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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.

In Matter of Brigati, Surrogate Czygier of Suffolk County addressed an application to reform the decedent’s life insurance trust, which contained a significant amount of insurance. The instrument contained a number of terms which could cause inclusion in the decedent’s gross estate. Among other things, it provided that upon the death of the Grantor, the life insurance policy proceeds should be distributed to the Grantor’s executor “so he may pay any estate, inheritance, transfer, succession or death taxes.” 

The court had before it an affidavit from the Trust draftsman indicating that he knew the Grantor for a number of years and the purpose of the Trust was to exclude assets from his taxable estate. On top of that, the instrument itself had an article entitled “Overriding Tax Purpose,” which specifically stated that the purpose of the Trust was to exclude the life insurance proceeds from the Grantor’s gross estate for federal estate tax purposes. 

The court, reciting the general law allowing it to correct mistakes, and relying heavily on the clearly stated purpose of the Trust instrument, allowed reformation to replace the erroneous language with substitute language which would carry out the purpose of the Trust. 

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. 

This is my third “dog pun” post in as many years. 

If you’ve read this blog since its inception, or have merely been sniffing through the archives, then know that real estate heiress Leona Helmsley left $12 million in her will in trust for her four-legged friend, Trouble. She also created a charitable trust valued at between $5-8 billion. In a two-page mission statement, she expressed her desire that the trust funds be used for the care and welfare of dogs. 

In my post dated December 31, 2008 — titled “Leona’s Wishes May Be Thrown To The Dogs” — I opined that a court might construe the mission statement as constituting merely a precatory request, not a mandatory directive. On February 26, 2009, in my post titled “A Sop For Cerberus”, I reported that in an “advice and direction” proceeding, New York County Surrogate Troy Webber had indeed decided that Ms. Helmsley’s trustees had the discretion to distribute the funds to charities as they saw fit, not just to canine causes.

Not content to let sleeping dogs lie, however, four animal welfare charities sought to intervene in the proceeding after the fact and vacate the court’s decision. They argued to the court that their causes were insufficiently protected by the New York State Attorney General and that they should have an opportunity to be heard in the matter. However, in a Decision and Order dated April 15, 2011, Surrogate Nora Anderson denied their application.

Essentially, the court found no reason to depart from the general rule that possible trust beneficiaries or members of a class of possible beneficiaries do not have standing to participate in court proceedings to enforce the provisions of the trust. The court also rejected the proposed intervenors’ argument that they fell within a narrow exception to that general principle, affording standing to a particular group with a special interest in funds held for a charitable purpose. Instead, as the court explained, by statute the Attorney General is conferred with the authority to represent all possible unnamed charitable beneficiaries. Further, the court rejected the charities’ argument that the Attorney General failed to doggedly protect their interests.

 This decision will no doubt leave the proposed charitable intervenors a bit dog-eared. But it appropriately — and thankfully (I’m all out of dog puns) — brings closure to a nearly 25-year-old saga (in dog years, of course: http://www.onlineconversion.com/dogyears.htm).

The recent entry by Jaclene D’Agostino addressed the issue of constructive trusts. From that, we learned that a constructive trust is characterized by four elements: (1) a confidential or fiduciary relationship; (2) a promise; (3) a transfer in reliance thereon; and (4) unjust enrichment. While not an express trust in kind, a constructive trust is an equally useful device created by operation of law in order to promote equity. Although the Court of Appeals in Latham v. Father Devine, 299 NY 22 (1949) and Matter of O’Hara’s Will, 95 NY 403 (1884), cited by Ms. D’Agostino in her article, imposed a constructive trust under the circumstances presented, the Surrogate’s Court, Suffolk County in Dext v. Rorech III, Individually and as Executor of the Estate of William Rorech, Jr., NYLJ, 2/18/11, p.33 (col. 5) rejected that result for reasons explained below.

Before the court in Dext was a motion for summary judgment brought by the fiduciary in an action concerning the parties’ rights with respect to the decedent’s realty. The decedent’s Will was admitted to probate in Florida, and his son was appointed fiduciary of his estate. Thereafter, the fiduciary was appointed ancillary executor of the decedent’s estate in order to pursue an eviction in connection with the decedent’s home in Smithtown. The fiduciary alleged that the resident at the premises had been residing there rent-free for over a year since the decedent’s death.

