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CONSTRUCTIVE TRUST PROPERLY IMPOSED UPON THE PROCEEDS OF LIFE INSURANCE TO COVER CHILD SUPPORT AND EDUCATION COSTS.

The Second Department determined, where father was ordered to procure life insurance to cover the children’s support and education costs, and where father died without complying with the order, a constructive trust on the proceeds of other life insurance policies was properly imposed in an amount sufficient to cover father’s support and education-expense obligations:

… [T]he Legislature has provided that a court may require a payor spouse to maintain life insurance to prevent that financial injury: “The court may also order a party to purchase, maintain or assign a policy of accident insurance or insurance on the life of either spouse, and to designate in the case of life insurance, either spouse or children of the marriage, or in the case of accident insurance, the insured spouse as irrevocable beneficiaries during a period of time fixed by the court. The obligation to provide such insurance shall cease upon the termination of the spouse’s duty to provide maintenance, child support or a distributive award” (Domestic Relations Law § 236[B][8][a]). The purpose of this provision is not to provide an alternative award of maintenance or child support, but solely to ensure that the spouse or children will receive the economic support for payments that would have been due had the payor spouse survived … . Accordingly, where life insurance is appropriate, it should be set in an amount sufficient to achieve that purpose … . It should not be in an amount that would provide a windfall … . Mayer v Mayer, 2016 NY Slip Op 05911, 2nd Dept 8-31-16

FAMILY LAW (CONSTRUCTIVE TRUST PROPERLY IMPOSED UPON THE PROCEEDS OF LIFE INSURANCE TO COVER CHILD SUPPORT AND EDUCATION COSTS)/INSURANCE LAW (CONSTRUCTIVE TRUST PROPERLY IMPOSED UPON THE PROCEEDS OF LIFE INSURANCE TO COVER CHILD SUPPORT AND EDUCATION COSTS)/CHILD SUPPORT (CONSTRUCTIVE TRUST PROPERLY IMPOSED UPON THE PROCEEDS OF LIFE INSURANCE TO COVER CHILD SUPPORT AND EDUCATION COSTS)/TRUSTS AND ESTATES (CONSTRUCTIVE TRUST PROPERLY IMPOSED UPON THE PROCEEDS OF LIFE INSURANCE TO COVER CHILD SUPPORT AND EDUCATION COSTS)

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MORE THAN A YEAR’S DELAY IN PUBLIC ADMINISTRATOR’S SEEKING SUBSTITUTION FOR DECEASED IN A MEDICAL MALPRACTICE ACTION ADEQUATELY EXPLAINED.

The First Department, over a dissent, determined the Public Administrator’s late motion (CPLR 1021) for substitution (for the deceased plaintiff) in a medical malpractice action was properly granted. There was a delay of more than one year after letters testamentary were issued before substitution was sought. The delay was essentially caused by law office failure. With respect to a reasonable excuse for the delay, the court wrote:

… [T]he record shows that there was a dispute between two of [the deceased’s] children as to who would administer the estate, and that the Public Administrator’s counsel was on maternity leave for five months. In addition, in this case, inadvertent errors in drafting the agreement to retain counsel accounted for some of the delay. Thus, … there are circumstances present that “adequately explain[] the delay in issue” … . Public Adm’r, as Adm’r of the Estate of Ronald Simpson v Levine, 2016 NY Slip Op 05896, 1st Dept 8-25-16

 

TRUSTS AND ESTATES (MORE THAN A YEAR’S DELAY IN PUBLIC ADMINISTRATOR’S SEEKING SUBSTITUTION FOR DECEASED IN A MEDICAL MALPRACTICE ACTION ADEQUATELY EXPLAINED)/CIVIL PROCEDURE (TRUSTS AND ESTATES, MORE THAN A YEAR’S DELAY IN PUBLIC ADMINISTRATOR’S SEEKING SUBSTITUTION FOR DECEASED IN A MEDICAL MALPRACTICE ACTION ADEQUATELY EXPLAINED)

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LIFE ESTATES IN A CONDOMINIUM AND COOPERATIVE APARTMENT DID NOT DIMINISH VALUE OF THE PROPERTIES FOR ESTATE TAX PURPOSES.

