New York Trusts & Estates Litigation Blog

Surrogate Removes Fiduciary Sua Sponte For Misrepresentations In Petition

Eric Penzer — Mon, 13 May 2013 10:43:56 -0500

A recent post to this blog discussed a case in which a court declined to remove a fiduciary based on allegations of a potential conflict of interest, but in the absence of actual misconduct on the part of the fiduciary. While it is certainly rare for a court to remove a fiduciary in the absence of actual misconduct, it is still rarer for a court to do so on its own initiative, i.e., sua sponte. But that is precisely what happened in Matter of Young decided earlier this year by Nassau County Surrogate Edward W. McCarty III.

The decedent, Joseph Young, was an acclaimed lyricist of the early 20^th Century, having written such classic songs as “I’m Gonna Sit Right Down and Write Myself a Letter,” “Dinah,” and “I’m Sitting on Top of the World.” He died in 1939, intestate, survived by his wife, Ruth Young, and his father, Samuel Young. Pursuant to the law of intestacy applicable at the time, Ruth and Samuel were the decedent’s only distributees. Ruth was appointed administrator of the decedent’s estate in 1939 (and she died in 1973).

Fast forward 70 years.

In 2009, Nicholas Al Young, allegedly the Decedent’s grandnephew, petitioned the court for letters of administration de bonis non. (An administrator de bonis non or “d.b.n.” is a successor administrator appointed to administer estate property not yet administered.) Nicholas’s petition alleged that the decedent was not survived by either a spouse or a parent, and that his distributees included 22 nephews/nieces and great-nephews/great-nieces. He alleged that the value of the assets in need of administration was $9,000. The Court issued letters to Nicholas.

In 2012, Rytvoc Inc. and Warock Corporation -- the alleged owners of copyrights in various musical compositions written by the Decedent -- commenced a proceeding to revoke Nicholas’s letters. (In the interest of full disclosure, Farrell Fritz represented Rytvoc and Warock in the proceeding.) Rytvoc and Warock alleged that Nicholas, armed with his letters of administration, was wrongfully interfering with their ownership of the copyrights by attempting to enforce termination rights allegedly available under Federal law. They sought his removal pursuant to SCPA § 711(4), which provides for the revocation of letters obtained “by a false suggestion of a material fact.” Specifically, they alleged that Nicholas was ineligible for letters; that he obtained them only by virtue of his misrepresentation that the decedent was not survived by a spouse or a parent; that the individuals identified in the petition were not the decedent’s distributees; and, finally, that no administrator was necessary in any event, because the estate had no rights in the compositions for a fiduciary to exercise.

Nicholas moved to dismiss Rytvoc and Warock’s petition for lack of standing. He argued that SCPA § 711, which governs removal proceedings, confers standing only on “a co-fiduciary, creditor, person interested, any person on behalf of an infant or any surety on a bond of a fiduciary.” Rytvoc and Warock, Nicholas argued, were only “adverse parties in possible future litigation over the ownership of copyrights.” Rytvoc and Warock argued that, in fact, they were creditors of the estate, having filed a claim for damages resulting from Nicholas’s alleged wrongful interference with their intellectual property rights. The Court rejected that argument, however, and dismissed the petition for lack of standing.

But the song continues.

Rytvoc and Warock argued, alternatively, that the issue of standing was a “red herring” because the Court had the authority pursuant to SCPA § 719, and the inherent authority, to revoke Nicholas’s letters. Section 719 provides, in relevant part, that a court may revoke, suspend, or modify letters it issued; it may do so sua sponte, without a petition or the issuance of citation, in certain circumstances, including when any facts provided in SCPA § 711 are brought to its attention. As previously noted, section 711(4), provides for the revocation of letters obtained “by a false suggestion of a material fact.”

The Court began its analysis by reviewing the law governing revocation of letters obtained through misrepresentations, noting that a fiduciary’s removal is appropriate even where the alleged misrepresentation was made inadvertently and without an intent to defraud the court. It concluded, therefore, that “ it is not necessary for the court to ascertain whether Nicholas made the error in bad faith.” (Although it noted that “it appears from the court file that Nicholas did not attempt to deceive the court as to the fact that Ruth Young survived the decedent. Nicholas provided the court with numerous documents evidencing Ruth’s date of death.”)

The Court then reviewed the statutory framework governing letters of administration d.b.n., to determine whether Nicholas was eligible for letters. It explained in this regard that SCPA§ 1001 (made applicable to administrators d.b.n. by section 1007) requires that letters be issued to the distributees of an intestate decedent, or, if deceased, to their fiduciaries, or to any eligible “person who is not a distributee upon the acknowledged and filed consents of all eligible distributees, or if there are no eligible distributees, then on the consent of all distributees” (SCPA § 1001[6]). It also explained that, pursuant to SCPA § 1001(8), where letters are not granted as set forth above, they are properly granted in the following order to: (a) the public administrator, (b) the petitioner, in the court’s discretion, or (c) to any other person or persons.

The Court stated that it “has an obligation to make sure that the proper person is administering the estate.” It concluded that “[i]t is unclear whether the proper person is administering this estate.” The Court also expressed its concern regarding the petition’s allegation that the value of the Decedent’s assets in need of administration was only $9,000, stating that “[t]he court is concerned that this figure is underestimated as it appears the decedent was a successful songwriter whose estate consisted of royalty interests which may be of a greater value than indicated given the possible copyright battle.”

The Court revoked Nicholas’s letters “[b]ased upon such concerns and due to the misstatement in Nicholas’ petition. . . .” It issued letters of temporary administration to the Public Administrator, directing that it “attempt to identify the fiduciaries of Ruth Young’s estate and Samuel Young’s estate who have a prior right to letters of administration de bonis non and to ascertain the value of the assets in need of administration.”

The moral of the story is that those seeking appointment as fiduciaries must take great care to ensure the accuracy of the allegations of their petition. A mistake, even one alleged to be innocent, could prove costly.

Potential Conflict of Interest Insufficient to Disqualify Nominated Fiduciary

Jaclene D'Agostino — Wed, 03 Apr 2013 10:41:47 -0500

“A testator’s choice of executor should be given great deference” (see Matter of Palma, 40 AD3d 1157, 1158 [3d Dept 2007]). This rule is fundamental to the practice of trusts and estates law, yet is often challenged by those who want to disqualify or remove the testator’s nominee -with or without valid basis.

A court will generally issue letters to the nominee who is deemed eligible to serve as a fiduciary pursuant to SCPA §707, unless an interested party makes legitimate objections to the appointment as set forth in SCPA §709. Once letters do issue, removal is a very serious proposition, but it can be achieved if the fiduciary’s conduct falls within the realm of SCPA §711 – including but not limited to wasting or imprudently investing estate assets, acting dishonestly, refusing to obey a court order, or failing to have the necessary qualifications because of “substance abuse, dishonesty, improvidence, want of understanding,” or is “otherwise unfit to serve” (see SCPA §711). Courts may also take the more drastic measure of removing a fiduciary without process under certain circumstances, such as failing to account or refusing to supply information about estate assets despite court orders to do so, being convicted of a felony or judicially declared incompetent, or commingling estate funds with his or her own (see SCPA §719). In all events, however, courts tend to exercise their powers to remove fiduciaries somewhat sparingly.

It is against this backdrop that Matter of Russo, 100 AD3d 1547 (4th Dept 2012), should be considered. There, objections to probate were filed alleging that the petitioner, to whom preliminary letters had already issued, should be disqualified from serving as executor due to a purported conflict of interest “in connection with decedent's interest in Tread City Tire, Inc. (“TCT”) and decedent's classic car collection.”

Regarding TCT, it was alleged that a conflict of interest arose from the decedent’s purported ownership interest in the entity, where petitioner also happened to be a salesperson. With respect to the decedent’s classic car collection, it seems that the purported conflict was asserted because one of the cars was bequeathed to the petitioner - but the Court did not elaborate much on this latter allegation.

Petitioner moved for summary judgment seeking dismissal of the objections, arguing that no conflict existed. In support of the motion, petitioner provided corporate tax returns for TCT along with a third party affidavit, to prove that the decedent had no ownership interest in the entity; rather, it was fully owned by a third party, and the decedent merely managed the business.

Moreover, with respect to the allegations of conflict in connection with the classic car collection, petitioner established that while one car was specifically bequeathed to him, he obtained two appraisals for each car, and two of the cars were sold at prices higher than the appraised price. In addition, petitioner demonstrated that the remaining classic cars were placed in a consignment program with objectant’s consent.

Citing the well-established law giving deference to a testator’s choice of fiduciary absent evidence of his or her actual misconduct, the court granted the petitioner’s summary judgment motion, dismissing the objections to his serving as executor. The court opined that objectant had failed to raise any issue of fact as to whether there had been any actual misconduct, explaining that the objectant did not make even one specific allegation of conflict or misconduct.

Accordingly, in view of the great deference given to the testator’s selected fiduciary, this case serves to reiterate the longstanding rule that actual misconduct is the key to the disqualification of a fiduciary; potential misconduct is not enough. Nonetheless, it should be noted that this is not an ultimate roadblock for a beneficiary who has legitimate concerns about the fiduciary’s ability to serve. Indeed, if the fiduciary subsequently displays one or more of the characteristics set forth in SCPA §711 or SCPA §719 as explained above, then he may be removed for cause during the course of his stewardship.

Appellate Division Decides Case of First Impression Concerning "Adopted Out" Child's Right Of Inheritance

Eric Penzer — Mon, 04 Mar 2013 15:25:14 -0500

The term “adopted-out” child, commonly used by the courts, refers to a child adopted out of his or her biological family, i.e., a child placed for adoption by his or her biological family. A detailed discussion of the inheritance rights of adopted-out children is available here. Recently, in a case of first impression, Matter of Svenningsen, the Appellate Division, Second Department, addressed the inheritance rights of a child adopted by the decedent (prior to his death, of course) and his spouse, but subsequently re-adopted out to another family eight years after the decedent’s death.

The child, Emily, was born in China on July 7, 1995. The decedent, John Svenningsen, and his wife, Christine, formally adopted Emily in 1996. They entered into a Chinese adoption agreement in which they guaranteed that they would deem Emily to be their biological child; that they would not transfer or have her re-adopted; and that Emily had a right to inherit from their estates.

