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EPTL 2-1.13, Which Required that Certain Formula Clauses in Trusts and Wills Be Calculated as if Federal Estate Taxes Were Paid in 2010 (When the Tax Had Expired) , Did Not Apply to the Grantor Retained Annuity Trusts at Issue Here

The First Department determined Surrogate’s Court properly determined how to distribute two grantor retained annuity trusts (GRATs).  The grantor died in 2010. Because the federal estate had expired in 2010, executors were permitted to pay no estate tax that year and the executors so elected in this case. A clause in the GRATs provided that whatever fraction of the assets in the GRATs is “includable in the Grantor’s gross estate for Federal estate tax purposes” passes into the estate, and any remainder is distributed equally to the three children.   The court held that EPTL 2-1.13, which required that, in 2010, certain formula clauses in trusts and wills be calculated as if the federal estate tax had been paid, did not apply.  Therefore, all of the assets in the GRATs were to be distributed equally:

A review of the legislative history of EPTL 2-1.13(a)(1) reveals that its purposes were quite narrow and that it was primarily a legislative fix enacted to prevent the thwarting of the well-intentioned estate plans of those who, in good faith reliance on the existence of an estate tax in 2010, bequeathed significant portions of their estates to persons other than their spouses, so they could take full advantage of the spousal estate tax exemption. For people who died in 2010, the expiration of the estate tax not only nullified oft-utilized tax planning strategies, but threatened to leave their spouses with less money than they otherwise would have received, and with no concurrent benefit. The Legislature, by enacting EPTL 2-1.13(a)(1), saved these estate plans by permitting their creators to adopt the fiction that they paid an estate tax, even if they did not.

There is no evidence here that the GRATs at issue were created with the specific goal of taking advantage of spousal exemptions based on the federal estate tax, or were structured for similar purposes. Further, the Legislature did not contemplate that the repeal of the tax law would implicate the formula clause at issue here. The clause here references federal estate tax laws not to minimize tax liability, but to account for an uncertain value to include in the taxable estate upon death of the grantor, to be distributed in proportion to each of the beneficiaries’ taxable share of the estate … . Thus, contrary to petitioner’s assertions, the GRATs’ reference to the amount of trust property “includible in the Grantor’s gross estate for Federal estate tax purposes” is not analogous to the “amount that can pass free of federal estate taxes, or that is otherwise based on a similar provision of federal estate tax,” as EPTL 2-1.13(a)(1) recites.  Matter of Kirschner v Fisher, 2014 NY Slip Op 03626, 1st Dept 5-20-14

 

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Releases Effectively Prohibiting Decedent’s Exercise of a Power of Appointment In Favor of Decedent’s Wife Were Not Procured by Constructive Fraud

The First Department reversed Surrogate’s Court and determined that releases restricting decedent’s power of appointment were not procured by constructive fraud (as a matter of law) and were enforceable.  The releases allowed decedent to exercise powers of appointment re: a trust only in favor of a descendant. Decedent’s wife was the beneficiary of a codicil, executed by the decedent after the execution of the releases, which purported to award her 25% of the trust plus the income from 75% of the trust for life. In finding the wife had not raised a question of fact about whether the releases were procured by constructive fraud, the court wrote:

The principles underlying the concept of constructive fraud are of long-standing duration:

“It may be stated as universally true that fraud vitiates all contracts, but as a general thing it is not presumed but must be proved by the party seeking to relieve himself from an obligation on that ground. Whenever, however, the relations between the contracting parties appear to be of such a character as to render it certain that they do not deal on terms of equality but that either on the one side from superior knowledge of the matter derived from a fiduciary relation, or from an overmastering influence, or on the other from weakness, dependence, or trust justifiably reposed, unfair advantage in a transaction is rendered probable, there the burden is shifted, the transaction is presumed void, and it is incumbent upon the stronger party to show affirmatively that no deception was practiced, no undue influence was used, and that all was fair, open, voluntary and well understood. This doctrine is wellsettled.” …

“To avoid a release on the ground of fraud, a party must allege every material element of that cause of action with specific and detailed evidence in the record sufficient to establish a prima facie case … . “In the absence of a fiduciary relationship between the parties to the release, the party seeking to avoid the release bears the burden of proving such fraud or other vitiating circumstances”… . Moreover, a release should “not be treated lightly” and “should never be converted into a starting point for renewed litigation” except in cases of “grave injustice” and then, only under “the traditional bases of setting aside written agreements” … . * * *

It is well established that a “party who signs a document without any valid excuse for having failed to read it is conclusively bound by its terms” … . The record is devoid of any excuse, let alone a valid excuse, for failing to read the release prior to signing it … . * * * “[T]o hold a release forever hostage to legal afterthoughts basically vitiates the nature of the release” … .

