of law fact that is determined by the unique circumstances of each case (Matter of Urdang, 194 AD2d 615 [2d Dept 1993]; Estate of Grunwald, supra). The issue in Grunwald, was whether the probate proceeding was pending in the proper New York county. The petitioner brought the proceeding in Richmond County on the grounds that the decedent (his mother) had been domiciled in Staten Island for more than two decades. The decedent’s granddaughter from a predeceased son moved to transfer the proceeding to Kings County on the grounds that the decedent died a domiciliary of Poland but owned real property in Brooklyn. The case law tells us that in determining where a decedent was domiciled, the Surrogate’s Courts often look at the following factors: where the decedent owned real property, filed income taxes, and registered to vote (id). But these are hardly exclusive. The case law further shows that proving any one factor is not necessarily dispositive of the issue. For example the Appellate Division has held that the fact that a decedent registered to vote in a particular state does not mean that the decedent made that state his or her domicile (see Laufer v Hauge, 140 AD2d 671 [2d Dept 1988]; Matter of Estate of Gadway, 133 AD2d 83 [3d Dept 1987]).

As this is a fact driven issue, the Surrogate’s Court will more often than not order a hearing to determine the decedent’s domicile, rather than decide the issue on motion. This is precisely what the Court did in Grunwald.  Matter of Powers, 2018 NY Misc LEXIS 3710 (Sur Ct, Nassau County Aug. 1, 2018)[1] is also instructive in this regard. In that case, the Nassau Surrogate’s Court determined that a hearing was necessary to determine whether the decedent died a domiciliary of New York or North Carolina. The respondent moved to dismiss the probate petition filed in the Nassau County Surrogate’s Court on the grounds that the decedent was a North Carolina domiciliary because he was living in an assisted living facility in North Carolina at the time of his death. In support of that position, the respondent presented undisputed evidence that the decedent maintained his personal possessions, attended church and social activities, and received medical care all in North Carolina.

The petitioners opposed dismissal, asserting that the decedent’s transition to the assisted living facility was not permanent and he always intended to return to his home on Long Island. The petitioners presented undisputed documentary evidence that the decedent filed tax returns in New York State (while in the North Carolina assisted living facility), retained a New York driver’s license, maintained bank accounts in New York, and declared New York his residence in the will offered for probate. Finding that the evidence presented by both sides “lead to conflicting inferences regarding domicile,” the court held that a hearing was required on the issue of domicile before it could decide the motion to dismiss.

[1] Farrell Fritz represented the petitioners in this proceeding.

My colleagues have written on the enforceability of in terrorem clauses, and the courts continue to confront challenges in reconciling the testator’s intent to impose an in terrorem condition with the rights of beneficiaries to challenge the conduct of their fiduciary. The New York County Surrogate’s Court’s recent decision in Matter of Merenstein provides further guidance to practitioners in assessing the kind of conduct that will trigger an in terrorem clause. It illustrates that the courts, in construing broad in terrorem provisions, will draw a distinction between conduct aimed at challenging the conduct of an executor and conduct aimed at nullifying a testator’s choice of executor.

In Merenstein, the decedent bequeathed his estate to his two daughters. His daughter Ilene was favored under the will – – she received 73% of the decedent’s residuary estate and was nominated the sole executor. His daughter Emma received 27% of the decedent’s residuary estate. The in terrorem clause in Merenstein provided as follows:

If any person in any manner, directly or indirectly, challenges the validity or adequacy of any bequest or devise to him or her in this Will, makes any other demand or claim against my estate, becomes a party to any proceeding to set aside, interfere with or modify any provision of this Will or of any trust established by me, or offers any objections to the probate hereof, such person and all of his or her descendants shall be deemed to have predeceased me, and accordingly they shall have no interest in this Will.

Decedent’s will was admitted to probate and Ilene was appointed executor without objection.

Emma brought a proceeding asking the court whether certain contemplated conduct on her part would trigger a forfeiture of her beneficial interest under the in terrorem clause. Her first question was whether a petition to compel the executor to account, and a subsequent petition to remove the executor in the event that the executor disregarded a court order to account, would trigger the in terrorem clause. That was easy. The court held, consistent with well-settled law, that a beneficiary will not trigger an in terrorem clause by demanding an accounting of an executor, by objecting to an executor’s accounting, or by seeking removal of the executor in the event of the executor’s failure to comply with an order to account.