The decedent died on May 28, 1997, survived by Christine, five biological children, and Emily. He left a Last Will and Testament dated March 17, 1997 (which was admitted to probate in July of that year), as well as two irrevocable inter vivos trusts for his children, dated July 20, 1995, and October 29, 1996.

In the 1995 trust, created prior to Emily’s adoption, the decedent directed the division of the trust assets equally among his children, when the oldest child reached the age of 30. The trust defined the term “children” to include the decedent’s four living children (the fifth had not yet been born), identified by name, “and any additional children born to or adopted by [the decedent] after the creation of this Trust.”

The 1996 trust established six equal and separate irrevocable trusts, one for each of the decedent’s children. Each child, including Emily, was expressly named as a beneficiary. The trust instrument identified Emily as the sole beneficiary of her separate irrevocable trust, denominated as “The Emily Fuqui Svenningsen Trust.”

The decedent’s Will created two testamentary trusts – a credit shelter trust and a marital trust. The credit shelter trust was for the benefit of the decedent’s “then living issue, per stirpes. . . .” The marital trust was to be funded upon Christine’s death for the benefit of the decedent’s “then living issue, per stirpes. . . .” The Will defined the term “issue” as including “children who have been legally adopted at the date of my death as well as children with respect to whom legal adoption proceedings had been commenced prior to the date of my death though not completed at the time of my death.”

In 2003, approximately six years after the decedent’s death, Christine enrolled Emily in a school for children with special educational needs. Christine’s attorneys contacted school administrators, inquiring about putting Emily up for adoption. Ultimately, Maryann Campbell, a school official, and Fred Cass, her husband (for ease of reference, the “Petitioners”), agreed to adopted Emily. Christine terminated her parental rights with respect to Emily in 2004. The re-adoption was consummated in 2006 by court order. When they adopted Emily, the Petitioners were unaware of the provisions of the decedent’s will or trusts, although they were ultimately advised that the decedent had arranged money for Emily’s education and medical needs.

In November, 2007, Christine’s financial advisor requested the Petitioners’ consent to separate Emily’s interest in the decedent’s estate from those of the decedent’s biological children, through the creation of a spray trust. In connection with that request, the advisor provided the Petitioners with a list of estimated values of estate assets, and estimated Emily’s interest in the trusts at $842,397. Ultimately, the Petitioners examined the files of the Westchester County Surrogate’s Court and learned that the decedent’s estate had an estimated value, on the estate tax return, of $250,000,000. The Petitioners commenced proceedings seeking to compel accountings with respect to Christine’s administration of the decedent’s estate, and with respect to the 1995 and 1996 trusts.

The respondents in each of the proceedings asserted affirmative defenses based on Emily’s alleged lack of standing. The Petitioners moved for summary judgment compelling the accountings and the respondents cross-moved for summary judgment dismissing the petitions. Among other things, respondents argued that Emily’s contingent interests in the trusts were extinguished upon adoption. The Surrogate’s Court, Westchester County, granted the Petitioners’ motion and denied respondents’ cross-motion. The court directed the respondents to account. An appeal ensued.

The Second Department affirmed, in a decision authored by Justice Leonard B. Austin.

The court began its analysis with a review of the law concerning the inheritance rights of adopted and adopted-out children, including a detailed discussion of Domestic Relations Law § 117 and Estates, Powers and Trusts Law 2-1.3. It then turned to the Court of Appeals’ decision in Matter of Best, 66 NY2d 151 [1985]). At issue in that case was the right of an adopted-out child to inherit from his biological maternal grandmother. The Court held that, absent a contrary indication in the will, an adopted-out child is not entitled to share in a class gift to issue in the will of a biological relative. The Appellate Division explained that Best “remains relevant for the policy considerations enunciated in support of termination of an adopted-out child’s right of inheritance.”

The court summarized the issues before it as “whether the decedent expressly intended to include Emily as a beneficiary under the subject trusts and whether Emily’s interest in those trusts vested prior to her being adopted by the petitioners.” The court answered both those questions in the affirmative.

First, as to the decedent’s intent, the court noted that Emily was expressly named in the 1996 trust; and although she is not mentioned specifically by name in the Will or in the 1995 trust, “she is plainly referred to by status in both instruments” -- referring to definitions of the term “issue” in the trust instrument and in the Will. The court rejected respondents’ argument that the court should dismiss as “mere surplusage” the inclusion of adopted children in the definition of “issue.” In sum, the court concluded that

Emily’s adoption by the petitioners did not, and was not intended to, terminate her interest in the Marital Trust or the 1995 Trust. The decedent expressed an intention to include his adopted child in the absence of any reason to believe that his status as the parent of Emily would be terminated by her subsequent adoption many years after his death. Further, at the time of the decedent’s death, Emily was not an “adopted-out” child but instead was, and remained, his issue, as defined by the Trust instruments, despite the subsequent unforeseeable actions of Christine.

Turning to the issue of whether Emily’s rights in the trusts vested prior to her re-adoption, the court concluded that “while the rights of Emily and the other beneficiaries may be inchoate, they are, nevertheless, vested by their inclusion in the trust document. Thus, Emily’s interests under the decedent’s will and the 1995 Trust fully vested, subject only to the condition of her survival as provided for in the instruments (citation omitted).”

The court further noted that SCPA 2205 permits a “a person interested” to compel an accounting. A “person interested” is defined by SCPA 103(39) as “[a]ny person entitled or allegedly entitled to share as beneficiary in the estate.” The court concluded that Emily was a “person interested” and entitled to an accounting. Therefore, absent a genuine issue of fact requiring a trial, the Surrogate’s Court properly granted summary judgment in the Petitioners’ favor.

One thing is clear from the Svenningsen decision. Regardless of how convoluted the facts of a given case, or how complex the law governing its resolution, when it comes to inheritance rights, the courts are guided predominantly by the decedent’s intentions.

Exploring Abandonment in the Context of a "Marriage of Convenience"

Spencer L. Reames — Thu, 17 Jan 2013 10:43:02 -0500

Can a surviving spouse be guilty of abandonment, consequently forfeiting the presumptive right to administer her deceased spouse’s estate, if she was effectively in a “marriage of convenience”? In her recent decision in Estate of Shoichiro Hama, 2009-4505 NYLJ 1202579753326, at *1 (Sur Ct, New York County, Decided November 26, 2012) former New York County Surrogate Glen decided in the affirmative. In considering the issue of abandonment, the Surrogate also called for a general re-examination of the concept of a ‘surviving spouse’ as it pertains to intestate succession and other spousal rights under the EPTL.

The problematic facts of the case may have spurred Surrogate Glen’s more general contemplations. It is relatively clear from the court’s decision that the decedent married the spouse primarily for tax reasons and, during the marriage, the spouse lived with another man, publicly holding herself out to be married to this second man, with the decedent’s knowledge and consent.

Shoichiro Hama, the decedent, owned a condominium apartment in Manhattan and sought to sell it. In June 2006, he consulted his accountant who informed the decedent that he would incur significant capital gains taxes on the sale. When the decedent inquired how he could mitigate these taxes, the accountant joked that he could get married. A few weeks following this discussion, on July 7, 2006, the decedent married Yuko Machida, an employee of his company. Two months thereafter, on September 6, 2006, the decedent sold his apartment. In November 2006, the decedent told his accountant that he wished to obtain a divorce and the accountant advised against it. The decedent asked how long the accountant recommended he stay married to preserve his tax benefit, and the accountant advised two years.

In 2007, the decedent moved to Japan and Machida also moved to Japan, but to live with another man, Travis Klose, with whom she had maintained a relationship prior to her marriage to the decedent. Facing parental stigma for living with a man with whom she was not married, Machida registered in Japan as being married to Klose. The decedent was aware of this and, in fact, assisted in Machida’s registration as Klose’s wife by signing and affixing his personal seal to their marriage certificate, as a witness.

In August 2009, the decedent inquired of his accountant whether he could then divorce Machida. As the decedent was contemplating the sale of another apartment in Manhattan, the accountant advised him that he should remain married. The decedent subsequently died intestate on September 4, 2009. Thereafter, Machida petitioned for issuance of letters of administration, via a designee, and the decedent’s parents cross petitioned for the same, via a designee. Temporary Letters of Administration issued to Machida’s designee. The designee of the decedent’s parents filed a motion for, among other things, summary judgment revoking Machida’s designee’s letters, and dismissing Machida’s administration petition, based on a claim of spousal abandonment.

EPTL 5-1.2 (a)(5) provides that a husband or wife is disqualified as a surviving spouse under the EPTL, for purposes of intestate distribution, among other things, if it is established that the husband or wife abandoned the deceased spouse and such abandonment continued until the time of death. Former Surrogate Glen noted that while the EPTL contains no definition of abandonment, it is generally and historically understood that the concept was imported from the Domestic Relations Law, such that if a spouse would have been entitled to a decree of divorce based on the grounds of abandonment, such spouse would be subject to a viable claim of abandonment under the EPTL.

The long-standing Court of Appeals decision in Matter of Maiden (284 NY 429 [1940]), holds that to constitute abandonment, a spouse’s departure from the marital home must be both “unjustified and without the consent of the other spouse” (id. at 432). As Surrogate Glen noted, the decedent’s participation in Machida’s ‘marriage’ to Klose in Japan was “the very opposite of ‘lack of consent’” and the decedent’s parents’ claim of abandonment would fail under this test (Estate of Shoichiro Hama at *7).

Nevertheless, Surrogate Glen based her decision on another case, Matter of Oswald (43 Misc 2d 774 [Sur Ct, Nassau County 1964], affd 24 AD2d 465 [2d Dept 1965], affd 17 NY2d 447 [1965]). In that case, the parties allegedly entered into a common law marriage, but later exchanged mutual releases and each married another. The Surrogate found abandonment, quoting Matter of Bingham (178 Misc 801 [Sur Ct, Kings County 1942], affd 265 AD 463 [2d Dept 1943], rearg denied and lv denied 266 AD 669 [2d Dept 1943]), that “[t]he court knows of no more convincing evidence of abandonment than the public ceremonial remarriage of the petitioner to another woman in the lifetime of the decedent and his cohabitation with such woman as husband and wife” (id. at 805). The Appellate Division affirmed Oswald “on the opinion of the Surrogate” and the Court of Appeals affirmed without decision. Thus, it is not clear whether public remarriage, valid or not, qualifies as abandonment and stands as an exception to the Maiden requirement that abandonment be without consent. Based on the ambiguity created by the Court of Appeals’ affirmation of Oswald, in seeming conflict with its earlier rule in Maiden, Surrogate Glen ultimately held for the decedent’s parents and found abandonment by Machida.