Subsequently, the resident instituted an action, as plaintiff, in Supreme Court against the fiduciary alleging, inter alia, a cause of action in constructive trust, and requesting that she be given a life estate in the property. An answer was filed, and the fiduciary then moved for summary relief alleging, inter alia, that the decedent was the sole owner of the property, that there was no provision in the Will for plaintiff, that there was no written instrument evidencing the plaintiff’s right to occupy the premises, and that there was no proof of the promise(s) alleged. In opposition to the motion, plaintiff maintained that there were triable issues of fact as to whether the decedent had made an oral promise to plaintiff of a life estate in the premises, and, that there was part performance of same when decedent had plaintiff relocate from her home in Montauk to the Smithtown property. Further, plaintiff submitted her signed affidavit to support her claims, naming a number of witnesses who would testify on her behalf. The fiduciary replied.

 In the interim, the action was transferred to the Surrogate’s Court pursuant to a so-ordered stipulation of the parties.

In granting the fiduciary’s motion for summary judgment, the court opined that in order to establish a claim for constructive trust four elements must be proven: 1) a confidential or fiduciary relationship between the parties; 2) a promise; 3) a transfer in reliance on the promise, and 4) unjust enrichment. Although the court noted that plaintiff had a close, confidential relationship with the decedent, it found that plaintiff had failed to prove the other required elements of a constructive trust.

Significantly, the court found that plaintiff would be the primary witness in support of her claim, inasmuch as she failed to oppose the defendant fiduciary’s contention that these witnesses expressed no knowledge of the purported promise to plaintiff by the decedent. Further, the court noted that although plaintiff alleged that she had other witnesses to testify on her behalf, she failed to offer any proof regarding these witnesses other than her own self-serving affidavit. Additionally, the court opined that plaintiff’s contention that she gave up her home in Montauk based upon the decedent’s alleged promise was insufficient to demonstrate a transfer in reliance or unjust enrichment.

 Finally, the court held that plaintiff’s theory based upon part performance of an oral contract to give plaintiff a life estate also failed, on the grounds that her move from her Montauk home could not reasonably be viewed as unequivocally referable to the alleged agreement she had with the decedent.

Hence, it can be seen from the foregoing, that while a cause of action based in constructive trust may be a useful tool in obtaining equitable relief, the failure to prove the requisite elements thereof can prove fatal in some circumstances.

Most simply explained, a constructive trust is an equitable remedy imposed to prevent unjust enrichment (see Simonds v Simonds, 45 NY2d 233, 242 [1978]; Sharp v Kosmalski, 40 NY2d 119 [1976]). According to the Court of Appeals, the constructive trust is “the formula through which the conscience of equity finds expression. Where property has been acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee” (Beatty v Guggenheim Exploration Co., 225 NY 380, 386 [1919]). 

It is an amorphous doctrine, as the constructive trust is “not limited by rigid definition and its very purpose requires flexibility in its application” (In re Alpert, 9 Misc 3d 1102[A], *10). It therefore follows that the constructive trust “has been famously described as a remedy applicable to ‘whatever knavery human ingenuity can invent’” (In re Alpert, 9 Misc 3d at *7 [Sur Ct, New York County 2005], quoting Bogert, Trusts and Trustees Sec. 471 at 29 [2d ed rev]). In fact, it is of such broad scope that attempted precise definitions have been deemed inadequate (see Simonds v Simonds, 45 NY2d 233, 241 [1978]).

 

Even applicable in the case of an innocent donee, no wrongful act is necessary to find unjust enrichment warranting the imposition of a constructive trust. However, in the case of a bona fide purchaser, he or she takes property free of a constructive trust that would otherwise be imposed (5 Scott, Trusts [3d ed] sec.468).

