New York Probate & Estate Litigation Blog

Court Of Appeals Warns Estate Planners To Beware

philaw@optonline.net (Philip Bernstein) — Sun, 18 Jul 2010 15:06:55 -0500

A decision of major importance concerning estate planning has come down from the New York State Court of Appeals. InThe Estate of Saul Schneider v. Victor M. Finmann N.Y.3d 2010 N.Y, Slip Op 05281 decided this past June 17th , the court held that the legal representative of a decedent stands in that person's shoes for the purpose of being able to maintain a malpractice action against the decedent's estate planner where improper advice or negligent estate planning has resulted in a loss. The court was clear in differentiating a claim by the estate's executor or administrator from a claim brought by a beneficiary of the estate.

The court based its findings on the concept of privity, or the relationship between the parties in a lawsuit which entitles one to sue. It made a clear distinction in the case of an executor who, for all intents and purposes, is the decedent him or herself for the purpose of winding up earthly affairs. The mere occurrence of death should not bar the decedent's legal representative from maintaining an action for malpractice which the decedent would have had in life. A beneficiary of the estate, however, never had the privity --or relationship-- with the estate planner which gives rise to the legal ability to maintain the lawsuit. Therefore, while estates will now be free to sue the estate planners for malpractice, the beneficiaries of the estates have not acquired this right.

This decision certainly is a red flag which warns us to take great pains in ascertaining that the advice and assistance we provide as estate planners is accurate. Keep in mind that the lawyer, accountant or planner who has enjoyed a long and warm relationship with a client who might tend to be forgiving when mistakes are made (or whose actual directions might have contributed to the very actions complained of at some later date) is no longer with us when the problem arises. His or her executors and administrators might be far less familiar, friendly and forgiving when the chickens come home to roost.

While New York Will Miss George Steinbrenner, Uncle Sam Will Miss His Money

philaw@optonline.net (Philip Bernstein) — Thu, 15 Jul 2010 22:36:48 -0500

The death of New York Yankee owner George Steinbrenner has created a void on our local sports scene which will be hard to fill. Even though your faithful lawblogger has been a fan of New York's other team since its founding in 1962 (and before that, I confess to being a New York baseball Giant fanatic), the "Boss" has been a colorful and charitably generous man who has provided us with years of excitement. Investing about seven million dollars of his own funds into a failing Yankee franchise when he purchased it in the early seventies, Steinbrenner built his fortune up to over 1.1 billion dollars at his death.

The Yankee organization and local fans are not the only ones who are sorry that Steinbrenner was not blessed with a longer life. His death in 2010 means that his estate will pay no taxes to the federal government. There will be no need to struggle with the ubiquitous and complex 706 estate form --or to file it together with a check in the neighborhood of half a billion dollars for the tax which would have been due had he lived into 2011 when the old tax rates of 55% of estates above one million dollars will once more become law.

As I have opined in the past, it looks for all the world as if the fed is simply allowing the old law to sunset and, by so doing, enact a "back door" tax increase without taking any action at all. Meanwhile a treasury which is literally starved for tax dollars is losing billions from the estates of wealthy individuals who die in 2010.

Fiduciary Ruled Not Required to Account For Transactions Prior to Decedent's Death

philaw@optonline.net (Philip Bernstein) — Mon, 12 Jul 2010 19:10:42 -0500

The Appellate Division, Second Department has recently ruled in favor of the dismissal of objections to an accounting in In Re Heino 901 N.Y.S.2d 671 which was originally decided by Surrogate Torres in Kings County. The Court noted that "the party submitting an account has the ultimate burden of demonstrating that he or she has fully accounted for all of the assets of the estate while the party submitting objections bears the burden of coming forward with evidence to establish that the account is inaccurate or incomplete , upon satisfaction of that showing the accounting party must prove by a fair preponderance of the evidence that his or her account is accurate and complete" Here, however, the petitioner was able to demonstrate that the transactions subject of the objections had actually taken place in the decedent's lifetime, nearly three years before he died. The executor's duty to preserve and account for the assets did not arise until the death of the decedent