This holding lead Surrogate Glen to question general policy issues regarding surviving spouses. First and foremost, Surrogate Glen noted that New York has done away with the fault-based divorce system from which the concept of abandonment first sprung. She then traced the historical evolution and reappraisals of spousal relationships under New York’s divorce law. One of the primary factors in this evolution, she noted, has been the shift in the understanding of marriage from being a sacred bond for life to being an economic partnership. She called for a similar reappraisal in estate law.

The concept of a surviving spouse, according to the Surrogate, was originally used as a proxy for the person closest to and/or most dependent on the deceased spouse, that is, the natural object of the deceased spouse’s bounty. Thus a surviving spouse has priority to administer an estate, priority of intestate distribution, and the right to elect against an estate. But what of spouses who remain married but live apart for years? What of married partners who develop fulfilling and committed relationships with other persons, without formally divorcing their spouse? Who is the more natural object of bounty in this case? According to Surrogate Glen, the current estate concept of a surviving spouse “no longer reflects reality, at least for a large number of people.” She concluded that “[c]hanging understandings of what constitutes family, demographic shifts, and alterations in economic dependence strongly suggest the need both to reappraise the spousal disqualification statute and the interests it serves: administration, intestacy and spousal election. One may hope that the bar and the legislature will hear and heed this call” (Estate of Shoichiro Hama at *16-*17).

In light of the radically changing societal and legal conceptions of marriage, does the current standard of spousal abandonment, which is itself grounded in a fault-based divorce system that, for the most part, no longer exists, continue to serve the purposes for which it was intended or the premises on which it was based? It remains to be seen whether the legislature will consider or address Surrogate Glen’s thought-provoking questions.

The Slayer Rule Revisited

Robert Harper — Fri, 21 Dec 2012 17:11:29 -0500

As I wrote in a prior post, dated February 25, 2011, concerning the Estate of Dianne Edwards, the “slayer rule” articulated by the Court of Appeals in Riggs v. Palmer provides that “[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 N.Y. 506, 511 [1889]). Although forfeiture does not occur in cases involving accidental killings, self-defense, and disabilities that negate a culpable mental state, the maxim articulated in Riggs has been utilized to preclude a person who intentionally kills another from taking as a beneficiary of his or her victim’s estate.

Relying upon Riggs, Suffolk County Surrogate John M. Czygier, Jr. recently held in Matter of Edwards that, under the slayer rule, an intentional killer forfeited his right to inherit not only from the estate of his victim, but also the estate of the victim’s post-deceased legatee (see Matter of Edwards, NYLJ, Apr. 13, 2012, at 35 [Sur. Ct., Suffolk County]). Surrogate Czygier’s finding was noteworthy for a variety of reasons, not the least of which was that the intentional killer was the sole beneficiary of the estate of his victim’s legatee (see id.).

In Edwards, Brandon Palladino (“Brandon”) was convicted of Manslaughter in the First Degree and sentenced to a twenty-five year term in prison in connection with the death of his mother-in-law, Dianne Edwards (“Dianne”) (see Carol MacGowan, “Fight Over Estate Continues After Sentencing”, Newsday, Feb. 3, 2011). Surrogate’s Court litigation arose after a party acting for Brandon’s benefit sought to ensure that Brandon received a substantial portion of Dianne’s estate, as beneficiary of his deceased wife Deanne Palladino’s (“Deanna”) estate (see Edwards, supra).

Dianne died, testate, leaving her entire estate to her daughter, Deanna (see id.). Although Deanna survived Dianne, she died of an accidental drug overdose, leaving no will (see id.). While, under normal circumstances, Brandon, as Deanna’s surviving spouse (with no issue), would have inherited Deanna’s entire estate, including any bequests that she received from Dianne, the circumstances in Edwards were highly unusual (see id.).

Dianne’s surviving relatives argued that, under the slayer rule, Brandon forfeited any interest in Dianne’s estate that he otherwise might have had in the assets of her estate, even indirectly as a beneficiary of Deanna’s estate (see id.). Surrogate Czygier agreed, finding that Brandon could not inherit from Dianne (see id.). In doing so, the Surrogate explained that “one who takes the life of another should not be allowed to profit from his wrongdoing” (see id.). But for Brandon’s wrongdoing, there “would be no inheritance to be obtained through his wife Deanna” (see id.). As a result, considering Brandon’s wrongdoing and his conviction, Brandon forfeited any right he otherwise might have had to inherit Dianne’s property as Deanna’s sole distribute (see id.).

The application of the slayer rule has been extended beyond those situations in which intentional killers seek to take as beneficiaries of their victims’ estates. Indeed, as Edwards demonstrates, the slayer rule has been utilized to deny intentional killers the right to inherit property belonging to their victims, whether directly as beneficiaries of the victims’ estates or indirectly through the estates of the victims’ legatees or distributees. The extension of the slayer rule is consistent with standards of common sense and decency.

Infants as Parties to Stipulations of Settlement in Surrogate's Court Proceedings

Jaclene D'Agostino — Fri, 16 Nov 2012 16:37:01 -0500

Generally, where an infant or someone under another disability is a necessary party to an action, it is the parent or guardian of the property who represents him in that action. If the disabled individual has no such guardian, then the court shall appoint a guardian-ad-litem to represent his interests (see CPLR 1201). It is the appropriate guardian who will have the authority to enter into a stipulation of settlement on behalf of the incapacitated individual, but he or she must seek court approval of said agreement by motion pursuant to CPLR 1207 prior to its becoming enforceable.

Particularly relevant to the trusts and estates practitioner, the corresponding procedure in Surrogate Court is very similar. Pursuant to SCPA 315, an adult competent party who has a similar economic interest to another necessary party who suffers from a disability (i.e., an infant) may represent the latter by virtual representation. However, the statute restricts virtual representation to court proceedings and informal accounts, and thus, it does not apply with respect to a typical out of court settlement. Instead, where an individual under a disability is a necessary party to a settlement agreement that falls outside of SCPA 315[8], the parties must file a compromise proceeding pursuant to SCPA 2106.

Pursuant to SCPA 2106[5], a compromise proceeding requires the petitioner to outline for the court the facts that caused the dispute, identify the various disagreeing positions and the interests of the parties, and establish the necessity for court approval of the agreement. A guardian-ad-litem will then be appointed to represent the interests of the infant or other individuals under disabilities, and it is his responsibility to determine whether the proposed settlement is in the best interests of his ward(s). If it is, then the guardian-ad-litem must obtain authority from the court to enter into the settlement. However, it is only if the court deems the relief obtained through the settlement to be “just and reasonable,” that it will enter the requisite final decree binding on all interested parties, including those under a disability. (see Charles F. Gibbs and Colleen F. Carew, Surrogate’s Practice and Proceedings: SCPA 315 and Out-of-Court Settlements: Risk v. Reward, New York Law Journal, Nov. 6, 2006).

Although SCPA 2106 and CPLR 1207 provide vehicles by which necessary parties who are under a disability can be bound by a settlement, these statutes create additional hurdles to creating enforceable stipulations. Indeed, the proposed agreement may be rejected by the guardian-ad-litem, his or her appointment may result in the filing of objections, or the court may not find the agreement to be “just and reasonable.”

Standing of "Potential Heirs" to Sue for Their Parents' Assets

Robert Harper — Mon, 15 Oct 2012 20:47:35 -0500

Estate litigation oftentimes arises when parents favor one or more of their children over others in their estate plans. Fortunately, at least for the parents, they typically do not have to deal with the issues involved in the litigation, as they are deceased by the time that it arises. As the Second Department’s decision in Sharrow v. Sheridan demonstrates, however, disfavored children do not always wait for their parents to pass before commencing litigation concerning the parents’ assets. Indeed, some disfavored children have gone so far as to sue their parents and siblings as “potential heirs” of the parents’ estates. This blog entry explains why such a strategy will prove unsuccessful.

In Sharrow, the plaintiff commenced an action against his mother and his sister, seeking to impose a constructive trust on certain assets that the mother transferred to the sister (see Sharrow v. Sheridan, 91 AD3d 940, 940-41 [2d Dept 2012 ]). The plaintiff alleged that a constructive trust was warranted because the sister exercised duress and undue influence on the ailing mother in pressuring her to transfer the assets to the sister (see id.). When the mother and sister moved to dismiss the plaintiff’s complaint, the plaintiff asserted that he had standing to seek a constructive trust over the assets formerly belonging to his mother as a “potential heir” of her estate (see id.).

The Supreme Court granted the defendants’ motions to dismiss and the Appellate Division affirmed (see id.). In affirming, the Second Department found that the plaintiff lacked standing to seek to impose a constructive trust on the assets that his mother transferred to his sister (see id.). As the court explained, for as long as she was alive, the mother had “the absolute right to change her intentions regarding the distribution of her assets” (see id.). Accordingly, the court concluded that the plaintiff’s interest as a “potential heir” of his mother’s estate was a “potential, speculative interest” that did not vest him with standing to prosecute a constructive trust claim concerning his mother’s former assets (see id.).

Of course, Sharrow is not the only case in which a child sought to void an inter vivos transfer made by a parent as a potential heir of the parent’s estate. In Schneider v. David, the plaintiff commenced an action to impose a constructive trust on real property that her mother transferred to her brother (see Schneider v. David, 169 AD2d 506, 506-08 [1st Dept 1991]). Among other things, the plaintiff alleged that her brother had fraudulently induced their elderly mother to convey the properly to him by telling the mother that the deed she signed only permitted him to manage the property while she was out-of-state (see id.). The defendant moved to dismiss, arguing – with his mother’s support – that the plaintiff lacked standing to seek a constructive trust (see id.).

Although the Supreme Court denied the defendant’s motion, the First Department reversed (see id.). The Appellate Division reasoned that the plaintiff was not a party to her mother’s conveyance of the property and could not void it simply because she considered herself to be an heir of her living mother’s estate (see id.). In short, the plaintiff’s self-serving description of herself as a potential heir of her mother’s estate did not cloak her with standing to sue or exercise rights on her mother’s behalf (see id.).