The Second Department determined the value of properties transferred upon decedent's death was the fair market value at the time of death. The fact that decedent willed life estates in the properties did not diminish the value of the properties for estate tax purposes:

“Because the estate tax is a tax on the privilege of transferring property upon one's death, the property to be valued for estate tax purposes is that which the decedent actually transfers at his death rather than the interest held by the decedent before death or that held by the legatee after death” … . An estate tax taxes “not the interest to which the legatees and devisees succeeded on death, but the interest which ceased by reason of the death” … . “The value of every item of property includible in a decedent's gross estate … is its fair market value at the time of the decedent's death” … . An estate tax is a tax on the privilege of passing on property, not a tax on the privilege of receiving property; “[t]he tax is on the act of the testator not on the receipt of the property by the legatees” … .

Therefore, contrary to the petitioner's contention, the life estates in the condominium and cooperative apartment granted by the decedent to his longtime companion upon the decedent's death did not diminish the value of those properties for estate tax purposes and should not have been taken into account on the estate tax return. Matter of Cleary, 2016 NY Slip Op 04410, 2nd Dept 6-8-16

TRUSTS AND ESTATES (LIFE ESTATES IN A CONDOMINIUM AND COOPERATIVE APARTMENT DID NOT DIMINISH VALUE OF THE PROPERTIES FOR ESTATE TAX PURPOSES)/TAX LAW (ESTATE TAX, (LIFE ESTATES IN A CONDOMINIUM AND COOPERATIVE APARTMENT DID NOT DIMINISH VALUE OF THE PROPERTIES FOR ESTATE TAX PURPOSES)/ESTATE TAX (LIFE ESTATES IN A CONDOMINIUM AND COOPERATIVE APARTMENT DID NOT DIMINISH VALUE OF THE PROPERTIES FOR ESTATE TAX PURPOSES)

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EXECUTOR-STATUS (PRIOR TO DEATH) AND FAMILIAL RELATIONSHIP DO NOT CREATE A FIDUCIARY RELATIONSHIP, EQUITABLE ESTOPPEL SHOULD NOT HAVE BEEN INVOKED TO SAVE A TIME-BARRED CLAIM.

The Third Department, over a two-justice dissent, determined the doctrine of equitable estoppel should not have been invoked to save a time-barred claim to real property. The real property was the subject of a 1977 will which placed the property in trust for decedent's children and named defendant executor. In 1988 the property was conveyed to the defendant, but the will was never amended. Supreme Court denied defendant's motion to dismiss, finding that defendant's executor-status and familial ties created a fiduciary relationship, requiring defendant to notify plaintiffs of the 1988 transfer. The Third Department held the appointment as executor did not create a fiduciary relationship (prior to death), and the familial relationship, as well, did not create a fiduciary relationship. Therefore, the Third Department ruled, the defendant was not barred, by equitable estoppel, from asserting the statute of limitations defense:

Supreme Court recognized that “concealment without actual misrepresentation may form the basis for invocation of the doctrine [of equitable estoppel] if 'there was a fiduciary relationship which gave [the] defendant an obligation to inform [the] plaintiff of facts underlying the claim'” … . Here, the court found that plaintiffs had sufficiently alleged that defendant owed them a fiduciary duty to disclose the conveyance when it occurred in 1988 because of her nomination as executor-trustee in the 1977 will, as well as their familial relationship.

We note, however, that the existence of a familial relationship does not equate to a fiduciary relationship for equitable estoppel purposes … . Nor does the mere fact that a will has nominated an executor, in and of itself, create a fiduciary relationship between the nominee and the will's beneficiaries. Indeed, because of the ambulatory nature of a will, a nominated executor is prohibited from acting in a fiduciary capacity until the testator dies … . Similarly, “a testamentary trust cannot become effective prior to the testator's death” … . Picard v Fish, 2016 NY Slip Op 04086, 3rd Dept 5-26-16

CIVIL PROCEDURE (EXECUTOR-STATUS (PRIOR TO DEATH) AND FAMILIAL RELATIONSHIP DO NOT CREATE A FIDUCIARY RELATIONSHIP, EQUITABLE ESTOPPEL SHOULD NOT HAVE BEEN INVOKED TO BAR A TIME-BARRED CLAIM)/EQUITABLE ESTOPPEL (EXECUTOR-STATUS (PRIOR TO DEATH) AND FAMILIAL RELATIONSHIP DO NOT CREATE A FIDUCIARY RELATIONSHIP, EQUITABLE ESTOPPEL SHOULD NOT HAVE BEEN INVOKED TO BAR A TIME-BARRED CLAIM)/TRUSTS AND ESTATES (EXECUTOR-STATUS (PRIOR TO DEATH) AND FAMILIAL RELATIONSHIP DO NOT CREATE A FIDUCIARY RELATIONSHIP, EQUITABLE ESTOPPEL SHOULD NOT HAVE BEEN INVOKED TO BAR A TIME-BARRED CLAIM)

