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.

Two recent decisions from the New York County Surrogate’s Court attempt to answer this question.  In Estate of Weisberg, decided on April 8, 2014, the court addressed the issue of marriage. Faced with competing petitions for letters of administration, the court was asked to find as a matter of law, that the cross-petitioner was the decedent’s wife and sole distributee of the decedent’s estate.  In Levien v Johnson, 2014 NY Slip Op 30995(U), decided on April 14, 2014, the court considered whether two adults adopted by the decedent’s grandchildren constituted “great-grandchildren” under the decedent’s will.  In both cases, the court was asked to find that these familial relationships existed as a matter of law. However, as these cases demonstrate, that is not always the case.

In Estate of Weisberg, the cross-petitioner moved for summary judgment for a determination that she was the decedent’s surviving spouse, and thus entitled to letters of administration. The movant made the following two arguments: (1) the court was bound by a judicial finding in Family Court that she and the decedent were married; and (2) she and the decedent were married in an Islamic ceremony which created a legal marriage under New York law.  The court was not persuaded by either position.

First, it declined to apply the doctrines of res judicata or collateral estoppel to the Family Court determination because that finding was not on the merits. Rather, it was an administrative action made solely for the purpose of assigning the matter to a referee. Indeed, because the parties reconciled, the Family Court never rendered any finding, either on the merits or as necessary to the relief sought, that the parties were married. Without that determination, the court was not bound by the Family Court’s determination, and it refused to consider it.

Regarding the validity of the Islamic ceremony, the court found that there was no material issue of fact that the petitioner and decedent participated in an Islamic marriage ceremony. The court noted, however, that it could not, as a matter of constitutional law, decide that the ceremony constituted a valid religious marriage ceremony. On the other hand, the court could consider whether that religious ceremony constituted a valid marriage under New York law.  However, it found that the movant’s proof in that regard was deficient because there was no evidence that the requirements for a valid marriage under the Domestic Relations Law were complied with; to wit, that the petitioner and decedent solemnly declared that they take each other as husband and wife, or that the Imam who performed the ceremony had the religious authority to do so. Thus, the court could not rule as a matter of law that the cross-petitioner was the decedent’s spouse.  

The issue in Levien was different, but raised an interesting question about familial relations in the estate context. The proceeding centered around a trust created under the decedent’s will which provided that upon the termination of the trust, distribution of the remainder would go to the decedent’s great-grandchildren per capita. Approximately  2½ years before the trust terminated by its terms, two of the decedent’s grandchildren (Stephen and Harlan) brought a proceeding to compel the trustees to invade the trust and make distributions to them from the trust principal to pay for ongoing medical expenses (they both suffered from muscular dystrophy).  That proceeding was resolved by a stipulation of settlement in July 2012, in which Stephen and Harlan agreed to relinquish all rights as beneficiaries of income and/or principal of the trust.  Three months later they each adopted an adult in Texas. They notified the trustees of the adoptions and sought to have those adopted adults declared the decedent’s great-grandchildren who were entitled to share in the remainder of the trust. It should come as no surprise that the trustees refused to recognize the adoptions, and they commenced a proceeding seeking a decree that the adopted children were not entitled to share in the trust. Interestingly, the trustees did not challenge the validity of the adoptions in the Surrogate’s Court proceeding.  They argued instead, among other grounds, that recognizing the adopted children as the decedent’s great-grandchildren would violate the terms of the decedent’s will and the decedent’s intent; that the adoptions were “unique and unforeseeable” which should have been disclosed during the settlement negotiations; and Stephen and Harlan were using the adoptions as a means to circumvent the settlement agreement.

In the end, the court rejected all of the trustees’ arguments.  On the issue of the decedent’s intent, the court stated that EPTL § 2-1.3(a) makes clear that the term “children” includes adopted children, unless the decedent “expresses a contrary intention.” The court then determined that there was nothing in the will indicating that the decedent intended for his great-grandchildren to be only those who were blood relations.  The court found that the will’s silence on the issue of adoption did not create an ambiguity. The court similarly rejected the trustees’ “unforeseeability” argument, given New York’s long-standing recognition of adoption as a means to create a parent-child relationship as a matter of law, and here, that the adoptions did not affect the rights of the remainder beneficiaries, but merely added to the class thereof.  Even if Stephen and Harlan had a duty to disclose the adoptions during the settlement negotiations, the court found that their failure to do so was not a basis for the court’s determination as to the status of the adopted children as remainder beneficiaries under the trust.

Rejecting the “sham adoption” argument, the court found that to the extent the trustees were claiming that the adoptions resulted from fraud, they needed to address that in the Texas courts. Unless and until that issue is determined in Texas, the court would give full faith and credit to the Texas adoptions. Furthermore, it found that the only way in which the adoptions would circumvent the settlement agreement, thereby paving the way for Stephen and Harlan to share in the assets of the decedent’s estate, is if their adopted children voluntarily share those assets with them, which the court was powerless to prevent.