 Matter of Aoki v Aoki, 2014 NY Slip Op 03433, 1st Dept 5-13-14

 

Surrogate’s Court Should Have Held a Hearing to Determine the Validity of a Handwritten Will Supported by the Affidavits of Two Attesting Witnesses—If Valid, the 2012 Handwritten Will Would Have Revoked the 2002 Will

The Fourth Department reversed Surrogate’s Court and ordered that a hearing be held to determine whether a 2012 will revoked a 2002 will.  The 2012 will was handwritten and included some confusing language, but it was supported by the affidavits of two attesting witnesses.  There was sufficient evidence of the validity of the 2012 will to warrant a hearing:

We conclude that petitioner demonstrated a substantial basis for contesting the 2002 will. Execution of a subsequent will revokes a former will if the subsequent will is “so inconsistent with the former will that the two cannot stand together,” even in the absence of an express revocation clause in the subsequent will … . Here, the 2002 will named respondent as the sole beneficiary, but the 2012 will named petitioner as the sole beneficiary and purported to dispose of all of decedent’s property. We therefore conclude that the provisions of the 2002 will are so inconsistent with those of the 2012 will that, if the Surrogate were “satisfied with the genuineness of the [2012] will and the validity of its execution” (SCPA 1408 [1]), the 2012 will would revoke the 2002 will. Thus, in this case, whether petitioner had a reasonable probability of successfully vacating probate of the 2002 will was dependent upon whether he could prove, through competent evidence, that the 2012 will was genuine and duly executed and attested …. Matter of Gehr, 2014 NY Slip Op 03049, 4th Dept 5-2-14

 

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Antenuptial Agreement Was a Valid Contract Which Controlled Interpretation of Trust Documents

The Third Department applied general principles of contract-interpretation to an antenuptial agreement and trust documents to determine objections to property distribution raised by the surviving wife:

Although the [trust document] makes no explicit mention of the antenuptial agreement, the [trust document] fulfilled decedent’s obligation under that agreement by explicitly creating a trust to benefit [the wife] during her lifetime in an amount in excess of that required by the antenuptial agreement. Further, the [trust document] provides that the trust to benefit [the wife] be funded with assets that “qualify for the marital deduction,” which is consistent with the intentions of the parties as explicitly set forth in the antenuptial agreement. The structure of the [trust document] creates an estate plan that is inconsistent with [the wife’s] claim. The plain language provides for a trust to benefit [the wife] that meets the specific minimum requirements set out in the antenuptial agreement, and the [trust document] conforms to the parties’ intentions regarding tax deductibility expressed in the agreement. Considering this evidence, Surrogate’s Court properly determined that there is no issue of material fact on [the wife’s] claim, because decedent intended to fulfill his obligation under the antenuptial agreement through the [trust] …, and that trust was funded in an amount greater than required by the antenuptial agreement … . Matter of Rich, 2014 NY Slip Op 02982, 3rd Dept 5-1-14

 

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Complaint Stated Causes of Action for a Constructive Trust and Quantum Meruit

Plaintiff alleged the expenditure of resources for the development of a quarry on defendant’s land. Defendant had changed the locks to the property and refused plaintiff further access. In determining that plaintiff had stated causes of action for a constructive trust and quantum meruit, the Third Department explained the relevant criteria:

Supreme Court correctly denied the motion to dismiss the cause of action seeking to impose a constructive trust on the business property. This equitable remedy may be imposed “when property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest” … . To prove entitlement to this relief, a plaintiff must establish “a confidential or fiduciary relationship, a promise, a transfer in reliance thereon and unjust enrichment” … . The element of transfer has been interpreted to include the expenditure of effort and resources in reliance upon a promise to share in a property interest … .