BENEFICIARIES OF ESTATE DID NOT HAVE STANDING TO BRING AN ACTION TO PRESERVE AN ESTATE ASSET, ONLY THE PERSONAL REPRESENTATIVE OF THE ESTATE HAS THAT POWER.

The Second Department determined plaintiffs, who were beneficiaries of decedent's estate, did not have standing to bring an action seeking to recover and preserve an asset allegedly wrongfully diverted from decedent's estate prior to her death. Only a personal representative of the estate could bring the action:

EPTL 11-3.2(b) provides that a cause of action for injury to person or property is not lost because of the death of the person in whose favor the cause of action existed, as the cause of action may be commenced or continued by the decedent's personal representative. “[A] beneficiary, absent extraordinary circumstances . . . , cannot act on behalf of [an] estate or exercise [a] fiduciary's rights with respect to estate property” … . Rather, “[t]he appropriate avenue is to be appointed a representative pursuant to the requirements of the EPTL” … .

Here, the Supreme Court correctly determined that the plaintiffs lacked standing to commence an action to recover and preserve an asset alleged to have been wrongfully diverted from the decedent's estate prior to her death … . The plaintiffs, as individual beneficiaries of the decedent's estate, had no independent right to maintain an independent cause of action for the recovery of estate property, as such a right belonged to the personal representative of the decedent's estate … . Stallsworth v Stallsworth, 2016 NY Slip Op 03161, 2nd Dept 4-27-16


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MORTGAGE HAD PRIORITY OVER COUNTY’S CLAIM FOR REIMBURSEMENT OF MEDICAID BENEFITS.

The Third Department determined a mortgage held by Wells Fargo had priority to a claim by the county seeking reimbursement of Medicaid benefits received by the decedent:

 

Petitioner [Saratoga County Department of Social Services] asserts priority pursuant to Social Services Law § 104 (1), which provides, in relevant part, that “[i]n all claims of the public welfare official made under [such] section[,] the public welfare official shall be deemed a preferred creditor” (emphasis added). “Preferred creditor” has been construed to give a social services department priority over a “general creditor, that is, a creditor that, upon giving credit, takes no rights against specific property of a debtor” … . Here, Wells Fargo holds a mortgage lien against the Rotterdam property that was recorded prior to the May 2014 decree of Surrogate's Court validating petitioner's claim. Although Medicaid assistance was provided to decedent before the mortgage was given, petitioner did not have a prior lien against the property (see Social Services Law § 369 [2] [a]). As such, we conclude that Wells Fargo's prior specific lien gives it priority over petitioner's claim with respect to the … property … . Matter of Shambo, 2016 NY Slip Op 02699, 3rd Dept 4-7-16


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FIDUCIARY EXCEPTION TO THE USUAL BURDEN OF PROOF IN A CONSTRUCTIVE FRAUD ACTION DID NOT APPLY, FIDUCIARIES WERE NOT PARTIES TO THE RELEVANT DOCUMENTS AND DID NOT STAND TO BENEFIT FROM THE PROVISIONS OF THE DOCUMENTS.

The Court of Appeals, in a full-fledged opinion by Judge Pigott, over a two-judge dissenting opinion, determined an affirmative defense alleging constructive fraud on the part of attorneys who drafted irrevocable releases of powers of appointment of trust assets was properly dismissed by the Appellate Division. The Benihana Protective Trust (BPT) was formed by Rocky, the founder of the Benihana restaurant chain. The irrevocable releases of powers of appointment allowed disposition of the trust assets only to Rocky's descendants. However, irrespective of the releases, Rocky's will attempted to pass trust assets to his wife. Rocky indicated in a deposition that he would not have signed the releases had he known they would prohibit the disposition of trust assets to his wife. Upon Rocky's death, Rocky's wife sought to have the releases declared invalid under a fiduciary constructive-fraud theory. Rocky's wife argued that the fiduciary exception to the usual constructive fraud proof requirements shifted the burden to the trust beneficiaries to prove the releases were not procured by fraud. Rejecting the applicability of the fiduciary exception, the court affirmed the Appellate Division's grant of summary judgment in favor of the trust beneficiaries:

It is a well-settled rule that “'fraud vitiates all contracts, but as a general thing it is not presumed but must be proved by the party seeking to [be] relieve[d] . . . from an obligation on that ground'” … . However, an exception to that general rule provides that where a fiduciary relationship exists between the parties, the law of constructive fraud will operate to shift the burden to the party seeking to uphold the transaction to demonstrate the absence of fraud … . * * *

[The attorneys who drafted the Releases] were clearly Rocky's fiduciaries. But that is only one part of the equation. The critical inquiry is whether they were either parties to the Releases or stood to directly benefit from their execution, such that the burden shifted to [trust beneficiaries] to demonstrate that the Releases were not procured by fraud.

Here, the only individuals who stood to benefit from Rocky's execution of the Releases were his descendants. [The attorneys] were [not] parties to the Releases [and did not] to directly benefit from their execution … . If anything, the execution of the Releases all but ensured that [the attorneys] would have no interest in, nor would receive any benefit from, the trust assets. Therefore, the Appellate Division correctly determined that, because the fiduciary exception does not apply in this case, the Surrogate had improperly shifted the burden of proof to [the trust beneficiaries] to demonstrate that the Releases were not procured by fraud. Matter of Aoki v Aoki, 2016 NY Slip Op 02474, CtApp 3-31-16

FRAUD (FIDUCIARY EXCEPTION TO THE USUAL BURDEN OF PROOF IN A CONSTRUCTIVE FRAUD ACTION DID NOT APPLY, FIDUCIARIES WERE NOT PARTIES TO THE RELEVANT DOCUMENTS AND DID NOT STAND TO BENEFIT FROM THE PROVISIONS OF THE DOCUMENTS)/ATTORNEYS (FIDUCIARY EXCEPTION TO THE USUAL BURDEN OF PROOF IN A CONSTRUCTIVE FRAUD ACTION DID NOT APPLY, ATTORNEYS WHO DRAFTED THE RELEVANT DOCUMENTS WERE NOT PARTIES AND DID NOT STAND TO BENEFIT FROM THE PROVISIONS OF THE DOCUMENTS)/TRUSTS AND ESTATES  (FIDUCIARY EXCEPTION TO THE USUAL BURDEN OF PROOF IN A CONSTRUCTIVE FRAUD ACTION DID NOT APPLY, ATTORNEYS WHO DRAFTED RELEASES OF POWERS OF APPOINTMENT WERE NOT PARTIES TO THE RELEASES AND DID NOT STAND TO BENEFIT FROM THE RELEASES)/POWERS OF APPOINTMENT  (FIDUCIARY EXCEPTION TO THE USUAL BURDEN OF PROOF IN A CONSTRUCTIVE FRAUD ACTION DID NOT APPLY, ATTORNEYS WHO DRAFTED RELEASES OF POWERS OF APPOINTMENT WERE NOT PARTIES TO THE RELEASES AND DID NOT STAND TO BENEFIT FROM THE RELEASES)

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DEFENDANT’S DEATH PRIOR TO PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT DIVESTED THE COURT OF JURISDICTION, COURT SHOULD NOT HAVE DECIDED MOTION AND ORDER APPEALED FROM WAS A NULLITY.

In this foreclosure action, the Second Department determined plaintiff bank's motion for summary judgment should not have been entertained because defendant had died before the motion was brought. The order appealed from was therefore a nullity:

Here, the deceased defendant died before the plaintiff's motion was made and before the order appealed from was issued. The attorney who had represented the deceased defendant prior to his death purportedly took this appeal on behalf of, among others, the deceased defendant. However, since a substitution of parties had not been effected prior to the filing of the notice of appeal, counsel lacked the authority to act for the deceased defendant, and the purported appeal taken on behalf of the deceased defendant must be dismissed … . Furthermore, since no substitution was made prior to the entry of the order appealed from, the order appealed from is a nullity to the extent that it pertains to the deceased defendant, and we vacate so much of the order as granted that branch of the plaintiff's motion which was for summary judgment on the complaint insofar as asserted against the deceased defendant … .