Billionaire's Estate To Pay An Estate Tax Of Zero

philaw@optonline.net (Philip Bernstein) — Wed, 09 Jun 2010 07:42:22 -0500

The failure of this Congress to enact an extension and/or modification of the estate tax is underscored by the recent death of billionaire Dan Duncan, Houston's wealthiest citizen. Today's New York Times reports that Mr. Duncan , who passed away late this past March at the age of 77, had a net worth of about nine billion dollars. As most of you undoubtedly know, the estate tax which the cash-starved United States Treasury will collect from Mr. Duncan's estate is zero, nada, zilch!

No artful estate planning was needed to achieve this financial coup. The only thing Mr. Duncan had to do for his estate to avoid paying a nickel of tax to the federal government was to die this year, 2010, after the Bush estate tax laws sunsetted and were not replaced. The Times points out that had he died but three months earlier, his estate would have been subject to a 45% tax of its assets with a value in excess of three and a half million dollars. Had he survived to 2011, the old one million limits would have kicked in and his estate would have paid tax of 55% of its taxable assets over that amount.

Under the old law in effect when Mr. Duncan executed his last will in 2006, any amount which he would have left to his surviving spouse would have been tax exempt. In fact, he left his wife the family home together with several hundred million dollars of stock with the bulk of his estate going to his children and grandchildren. That said, his heirs would have paid several billion dollars of estate tax under either law, enough for a downpayment on a bailout, weapons system or to make a little dent in repaying the national debt. In any event, we don't have the money that an estate tax law would have generated and we still have the confusion that the lack of a law creates.

Petitioner Loses Her Standing --And Her Case

philaw@optonline.net (Philip Bernstein) — Sun, 06 Jun 2010 21:03:06 -0500

New York's Appellate Division recently affirmed a decision of Nassau County Surrogate John Riordan which disinherited the daughter of a decedent who had brought a petition to contest her father's will and for a construction of the residuary clause which left $221,000 to various charities. In the Matter of Bernstein 2007 NY Slip Op 04625, in addition to this charitable bequest, the sum of $20,000 was left to each of the decedent's children. The will also contained an in terrorem clause which provided that anyone challenging the will would forfeit any interest they might otherwise have had in the decedent's testamentary estate. By violating the in terrorem clause, petitioner lost any interest she might have had in her father's estate. Therefore, the court went on to find that she did not have any standing to sue.

It should be noted that generally, courts will not hear a petition of a party who does not have an interest in the matter over which they are suing. Once, petitioner unsuccessfully challenged the will, she also lost any standing which she might have otherwise had to bring any legal proceeding in the matter.

Celebrity Estate Fights Generate Public Interest --And Teachable Moments

philaw@optonline.net (Philip Bernstein) — Thu, 13 May 2010 15:29:03 -0500

A recent article in theTacoma News Tribune about celebrity estates makes for some interesting reading. Not only does the public gravitate towards the news of a celebrity's death and the aftermath but also, this often provides some "teachable moments". In soaking up every piece of news available about Anna Nicole Smith, James Brown or Michael Jackson, we learn the consequences of sloppy (or no) estate planning and how to avoid them in our own less public lives.

What's Going On Here? Looks Like A Back-Door Tax Increase!

philaw@optonline.net (Philip Bernstein) — Sun, 09 May 2010 20:50:18 -0500

This is not my first article about the current failure of our Congress to act on the replacement of the estate tax which expired at the end of last year and I am certainly not the only one following this oddity. All of a sudden it has dawned on me that maybe the lack of Congressional action is not so much a failure of Congress to get its act together as it may be a focused plan to back into what would become a massive tax increase b y doing nothing.

One would think that , even with the pitched battles fought over health care and reform of the financial system, Congress would have found time to deal with the expiration of the estate tax. All of a sudden, however, this has disappeared from the Congressional radar screen and does not seem at all on the horizon.