Here, the complaint alleges that plaintiff had a confidential or fiduciary relationship with defendant, that defendant made promises that plaintiff and defendant had a partnership and that plaintiff had vested rights and interests in the quarry business and property, that plaintiff relied on these promises and the fiduciary relationship in contributing resources to develop the business, and that defendant breached these promises and would be unjustly enriched in the absence of a constructive trust. Deeming these allegations to be true, construing them liberally, and granting plaintiff the benefit of every favorable inference, as we must …, we find that the amended complaint adequately states a cause of action for the imposition of a constructive trust… .

The cause of action in quantum meruit requires a showing of “a plaintiff’s performance of services in good faith, acceptance of those services by a defendant, an expectation of compensation and proof of the reasonable value of the services provided” … . The complaint alleges that plaintiff acted in good faith and in the expectation of compensation in making the previously-discussed contributions to the business, that defendant accepted its services and contributions, and that plaintiff has been damaged in the amount of the reasonable value of its contributions. Plaintiff further submitted the affidavit of its principal (see CPLR 3211 [a] [7]…) , alleging that plaintiff contributed more than $200,000 toward the business as well as all of the knowledge, labor, equipment and other resources necessary for its development, that a substantial amount of processed material that it had paid to create remained on the property when plaintiff was locked out in 2011, and that defendants have continued to benefit from plaintiff’s contributions thereafter by selling materials from the business without compensating plaintiff accordingly. Thus, despite defendants’ contention that plaintiff’s services were performed primarily for its own benefit, we agree with Supreme Court that the complaint states a cause of action in quantum meruit … . Rafferty Sand & Gravel LLC v Kalvaitis, 2014 NY Slip Op 02656, 3rd Dept 4-17-14

 

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Attorneys Represent the Administrators Individually and Not the Estate Itself/Therefore an Estate May Seek Restitution of Attorney’s Fees Paid from the Estate for the Representation of an Executor Who Defrauded the Estate

After it had bee determined the first executor (Carbone) had looted the estate, the new executor sued the law firm which defended the first executor.  The Second Department determined that the law firm could not be sued by the estate for legal malpractice because the retainer agreement with the first executor did not encompass “administration of the estate.”  Therefore, absent allegations of fraud and collusion with the first executor, the law firm, which was not in privity with the estate, could not be sued for malpractice with respect to the estate.  However the cause of action for restitution, which alleged the payment of lawyers’ fees for the representation of the first executor from the estate, could go forward:

This Court has held that “an attorney represents the administrators individually and not the estate itself” … . Accordingly, an attorney may recover fees from the estate only where the services rendered benefit the estate … . Where a plaintiff asserts a cause of action for restitution, the ” essential inquiry'” is ” whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered'” … . In determining whether this equitable remedy is warranted, a court should ” look to see if a benefit has been conferred on the defendant under mistake of fact or law, if the benefit still remains with the defendant, if there has been otherwise a change of position by the defendant, and whether the defendant’s conduct was tortious or fraudulent'” … .Here, the plaintiff alleged that the [attorney’s] fees for representing Carbone were paid from estate assets even though those services were not beneficial to the estate and were, in fact, adverse to it. Thus, the plaintiff has pleaded facts sufficient to assert a cause of action for restitution … . Betz v Blatt, 2014 NY Slip Op 02554, 2nd Dept 4-16-14

 

Objections Based Upon Lack of Due Execution and Lack of Testamentary Capacity Properly Dismissed/Relevant Criteria Explained

The Second Department determined the objections to probate based upon lack of due execution and lack of testamentary capacity were properly dismissed:

In support of that branch of her motion which was for summary judgment dismissing the objection based on lack of due execution, the petitioner made a prima facie showing that the will was duly executed pursuant to EPTL 3-2.1. The deposition testimony of the attorney-drafter, who supervised the execution of the will and acted as an attesting witness, and of the second attesting witness, demonstrated that the statutory requirements for due execution were satisfied … . “Further, where, as here, the drafting attorney supervised the will’s execution, there is a presumption of regularity that the will was properly executed in all respects” … . “The attestation clause and self-proving affidavit accompanying the propounded will also give rise to a presumption of compliance with the statutory requirements” … . In opposition to the petitioner’s prima facie showing of entitlement to judgment as a matter of law dismissing the objection based on lack of due execution, the objectant relied on hearsay evidence, which, by itself, was insufficient to raise a triable issue of fact … .