Emma also asked whether she would trigger the in terrorem clause by petitioning for limited letters of administration giving her the authority to conduct an investigation into whether Ilene had fraudulently used the decedent’s credit card during the decedent’s life. This was another easy one. Consistent with well-settled law, the court held that a petition for the issuance of limited letters to pursue an investigation into whether there are assets of the estate in the possession of others, including someone who is also a fiduciary, does not seek to challenge the validity of the will or any of its provisions. The filing of such a petition and even a subsequent discovery or turnover proceeding would not cause the beneficiary to forfeit her benefits under the will.

The court drew a line however, when Emma asked whether filing a petition to suspend Ilene’s letters testamentary during the investigation into the credit card charges would trigger a forfeiture under the in terrorem provision. Emma claimed that such an order of suspension was necessary to prevent Ilene from interfering with her investigation as limited administrator. The court held that such an application would trigger the in terrorem clause. Such conduct, according to the court, would constitute an attack on the decedent’s choice of fiduciary. The court explained:

Seeking the suspension of Ilene’s letters pending any investigation that Emma may pursue and in the absence of any allegation of misconduct by Ilene in her fiduciary capacity is akin to a challenge to the testator’s choice of fiduciary as established under the will. The in terrorem clause in decedent’s will disinherits a beneficiary who commences a proceeding to set aside any of the provisions of the will, and therefore, the filing of this type of petition, which does not fall within the safe harbor provisions of EPTL 3-3.5 (b), would result in forfeiture in this case

Finally, Emma asked the court whether a petition to remove Ilene as executor in the event that Ilene was determined to have engaged in improper conduct with respect to the credit card charges would trigger the in terrorem clause.   The court declined to rule on that question. It did however, point out that the alleged credit card charges occurred while the decedent was still alive, and earlier in the decision, cited to Matter of Cohn, which was affirmed by the Appellate Division, First Department.

In the Cohn estate, the courts confirmed that public policy will bar the application of an in terrorem clause where a beneficiary seeks removal of an executor based on allegations of the executor’s misconduct in their capacity as executor, but will not bar the application of an in terrorem clause where a beneficiary seeks to remove or supplant an executor based on some other ostensible basis that constitutes an attack on the testator’s choice of fiduciary, or on the powers and authority given to the fiduciary by the testator. There, the courts recognized that an attempt to displace the testator’s chosen executors based on the allegation that such executors had failed to fully inform the testator of the compensation that they would receive as executors was simply an attack on the testator’s choice of fiduciary that would trigger an in terrorem clause similar to the in terrorem provision in Merenstein.

The court in Merenstein, like the courts in the Cohn estate, recognized that fidelity to a testator’s intent warrants a fact-sensitive inquiry in enforcing terrorem clauses. Based on Merenstein and Cohn, it is clear that a beneficiary would be hard-pressed to claim that a limited administrator should supplant an executor in representing the estate in a litigation where the executor has no conflict, has not failed to act, and has not engaged in misconduct as executor, without triggering an in terrorem provision like that in Merenstein. Similarly, a beneficiary should understand that petitioning for a limited administrator to perform some estate administration task on the mere allegation that the executor has bias or hostility towards the beneficiary because of some events that occurred between the beneficiary and executor while the decedent was still alive is sure to be considered a challenge to the testator’s choice of fiduciary. Such a challenge will trigger an in terrorem clause like that in Merenstein. When faced with an in terrorem provision like that in Merenstein, a beneficiary must consider whether it is challenging the conduct of the fiduciary, or attacking the decedent’s choice of fiduciary. There is a difference, and it could mean a forfeiture.

It is easy to be cynical about the “pots and pans,” “tchotchkes,” and “junk” – – the property that is often divided in a contentious manner at the bitter end of an estate litigation, or sometimes forgotten after years of litigation. An ongoing dispute in one of my cases led me to reflect on a New York Times piece by Annie Correal, which explores a very personal account of the Great Migration through a discarded item of what estate lawyers might call “personalty” or “tangible personal property” – – a photo album. The photo album belonged to the late Etta Mae Taylor, and through good fortune, it caught the eye of a journalist before it could be collected by DSNY. The story is remarkable. While Etta Mae Taylor’s photo album may not be of tremendous pecuniary value, it is arguably a treasure of a different sort.

