By: Gary E. Bashian
APPELLATE DIVISION AFFIRMS
WESTCHESTER COUNTY SURROGATE
RE: ADOPTED BENEFICIARY’S RIGHTS
In a case of first impression, the Appellate Division Second Department affirmed a Decision of Surrogate Scarpino wherein he held a Decedent’s adoptive child, who was later surrendered by Decedent’s widow by way of a second adoption, maintained her rights and interests in her first adopted father’s inter vivos Trusts and Estate.
Needless to say, Matter of Svenningsen, presented both the Surrogate, and the Appeals Court, a number of difficult legal issues. Sevenningsen involved the adoption of an infant Chinese national by an American couple. Unfortunately, during the finalization of the adoption proceedings, the adoptive father was receiving treatment for cancer, and his spouse was forced to travel to China without him to take custody. Importantly, the adoption agreement required that the infant would not be “transferred” or “re-adopted,” and that the baby would be deemed the biological child of the adoptive parents. Once returned to the US, the adoptive parents acknowledged the adoption, and properly re-adopted the child in the NY family Court system so as to obtain a US passport and birth certificate.
During life, Decedent had created a number of inter vivos Trusts, one of which was to distribute income to his then living children in equal shares when the oldest child reached 30, at the Trustee’s discretion. The trust itself defined children as the Decedent’s then living children, and those born or adopted after the Trust’s creation. A second Trust, designated each of Decedent’s children as beneficiaries of sub trusts by name, including one such Trust established for the Decedent’s newly adopted daughter. Decedent’s Will also created a credit shelter Trust to “any child of mine” subject to certain contingencies, and a marital Trust for his spouse. The Will included adoptive children in its definition of issue.
Thereafter, seven years since the adoption, and six since Decedent’s passing, the adoptive child was enrolled in a boarding school for children with special needs. It was at that time an administrator approached the Decedent’s widow, and proposed adoption of the child, which eventually was consummated. The child’s status as a beneficiary of the aforementioned instruments was not known to the newly adoptive parents at that time. They only discovered the extent of the child’s beneficiary status when examining the probate records of decedent’s Estate – and after counsel for decedent’s widow wrote to them suggesting that they consent to the child separating her interests from the Estate and the biological children through the creation of a spray Trust.
Subsequently, the newly adoptive parents sought to compel an accounting of the Trusts and Estate on behalf of their adoptive daughter. As a defense, the biological family argued that they (as guardians of the child) did not have standing to do so as their adoption of the child had been complete. Predictably, both parties moved for Summary Judgment.
Surrogate Scarpino ruled in favor of the adopted child, and denied the Motions made by Decedent’s widow, and his children who had joined in the Motion. Relying on the clear terms of the instruments, Surrogate Scarpino found that it was decedent’s full intent that his adoptive daughter be included as a full member of his family, and that her rights under his Estate plan were fully vested – thus she had standing, and was a full beneficiary of his Estate and the Trusts related thereto.
On appeal, the Decedent’s biological family maintained that the adoptive child’s rights had been terminated, pursuant to DRL 117,as a result of the second adoption.
The Appellate Division, followed the guidance of but the legislature, and the insight of Surrogate Scarpino, and held that, even in a situation such as that presented, absent the express exclusion of the adoptive child, they stand on equal ground with biological issue. Moreover, that the rights and interests of such adopted children in inheritance are preserved, so long as the testator/settlor intention is clear that the child is an intended beneficiary within the four corners of the instrument at issue.
In the matter before the Court, it was clear that the adopted child was to be included in his testamentary plan. Furthermore, the child’s subsequent surrender to new parents was not a foreseeable circumstance at the time of decedent’s drafting of his instruments. As such, the second adoption was not intended to, and did not, terminate her interest in the Marital Trust - not only because the adoptive child was specifically named, and intended to be, a beneficiary thereof, but because she was not surrendered to her new parents until many years after Decedent’s passing. Similarly, the adoptive child’s rights regarding the other Trusts had been fully vested, as, although inchoate ( the eldest biological child had not yet reached 30), she was named in the instrument, and, though the conditions precedent had not yet been met, “uncertainty is not enough to deny standing” to those who seek to protect Trust property – the beneficiaries’ vesting of interest having occurred as they had survived Decedent.