Folks are overlooking what is going to occur on the first of January 2011 if no new bill is enacted. All of the graduated estate tax reductions put into place over the past ten years or so will sunset and after a year of having no estate tax, we will revert back to the old one million dollar credit shelter limit. In New York, the combined state and federal estate tax on the second million dollars of a decedent's estate will be as high as sixty per cent!

In an economy that is recovering from the tailspin that almost put us into another great depression, government needs to find ways to pay back the funds advanced for the stimulus programs and the bailouts.Even so, Americans hate to eat their vegetables and are loathe to make the tough choices needed to save the economy for our grandchildren. Tax increases are the political third rail and few politicians have the courage to enact them, much less come out front and advocate for them. That said, doesn't it seem easier just to let taxes increase by default without going on record in an election year? Very quietly, it would seem that some radical changes in our tax laws are around the corner -- and will come about without a single speech, filibuster or vote taking place on the floor of the Congress.

Points On A Minor's Trust

philaw@optonline.net (Philip Bernstein) — Sun, 02 May 2010 08:39:46 -0500

When leaving large sums of money and property to children, keep in mind that they are not legally able to control and use these assets until they are eighteen. Also consider that the amount of money left to them may well be directly proportional to the price of the sportscar they purchase on their eighteenth birthday.

The problems of leaving assets to minor children are best addressed by including a special trust in the body of your will. This provides instructions as to how and when these assets may be spent (for example, to pay for a college education) as well as how they must be protected and invested. A testamentary minor’s trust also specifies the age at which a child will receive the full balance of his or her trust. Since the trust will only operate after both parents have perished, consider that your child will not have the benefit of your insight and guidance when he or she turns eighteen. For that reason, it may advisable to provide that the balance of the trust will not be paid until the child is older –perhaps the age of twenty one or even twenty five.

The choice of trustee is important. You needn’t choose the same person you chose to be your child’s guardian. Select someone who is trustworthy and competent handling financial matters in a conservative manner. Your trustee should be young enough to be expected to still be able to manage your child’s affairs when your child reaches his or her twenties. Unless the trust is to consist of an unusually large sum of money (millions), do not consider having a bank serve as your trustee.

Most lawyers automatically include a provision that your trustee need not be bonded. This may not be a wise way to go even if you are totally convinced of the trustee’s honesty and ability. No one knows for sure what the future will bring and the relatively small cost to the trust to bond the trustee provides an added measure of protection that your child will be taken care of even if you are gone.

Undue Influence As Reflected By A Jury Charge

philaw@optonline.net (Philip Bernstein) — Fri, 30 Apr 2010 06:48:11 -0500

One of the most frequent inquiries I get as an attorney involved in the area of contested estates involves issues of alleged undue influence. I say "alleged" because the public perception of undue influence is often far removed from its true legal definition. Since many savvy trial lawyers often prepare their cases from the start with an eye to the charge which the judge will give a jury, it is useful to look at undue influence from that angle. One of the best ways to do that is by going directly to section 7:55 of the "Pattern Jury Instructions" (from which I am liberally quoting in this article) that courts rely upon to explain legal issues to the juries who must decide them.

Keep in mind that the Surrogate's Court is always guided by the requirement that it determine the true intent and expression of the testator's wishes -- not always an easy task given that the testator is no longer with us to express these intentions on his or her own. A will is seen as the product of undue influence if it reflects the "desires of some person who controlled the testator's thoughts or actions".

The problem here is that we are all influenced to one extent or another by the folks around us. To be undue, "the influence exerted must amount to mental coercion that led the testator to carry out the wishes of another instead of his or her own wishes because the testator was unable to refuse or too weak to resist.

Here is where it is easy to fall into a trap. The law does not "condemn all influence...but only that degree of influence that destroys the testators own judgment and free will." Where the testator is influenced by "affection, gratitude,family and personal relationships or ordinary advice and argument" the influence involved is not seen as undue".