 

Etta Mae Taylor’s photo album may cause some reflection about our own personal effects, whether they are of pecuniary value, sentimental value, or both.  Ms. Taylor’s photo album is also an invitation to a mundane but perhaps useful discussion about tangible personal property in the law of trusts and estates.

 

What does “tangible personal property” mean? It depends. It generally means furniture, clothing, household goods, tools, jewelry, antiques, and other like personal effects. However, it can be up for interpretation. Quite often, wills and trusts dispose of personal effects with a general provision similar to the following:

 

I bequeath to Jane Doe all personal effects, household effects, automobiles, and other tangible personal property, whether located as at present at 40 Park Avenue, New York, NY, or elsewhere, at the time of my demise.

 

In an oft-cited case, the Surrogate’s Court held that cash in a safe deposit box did not fall within the definition of a tangible personal property in the face of the foregoing provision. As the Court explained “cash is not ordinarily thought of as ‘tangible personal property’ and here, under the familiar doctrine of ejusdem generis, the words ‘tangible personal property’ should be limited to property of the same or similar character as that described by the preceding words, to wit, personal effects, household effects and automobiles.”

 

What about a valuable stamp collection? Reggie Jackson’s rookie card? Fine art? Etc. . . Sometimes, the testator is detailed – – you will see a provision similar to the following:

 

I bequeath my jewelry, silverware, furs, leather goods, china, and any art to Jane Doe, if she shall survive me, and all my other tangible personal property shall be distributed to my children, in equal shares, or all to the survivor. If none of my children shall survive me or shall not desire any such property, I authorize my Executor to sell such property at such time or times, at such prices and on such terms as he or she shall deem advisable and to distribute the net proceeds of sale thereof as part of my residuary estate. However, my Executor shall be empowered to retain for the benefit of my children and any other family members any item of such property deemed to have a personal, a family or sentimental character such as pictures, memorabilia, keepsakes or the like, and he or she shall distribute such property among my children and any other family members at such time or times and in such proportions as he or she shall, in his or her sole and absolute discretion, deem advisable.

 

A fairly recent, and again, oft-cited and discussed decision of the Bronx County Surrogate’s Court, Estate of Rothschild, illustrates why specificity and clarity might avoid wasteful estate litigation. There, the petitioner received a bequest of tangible personal property pursuant to the following provision:

 

I give all of my tangible personal property (other than currency) including without limitation, wearing apparel, personal effects, jewelry, furniture, furnishings, pictures, paintings and other objects of art, silver, china, glassware and other household effects, books and automobiles to my wife, or if she does not survive me, to [the petitioner]. . .

 

The petitioner maintained that the decedent’s collections of stamps, platinum, gold, and silver coins (worth millions of dollars) passed to her under the foregoing provision as “tangible personal property.” Petitioner relied on a New York case, where the court held that collections of medallions, stamps and coins were “tangible personal property.”

 

The Bronx County Surrogate’s Court ruled against the petitioner, holding that the decedent’s collections were not items of “tangible personal property” that passed to the petitioner, but rather were residuary assets. The Court explained that “tangible personal property” is generally understood and construed “as being limited to tangible property having an intimate relation to the testator and ordinarily used by him.” It distinguished the principal case that petitioner relied upon – – in that case there was a disposition of tangible personal property “of every kind” (expansive language), while the foregoing will provision contained the language “and other household effects” (limiting language). The Court held that the tangible personal property identified in the will did not embrace items beyond the kind of household effects that the decedent used on a daily basis, and that the decedent’s collections were of a different character of property.

 

Notably, the disposition of valuable tangible personal property of the kind encountered in Rothschild could have a drastic effect on estate tax apportionment in a taxable estate. If the will directs against apportionment, and provides that estate tax is to paid from decedent’s residuary estate, and a tremendously valuable tangible item is disposed of as a pre-residuary bequest of “tangible personal property” (perhaps contrary to decedent’s true wishes), the residuary estate could be significantly depleted by estate tax, perhaps even leading to an interrelated computation.   The tax allocation clause can sometimes be a very important provision in a will – – as illustrated in another blog post – – and perhaps in further blog posts.