As such, Surrogate Scarpino was found to have properly granted Summary Judgment in favor of the adoptive daughter, and denied that of the Decedent’s biological family.
Matter of Svenningsen,105 AD3d 165; 959 N.Y.S.2d 237; 2013 N.Y. Slip Op. 00751 (App Div 2nd Dept 2013)
In Civil Litigation, the party who wins a Motion or receives a favorable Decision will typically file and serve a Notice of Entry.
However, as discussed by Surrogate Gigante in Will of D’Ambrosio, and in a Decision that might be rather surprising to Supreme Court practitioners, no Notice of Entry is required in the Surrogate’s Court, as the Court itself “is self containing and self sufficient,” having its own Clerk independent of the County, and having no need for its Orders to be entered therewith. Furthermore, the [t]here is simply no need for a Note of Entry because the Order itself is self-entering…”
In D’Ambrosio, this little known procedural rule led to the undoing of an Objectant’s defense in a Contempt proceeding, where they argued that they had no obligation to comply with the Surrogate’s Order that they pay Petitioner $2,000 as the Order itself had never been Entered. Unfortunately for Objectant, this argument was wholly unavailing, as with no statutory requirement that an Order be Entered and served by opposition, no argument could be made that the Order was not properly filed with the Surrogate’s clerk.
Will of D’Ambrosio, NYLJ May 6 2013, p.17, col. 3 (Surrogate’s Court, Richmond Co.)
(Decided 4/29/13; NYLJ 1202598464039)
FOR YOUR EYES ONLY: SEALING v PUBLIC POLICY
For any number of reasons, clients might request that Counsel move the Court to seal the record regarding their matter. However, as the preliminary Executors in the Will of Fay Wason Patrick quickly learned, relief pursuant to 22 NYCRR 216.1(a) is rarely granted by the Surrogate’s Court.
Indeed, there are a number of factors the Court must consider when an application to seal a record is made, foremost of which is if good cause to do so has been established. Furthermore, a record can only be sealed where the movant demonstrates compelling circumstances warranting restriction of access to their file, “[c]onclusory claims of the need for confidentiality are insufficient to find good cause” as “confidentiality is clearly the exception, not the rule.
Additionally, as part of its analysis when considering the sealing of a record, the Court must balance the interests of the public and the parties. Unsurprisingly, the balancing of these interests is weighed in favor of the public’s interest as there is a broad presumption that they should have access to judicial records. Consequently, the Court must review every application to seal records on a case by case basis in their effort to determine if good cause actually exists, consider the application within the context of the type of action pending, and state the grounds for any finding of good cause in writing before ordering a seal.
Lastly, and perhaps just as important to this analysis is the fact that sealing a record is not warranted “where the information sought to be sealed is already a matter of public record.
As these grounds could not be met, no seal was granted to these fiduciaries.
Will of Fay Wason Patrick, NYLJ Apr. 26, 2013, p.21, col.3 (Surrogate’s Court, Dutchess Co.)
(Decided 4/17/13; NYLJ 1202597358920)
OUT OF STATE COMMISSIONS NOT FREELY GIVEN
It is not at all uncommon that the testimony of a non-party witness who no longer lives in New York State is needed, and a pre-drafted statement or deposition upon written questions are either impractical or inadequate.
With great luck, this non-party might be willing to return to New York’s Jurisdiction, or have plans in the future to return, and will agree to be deposed. However, it is a rare exception that arrangements such as these can be made, and the need for counsel to obtain a commission pursuant to CPLR 3108 to conduct a deposition through a surrogate attorney out of state is often the only solution.
Where the party seeking the commission can make a showing to the Court that 1) the testimony sought is material and necessary to the prosecution/defense of the case; 2) that the non-party possesses the information sought, or that their examination is reasonably calculated to produce information relevant to the matter; and 3) that the witness’ testimony is unobtainable by other means, a commission may issue.
However, absent a showing of any of these elements, as Nassau Surrogate McCarty indicated in Matter of the Estate of Levine, if an application for a commission is “devoid of information concerning efforts…to obtain the cooperation and voluntary appearance of the non party witnesses,” even where all of the other elements are clearly met, the commission will not issue.
Accordingly, strict attention to these procedural requirements must be followed or that out of state witness will remain beyond your reach.