In deciding questions of undue influence, a jury is instructed to take all of the facts and circumstances surrounding the will into account.Important factors include the testator's mental and physical condition, level of isolation from family and friends and whether or not he or she actually knew and understand the provisions of the will. Also important is whether or not the testator had the chance to obtain independent legal advice and what action might have been taken by the primary beneficiary to get the will executed.( To this end, where a lawyer is a beneficiary of a will which he or she has drafted, a presumption of undue influence exists).

When dad leaves his whole estate to his favorite son and leaves eight other kids who are long absent from his life out of his will, or when a huge bequest goes to a next door neighbor who, for twenty years, was always there for a game of cards or a trip to the supermarket or the doctor or to shovel the snow, undue influence is hard to find and hard to prove. Fact patterns involving family members and long-standing friendships may be contrasted with the classic relationship between the pretty, young home health aide and the eighty five year old millionaire whose kids live in distant cities and who cannot be present to monitor the flattery and cunning with the focused purpose of becoming their father's sole heir and beneficiary.

Undue influence is generally the first accusation leveled by an objectant to a will at the beginning of a bitter will contest. Once one examines the full range of circumstances surrounding the situation, often the easiest thing to realize is how hard it is to prove.

Criminal Trial Of Manhattan Surrogate Begins

philaw@optonline.net (Philip Bernstein) — Sat, 20 Mar 2010 16:46:24 -0500

In December 2008, Surrogate - elect Nora Anderson was indicted for allegedly failing to properly report at least a quarter of a million dollars in campaign contributions. While Ms. Anderson contended that this money came from her own personal funds, prosecutors have alleged that the true source of the contributions was Seth Rubinstein, her eighty two year old law partner and mentor. According to theNew York Times, this case raises some unusual questions about what happens when funds claimed as gifts are utilized in a campaign.

Ms. Anderson's defense team has argued that the funds given to her by law partner as a "gift" belonged to her to do with them as she wished. She could have spent them on a new (very expensive ) car or set of golf clubs or she could have applied them legally to her own campaign for election. While the surrogate-elect is accused of falsely submitting reports of campaign contributions, she quite properly points out that judicial candidates are carefully screened from learning the identity of those giving contributions or of the amounts contributed inasmuch as many of the contributors are also lawyers who practice before the court daily. She therefore disclaims any actual knowledge of the contents of the reports which were actually made and submitted by her campaign staff.

The Times points out that the real underlying question here is whether or not judges may use funds given or loaned to them by their friends in their election campaigns. There appears to be considerable disagreement on how this should be answered and one sure issue rising out of this case is that of campaign finance reform in New York. Given, however, that New York has a legislature with an uncanny ability to accomplish absolutely nothing of merit for months at a time (please do not get your faithful lawblogger started on this one!). it is unlikely that this could be achieved in the current millennium.

Failure To Revise Estate Tax Law Has Unintended Consequences

philaw@optonline.net (Philip Bernstein) — Fri, 12 Mar 2010 17:31:02 -0500

Who'da thunk that we would be almost to April and a bill to re-institute the federal estate tax isn't even on the radar screens down in Washington? The estates of those dying since January 1 owe no federal estate taxes and there is nothing on the horizon which indicates that this may change soon. In a nation that seems to prefer rich desserts to vegetables, rejoicing over this tax holiday may be a bit premature --and our current estate tax situation certainly carries with it some unintended risks which should be of some concern.

The estate tax has always been a way to provide a substantial source of revenue to fund our government.. In an era of historically huge deficits where the government is doing everything short of scrounging in the couch for spare change, this is a truly strange development. Having an estate tax is a driving force behind wealthy indivuals making large charitable donations and an age-old tool to prevent the concentration of wealth in the hands of a few.

An article in yesterday's New York Times points out some additional consequences which are now of increasing concern. Most wills drawn over the past generation (which is to say "most wills") provide language aimed at reducing the taxman's bite by the use of trusts and other devices. The problem is, that these "formula clauses" may end up by disinheriting the very people the wills were set up to benefit! This is because the language often ties the amount to be left in trust to the amount of the federal estate tax credit or exclusion. Since this year there is NO exclusion or credit since there is no tax, the trust may not get funded and the children --or the spouse-- may be unintentionally disinherited.