This is a common question from clients involved in litigation – – especially estate litigation. As a general rule, a party cannot recover attorney’s fees for successfully prosecuting or defending a lawsuit. This is the “American Rule,” and it is engrained in our legal system. New York courts are wary of deviating from the American Rule, and will only do so under certain circumstances, such as (1) where the dispute litigated arises out of a contract, and the contract expressly provides for recovery of attorney’s fees; or, (2) where an applicable statute or rule expressly and unambiguously permits recovery of attorney’s fees.

Award of Legal Fees Pursuant to Contract

Sometimes, parties to a contract will agree that the “prevailing party” to any litigation arising out of the contract may recover legal fees incurred in the litigation. This begs the question – – what does “prevailing party” mean? The courts have defined a “prevailing party” as the party that succeeded on the central relief sought, or prevailed on the central claims advanced and received a substantial remedy.

Once the court identifies the “prevailing party” it will fix the legal fee. The attorneys for the “prevailing party” will apply for an award of fees and the court will permit recovery of a reasonable legal fee after considering several factors. Some courts have held that the most important factor in fixing the reasonable legal fee of a “prevailing party” is the “degree of success obtained.”  It follows that a “prevailing party” who achieved only modest success on its claims advanced and relief sought should not recover the same measure of legal fees as a prevailing party who achieved total victory on all claims advanced and requests for relief.

In deference to the American Rule, the courts narrowly construe contracts that provide for recovery of legal fees. In some cases, attorneys have attempted to recover attorney’s fees for their time and effort in making an application for an award of fees. However, the courts have made it clear that legal fees for time and effort incurred in making a legal fee application will not be awarded absent unmistakably clear language in the contract permitting recovery of same.  

Award of Legal Fees Pursuant to Statute

There are statutes in various contexts that provide for an award of attorney’s fees. Like contractual fee shifting provisions, such statutes have been narrowly construed.

With respect to estates and trusts, the fiduciary stands in a unique position. The fiduciary who incurs legal fees in discharging his or her fiduciary responsibilities may pay such fees from the estate (to the extent that they are reasonable and always subject to court review). For example, a nominated executor generally may pay legal fees incurred in seeking the probate of the decedent’s will from the decedent’s estate. Legal fees incurred by an executor or trustee who files a formal judicial accounting with the court seeking approval and discharge, and litigates over objections in the accounting proceeding, are also generally a proper charge to the estate. The Surrogate’s Court considers the following factors in fixing a fiduciary’s attorney’s fees: (1) the time and labor required; (2) the difficulty of the questions involved, and the skill required to handle the problems presented; (3) the lawyer’s experience, ability and reputation; (4) the amount involved and benefit resulting to the client from the services; (5) the customary fee charged by the Bar for similar services; (6) the contingency or certainty of compensation; (7) the results obtained; and, (8) the responsibility involved.

In certain litigations, where a beneficiary’s attorney brings a benefit to the estate, the Surrogate’s Court may grant an award of fees from the estate.

Moreover, as my colleagues, and others, have observed, in certain instances, the Surrogate’s Court may direct the source of payment of legal fees of the fiduciary to beneficiaries or distributees depending on several factors, namely: (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. Thus, where one beneficiary objects to a fiduciary’s administration of the estate, and those objections are without merit, the legal fees incurred in connection with defending such objections may be charged against the objecting beneficiary’s share of the estate.

Mental Hygiene Law Article 81 governs guardianships, and allows for a petitioner’s legal fees to be paid from the assets of the incapacitated person where the petitioner secures the appointment of a guardian for an incapacitated person or otherwise brings a benefit to the incapacitated person (MHL 81.16 [f]). It further allows reasonable legal fees incurred by a movant who succeeds in removing a guardian for cause (MHL 81.35). Further, it permits charging a petitioner with the attorney’s fees incurred by court-appointed counsel for an alleged incapacitated person where the petition is dismissed or withdrawn (MHL 81.10[f]). Like all statutory provisions that provide for an award of legal fees, these provisions are narrowly construed. For example, MHL 81.10 [f] only allows recovery of legal fees of court-appointed counsel for an alleged incapacitated person; the courts have rejected an expansive view of Mental Hygiene Law 81.10 [f] to allow recovery of the legal fees of an alleged incapacitated person’s retained counsel.

Finally, the courts will sometimes shift attorney’s fees and costs as a sanction for frivolous litigation conduct.  Allegations of frivolous litigation conduct have become common to the point of being meaningless – – it has become the standard practice for some attorneys to seek sanctions against parties and attorneys who disagree in good faith on a point of law, or who dare to adduce evidence in defense of a cause of action that contradicts or refutes the allegations forming the basis of that cause of action. However, the courts will occasionally shift fees for truly frivolous litigation conduct.