There are several lessons to take away from Sharrow and Schneider, the most obvious of which is for children to respect the wishes of their parents as those wishes relate to the parents’ assets during life. Putting the obvious aside, however, disfavored children and their attorneys should take note of the well-reasoned legal principle that, as “potential heirs” of their parents’ estates, they lack standing to take legal action concerning their parents’ assets. During their lives, the assets belong to the parents and are subject to the parents’ absolute right to dispose of their property as they wish.

Two Recent Decisions That Have Validated and Invalidated Inter Vivos Gifts

Ilene Cooper — Thu, 30 Aug 2012 07:47:19 -0500

Gifting, a fundamental tool of estate planning, is often fodder for estate litigation. This blog post will address two decisions, in particular, respecting the validity of purported gifts that were the subject of motions for summary relief.

As discussed below, the court in In re Rella, NYLJ, Apr. 10, 2012 , at 22 (Sur. Ct. New York County)(Sur. Anderson) granted an application for partial summary judgment and recognized the validity of the alleged gift, while in In re Goodwin, NYLJ, Apr. 10, 2012, at 31 (Sur. Ct. Suffolk County)(Sur. Czygier), the court granted summary judgment finding the alleged gifts to be invalid, and directed the return of the assets to the decedent’s estate.

In re Rella was a contested accounting proceeding in which the executor moved for partial summary judgment dismissing the objections contesting a gift that was made to him several months before the decedent’s death.

The decedent died, testate, survived by 5 children. Her husband had predeceased her in 1992. Pursuant to the terms of her Will, the decedent divided her estate equally among four of her children, and named her fifth child, Gilbert, together with Gilbert’s daughter, who died during the pendency of the proceeding, as co-executors. Prior to her death, the decedent purportedly transferred to Gilbert her 50% interest in a real estate holding company, the sole asset of which was a business operated by Gilbert. The remaining 50% interest in the company had been purchased by Gilbert from her late father’s business partner.

The decedent’s transfer of her interest to Gilbert was implemented by her as a corporate officer pursuant to a donative plan crafted by her attorney. A gift tax return was filed in connection with the transaction.

The objectant maintained that the decedent lacked the capacity to effect the foregoing transfer, and that it was procured by undue influence. The court disagreed.

With respect to the issue of capacity, the court opined that the donee bears the burden of proving by clear and convincing evidence that the donor knowingly made a present transfer of property. This burden is buttressed by the presumption that every individual has capacity, and the law’s recognition that mere old age or even mental weakness is not necessarily inconsistent with a lack of capacity to transfer property.

Assessing the record within this context, the court found the deposition transcripts of three disinterested individuals reinforced the presumption of capacity. Notably, the testimony of the decedent’s internist of more than 15 years revealed that he had examined the decedent two days before the subject transfer, and had found the decedent to be alert and cogent. Additionally, the decedent’s attorney of more than 50 years, who had handled the transfer on her behalf, testified that he and the decedent’s accountant had met with the decedent to discuss the gifts for two hours, during which time the decedent stated that she had wanted to transfer the property for some time. Based upon this record, together with the presumption of capacity, the court concluded that Gilbert had established a prima facie case that the decedent had the capacity to make the subject gift. On the other hand, the court noted that the objectants lacked personal knowledge of facts regarding the subject transfer. Moreover, the court found upon review of the objectants’ proof, that the objectants had failed to submit any evidence that would create a question of fact regarding the capacity of the decedent to make the subject transfer.

As for the issue of undue influence, the court found that Gilbert had established prima facie that the decedent had made the transfer in issue freely and voluntarily. The court rejected objectants’ claims that a confidential relationship existed between Gilbert and the decedent, as well as objectants’ contention that an inference of undue influence arose by virtue of the fact that Gilbert was present for a part of the time that the decedent had discussed the subject gift with her attorney and accountant. Significantly, the court concluded that any inference of undue influence in this regard was countermanded by the fact that the professionals were the decedent’s long-time advisors. Indeed, the court found none of the indicia of undue influence present; there was no evidence that Gilbert had isolated the decedent from family and friends, nor was their proof that the decedent was so dependent upon Gilbert as to be subject to her control.

Accordingly, based on the totality of evidence, partial summary judgment was granted in the executor’s favor.

Before the court in In re Goodwin was a motion for summary judgment in a proceeding by the decedent’s son, pursuant to SCPA 2105, to discover and compel the turnover of property withheld by the decedent’s daughter, the executrix of the estate. In support of the application, the petitioner alleged that the executrix, while acting as the decedent’s attorney-in-fact, made certain transfers of the decedent’s money to various bank accounts held jointly between herself and the decedent in violation of her fiduciary duties. Notably, the subject powers of attorney were silent as to the gift-giving authority of the agent.

In opposition to the motion, the executrix alleged that the transfers in question were made in accordance with the decedent’s directives and in the decedent’s best interests. Although the executrix provided the court with a copy of the deed relative to this transfer, the court noted that the attorney who prepared the deed, a disinterested witness to the transaction, had failed to provide any information as to the circumstances surrounding the transfer. Further, the executrix alleged that the decedent was mentally capable of making decisions, and was generous with her assets, as reflected in the gifts she had made to the petitioner.

In reply, the petitioner claimed that the decedent suffered from dementia at the time the transfers were made, and submitted the decedent’s medical records in support. In addition, the petitioner submitted a copy of a Family Contract that revealed that the subject transfers were made in order to qualify the decedent for government programs, that the assets thereof were to be for the sole benefit of the decedent, and that the funds were to be distributed at her death pursuant to the terms of her will. The agreement was signed by the executrix.

The court opined that gifts and pre-death transfers made by an agent to herself as power of attorney generally carry with them a presumption of impropriety and self-dealing that can be overcome by a clear showing of intent on the part of the principal to make the gift. Further, any such gifts must be made subject to the principal’s best interests to carry out her “financial, estate or tax plans” (see Matter of Ferrara, 7 NY3d 244).

Based upon the record, the court concluded that the petitioner had made a prima facie case in favor of summary judgment. Specifically, the court relied on the presumption of impropriety surrounding the transfers, and the requirement that the transfers be proven in the decedent’s best interests. To this extent, the court noted that by signing the Family Contract, the executrix acknowledged that she would be receiving the decedent’s assets and that such assets were not to be distributed to anyone other than the decedent.

The court found that given the proof submitted, the executrix was the primary witness to the facts and circumstances surrounding the subject transfers and her testimony was barred by the Dead Man’s Statute. Significantly, the court noted that while it could consider evidence otherwise excludable by the Statute in opposition to the motion, the executrix had failed to offer any other corroborating support for her position. Accordingly, the court directed that the assets represented by the transfers in issue be restored to the estate.

Attorney-In-Fact has Authority to Amend an Irrevocable Trust Pursuant to EPTL 7-1.9

Spencer L. Reames — Wed, 01 Aug 2012 18:54:07 -0500

Estate planning attorneys who prepare durable New York powers of attorney for their clients often counsel them to exercise care in allowing the use of such instruments because they grant the attorney-in-fact broad and sweeping authority. As a shorthand way of describing a power of attorney, an estate planner might tell a client that it allows the attorney-in-fact to do pretty much anything the client could do. The recent Appellate Division decision in Matter of Perosi v. LiGreci illustrates the accuracy of this shorthand description. In that case, the court held that the authority granted to an attorney-in-fact under a New York statutory power of attorney includes the power to amend an irrevocable trust with the consent of the beneficiaries, pursuant to EPTL 7-1.9.

In 1991, Nicholas LiGreci created an irrevocable trust for the benefit of his three children, including his daughter Linda. Nicholas named his brother, John LiGreci, as the trustee. On April 20, 2010, Nicholas executed a durable New York statutory short-form power of attorney naming his daughter Linda as his attorney-in-fact. The power of attorney included authorization for “estate transactions,” as construed under GOL § 5-1502G and “all other matters,” as construed under GOL § 5-1502N. Nicholas also signed a major gifts rider.

One month after the power of attorney was created, Linda, as attorney-in-fact for Nicholas LiGreci, executed an amendment to the irrevocable trust naming her son, Nicholas Perosi, as trustee instead of her uncle, John LiGreci. New York EPTL 7-1.9 allows the creator of a trust to “revoke or amend the whole or any part thereof” by an acknowledged instrument and with the written consent of all the trust beneficiaries. Pursuant to EPTL 7-1.9, each of the beneficiaries of the irrevocable trust consented to the amendment. John LiGreci did not consent to the amendment, nor was his consent required, as he was not a beneficiary.

Nicholas LiGreci passed away on June 3, 2010, never having personally signed the trust amendment. On July 28, 2010, Linda and her son, Nicholas Perosi, as the successor trustee, petitioned for an accounting from John LiGreci; for the removal of John LiGreci as trustee; and for turnover of the trust assets and records to Nicholas Perosi. John LiGreci moved to set aside the trust amendment, arguing that the trust was irrevocable and Linda did not have authority under the power of attorney to amend the trust. The Supreme Court agreed, holding that a power of attorney is a “forward looking” instrument and does not grant an attorney-in-fact authority to amend estate planning devices created prior to the execution of a power of attorney. The Supreme Court also found that the right to amend or revoke an irrevocable trust is a right that is personal to the creator and cannot be exercised by an agent unless the power of attorney expressly provides.

On appeal, the Appellate Division, Second Department, reversed (Matter of Perosi v. LiGreci, 2012 NY Slip Op 05533, decided July 11, 2012). Justice John Leventhal, in opinion joined by Justices Skelos, Balkin and Lott, explained that the irrevocable trust agreement did not specify any procedure by which the trust could be amended, and therefore EPTL 7-1.9 is applicable and allowed Nicholas LiGreci to amend the trust with the consent of the beneficiaries. Examining the power of attorney granted to Linda, the court quoted Zaubler v Picone, 100 AD2d 620, 621 (2d Dept 1984), in which it stated that “[a]n attorney in fact is essentially an alter ego of the principal and is authorized to act with respect to any and all matters on behalf of the principal with the exception of those acts which, by their nature, by public policy, or by contract require personal performance.” The court listed the “few exceptions” to the powers granted to an attorney-in-fact: the execution of a principal’s will, the execution of a principal’s affidavit upon personal knowledge, and the entrance into a principal’s marriage or divorce. Amending or revoking a trust with the consent of the beneficiaries, on the other hand, was not found to be an act which requires personal performance of a principal. The court, therefore, held that Linda, as attorney-in-fact and alter ego of Nicholas LiGreci, properly amended the irrevocable trust.