Similarly, in this case, since a proper substitution had not been made, the Supreme Court should not have determined the merits of the plaintiff's motion, even to the extent that the plaintiff sought relief against the other defendants … . Aurora Bank FSB v Albright, 2016 NY Slip Op 02307, 2nd Dept 3-30-16

CIVIL PROCEDURE (DEFENDANT'S DEATH PRIOR TO PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT DIVESTED THE COURT OF JURISDICTION, COURT SHOULD NOT HAVE DECIDED MOTION AND ORDER APPEALED FROM WAS A NULLITY)/JURISDICTION (DEATH, DEFENDANT'S DEATH PRIOR TO PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT DIVESTED THE COURT OF JURISDICTION, COURT SHOULD NOT HAVE DECIDED MOTION AND ORDER APPEALED FROM WAS A NULLITY)/TRUSTS AND ESTATES (DEFENDANT'S DEATH PRIOR TO PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT DIVESTED THE COURT OF JURISDICTION, COURT SHOULD NOT HAVE DECIDED MOTION AND ORDER APPEALED FROM WAS A NULLITY)/APPEALS (DEATH, DEFENDANT'S DEATH PRIOR TO PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT DIVESTED THE COURT OF JURISDICTION, COURT SHOULD NOT HAVE DECIDED MOTION AND ORDER APPEALED FROM WAS A NULLITY)

LETTERS TESTAMENTARY PROPERLY REVOKED WITHOUT A HEARING.

The Second Department determined Surrogate's Court properly revoked letters testamentary without a hearing based upon undisputed proof the administrators were in conflict with each other, improvidently managed the property and failed to abide by the terms of a so-ordered stipulation:

The removal of a fiduciary pursuant to SCPA 711 and 719 is equivalent to a judicial nullification of the testator's choice and may only be decreed when the grounds set forth in the relevant statutes have been clearly established … . The Surrogate may remove a fiduciary without a hearing only where the misconduct is established by undisputed facts or concessions, where the fiduciary's in-court conduct causes such facts to be within the court's knowledge, or where facts warranting an amendment of letters are presented to the court during a related evidentiary proceeding … . Thus, revoking a fiduciary's letters without a hearing pursuant to SCPA 719 will constitute an abuse of discretion where the facts are disputed, where conflicting inferences may be drawn therefrom, or where there are claimed mitigating facts that, if established, would render summary removal an inappropriate remedy … . Matter of Kaufman, 2016 NY Slip Op 01849, 2nd Dept 3-16-16

TRUSTS AND ESTATES (LETTERS TESTAMENTARY PROPERLY REVOKED WITHOUT A HEARING)/LETTERS TESTAMENTARY (PROPERLY REVOKED WITHOUT A HEARING)

PETITION SEEKING DISCOVERY BASED UPON THE ALLEGATION RESPONDENT HELD ASSETS OF THE ESTATE PROPERLY DENIED, PETITIONERS DID NOT MEET THEIR INITIAL BURDEN.

After carefully considering all the allegations (not summarized here), the Third Department determined the petitioners (children of the decedent) did not meet their burden of showing respondent (another child of the decedent who had lived with decedent) held any property which was an asset of the estate. The petition seeking discovery pursuant to Surrogate's Court Procedure Act (SCPA) 2103 was therefore properly denied:

SCPA 2103 establishes a discovery procedure by which a fiduciary can identify and recover estate assets held by a third party … . The fiduciary bears the burden to prove that property held by a respondent is an estate asset; only when that obligation has been satisfied does the burden shift to the respondent to prove the proper disposition of the disputed property. We agree with Surrogate's Court that petitioners did not satisfy this initial burden and failed to establish grounds for further inquiry. Dwyer v Valachovic, 2016 NY Slip Op 01542, 3rd Dept 3-3-16

TRUSTS AND ESTATES (PETITIONERS DID NOT DEMONSTRATE RESPONDENT HELD ASSETS OF THE ESTATE, PETITION FOR DISCOVERY PURSUANT TO SCPA 2103 PROPERLY DENIED)/SURROGATE'S COURT PROCEDURE ACT (PETITIONERS DID NOT DEMONSTRATE RESPONDENT HELD ASSETS OF THE ESTATE, PETITION FOR DISCOVERY PURSUANT TO SCPA 2103 PROPERLY DENIED)

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