Matter of the Estate of Levine, NYLJ Apr. 22, 2013, p. 17, col.3 (Surrogate’s Court, Nassau Co.)
(Decided 3/29/13; NYLJ 1202596544370)
CY PRES SAVES THE DAY
No matter how meticulous an Estate plan might be crafted, there are always risks that one’s testamentary intent cannot be met. Beneficiaries predecease; assets are gifted or sold, and adeem; and unexpected expenses during life might result in a reduced residuary whose proportional shares are far less than expected.
Thankfully, there a number of mechanisms at law which can preserve, to one degree or another, the testamentary intentions of a Decedent - the Cy Pres doctrine (EPTL 8-1.1(c)) being foremost amongst them.
For the uninitiated, the Cy Pres Doctrine can be utilized where a charitable institution named as a beneficiary, but that charity cannot accept the bequest as it no longer exists. By virtue of Cy Pres, this bequest will not adeem should a similar charitable institution be found that can accept the bequest.
Such was the case in Matter of Wheaton Galentine Trust, St. Vincent’s Hospital Center was a designated Trust Beneficiary, but had since been shuttered and could not receive Trust income. Accordingly, Surrogate Anderson authorized the Trustees to distribute Trust assets to Mt. Siani Hospital and The Village Center for Care as “[b]oth institutions provided services to the settlors” were “located in the neighborhood where the settlors lived”, and “[s]uch limitation [was] in accordance with the settlor’s expressed intent to support geriatric concerns.” Thus, not only was the Grantor’s intent preserved, but the community which he made his home received the benefits of his bequest, even where the specific beneficiary he sought to benefit was no longer in existence.
Matter of Wheaton Galentine Trust, NYLJ Apr. 12, 2013, p. 21, col.2 (Surrogate’s Court, NY Co.)
(Decided 4/8/13; NYLJ 1202595491464 )
TRUSTEE’S DISCRETION BROAD, BUT NOT UNBOUNDED
During the administration of long term Trusts, it is not uncommon for beneficiaries and trustees to have disagreements about the size and frequency of discretionary distributions that are made. Depending on the reasonableness of the Trustee, or as is more often the case, the unreasonableness of the beneficiary, a fiduciary might find themself at the Respondent’s end of a removal proceeding where they refuse to make distributions that they believe are unnecessary, improper, and/or inappropriate – despite the repeated pleas of the beneficiary who seeks them.
Hammerschlag v Schleisinger, is one such example. The Trustee in Hammerschlag was granted broad powers to distribute Trust income at his “sole and absolute discretion”. Upon the refusal to distribute funds to a beneficiary who claimed that she was destitute and immediately needed monies to obtain an apartment, meet expenses, and pay off debts (including attorney’s fees) she alleged that the failure to release income constitutes a breach of fiduciary duty warranting his removal as fiduciary.
Unsurprisingly, the trustee moved for Summary Judgment to dismiss the beneficiary’s claims against him, arguing that he had acted in good faith and that the requested expenditures were rejected as the beneficiary had offered no proof in support of her claims of destitution, provided no budget reflecting her expenses, and provided no information about the funds she was receiving from other parties regarding the support of her child. Indeed, the beneficiary had defrauded and stolen from her parents in the past, had criminal charges brought against her regarding these thefts, and was alleged to have a history of “unsavory” behavior.
Nevertheless, noting that the Trustees powers were not “unbounded,” the Court denied summary judgment as the Trustee as there was an “open question of fact as to whether the trustee failed to exercise his independent judgment or adequately evaluate the beneficiary’s needs before refusing to make any distribution…” Accordingly, a hearing was schedule to determine these issues of fact, and determine if the Trustee had breached his duty, or was simply a victim of his own good judgment.
Hammerschlag v Schleisinger, NYLJ Apr. 26, 2013, p.26, col.3 (Surrogate’s Court, NY Co.)
(Decided 4/17/13; NYLJ 1202597358371
REFORMATION CONFIRMS THE BEST INTENTIONS
It is well established that one of the guiding principles governing any Surrogate’s Court matter is that the intent of the Decedent must be preserved. Unfortunately, a Decedent is not in the position to offer much help when the Court is let to determine what that intent was where there is ambiguity on an instrument, or worse still, a provision in an instrument that appears to contradict the underlying logic and purpose of the Testamentary plan itself.