The court acknowledged that there may be policy considerations for prohibiting an attorney-in-fact from amending or revoking an irrevocable trust “based upon the premise that a creator knows what is best for his or her trust and overall estate plan.” It concluded, however, that “such a policy is for the Legislature to enact, not the courts.”

Validity of Decedent's Marriage the Focus of Application to Vacate Stipulation of Settlement

Jaclene D'Agostino — Thu, 31 May 2012 20:12:02 -0500

The validity of a decedent’s marriage is a topic that is litigated in Surrogate’s Courts with increasing frequency. A determination on the issue has multiple implications for those interested in an estate, including the surviving spouse’s right to an elective share, distributee status and consequential standing of other family members to participate in probate proceedings if the marriage were invalid, and priority in obtaining letters of administration. In the recent case of Matter of Cheek, decided by Surrogate Holzman of Bronx County, the decedent’s sister – motivated, at least in part, to obtain distributee status - challenged the validity of her brother’s marriage to the respondent as a basis to vacate a stipulation of settlement.

Specifically, the decedent’s sister, who had previously commenced a proceeding alleging that she was a creditor of the estate, sought to vacate the stipulation that had previously been entered into on the record in open court, settling her claim. She alleged that she had been in an emotional and volatile state when the agreement was made because it occurred on the one year anniversary of the decedent’s death. She further argued that the agreement was void based upon a mutual mistake of fact regarding the validity of the decedent’s marriage at the time of his death. To this extent, the sister alleged that after entering into the agreement, she learned that the decedent’s divorce from his first wife had been invalid, thus rendering his second marriage to the respondent invalid as well. The sister further claimed that the invalidity of the marriage eliminated the respondent’s status as sole distributee of the estate, and meant that either she or the first spouse, if living, were the sole distributees.

Opposing the sister’s application, the respondent provided an original certified copy of her marriage certificate, which recognized the decedent’s divorce from his first wife. The respondent further alleged that the sister lacked standing to contest the validity of her marriage; but even if standing existed, the decedent’s first wife, not his sister, would be the sole distributee. The respondent additionally asserted that there existed no grounds to vacate the stipulation of settlement for mutual mistake inasmuch as she had provided proof of her marriage, and the sister provided no proof to the contrary.

In response to the foregoing, the court explained that an original certificate of marriage in New York is generally prima facie evidence that the marriage existed (id., citing CPLR 4526), and also stated that absent contrary evidence, there exists a presumption of the validity of a second marriage; the burden of proving otherwise lies with those who assert it. The court went on to state that that burden is even greater where the party challenging the validity is a stranger to the marriage, such as the sister in the subject case (id. relying on Matter of Esmond v Lyons Bar & Grill, 26 AD2d 884 [3d Dept 1966]).

The court further explained the longstanding rule that “stipulations of settlement are favored by the courts and not lightly cast aside” (Hallock v State of New York, 64 NY2d 224 [1984]), “particularly where, as here the stipulation was entered on the record in open court, its terms are unambiguous, the parties were represented by counsel, and the court conducted a proper allocution of the petitioner and determined that she voluntarily and knowingly accepted the terms of the stipulation’” (Matter of Cheek, quoting Matter of Siegel, 29 AD914, 915 [2d Dept 2006]). Considering the sister’s allegations – which the court characterized as conclusory – in view of that standard, the court opined that there was no basis to vacate the stipulation of settlement.

The holding in Cheek is not surprising given the high standard one must meet to vacate a valid stipulation of settlement. Indeed, “only where there is cause sufficient to invalidate a contract, such as fraud, collusion, mistake or accident, will a party be relieved of the consequences of a stipulation made during litigation” (Hallock v State of New York, 64 NY2d 224, 230 [1984]). Nonetheless, the court refused the respondent's request for affirmative relief of attorney’s fees against the sister in connection with her application for vacatur, and despite describing her allegations as conclusory, opined that it had not been a frivolous proceeding.

Potential Creditor of Trust Beneficiary Not Interested Party In Accounting Proceeding

Eric Penzer — Fri, 30 Mar 2012 13:12:56 -0500

Determining the identity of permissible or necessary parties to an accounting proceeding is often a simple task. But in rare cases, the answer is not always so easy. Most recently, in Matter of Cohen, Nassau County Surrogate Edward W. McCarty III was called upon to determine whether a potential creditor of a trust beneficiary was a “person interested” in a trust accounting proceeding. The Court answered the question in the negative.

Michael S. Cohen, died on March 18, 2002. Under the terms of his will (which was admitted to probate), the decedent directed that a trust be created for the benefit of his adopted son, Kevin Cohen (“Cohen”), the decedent’s only child. The will further directed that the trust terminate ten years after the decedent’s death, i.e., March 18, 2012, and that all remaining principal and income be distributed to Cohen (or, if he did not survive the termination of the trust, his minor daughters).

Cohen, formerly an attorney, was convicted in 2010 of 37 counts (including second-degree grand larceny, 11 counts of third-degree grand larceny and 10 counts of third-degree forgery) for stealing more than $300,000 from clients who thought he was assisting them in arranging adoptions; but the children did not actually exist. A criminal restitution order under Criminal Procedure Law § 420.10 was entered against him. The Lawyers Fund for Client Protection (the “Fund”) reimbursed 10 of Cohen’s former clients, all of whom assigned and subrogated their claims against Cohen to the Fund.

In January 2011, the trustee filed an intermediate account with the Surrogate’s Court. The trustee named as an interested party the Nassau County Attorney’s Crime Victims Project, which represented Cohen’s former clients in their claims against him. The County Attorney’s Office represented the interests of the former clients before the Lawyers Fund became involved, and it continued to represent one client who did not seek reimbursement from the Fund.

Both the Fund and the Nassau County Attorney filed objections to the account. The Fund, for its part, maintained that it had an interest in the accounting because of open questions on whether particular estate assets (including an annuity) were part of the trust or owned by Cohen separately.

Wendy H. Sheinberg, Esq., the guardian ad litem for Cohen’s two minor children, moved, inter alia, to amend the petition and account to strike the Nassau County Attorney and the Fund as interested parties, and to dismiss their objections to the account.

The Court began its analysis by noting that the statutory definition of “person interested” specifically excludes creditors. Indeed, SCPA § 103(39) provides that “[a] creditor shall not be deemed a person interested.” The Court then reviewed the cases relied upon by the Fund and the County Attorney, determining them to be distinguishable from the case at bar. Instead, the Court relied upon Matter of Lainez, 79 AD2d 78 (2d Dept 1981), in which the Appellate Division, Second Department, held that a creditor of a beneficiary who is still alive is not a proper party to an account in which the beneficiary has an interest.

The Court also rejected the agencies’ argument that affording them “interested person” status “would be a more efficient way for them to uncover information about Cohen’s assets than if they had to use other discovery methods.” However laudable the goal of efficiency, the Court explained, it “does not give rise to a privilege, right, or status which would otherwise be unavailable.”

Accordingly, the Court determined that as mere potential creditors of a living trust beneficiary, the Fund and the Nassau County Attorney were not persons interested in the decedent’s estate or the accounting. It therefore granted to guardian ad litem’s motion.

The Surrogate’s decision does not leave the two agencies without a remedy, however. The Surrogate’s dismissal of the agencies’ objections was explicitly made without prejudice to their commencing a proceeding pursuant to Executive Law §632-a (6) – the so-called “Son of Sam” law – and seeking the issuance of a preliminary injunction restraining the payment of trust principal to Cohen upon the termination of the trust. The Surrogate also directed that no payments from the trust be made to Cohen for 30 days upon its termination (presumably to give the agencies the opportunity to make an application under the Son of Sam law).

Provision in Pre-Nuptial Agreement to Create Trust for Children is Enforceable

John (Jack) Barnosky — Thu, 01 Mar 2012 09:56:19 -0500

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.

Unlawful Marriages and the Right of Election

Robert Harper — Wed, 15 Feb 2012 20:30:01 -0500

Under New York law, a decedent is prohibited from disinheriting his or her surviving spouse (see Margaret Valentine Turano, Practice Commentaries: EPTL § 5-1.1-A [1999 ed.]). Consistent with that prohibition, the laws of this state provide that a decedent’s surviving spouse has a personal right of election to take a portion of the decedent’s estate, whether or not the decedent provides for the spouse in his or her last will and testament (see EPTL § 5-1.1-A). Predictably, the right of election has given rise to extensive litigation, as evidenced by Suffolk County Surrogate John M. Czygier, Jr.’s recent decision in Matter of Newman (see Matter of Newman, 883 P 2007/A, NYLJ 1202520804987 [Sur Ct, Suffolk County Nov. 1, 2011]). As discussed below, Newman is noteworthy because it addresses the extent to which a judicial determination that the alleged surviving spouse’s marriage to the decedent was unlawful will affect the spouse’s right to elect against the decedent’s estate.

EPTL § 5-1.1-A provides that the surviving spouse of a decedent who dies on or after September 1, 1992, has a personal right to elect against the decedent’s estate (see EPTL § 5-1.1-A), unless it is established that the marriage upon which the surviving spouse relies was incestuous, bigamous, or a prohibited remarriage under the Domestic Relations Law (see Newman, supra). The financial consequences of a surviving spouse asserting elective share rights can be substantial, as the pecuniary value of the elective share is equal to “the greater of (i) fifty thousand dollars or, if the capital value of the [decedent’s] net estate is less than fifty thousand dollars, such capital value, or (ii) one third of the net estate” (see EPTL § 5-1.1-A).

In Newman, the decedent’s alleged surviving spouse, Kenneth Newman (“Kenneth”), sought to exercise his elective share rights against the decedent’s estate (see Newman, supra). After the decedent’s will was admitted to probate, the fiduciary of her estate commenced a proceeding to determine the validity of Kenneth’s election against the estate (see id.). Kenneth died before the matter was resolved, and the executor of the decedent’s estate ultimately moved for summary judgment concerning Kenneth’s notice of election (see id.).

Surrogate Czygier held that Kenneth’s notice of election was invalid, as his marriage to the decedent was unlawful (see id.). In reaching that conclusion, the Surrogate found that, at the time he allegedly married the decedent, Kenneth had not yet divorced (and, thus, was still married to) his first wife (see id.). Absent evidence that Kenneth and the decedent “remarried” after Kenneth divorced his first wife, the executor of the decedent’s estate presented sufficient evidence to rebut the presumption that Kenneth’s “second marriage [was] valid and that the prior marriage was dissolved by death, divorce, or annulment” (see id.). Accordingly, as Kenneth’s marriage to the decedent was unlawful, his notice of election was void and unenforceable (see id.).