In a decision that could well cause even the most casual trusts and estates practitioners to scratch their proverbial heads in wonder, the Appellate Division, Third Department, in Matter of Buchting, 111 AD3d 1114, 975 NYS2d 794 (3d Dept 2013), recently affirmed the determination of the Surrogate’s Court, Greene County, dismissing a “due execution” objection to probate, notwithstanding that both attesting witnesses invoked their Fifth Amendment rights against self-incrimination and refused to testify at their SCPA 1404 examination concerning the execution of the will, and notwithstanding that the Surrogate determined that summary judgment was improper because of “conflicts in the evidence.”

The petitioner in Buchting was the surviving spouse of decedent, who offered his will for probate shortly after his death.  The respondents were the decedent’s surviving children from a previous marriage. The attorney draftsman of the will (also the attorney who supervised its execution) testified at his SCPA 1404 examination in detail concerning the due execution of the will.  The two attesting witnesses were also called, but upon taking the stand, refused to testify, invoking their Fifth Amendment rights against self-incrimination.

The respondents objected to probate on the grounds of lack of due execution, lack of testamentary capacity, and undue influence.  They moved to dismiss the petition based upon the petitioner’s failure to establish due execution.  The petitioner cross-moved for summary judgment admitting the will to probate.  It appears from the Appellate Division’s decision that the Surrogate denied both motions, determining that summary judgment was improper because of “conflicts in the evidence,” but nevertheless dismissed the respondents’ objections and admitted the will to probate.

On appeal, the Appellate Division first concluded that the Surrogate properly denied the respondents’ motion to dismiss the petition because the petitioner complied with the requirement, imposed by SCPA 1404(1), that she produce the attesting witnesses for examination.  The court rejected the respondents’ argument that an attesting witness who invokes the privilege against self-incrimination and refuses to testify has not been “examined” within the meaning of section 1404.  It relied upon its prior decision in Matter of Hutchinson, 13 AD3d 704 (3d Dept 2004), in which it held that an attesting witness’ invocation of the Fifth Amendment “is akin to a failure to recall the events surrounding a will’s execution” (see id.).  It further noted that a will may be admitted to probate even where no attesting witness recalls it execution.  While the law requires the examination of at least one attesting witness, it imposes no requirements upon the substance of the testimony.

The issue, according to the court, “thus distills to whether there was sufficient other evidence to establish a prima facie case of due execution, and we find that there was.”  In this regard, the court relied exclusively on the testimony of the attorney draftsman and the presumption of due execution that resulted from the attorney’s supervision of the will’s execution.  The court determined that, in light of this presumption, the respondents had the burden to come forward with evidence contradicting the testimony of the supervising attorney.  It further determined that the respondents failed to meet their burden, notwithstanding that they “challenge[d] the veracity of the supervising attorney and argue[d], based upon various minor irregularities in the documents that she drafted, that she was unfamiliar with the necessary procedure. . . .”  Thus, according to the Appellate Division, the Surrogate properly denied the respondent’s motion to dismiss the petition and dismissed the due execution objection. 

Notably, the court stated that “to preclude the probate of a will as a matter of law because both attesting witnesses refuse to testify on constitutional grounds would come perilously close to drawing a prohibited inference from the invocation of the privilege by nonparties” (id.).

The court held that the Surrogate erred, however, in dismissing the remaining objections, grounded in testamentary capacity and undue influence, particularly prior to discovery.

A few thoughts on the Buchting decision. 

First, it seems fundamentally unfair to saddle an objectant with the burden to come forward with evidence to rebut a supervising attorney’s testimony concerning the due execution of a will in order to survive summary judgment where both attesting witnesses — likely the only other persons in the room with the decedent – refuse to testify for fear of self-incrimination.  It is difficult to imagine how an objectant could ever meet that burden.  Forgive me for stating the obvious, but it seems plain that the mere fact that both attesting witnesses have invoked the Fifth Amendment in order to avoid testifying concerning a will’s execution should itself be sufficient to justify further proceedings before admitting the will to probate.  The decision in Buchting essentially ignores that a court is obligated by statute to “inquire particularly into all the facts” in order to satisfy itself “with the genuineness of the will and the validity of its execution” (SCPA 1408).