Keep in mind that if our Congress continues to ignore this mess and 2010 ends with no action, the old estate tax with a one million dollar limit will spring back to life and wreak a different kind of havoc on the estate plans of those with exclusions set at recent levels of two million dollars and above. Underlying this all is the issue of how retroactive any tax revisions will be -- or whether there will be retroactivity at all.

For those of you who scoff at my suggestion that maybe there will be no retroactivity on the new law, did you ever think we would find ourselves where we are now with an estate tax having expired nearly three months ago and no plans to revive it in sight?

Presumption Of Death Certificate Is Rebutted

philaw@optonline.net (Philip Bernstein) — Mon, 08 Mar 2010 22:57:12 -0500

Nassau County Surrogate John Riordan has found that an objectant in the Matter of the Estate of Willie Stewart,340211 successfully established that she and her son were distributees of the decedent, notwithstanding the fact that his death certificate provided otherwise. While there is a strong presumption as to the information contained in a death certificate, the court was clear to point out that while the document is proof of the cause of death stated therein, collateral facts which it contains may be subject to rebuttal.

The court had held a hearing to determine if the objectant, Doreen Stewart was the surviving spouse of the decedent. She had been married to him in 1988, ten years following his divorce from his first wife. Although the decedent subsequently remarried and once more divorced his first wife, Doreen was able to establish that she had never been divorced. thereby also proving that the remarriage to the first wife was invalid and that she was the surviving spouse. The court further found that the decedent's sons were unable to establish that their father's marriage to Doreen had ever been dissolved (she had been able to show that no divorce or annulment of her marriage had taken place in the decedent's home state of Georgia --or in New York where his property is located). Therefore, in this very unusual state of facts, it was possible to rebut the presumption raised by the inclusion of collateral information in the death certificate -- which could therefore not be used to exclude Doreen as surviving spouse.

This is an extremely egregious example of what may happen when our clients fail to properly obtain divorces.Lawyers engaged in matrimonial practice must constantly be aware of these possibilities. It is important to realize that the failure to properly complete the divorce or annulment procedure leads to serious problems many years later. The failure of a subsequent remarriage usually comes home to roost after a generation when the intended surviving spouse is elderly, with reduced assets and suffering from emotional anguish at the loss of a beloved companion. While most folks do not intentionally skip the minor detail of legally ending one marriage before beginning the next, the temptation to fly off to obtain a foreign divorce, or to run off to a state with a short residency requirement can often prove to be a ticking time bomb which does not go off until a hapless would-be surviving spouse sees his or her marriage successfully attacked after suffering the death of a mate.

Brooke Astor's Son Sentenced To Prison

philaw@optonline.net (Philip Bernstein) — Mon, 21 Dec 2009 13:15:40 -0500

In a special bulletin, the New York Times has just reported that Anthony D Marshall, son of the late socialite Brooke Astor has been sentenced to prison by a New York State Supreme Court Justice. Marshall was sentenced to one to three years in state prison by Justice A. Kirke Bartley Jr. after being convicted of stealing millions from his mother while she was alive. The case drew national attention first when it came to light that Marshall had kept his mother as a virtual prisoner, left to wallow in her own waste. The case focused attention on the growing problem of elder abuse, demonstrating that even super rich seniors such as Brooke Astor were subject to being severely mistreated by their own families. Marshall, who is 85 years old, has vowed to appeal the verdict so, given his advanced age and the legal firepower available to him, it is anyone's guess when he will actually report to start serving his sentence .

Ruminations On New York's New Power Of Attorney

philaw@optonline.net (Philip Bernstein) — Sat, 12 Dec 2009 09:39:24 -0500

Your faithful lawblogger has recently prepared and given a podcast on the new statutory Power of Attorney in effect here since September 1. It led me to further thoughts over just what some of the implications of this new power may pose for lawyers and clients alike. Three months after the effective date, it is clear that most of the profession has barely yawned but make no mistake about it, even though it is still evidently under the radar, a quiet revolution in an important segment of the practice of law has taken place.