In sum, while a surviving spouse generally has a right to elect against a decedent’s estate, that right is not absolute (see Matter of Berk, 71 AD3d 883 [2d Dep’t 2010]). To the extent that the surviving spouse’s marriage to the decedent is unlawful, the survivor will not receive his or her elective share.

Court Awards Compensatory and Punitive Damages, and Attorney Fees, for Fraud in Probating Will

John Morken — Fri, 13 Jan 2012 10:50:57 -0500

Stacey Castor (“Stacey”) made national news in 2007, arising from the 2005 murder of her husband, David Castor, Sr., (“Decedent’) as well as the attempted murder of her own daughter. Stacey was convicted of the murder. Having apparently also murdered a prior husband, Stacey became known as the “Black Widow.”

The Castor case recently moved from the criminal to a civil forum, in the form of a lawsuit brought by the son of the Decedent, David Castor, Jr. (“David” or “Plaintiff”), against Stacey and Lynn and Paul Pulaski ("Pulaskis”). David brought the suit in Supreme Court, Onondaga County, seeking recovery from the Pulaskis and from Stacey for fraud and conspiracy surrounding the probate of the Last Will and Testament of the Decedent. After the death of Decedent, Stacey had convinced the Pulaskis to sign their names as witnesses to a false will, benefiting her. The forged Will left Decedent’s estate to Stacey, and was considered in the criminal prosecution of Stacey as a prime motive for the murder of her husband.

The Supreme Court, Onondaga County handed down its decision on December 14, 2011.

During the course of the trial, the Pulaskis had testified that they had been duped by Stacey, and that their motives were good. Lynn Pulaski testified that Stacey had been her best friend. She had felt terrible because of what she had then thought was the suicide of Stacey’s husband, and she wanted to help Stacey out settling the Decedent’s estate.

The Supreme Court Justice (Paris, J.) was not buying it, concluding that,

[b]ased on the evidence and all the pleadings that make up the record of this particular case, including their testimony, it is obvious that Defendants Pulaski were not innocent pawns. They knew what they were doing was wrong and bore false witness to both the Will and Attestation Clause without any hesitancy or reservation. Thereafter, they executed the Attesting Witness Affidavits that they also knew were false. From the record, it is clear that they kept these falsehoods from the Surrogate’s Court and Plaintiff to his detriment throughout the estate proceedings. Defendants Pulaski only ‘came clean’ when the District Attorney’s investigators came knocking on their door and they were given immunity in return for their cooperation and testimony in the criminal prosecution of Co-Defendant Stacey Castor.

The Court continued:

[w]hile the genesis of this action is the heinous crime committed by Defendant Stacey Castor, Defendants Pulaski compounded the crime through their admitted dishonesty… Plaintiff was contesting the purported Last Will and Testament of his father, David W. Castor, Sr., being offered for probate by Defendant Stacey Castor. He withdrew his objections, as he credibly testified, in the face of Defendant Pulaskis’ subsequent execution of the Attesting Witness Affidavits… Defendants Pulaski admitted that they signed in 2005 as witnesses to Decedent’s Will which was dated 2003. Their reaffirmance of this falsehood by signing the Attesting Witness Affidavits, not only harmed Plaintiff, but also subjected the Surrogate’s Court to needless and unwarranted proceedings, thereby detracting from the orderly administration of that Court’s normal, proper and legitimate proceedings.

The Supreme Court went on to find that all three Defendants, the Pulaskis and Stacey, were jointly and severally liable to Plaintiff. The Court assessed both compensatory and punitive damages against all the Defendants, and not just against Stacey, the murderer. As to the Pulaskis, the Court noted that their actions had “compelled Plaintiff to withdraw his objections to the probate of the Will and hoodwinked and deceived the Surrogate’s Court into probating a fraudulent instrument.” Their conduct “was so repugnant and reprehensible so as to satisfy the threshold of moral culpability necessary to allow the imposition of punitive damages."

Finally, in an interesting and significant further holding, the Court determined that the Plaintiff was entitled to the recovery of his attorney fees against the Defendants, including the Pulaskis.

Issues of Undue Influence

Ilene Cooper — Thu, 29 Dec 2011 09:27:34 -0500

Undue influence is an issue commonly associated with Surrogate’s Court proceedings. Indeed, it is often the linchpin to the outcome of a matter, and as such, relevant to its strategy. This is most pointedly revealed by opinions rendered by the Surrogates of New York and Kings County this year, in which the issue of undue influence played a primary role in connection with a contested probate proceeding.

In In re Moles, N.Y.L.J., Apr. 18, 2011, p. 23 (Sur Ct, New York County), the preliminary executors of the estate moved for summary judgment dismissing the objections of the decedent’s nephew, who was the beneficiary of a prior will executed thirty years earlier than the propounded instrument. The objections alleged, inter alia, that the instrument was not duly executed, and that the instrument was procured by the fraud and undue influence of the decedent’s long-time companion, who was the sole beneficiary of the estate, and the named executor along with the attorney-draftsperson.

The undisputed record revealed that the decedent had a history of alcohol abuse for which she was hospitalized and later rehabilitated. Upon completion of her rehabilitation, she returned to New York City where she retained the services of a personal aide whom resided with her until her death twenty years later. Over the course of her employ, there was no dispute that the decedent and her aide became inseparable, spending every day together, and traveling domestically and overseas. Further, there was no dispute that the decedent was capable of making financial and personal decisions regarding her investments and health care.

The decedent’s treating physician testified that she always found the decedent fully responsive and rational. This was substantiated as well by the attorney-draftsperson of the instrument, who stated that he found the decedent alert, coherent and able to convey detailed information regarding her life situation and family.

Notably, the will execution was videotaped and supervised by the draftsperson’s colleague.

In granting the proponents summary relief, the court rejected the notion that the decedent’s early alcoholism impaired her capacity to execute a will, as well as the testimony of the videographer relied upon by the objectant, who testified that the decedent had difficulty identifying the President of the United States. The court held that this evidence paled in light of the reports and testimony of the professionals who treated and worked with the decedent during the period surrounding the execution of the instrument, all of which indicated that she possessed the minimal capacity required to make a valid Will.

As to the issue of undue influence, the court concluded that the objectant had failed to submit any evidence that the decedent’s aide had compelled or constrained the decedent to do anything against her free will. In fact, the objectant admitted that he saw the decedent at most one to two times a year, and that her other family members rarely visited her.

The court found it significant that the attorney-draftsperson of the instrument testified that the provisions of the Will were derived from instructions given to him by the decedent with no involvement of the decedent’s aide. To this extent, the court opined that the lack of involvement by the proponent in a will’s drafting and execution is inconsistent with any inference of undue influence, even where the disinherited party is a close family member. Further, the court held that even assuming the existence of a confidential relationship between the proponent and the decedent, it was counterbalanced by the evidence of the strong affection between the decedent and her aide during their twenty year relationship, the decedent’s expressed desire to leave her aide her entire estate, and her aide’s lack of involvement in the drafting of the Will.

Finally, the court concluded that the objectant had failed to produce a modicum of proof that anyone induced the decedent to execute her Will based upon a false statement.

In comparison to the holding in In re Moles, the court in In re Carter, N.Y.L.J., Apr. 18, 2011, p. 25 (Sur Ct, Kings County), found that the inference of undue influence required that the propounded instrument be denied probate. The facts of the case are in stark contrast to those in Moles and substantiate the differing opinions.

In Carter, the propounded instrument left the decedent’s entire estate, but for 25% percent of any cash due and owing to the decedent’s sole surviving heir, her sister, to a complete stranger (Frazier), who was also named the executor,. The instrument also directed that in the event the decedent’s sister should be admitted to a nursing home, her share should pass instead to Frazier, and that Frazier pay an amount, not to exceed 11 % of the residuary estate, to charities of his choice.

The record revealed that Frazier was 40 years the decedent’s junior, was not related to the decedent, yet, was her self-described caretaker, and that he was an instrumental force behind the execution of the propounded instrument. The court held that, under these circumstances, as well as events described in its own files and through the testimony of Frazier, an inference of undue influence existed requiring a hearing. Notably, the court found that Frazier had been previously appointed as fiduciary in a number of other estates of women significantly older than him, and with whom he had no relationship, that were strikingly similar to the factual situation involving this decedent.

Based on the testimony and evidence adduced at the hearing, the court concluded that Frazier had engaged in a systematic course to take over the personal and financial affairs of the decedent, whom he knew had been diagnosed with dementia, much as he did in the case of countless other elderly and frail women to whom he ingratiated himself. He moved into her home, put his name on her bank accounts, monitored her telephone calls, put her under surveillance and held her health care proxy. Significantly, the record also disclosed that in 2006, when the decedent was overtly suffering mentally, and when no attorney would draft a Will for her, he allegedly acceded to her insistence upon executing a new Will by retyping a prior Will of the decedent, with the decedent’s handwritten changes, and taking the decedent to her doctor’s office to have it signed and witnessed.

At the conclusion of the hearing, the court concluded, inter alia, that Frazier’s testimony gave rise to a strong inference of undue influence, based in particular, upon his complete insinuation into the decedent’s life and financial affairs, the decedent’s dependence upon him for her basic needs, and his involvement in the preparation and execution of the instrument which made him the primary recipient of her estate. The court held that Frazier offered nothing to rebut this proof, but rather buttressed the result that the Will of the decedent was the product of his own decision-making, and control over its preparation and execution.

Accordingly, probate was denied.

Appellate Division Decides Case Of First Impression Regarding Joint Tenancy Issue

Eric Penzer — Wed, 30 Nov 2011 21:22:46 -0500

In Trotta v. Ollivier, the Appellate Division, Second Department, decided an issue of first impression in any New York State appellate court, to wit, whether the estate of a joint tenant may sue a surviving joint tenant to recover one-half of payments made by the decedent for the purchase and upkeep of property. The court answered this question in the negative.