Thankfully, neither the Court nor Petitioners are left without recourse in these situations as interested parties who confront such ambiguity and/or surprising inconsistencies within an Estate plan as they may take advantage of Reformation and Construction proceedings as authorized by the SCPA.
Such was the case in Trust of Ronald D. Brigati where the Decedent’s Irrevocable Life Insurance Trust directed that the proceeds of a life insurance policy were to be paid to his Executor so as to satisfy the Estate’s tax liabilities – but as a consequence became part of the Decedent’s gross taxable Estate.
Knowing full well that it was not the intention of the Decedent to have these life insurance proceeds included as part of the gross taxable Estate, the Co-Trustees sought to reform the Trust’s provision that controlled this asset.
In support of reformation, the Co-Trustees not only wisely offered the Court an Affidavit of the draftsman that indicated the Decedent’s known intent was to avoid tax liability when he created the Trust, but also highlighted the fact that the fact that the Trust agreement stated that its “Overriding Tax Purpose” was to exclude the assets of the Trust from Decedent’s gross Estate.
Based on the clear language of the Trust, and the further evidence offered in support of the Decedent’s intent, the Decedent’s intent could clearly be established, Surrogate Czygier granted the Petitioner’s reformation, and saved the Estate a sizeable, and clearly unintended, tax burden.
Surrogate Anderson was also confronted with a similar issue in Matter of Estate of Bowman, where an in artfully drafted instrument led to some confusion over the disposition of the family home and its contents.
In Bowman, the Will appeared to grant the Executrix a life Estate in the subject property, with the caveat that should the property be sold, that the proceeds be distributed to children and grandchildren in defined percentages. However, the Executrix believed that the language of the Will allowed her to devise this property through her own Will upon death, with nothing passing to the other family members thereafter.
Disagreeing, Surrogate Anderson held that “[a] sympathetic reading of the provision at issue discloses not merely a primary testamentary objective (i.e., that the daughter have the use of the property as long as she wished), but also, a secondary objective: that the property’s economic value be received by designated individuals (of whom the daughter was one) when the property was no longer being put to the daughter’s use.”
Accordingly, the Executrix was determined to only hold title as a Fiduciary for others, and would be obligated to eventually share the value of the home with her family ne way or the other.
Trust of Ronald D. Brigati, NYLJ Mar. 25, 2013, p.17, col. 2 (Suffolk Co. Surrogate’s Court)
(Decided 2/27/13; NYLJ 120593000540
Matter of Estate of Bowman, NYLJ Jun. 10, 2013, p. 17, col.1 (NY Co Surrogate’s Court)
(Decided 5/22/13; NYLJ 122603156509)
TO MY APPOINTEE…
Powers of Appointment, and their interaction with the directives of other instruments, remain tricky terrain for the Courts, Draftsmen, and Advocates alike, so much so that even institutional Trustees such as JP Morgan Chase will seek Court intervention to determine if they have been validly exercised in order to properly administer distribution of both Trust and Estate assets, and not risk a violation of their fiduciary duties to either.
As illustrated in Matter of JP Morgan Chase, Trustee, questions about the validity of the exercise of a power of appointment can arise when it appears that the power seeks to distribute assets to individuals who may not have been authorized beneficiaries under the terms of the Trust instrument itself.
As Surrogate Mella indicated in the Decision, “an exercise of a power of appointment is not void if its exercise is more extensive than was authorized but is valid to the extent authorized by the by the instrument creating the power (EPTL 10-6.6[a]).” Meaning that, as the Court favors exercising the power of appointment over invalidating it, the portions of a power of appointment that are properly authorized will remain valid, and only those portions that attempt to dispose of assets without underlying authority will be deemed void.
Luckily for the appointees in JP Morgan, none of them were found to be non-permissible appointees as the Trust from which they would ultimately receive a distribution had ample assets to satisfy its distributions, and no funds from a secondary Trust, which could only be distributed to a spouse and/or family, would be implicated in the exercise of the power.
Accordingly, the exercise was determined to be effective, and no proportional invalidation was necessary as the appointees were never non permissible appointees in the first place.
Matter of JP Morgan Chase, Trustee, NYLJ Apr. 8, 2013, p.17, col. 3 (NY Co. Surrogate’s Court)
(Decided 4/2/13; NYLJ 1202594798135)