In true legislative fashion, we have a form of ten or so pages labeled as "POWER OF ATTORNEY NEW YORK STATUTORY SHORT FORM" ! An important feature of the form is that where any transfer of the principal's property in excess of five hundred dollars is involved a "major gifts rider" must be executed as part of the power. That would not only apply to the gifts which an agent is now entitled to make from the assets of the principal but also most banking transactions and probably all real estate and insurance transactions made for the benefit of the principal by his or her agent.

The new law specifically requires that both the principal and the agent sign the form and that there should be two witnesses signing in addition. The law requires that the power be executed and witnessed ":with the same formality as a will".

In the words of Shakespeare "Aye, there's the rub!" No more can an attorney responding to the client who discovers he or she is leaving town tomorrow and wants to execute a power of attorney appointing a spouse, adult child, or the lawyer to act in his or her place simply say that the office staff will prepare a power and the client can drop by at a convenient time, sign the power before one of the notaries in the office and leave (this was always a service I could cheerfully provide without charge). Now a formal appointment is needed where both the agent and the principal are present . How about when the trusted adult child who is to act under the power is in another city and cannot be present? No real direction from the law there so we must assume all parties must be present.

We are also going to be under the requirement of conducting a formal ceremony about identical to the rite of execution of a will. Issues of "due execution" will certainly arise and will be complicated by the fact that a much higher level of competence is going to be required to have been shown for the execution of such a broad and sweeping power than a will which requires minimal cranial candlepower to establish testamentary capacity.

What happens when a client scheduled to handle an important real estate deal calls his trusted lawyer and asks his counselor to close on powers because of an emergency business trip to a distant city? Let us say that the power is executed and the transaction takes place as scheduled with the attorney filling in for the client. Now let fate throw us a zinger when the client simply doesn't wake up in his hotel room the next day and there are those folks back at home who would like to set aside the transaction. Better believe that the ceremony surrounding the execution of the power is going to be the subject of extensive legal scrutiny from some well-paid lawyers on the other side!

The bottom line here is that a whole new routine of dealing with the execution of powers of attorney needs to be put in place . It would also be a good idea simply to study the statutory form and to read the law which is Section 644 of New York's General Obligations Law. Then take at least one good CLE course. The New York State Bar has an excellent two hour webcast which I believe can still be obtained and many local bar associations have run programs. Follow the same procedures you would have in place for the execution of a will but be sure to include some time to make sure that both the agent and principal understand their roles, responsibilities and exposure. Finally, this is no longer a courtesy you can give away. It is no legal "loss leader" and both lawyer and client will have to understand that there is considerable time that a lawyer will be investing in the preparation and execution of a power of attorney and a reasonable charge for this would be appropriate and should be expected.

Failure To Timely File Articles Of Organization Results In A Deed Being Set Aside

philaw@optonline.net (Philip Bernstein) — Thu, 10 Dec 2009 18:45:54 -0500

The New York State Court of Appeals has just handed down a decision in The Matter of Hausman 2009 NY Slip Op 08854 which has upheld an Appellate Division decision setting aside a deed executed by the decedent in favor of an LLC formed by two of her children two weeks before they actually filed the articles of organization with the secretary of state. The court ruled that because the filing had not been made before the deed was executed, the corporation lacked the legal ability to take title to the property . The problem here that although the deed might have been ruled valid under the de facto corporations rule (which is what the Surrogate's Court did initially), there needed to have been some colorable attempt to comply with the statutes governing the organization of corporations before the deed was executed. Because the children of the decedent failed to submit any proof that they had at least tried to file the articles of organization before the execution of the deed, it was determined that the conveyance had failed and the deed was set aside with the property ending up in the residuary of the estate. Since the residuary was to be shared equally between her children , per stirpes, the property was shared with the minor grandchildren of the decedent who had survived two predeceased sons.