 

A constructive trust “is perhaps more different from an express trust than it is similar”, in that “the constructive trustee is not compelled to convey the property because he is a constructive trustee; it is because he can be compelled to convey that he is a constructive trustee” (Simonds v Simonds, 45 NY2d 233, 241 [1978], relying on 5 Scott, Trusts [3d ed], sec. 461-462]). Generally, the following elements must be established to state a claim for this type of relief: (1) a confidential or fiduciary relation; (2) a promise; (3) a transfer in reliance thereon; and (4) unjust enrichment (see Sharp v Kosmalski, 40 NY2d 119, 121 [1976]). Nonetheless, unlike most causes of action, courts do not require strict satisfaction of each element, but rather use them more as flexible considerations (Lester v Zimmer, 147 AD2d 340, 341 [3d Dept 1989]). 

           

Courts most often impose constructive trusts where traditional remedies prove inadequate or unavailable.   Perhaps most illustrative in the context of trusts and estates is the landmark case of Latham v Father Divine, 299 NY 22 (1949), where the facts seemed appropriate for a claim for tortious interference with wills, a cause of action that is not recognized by New York law (see Restatement (Second) of Torts §774B [1979-2010], citing Vogt v Witmeyer, 87 NY2d 998, 999 [1996]). 

 

In Latham, the decedent had executed a will, but later expressed a desire to create a new testamentary instrument to contain bequests to other individuals.  However, due to fraud, undue influence, and ultimately murder committed by the defendant, the decedent was prevented from executing her new will.

 

As is often the case where a constructive trust proves to be the appropriate remedy, the Court of Appeals recognized that there was no precedent precisely on point to address the facts presented. But the Court relied upon other well-respected authorities and explained that “[w]here a devisee or legatee under a will already executed prevents the testator by fraud, duress or undue influence from revoking the will and executing a new will in favor of another or from making a codicil, so that the testator dies leaving the original will in force, the devisee or legatee holds the property thus acquired upon a constructive trust for the intended devisee or legatee” (Latham v Father Divine, 299 NY 22 , 26 [1949]).

 

In light of that rule, along with other analogous Court of Appeals decisions, the Court held that the imposition of a constructive trust was appropriate, as “its applicability is limited only by the inventiveness of men who find new ways to enrich themselves unjustly by grasping what should not belong to them” (299 NY at 27). The Court further stated that “a constructive trust will be erected whenever necessary to satisfy the demands of justice” (see id.). 

 

In coming to its conclusion, the Court cited Matter of O’Hara’s Will, 95 NY 403 (1884), noting that the plaintiffs in that case successfully obtained a constructive trust in their favor, notwithstanding the fact that “disappointed hopes and unrealized expectations were all that the secretly intended beneficiaries, not named in the will, had,” as well as Williams v Fitch, 18 NY 546 (1859), in which the fraud “consisted of the legatee’s failure or refusal to carry out the testator’s designs, after tacitly or expressly promising so to do” (see Latham, 299 NY at 27).   Notably, in Latham, there was no discussion of a fiduciary or confidential relationship, one of the elements generally considered in determining the appropriateness of imposing a constructive trust.

 

In sum, the constructive trust is a remedy that may be applied in a variety of situations where equity demands, despite the feasibility of strictly satisfying its elements, and should be kept in mind as a potential claim to correct a wrong that may not fit squarely within any other cause of action.

           

A notable decision has been rendered by the Second Department, dismissing a trust rescission action as a result of Plaintiff’s failure to join certain remainderpersons and charitable beneficiaries as parties.

In Estate of Nowitz v. Nowtiz, 2009 NY Slip Op 06660 (2d Dept 2009), the Decedent had commenced an action during his lifetime to rescind an irrevocable trust agreement without the consent of the trustee. After a jury trial entering a judgment in favor of the Plaintiff’s Decedent, the Defendant appealed seeking a dismissal for failure to join necessary parties and the expiration of the statute of limitations. The Second Department remitted the case to the Supreme Court for a determination (see Estate of Nowitz v. Nowtiz, 37 AD3d 788 [2d Dept 2007]).

According to the lower court, one of the remainderpersons and two of the charitable beneficiaries had waived any appearance on the matter. It further opined that plaintiff’s failure to join the remaining four beneficiaries was excusable due to their notice of the action before it proceeded to trial, and failure to intervene (Estate of Nowitz v. Nowtiz, 2009 NY Slip Op 066600 [2d Dept 2009]).