The facts of the case, as alleged in the complaint, were not particularly remarkable. In 1992, the decedent, Susan Leone, and the defendant, Charles Ollivier, purchased real property as joint tenants with the right of survivorship. Thereafter, they lived together for a period of time as an unmarried couple. From her own funds, Leone allegedly paid $90,000 toward the purchase price, a construction loan, and other closing costs and expenses, and thereafter paid $102,000 for the mortgage, $20,000 for property insurance, $11,000 for repairs, $2,500 for utilities, and $1,000 for replacement appliances. In total, Leone allegedly expended $226,500 from her own funds in connection with the property. Allegedly, Ollivier did not contribute to the purchase and carrying charges of the property or, if he did, his contributions were not equal to those of Leone. At no time did either Leone or Ollivier seek a partition of the property.

Leone died unexpectedly in 2008. Subsequent to her death, the plaintiff, the executor of Leone’s estate, made mortgage and other payments on the property totaling $7,500.

The executor commenced an action against Ollivier in Supreme Court alleging unjust enrichment and seeking a judgment reimbursing the estate for one-half of the purchase price of the property and the carrying charges of the property, and full reimbursement of the $7,500 in carrying charges paid by the estate.

The trial court granted Ollivier’s pre-answer motion to dismiss the complaint for failure to state a cause of action, holding that the estate’s reimbursement claim did not survive Leone’s death, and that RPAPL 1201 -- discussed below -- was inapplicable. The Appellate Division reversed, agreeing that the complaint failed to state a cause of action as to any of the expenses paid by Leone prior to her death, but holding that the estate stated an unjust enrichment claim against Ollivier for reimbursement of the $7,500 paid post-death.

The court began its analysis by noting that Leone, while she was alive, could have sought to partition the property, effectively severing her joint tenancy with Ollivier, and in that regard could have sought an equitable adjustment of the interests she and Ollivier held in the property. She never did so. The court further noted that “Leone, during her lifetime, was free to manage her finances and spend her money as she saw fit, even if, with the benefit of hindsight, her decision to purchase the subject property and hold title with Ollivier as a joint tenant, and to continue to pay its ongoing expenses after Ollivier moved to another address, inured to the financial benefit of Ollivier.” Thus, according to the court, the estate had no claim for unjust enrichment for reimbursement of Leone’s pre-mortem expenditures.

The court further rejected plaintiff’s argument that RPAPL 1201 provided the basis for a claim for reimbursement. That statute provides that “[a] joint tenant or a tenant in common of real property, or his executor or administrator, may maintain an action to recover his just proportion against his co-tenant who has received more than his own just proportion, or against his executor or administrator.” Despite a “paucity” of case law interpreting the statute, the court determined that RPAPL 1201 vests joint tenants and tenants in common, or their estates, with the right to recover monies “received” by a co-tenant that exceed his or her proportionate share; it does not extend the right of recovery to expenses “paid” by a tenant beyond his or her equitable share means.

Accordingly, the court held that no claim existed against Ollivier with respect to pre-death payments made by Leone.

The court reached a different determination with respect to the $7,500 the estate paid toward the property’s expenses after Leone’s death. When those payments were made, ownership of the property had already passed to Ollivier by operation of law. The estate, according to the court, had a valid claim for unjust enrichment in connection with those payments, as it would be “against equity and good conscience to permit Ollivier to retain the value of those payments.”

Was it a Convenience Account?

Jaclene D'Agostino — Fri, 21 Oct 2011 12:12:22 -0500

A convenience account is exactly as it sounds – an account on which the holder adds someone else’s name for purposes of convenience only, i.e., check writing, bill paying, transfers, and withdrawals. It is a frequently litigated topic , as the issue often arises as to whether a joint account had really been intended as such, or whether it was created merely for convenience. If it is the latter, then all of the funds contained in the account will pass to the estate of the initial account holder.

It is generally recognized that Section 675 of the Banking Law creates a presumption that a right of survivorship is intended for each named account holder, but some courts have held that this presumption only arises where the signature card on the account contains the requisite survivorship language (see e.g. Matter of Coon, 148 AD2d 906 [3d Dept 1989]; Matter of Seidel, 134 AD2d 879 [4th Dept 1987]; Matter of Ancell, 5/2/2002 NYLJ 28 [col 4] [Sur Ct, Westchester County]; cf. Sutton v Bank of New York , 250 AD2d 447 [1st Dept 1998]). Regardless, it is the burden of the person alleging that such an account had been for convenience to come forth with sufficient evidence to rebut any existing presumption, and establish that a convenience account had been intended (see Viggiano v Viggiano, 136 AD2d 640 [2d Dept 1988]). In deciding the issue, courts typically look to the following factors:

Whether the decedent was the sole depositor to the account;
Whether the creation of a survivorship interest would deviate from the decedent’s testamentary plan;
Whether the account was used exclusively by the decedent during his lifetime;
Whether the decedent retained the right to withdraw the proceeds; and
The conduct of the surviving joint tenant (In re Zorskas, 20 Misc 3d 1110[A], [Sur Ct, Nassau County 2008]).

These considerations will ultimately determine the outcome of Estate of Sanabria, 2011 NY Slip Op 51802(U), a recent case emanating from Bronx County. Surrogate Holzman issued an initial decision in Sanabria last week, granting the temporary administrator’s application for a preliminary injunction against a daughter of the decedent, prohibiting her from withdrawing funds from a bank account that she had held jointly with the decedent during his lifetime. The temporary administrator, who also happened to be a son of the decedent, asserted that the joint account had been for convenience only. The daughter, on the other hand, claimed that the subject account had been held jointly with right of survivorship. Her position was not supported by the signature card, which lacked survivorship language and listed the decedent “or” the daughter as the account holders. Therefore, even if the account were not a convenience account but merely a co-tenancy, principles of moiety would entitle the daughter to no more than half of the funds contained therein (see Estate of Hamburg, 151 Misc 2d 1034 [Sur Ct, Bronx County 1991]).

On the return date, counsel for the petitioner informed the court that the daughter had withdrawn approximately $358,000 from the joint account, which was then closed. Accordingly, he requested broader relief enjoining the daughter from transferring or disposing of all funds that had been in the joint account, regardless of their current location. The Court granted this relief because the temporary administrator met the requisite elements for preliminary relief, demonstrating (1) a likelihood of success on the merits (by virtue of the signature card); (2) irreparable harm to the estate if the preliminary injunction were not granted; and (3) the balance of equities of his favor (the daughter removed the funds from the account after being on notice of the estate’s claim against her). Notably, the Court’s consideration of the signature card as probative of a likelihood of success on the merits indicates that it is following the line of cases holding survivorship language on the card to be determinative as to whether a presumption of a joint tenancy will arise (see supra).

If, after a hearing, the Court decides that the account was in fact for convenience only, the daughter will be liable for the entire balance of the account as of the date of the decedent’s death.

Court Decides Issue Of Standing To Participate In Cy Pres Proceeding

Eric Penzer — Fri, 23 Sep 2011 10:08:33 -0500

In a recent decision in the Matter of Lally, the Schenectady County Surrogate’s Court decided an issue of standing on a set of particularly interesting facts.

The case involved a charitable trust agreement that directed that “St. Clare’s Hospital of Schenectady, New York Foundation Inc. Schenectady, New York” (along with various other charitable beneficiaries) receive a portion of the remainder of the subject trusts.

According to the petitioner, St. Clare’s Hospital of Schenectady, N.Y. Foundation, Inc. (the “Foundation”) is a not-for-profit corporation established to support and assist St. Clare’s Hospital of Schenectady (the “Hospital”) in expanding and developing its services to the community. However, in 2008, the New York State “Berger Commission” mandated that the Hospital close its doors. Allegedly, the commission required the Hospital to surrender its license to operate and to execute an Asset Transfer Agreement with Ellis Hospital (“Ellis”), which assumed the sole responsibility of providing hospital and other healthcare services previously provided by the Hospital, and is the sole remaining hospital in Schenectady County. While the Foundation remains in existence as a not-for-profit corporation, and holds significant assets, it no longer supports or assists the inoperative Hospital.

The corporate trustee of the subject trusts, Trustco Bank, brought a cy pres proceeding in the Surrogate’s Court, to determine whether the Hospital’s relinquishment of its license to operate renders the administration of the subject trusts according to their literal terms impractical or impossible. Ellis filed a Notice of Appearance in the proceeding. The Foundation moved to “reject” the Notice of Appearance, in essence asking that the court rule that Ellis had no standing to participate in the proceeding. The Attorney General filed papers in support of the Foundation’s motion, and Ellis, naturally, opposed it. The trustee took no position.

By way of background, courts generally entertain cy pres proceedings when the intended recipients of a charitable donation can no longer be identified. In such cases, courts are authorized to release funds for purposes as close as possible to the wishes of the donors. As one court explained,

the cy pres doctrine takes its name from the Norman French expression, cy pres comme possible, which means “as near as possible.” The doctrine originated to save testamentary charitable gifts that would otherwise fail. Under cy pres, if the testator had a general charitable intent, the court will look for an alternate recipient that will best serve the gift’s original purpose.

(Airline Ticket Comm’n. Antitrust Litig. Travel Network, Ltd. v United Air Lines,

Inc., 307 F3d 679, 682 [8th Cir 2002]).

The court first addressed -- and rejected -- various procedural arguments. First, it rejected the Attorney General’s argument that it was premature to determine Ellis’ standing prior to the court deciding whether it would exercise its cy pres power in the first place. Second, it rejected the argument that the court should not reach the issue of standing because Ellis neither initiated the proceeding nor was suing to enforce its claim to the subject charitable gift. Having rejected those procedural arguments, the court went on to address the merits of the motion, i.e., the issue of Ellis’ standing to participate in the proceeding.

The parties agreed that the court should apply the standing rule enunciated by the Court of Appeals in Alco Gravure v. The Knapp Foundation, 64 NY2d 458 (1985). That case was a declaratory judgment action brought by corporate plaintiffs whose employees were the intended beneficiaries of a charitable foundation. In deciding the issue of the plaintiffs’ standing to maintain the action, the Court held that one who is merely a possible beneficiary of a charitable trust, or a member of a class of possible beneficiaries, is not entitled to sue for enforcement of the trust. Rather, the Attorney General has the statutory power and duty to represent the beneficiaries of any disposition for charitable purposes. However, the Court also recognized an exception to the general rule, where a particular group of people has a special interest in funds held for a charitable purpose, as when they are entitled to a preference in the distribution of such funds and the class of potential beneficiaries is sharply defined and limited in number (see id. at 465).