Second, the court’s decision is grounded in its determination that a witness who has refused to testify concerning the execution of a will for fear of self-incrimination is “akin” to a witness who fails to recall the execution.  However, the decision reveals no substantial authority for that comparison.  The Buchting court cites only Hutchinson as authority — but this is a chain without an anchor, as the Hutchinson court cites no authority (see 13 AD3d at 707 [“In our view, the submission of conflicting affidavits followed by a refusal to testify falls more closely in line with a witness who has ‘forgotten the occurrence’”]).  Another statement of the obvious — failing to recall a will’s execution and refusing to testify concerning the execution for fear of self-incrimination are very different things. 

Third, in order to conclude that the petitioner satisfied SCPA 1405(3) – which requires, as a condition for probate, the “examination” of at least one attesting witness – the court essentially determined that a witness who invokes the privilege against self-incrimination and refuses to testify has nevertheless been “examined.”  However, this seems to be in conflict with the Court of Appeals’ statement in Matter of Collins that, historically, the requirement that a witness be “examined” was “fulfilled when the witnesses took the stand and related what they knew of the circumstances” (60 NY2d 466, 471 n.3 [1983]).  Collins provides no authority for the proposition that a witness who refuses to testify altogether has nevertheless been “examined.”   

Fourth, even assuming a non-testifying witness could be deemed to be “examined” within the ambit of section 1405(3), that section requires actual testimony before a will may be admitted to probate.  It provides that where an attesting witness “has forgotten the occurrence or testifies against the execution of the will” the will may nevertheless be admitted to probate “on the testimony of the other witness and such other facts as would be sufficient to prove the will.”  But where the “other witness” invokes the Fifth Amendment, there is no testimony upon which to admit the will to probate.

Fifth, the court’s determination could well put a petitioner whose witnesses refuse to testify for fear of self-incrimination in a better position that a petitioner whose witnesses actually testify against the will.  A grant of summary judgment admitting a will to probate may be inappropriate where one attesting witness testifies against the will, even where the other witness and the supervising attorney testify favorably (see generally Matter of Jacinto, 172 AD2d 664 [2d Dept 1991]).  Why should the result be different where a witness – indeed, where both witnesses – refuses to testify concerning the execution of the will for fear of self-incrimination? 

Sixth, the presumption of regularity should not permit a court to turn a blind eye to facts calling into question a will’s validity.  A court should not employ a presumption where to do so would “elevate a legal construct above common sense” (People v Giordano, 87 NY2d 441 [1995]).  Even the presumption of legitimacy, “one of the strongest and most persuasive known to the law,” will fail if, in the words of Judge Cardozo, “common sense and reason are outraged by a holding that it abides” (Matter of Findlay, 253 NY 1 [1930]).  Depriving an objectant of a trial on the basis of the presumption of regularity, where both attesting witnesses refuse to testify concerning the execution of the will for fear of self-incrimination, offends both common sense and reason.

Of course, courts should resist the “temptation to overlook or ignore fixed legal principles when they are opposed to persuasive equities” because, as the ancient legal proverb teaches, “hard cases make bad law” (Dodd v Anderson, 197 NY 466, 469 [1910]).  However, “it might also be safely said that the occasional easy case makes law that is even worse” (People v Ramos, 40 NY2d 610, 628 [1976] [Jasen, dissenting]).  By placing undue reliance upon the presumption of regularity in order to deprive an objectant of a trial, in the face of facts calling into question the validity of the will, the court in Buchting made the case too easy, and established a troubling precedent.

Although summary judgment in a contested probate proceeding historically has been rare, the recent trend has been for Surrogate’s Courts to grant such relief with increasing frequency.  Consistent with that recent trend, Surrogate’s Courts have granted summary judgment dismissing probate objections alleging that a testator lacked testamentary capacity, notwithstanding the testator’s diagnosis of dementia before executing the propounded will.  This post discusses several cases in which a testator’s diagnosis of dementia prior to executing the propounded will was insufficient to raise a triable issue of fact to withstand summary judgment dismissing a capacity objection.