Relying on CPLR 1001(b), the Appellate Division reversed. It explained that according to statute, courts may excuse failure to join a necessary party upon consideration of five factors:

·        Whether there exists another remedy for the petitioner if the action is dismissed due to nonjoinder;

·        The prejudice to the party who has not been joined;

·        Whether and by whom prejudice may have been, or may in the future be, avoided;

·        Whether a protective provision in the judgment is feasible; and

·        Whether an effective judgment may be rendered in the absence of the party that was not joined (see CPLR 1001[b]).

Although the Court recognized that the first factor was in favor of excusing the nonjoinder because the plaintiff had no other effective remedy, it determined that a consideration of the remaining factors weighed against proceeding in the absence of the beneficiaries that had not been joined (Estate of Nowitz v. Nowtiz, 2009 NY Slip Op 066600). 

Specifically, in light of the second and third factors, the Court held that the beneficiaries would be greatly prejudiced if the trust were rescinded without their participation in the action, and that the plaintiff could have avoided prejudice to the beneficiaries by timely joining them as defendants. The Appellate Division rejected the Supreme Court’s conclusion that the nonjoinder was excusable because the beneficiaries could have avoided any prejudice by seeking to interve; instead holding that this fact was outweighed by the absence of a reasonable excuse for failure to join (id.).  

In contemplating the forth CPLR 1001(b) factor, the Court opined that the facts were not in favor of proceeding in the absence of beneficiaries; a protective provision in an ultimate judgment was not feasible because rescission of the trust would directly affect their economic interests. Finally, the Court held that the efficacy of a judgment would be questionable without the participation of the beneficiaries who had not been joined, thus rendering the fifth factor against nonjoinder as well (id.).

Because four of the five CPLR 1001(b) factors weighed against proceeding without those who had not been joined in the action, the Appellate Division held that these beneficiaries were indispensible parties. Coupling this with the fact that the applicable statute of limitations had expired, the Court dismissed the action (id.).

 

The foregoing serves as a caveat to trust and estate litigators, emphasizing the importance of joining all beneficiaries in a proceeding. Although dismissal is never desirable for the petitioner or plaintiff, a dismissal predicated on failure to join an indispensible party is especially unpleasant considering the ease of avoiding such a result. Indeed, where the CPLR 1001(b) factors render a party to be necessary, a beneficiary’s failure to intervene upon notice of the proceeding is no excuse. Inclusion of all indispensable parties is the responsibility of the party commencing the action. 

In terrorem provisions, which are more commonly known as “no contest” clauses, generally state that beneficiaries forfeit their interests in estates and trusts by contesting the validity of the governing instruments (see Matter of Kalikow, 23 Misc3d 1107[A], at *2 [Sur Ct, Nassau County 2009] [discussing in terrorem clauses]). While strictly construed, such clauses are enforceable in New York (Matter of Ellis, 252 AD2d 118, 127-28 [2d Dept 1998]). They serve several important purposes, such as preventing challenges to wills which might result in trials, jeopardize the testator or grantor’s testamentary or inter vivos plans, or harass other beneficiaries (Matter of Singer, 17 Misc3d 365, 370 [Sur Ct, Kings County], aff’d, 52 AD3d 612 [2d Dept 2008], leave granted, 11 NY3d 716 [2009]; Tumminello v Bolten, 59 AD3d 727, 728 [2d Dept 2009]). 

In Shamash v Stark, Surrogate Kristin Booth Glen of the Surrogate’s Court, New York County, recently addressed an issue of first impression in New York (Shamash v Stark, NYLJ, 6/16/2009, at 38, col. 2 [Sur Ct, New York County]). The issue was whether will and trust contests in Florida, where no contest clauses are void as against public policy (F.S.A. § 732.517), triggered an in terrorem clause contained in a New York trust instrument (Shamash, supra).[1] 
 

In Shamash, the decedent’s revocable trust, which was governed by New York law, provided that any beneficiary who contested his will or trust would forfeit his or her interest in the trust (id.).  After contesting the will and trust in Florida, the petitioner commenced an accounting and removal proceeding with respect to the trust in the New York Surrogate’s Court (id.). The respondents moved to dismiss the Surrogate’s Court proceeding, arguing that the petitioner was not a beneficiary of the trust estate, and therefore lacked standing to maintain the proceeding, because he had triggered the trust’s in terrorem clause by contesting the will and trust in Florida (id.). In opposition, the petitioner asserted, among other things, that he did not trigger the in terrorem clause because no contest clauses are void under Florida law (id.).