The Surrogate noted that the facts in Alco Gravure differed from the facts of the case before it because, first, Alco Gravure was not a cy pres proceeding; second, the plaintiffs in Alco Gravure were members of a named class of beneficiaries (i.e., persons employed by the defendant corporation); and, third, the issue in Alco Gravure pertained to the plaintiffs’ standing to sue, not standing to appear and participate as an intervenor as in this case. Nevertheless, the court stated that it would apply the rules enunciated in Alco Gravure, there being no other authority providing any superior guidance.

Applying those rules, the court rejected the argument advanced by the Attorney General and the Foundation that Ellis is merely one of an undefined class of hundreds of potential beneficiaries of a cy pres-directed distribution of the trust, with no preferred status in a case. Instead the court determined that Ellis had a unique, contractual relationship with the Hospital that set it apart from all other potential charitable beneficiaries, and that therefore it was entitled to a preference in the distribution. The court based its determination on the facts regarding the Berger Commission’s mandate and the Asset Transfer Agreement between the Hospital and Ellis, by which Ellis acquired the Hospital’s assets and assumed its hospital services.

However, the court was careful to emphasize that its ruling should not be interpreted as meaning that in the event it determined to exercise its cy pres power, Ellis would be the likely recipient of the subject charitable disposition. The court’s ruling only provided Ellis with the status of an interested party, with the right to file a responsive pleading, participate in discovery, make motions, and participate during the trial.

Although the importance of the court’s decision in Matter of Lally might not extend much further than the specific facts of that case, it certainly provides further authority for the proposition that the Surrogate’s Courts are, first and foremost, courts of equity.

Revoking Marriages in Article 81 Proceedings

Robert Harper — Thu, 25 Aug 2011 11:27:33 -0500

As the problem of elder abuse has become increasingly prevalent in recent years, so too has the need to protect elders who suffer abuse, whether physical, mental, or financial, at the hands of the individuals to whom they have entrusted their care and affairs (see Campbell v Thomas, 73 AD3d 103, 104 [2d Dept 2010]). Recent case law demonstrates that elderly individuals can fall prey to their much younger caregivers who secretly marry the elderly in the hopes of benefiting from their estates (see id.; Matter of Berk, 71 AD3d 883, 883-86 [2d Dept 2010]; Matter of Kaminester, 26 Misc3d 227, 235-37 [Sur Ct, New York County 2009]). For family members who are aware of such abuse, one solution may be to commence an Article 81 guardianship proceeding and to seek to have the marriage revoked by a guardianship court (see Mental Hygiene Law 81.29).

Under Mental Hygiene Law 81.29, an Article 81 guardianship court “may modify, amend, or revoke . . . any contract [including one involving a marriage] made while the person was incapacitated” (see Mental Hygiene Law 81.29). In this regard, the Appellate Division, Second Department, has held that a marriage may be revoked when the evidence shows that one of the parties to the marriage “was ‘incapable of understanding the nature, effect, and consequences of the marriage’” at the time that it occurred (Matter of Joseph S., 25 AD3d 804, 806 [2d Dept 2006]). The factors that the guardianship court considers in determining whether to revoke a marriage include, among other things, the differences in the purported spouses’ ages; whether the spouses cohabited; whether there was a change in residency; whether the spouses wore wedding rings; and whether there is any evidence of financial exploitation of the incapacitated spouse (see Matter of I.I.R., 21 Misc.3d 1136[A], at *2 [Sup Ct, Nassau County 2008]).

Matter of Carmen R. is instructive (see 15 Misc3d 1116[A], at *1-6 [Sup Ct, Westchester County 2007]). There, the petitioner, the alleged incapacitated person’s daughter and duly appointed Temporary Personal Needs Guardian, made an application for the annulment of her eighty-nine year-old mother’s marriage to her fifty-seven year-old chauffeur (see id.).

At an evidentiary hearing, Westchester County Supreme Court Justice Peter J. Rosato heard testimony from, among others, the alleged incapacitated person’s physician, which established that she suffered from severe dementia, among other ailments, and could not understand any marriage ceremony; from the alleged incapacitated person, which demonstrated that she knew her alleged spouse, but could not remember his last name or any marriage to him; and from the alleged incapacitated person’s daughter, which suggested that the alleged spouse concealed the “marriage” from her, evidenced the fact that the alleged spouse was her mother’s chauffer, not her friend, and flatly contradicted the alleged spouse’s claim that he had lived with the incapacitated person for more than a decade (see id.). Justice Rosato also heard testimony from the alleged spouse which demonstrated that the first time he publicly disclosed the marriage was on an immigration application to have his daughter admitted to the United States from Ecuador; that he had been collecting thousands of dollars in rent from the tenants of property owned by the alleged incapacitated person; and that he had previously been arrested for violating a temporary restraining order that prohibited him from having contact with the alleged incapacitated person (see id.).

Based upon the testimony and other evidence before the court, Justice Rosato granted the petitioner’s application for an annulment of the marriage between her mother and the chauffer (see id.). In doing so, Justice Rosato explained that “[i]t [was] abundantly clear, on the evidence adduced upon the hearing held herein, that the [alleged incapacitated person] did not possess the requisite mental capacity to marry” (id.). Justice Rosato also found that the marriage was a product of fraud arising from the purported spouse’s desire to gain entry into this country for his daughter who was living in Ecuador until after the marriage (see id.). Accordingly, Justice Rosato granted the petitioner’s application to annul the marriage (see id.).

Of course, an annulment in the context of an Article 81 proceeding is only feasible where the relatives of an allegedly incapacitated person are aware of the marriage prior to the person’s death. Where the marriage is concealed until after the person dies, however, other remedies may exist outside the context of Article 81 (see Jaclene D’Agostino, “Appellate Division Cites Equitable Factors In Denying Entitlement To Elective Share”)

Fiduciary Beware: Contested Accounting in the Face of Exoneration Clause Results in Liability for Inter Vivos Trustee

Ilene Cooper — Thu, 11 Aug 2011 08:53:14 -0500

Although exoneration clauses in a testamentary trust will not, as a matter of public policy, absolve a trustee of liability for failure to exercise reasonable care, diligence and prudence (EPTL §11-1.7(a)(1)), there is no comparable statutory provision with respect to exoneration clauses in lifetime trusts. Nevertheless, the court, in Matter of Accounting of Tydings, NYLJ, July 7, 2011, at p. 26 (Sur Ct, Bronx County), found reason, despite the exoneration clause in the inter vivos trust instrument, to hold the trustee liable.

In Tydings, the court had the opportunity to opine on the effect of the exoneration clause in the subject trust, commissions, and the legal fees incurred by the petitioner and objectant. The objectant in the proceeding was the grantor and income beneficiary of the trust, with a discretionary interest in the principal. The ultimate remainderman of the trust was the grantor’s infant son.

With regard to the issue of the exoneration clause, the trust instrument authorized, inter alia, the trustee to retain an original investment for any length of time without liability for such retention, and to act on behalf of the trust and herself or another entity with regard to any transaction in which the trustee and the trust or the other entity had an interest. The trust also provided that the trustee would not be responsible for any loss to the trust unless such loss resulted from bad faith or fraud on the part of the trustee, and that the trustee would not be disqualified from acting because the trustee held an interest in any property or entity in which the trust also held an interest. The court noted that several of the objections raised in the proceeding hinged, inter alia, on the enforceability of this exoneration clause.

To this extent, the court opined that despite the absence of a statute applicable to exoneration clauses contained in lifetime trusts (cf. EPTL 11-1.7(a)(1)), the enforceability of such clauses were nevertheless subject to certain defined limitations. For instance, the court observed that a trustee of a lifetime trust who is guilty of wrongful negligence, impermissible self-dealing, bad faith or reckless indifference to the interests of the beneficiaries will not be shielded from liability by an exoneration clause. Moreover, when an attorney, named as trustee, is the draftsperson of the instrument containing an exoneration clause, the clause limiting the trustee’s liability to bad faith acts is void as against public policy. Further, the court noted that while improper self-dealing will not come under the umbrella of an exoneration clause, the rule of undivided loyalty due from a trustee may be relaxed by appropriate language in the trust instrument which directly or indirectly recognizes the trustee may be in a position of conflict with the trust.

Within this context, the court held that the petitioner would not be liable with respect to an interest-free loan that pre-existed the creation of the trust and that had been transferred into the trust by the grantor. On the other hand, the court found the petitioner liable for interest-free loans made by the trust subsequent to the inception of her stewardship. To this extent, the court concluded that petitioner’s conduct exhibited a complete indifference to the best interests of the objectant, mandating that she be surcharged for the income lost on the loan transactions.

Additionally, the court found that the exoneration clause in the instrument did not bar the objectant from recovering lost profits from the trustee attributable to her use of trust funds, without consideration, to benefit an entity in which she was personally interested.

As to the balance of the objections, the court concluded that the objectant was either estopped from raising the issues, or did not warrant the imposition of a surcharge.

With respect to the issue of commissions, the court opined that while not every surcharge warrants a denial of commissions, when the fiduciary has engaged in conduct evidencing bad faith, a complete indifference to his/her duties and responsibilities, or some act of malfeasance or misfeasance, commissions will be denied. Based on the record, the court found that the petitioner was lax with regard to managing the financial aspects of the trust. Indeed, although the court concluded that the petitioner had not acted in bad faith, it, nevertheless, held, particularly based on the interest-free loans that had been made, that she had exhibited indifference to her duties, and, accordingly, sufficient misfeasance to warrant a denial of commissions. Further, the court denied the petitioner annual commissions on the grounds that she had failed to establish that she had furnished the objectant with an annual statement pursuant to the provisions of SCPA 2309, that the objectant had waived her right to receive the statement, or that there was sufficient income retained by the trust in any particular year from which she could pay herself income commissions.

Finally, with regard to the issue of legal fees, the court held, in the exercise of discretion, that the petitioner and the objectant should each, individually, bear responsibility for their legal fees and expenses. The court observed that while many of the objections to the petitioner’s account had not been sustained, the petitioner could not seek payment of fees from the trust for defending objections for which she was surcharged. Moreover, the court opined that a strong case could be made for holding the petitioner responsible for the expert witness fees incurred by the objectant in proving petitioner’s liability in connection with the transactions for which she was surcharged. On the other hand, the court noted that the objectant vigorously pursued, and caused the petitioner to defend, numerous objections of which she was aware and had approved prior to their occurrence. Accordingly, under all the circumstances, the court determined it would be most equitable to have the petitioner and the objectant to personally satisfy their own legal fees in connection with the proceeding.