The threshold for establishing testamentary capacity is extraordinarily low (see Matter of Rabbit, 21 Misc 3d 1118[A] [Sur Ct, Kings County 2008]).  This is because the capacity that is necessary to execute a valid will is less than that which is required for any other legal transaction (see id.).  All that is necessary is that a testator: (a) understand the nature and consequences of making a will; (b) know the nature and extent of his or her property; and (c) know the natural objects of his or her bounty and relations with them (see Matter of Kumstar, 66 NY2d 691 [1985]). 

Additionally, as a testator’s mental capacity must be assessed at the precise time of the instrument’s execution (see Matter of Schure, 2012 NY Misc LEXIS 5755 [Sur Ct, Nassau County Dec. 17, 2012]), a testator need only have a “lucid interval” of capacity to execute a valid will (see Matter of Minasian, 149 AD2d 511 [2d Dept 1989]).  Indeed, courts have found that testators had testamentary capacity, even though the testators were afflicted with ongoing mental illness (see Matter of Esberg, 215 AD2d 655 [2d Dept 1995]), progressive dementia (see Matter of Friedman, 26 AD3d 723 [3d Dept 2006]), and physical weakness (see Matter of Swain, 125 AD2d 574 [2d Dept 1986]).  As a result, it should come as no surprise that Surrogate’s Courts have granted summary judgment dismissing capacity objections, despite that the subject testators were diagnosed with dementia before they executed testamentary instruments. 

Case in point, in Matter of Schure (a case in which Farrell Fritz, P.C. represented the proponent of the testator’s will), the testator’s children opposed the proponent’s motion for summary judgment, alleging that a trial was necessary on the issue of capacity because the testator had been diagnosed with dementia several years before he executed the propounded instrument (see Schure, supra).  Nassau County Surrogate Edward W. McCarty, III, did not credit the objectants’ argument and, instead, granted summary judgment dismissing the capacity objection, among all of the other objections (see id.) In admitting the testator’s will, dated December 21, 2005, to probate, Surrogate McCarty cited the following evidence: (a) in July 2005, the testator called the propounded instrument’s attorney-draftsperson and made an appointment to discuss his estate planning; (b) in July 2005, the testator met with the attorney-draftsperson and his associate to discuss his estate planning and family; (c) in late-November 2005, the testator once again met with the attorney-draftsperson, his associate, and another colleague from their firm to discuss the terms of the testator’s will; (c) in early-December 2005, the testator met with one of his treating physicians, who made no notes in his file of the testator having psychological difficulties during their meeting and signed an affidavit stating that he would have noted such difficulties had he observed any; (d) on December 21, 2005, the testator executed the propounded will in the presence of the attorney-draftsperson, his associate, and another experienced trusts and estates practitioner; and (e) the attorneys attested to the fact that the testator was of sound mind at the time that he executed the will (see id.).     

Monroe County Surrogate Edmund A. Calvaruso’s decision in Matter of Petix is also instructive (see Matter of Petix, 15 Misc 3d 1140[A] [Sur Ct, Monroe County 2007]).  There, the testator died on April 29, 2005, just six months after executing his last will and testament on November 2, 2004 (see id.).  Inasmuch as the testator’s son was the nominated executor and sole beneficiary under the propounded will, the testator’s granddaughter, the daughter of his predeceased daughter, filed probate objections, alleging that the testator lacked testamentary capacity, among other things (see id.).  The bases for the capacity objection were the following: “a medical note by a Dr. Blackburn, dated 12/19/02, which stated that [the testator] was demented to the point where his driving was impaired;” and “two police reports, one where [the testator] had lost his car, and one where [the testator] had lost his wallet” (see id.). 

Notwithstanding the granddaughter’s proof that the testator had been diagnosed with dementia, Surrogate Calvaruso granted summary judgment dismissing the testamentary capacity objection (see id.).  In doing so, the court found that the granddaughter failed to offer proof to suggest that at any time on November 2, 2004, the date upon which the will was executed, the testator lacked capacity to make a will (see id.).  The court also noted that “a dementia diagnosis and lack of testamentary capacity are not one in the same” (see id.).  Accordingly, summary judgment dismissing the testamentary capacity objection was warranted (see id.).

To withstand a motion for summary judgment dismissing a capacity objection, a probate objectant generally will need to do more than show that a testator was diagnosed with dementia prior to executing the propounded will.  In light of Schure and Petix, among other decisions, a diagnosis of dementia may not be sufficient to raise a triable issue of fact to survive a motion for summary judgment on the issue of capacity.

 

 

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.