 

The Surrogate’s Court dismissed the petition, holding that the petitioner lacked standing to seek an accounting or removal with respect to the trust (id.). The court reasoned that: (1) the trust is governed by New York law; (2) in terrorem clauses are enforceable in New York; and (3) the petitioner triggered the trust’s in terrorem clause by contesting the decedent’s will and trust in Florida (id.). The fact that no contest clauses are void as against public policy in Florida was immaterial (id.).

           

The lesson to take away from Shamash is that the contest of a will or trust in another state, where in terrorem clauses are not enforceable, may trigger such a clause in a New York instrument and result in the forfeiture of a beneficiary’s interest in the subject estate or trust.

 

 

[1]   This firm represented the respondents in the Surrogate’s Court proceeding.

New York law allows individuals to limit their liability to creditors by arranging their affairs in a manner that legally protects their assets. One of the ways this is accomplished is by “making irrevocable transfers of their assets, outright or in trust, as long as such transfers are not in fraud of existing creditors . . .” (Matter of the Joseph Heller Inter Vivos Trust, 613 Misc 2d 369 [Sur Ct, 1994]). The circumstances under which a trust’s assets will be validly protected are limited to the existence of specific parameters in the trust instrument.

According to EPTL §7-3.1, “[a] disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator.” In other words, an individual cannot transfer his or her assets to a trust and continue to retain control or enjoy the benefits of that trust, while simultaneously enjoying protection from creditors. Instead, transfers to irrevocable trusts will only be deemed valid for purposes of sheltering the assets from creditors where the grantor does not reserve a power to revoke the trusts or to dispose of the property during his lifetime, and where the transfers to the trust did not make the grantor insolvent (see Matter of Granwell, 20 NY2d 91 [1967]; Debtor Creditor Law §273). 

 

A transfer resulting in the grantor’s insolvency or one that is made while the grantor is already insolvent may be deemed a fraudulent conveyance (see Debtor Creditor Law §273). In such cases, the creditors may set aside conveyances and reach the assets. But if trust assets remain available for the grantor’s benefit, creditors need not establish fraud to invalidate the transfer (see Vanderbilt Credit Corp. v Chase Manhattan Bank, N.A., 100 AD2d 544 [2d Dept 1984]; Colgate v Guaranty Trust Co. of New York, 159 Misc 664, 666 [Sup Ct, New York County 1936]).   For example, in Vanderbilt Credit Corp. v Chase Manhattan Bank, N.A., 100 AD2d 544 (2d Dept 1984), the Appellate Division held that trust assets are not protected from creditors if the trustee has discretion to make payments to the grantor (see Vanderbilt Credit Corp. v Chase Manhattan Bank, N.A., 100 AD2d 544 [2d Dept 1984]). 

 

Not surprisingly, this concept extends beyond the life of the trust settlor and remains applicable to his or her estate. Indeed, courts recognize that where an individual reserves the power to dispose of trust property during his or her  lifetime, “he or she must be regarded as the absolute owner of the funds until death and those funds would be therefore available to pay estate debts” (Estate of Hughes, 3/20/2003 NYLJ 23 [col 2] [Sur Ct, Kings County], citing Matter of Granwell, 20 NY2d 91 [1967]; Matter of Batiste, 5/4/99 NYLJ 30 [col 6]).  Also notable is the fact that, "any property covered by a general power of appointment which is presently exercisable, or a postponed power which has become exercisable, is subject to creditors’ claims" (Estate of Chappell, 7/24/09 NYLJ 26 [col 1] [Sur Ct, New York County], citing EPTL §10-7.2). 

 

In light of the foregoing, it is clear that individuals may legally protect their assets from the claims of creditors, provided they are willing to forego the control and benefits of the funds and of course, do not transfer their assets fraudulently.

One of the great things about contributing to a legal blog is that you get to write about court decisions that, although not particularly noteworthy for the legal ground they break, are really entertaining to read. One such decision recently emanated from the United States District Court for the Southern District of New York. 

In Kennedy v. Trustees, Will of President John F. Kennedy, 08 Civ. 8889 (S.D.N.Y. June 19, 2009), Judge William H. Pauley III dismissed an action in which the plaintiff, John Fitzgerald Kennedy, alleged that he was the illegitimate son of the late President John F. Kennedy and Marilyn Monroe. Although not the basis for its dismissal of the action, the court noted that the plaintiff had no documentary evidence of his kinship claim, despite the fact that he attached a photograph of himself to his complaint, showing his resemblance to President Kennedy. And, in case you were wondering, the plaintiff’s name at birth was John Ruben Burton; he changed it in 1994. You really can’t make this stuff up.

The plaintiff’s initial complaint sought an order directing genetic testing of two members of the Kennedy family (Robert Fitzgerald Kennedy, Jr. and Congressman Patrick Joseph Kennedy) and, upon confirmation of his claim through such genetic testing, an order compelling the Trustees of the testamentary trust created under President Kennedy’s Last Will and Testament to “honor their fiduciary duties.”  The Trustees moved to dismiss the action, for lack of subject-matter jurisdiction and for failure to state a claim upon which relief can be granted. The plaintiff’s amended complaint, filed after the motion to dismiss was briefed and argued, dropped the claim for genetic testing, instead requested an order compelling the Trustees to investigate his claim of kinship and his entitlement to an inheritance.

The court dismissed the action because plaintiff’s claim, for breach of fiduciary duty, was legally insufficient. The court first considered whether the Trustees would owe the plaintiff a fiduciary duty if he were successful in establishing that he was in fact President Kennedy’s son.  In doing so, the court applied Massachusetts law, as President Kennedy was domiciled in Massachusetts at the time of his death, and section 3-5.1 of the New York Estates, Powers & Trusts Law provides that “[i]nterpretation of a testamentary disposition of personal property shall be made in accordance with the local law of the jurisdiction in which the testator was domiciled at the time the will was executed.” 

The court explained that prior to 1987, Massachusetts law provided that words as such as issue, children, and the like meant only children born of a lawful marriage, absent anything indicating a contrary intent (see Decision at 7 [quoting and citing Massachusetts authority]).  And the will at issue (executed long prior to 1987) contained nothing to suggest that President Kennedy intended to include non-marital children as beneficiaries.  Therefore, the court concluded, the plaintiff would not be entitled to inherit under the will even if he were able to prove that he was President Kennedy’s son. As the Trustees could not owe the plaintiff a fiduciary duty, the claim for a breach thereof was legally insufficient and subject to dismissal.

From the perspective of the trust and estate litigator, the court’s analysis of the probate exception to federal diversity jurisdiction warrants some discussion. The probate exception was once described as “one of the most mysterious and esoteric branches of the law of federal jurisdiction” (Dragan v. Miller, 679 F.2d 712, 713 [7th Cir. 1982]). A full discussion of the probate exception is beyond the scope of this blog entry, although you can click here for an article providing more information. Suffice it to say that the exception prohibits federal courts from “interfering with [a] probate proceedings or assum[ing] general jurisdiction of the probate or control of the property in the custody of the state court”(Marshall v. Marshall, 547 U.S. 293, 126 S. Ct. 1735, 1747 [2006]).

Judge Pauley analyzed the scope of the probate exception, determining that the plaintiff’s request for an order compelling the Trustees to investigate his kinship claim was not barred by the probate exception because it neither sought to have the court interference with a probate matter nor exercise control over a res in the custody of a state court (see Decision at 6). If such investigation ultimately established that that the plaintiff was President Kennedy’s son, however, the court would not be permitted to determine the plaintiff’s claim to his inheritance under the President’s will, as to do so would be to exercise control of a res in the custody of a state court (see id.).

While this case may not break any new legal ground, it is worth reading for the court’s analysis of the probate exception to federal diversity jurisdiction — always an interesting read for the estate litigator — and for pure entertainment value. Whoever said that life is stranger than fiction was right on the money.