The petitioner established her prima facie entitlement to judgment as a matter of law dismissing the objection based on lack of testamentary capacity by submitting the self-proving affidavit and the deposition testimony of the attesting witnesses. The petitioner’s submissions demonstrated that the decedent understood the nature and consequences of making the will, the nature and extent of her property, and the natural objects of her bounty … . In opposition, the objectant failed to raise a triable issue of fact as to whether the decedent lacked testamentary capacity … . Matter of Templeton, 2014 NY Slip Op 02445, 2nd Dept 4-9-14

 

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Suit by Beneficiaries to Recoup Estate Property, Alleging Breach of Fiduciary Duty by Executor, Allowed to Go Forward

The Third Department determined the beneficiaries of an estate had stated a cause of action to recoup property for an estate (the role of the executor).  The complaint alleged misappropriation of decedent’s assets and included a cause of action against the executor (DiMaggio) for breach of fiduciary duty:

Initially, we note that, absent extraordinary circumstances, beneficiaries of an estate generally do not have a right to bring an action seeking to recoup property for the estate since that role belongs to the executor … . However, such extraordinary circumstances may be implicated where the executor is allegedly directly involved in purported egregious conduct and self-dealing that negatively impacts the potential assets of the estate … . When asserting conduct involving fraud or undue influence, the complaint must set forth in detail the circumstances constituting the wrong (see CPLR 3016 [b]…). .

Plaintiffs’ amended complaint sets forth a series of purported acts by defendants occurring during the last two years of decedent’s life when she was allegedly suffering from cancer and depression. Among other things, defendants allegedly induced decedent to give DiMaggio power of attorney by telling decedent that she would retain control over her accounts, but then used the power of attorney to withdraw funds, modify ownership interest, and change beneficiaries on accounts. Plaintiffs contend that defendants convinced decedent to cash about $360,000 in United States savings bonds by informing her it was illegal to continue to hold the bonds and that the government would take all her money. Most of that money was moved into a trust that defendants allegedly falsely informed decedent would benefit her descendants when proceeds of the trust actually went to defendants and their families. Plaintiffs further assert thatDiMaggio, who was substituted for decedent’s daughter as executor when decedent executed a new will in 2007, neglected to make an effort to recover funds inappropriately diverted from the estate. Lewis v DiMaggio…, 516811, 3rd Dept 3-6-14

 

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Public Trust Doctrine Re: Allowing a Restaurant in a Public Park/License and Lease Characteristics Compared

In a full-fledged opinion by Judge Graffeo, the Court of Appeals determined that a the city’s allowing a restaurant to operate in a public park did not violate the public trust doctrine and the arrangement between the city and the restaurant was a valid license, not a lease (which would have required approval by the legislature):

Under the public trust doctrine, dedicated parkland cannot be converted to a non-park purpose for an extended period of time absent the approval of the State Legislature … . * * * … [A]lthough it is for the courts to determine what is and is not a park purpose, … the Commissioner enjoys broad discretion to choose among alternative valid park purposes. Observing that restaurants have long been operated in public parks, we [in 795 Fifth Ave Corp v City of New York, 15 NY2d 221] rejected plaintiffs' public trust claim, holding that they could show only a “difference of opinion” as to the best way to use the park space and that this “mere difference of opinion [was] not a demonstration of illegality”… . * * *

We have stated that parkland cannot be leased, even for a park purpose, absent legislative approval … . * * *

A document is a lease “if it grants not merely a revocable right to be exercised over the grantor's land without possessing any interest therein but the exclusive right to use and occupy that land” … . It is the conveyance of “absolute control and possession of property at an agreed rental which differentiates a lease from other arrangements dealing with property rights” …. . A license, on the other hand, is a revocable privilege given “to one, without interest in the lands of another, to do one or more acts of a temporary nature upon such lands” … . That a writing refers to itself as a license or lease is not determinative; rather, the true nature of the transaction must be gleaned from the rights and obligations set forth therein. Finally, a broad termination clause reserving to the grantor “the right to cancel whenever it decides in good faith to do so” is strongly indicative of a license as opposed to a lease … . Union Square Park Community Coalition Inc v New York City Department of Parks and Recreation, 17, CtApp 2-20-14

 

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Malpractice Cause of Action Stated Against an Attorney Who Died Just Before the Statute of Limitations on Plaintiffs’ Action Ran Out

In a full-fledged opinion by Justice Tom, the First Department determined that plaintiffs had stated a valid malpractice claim against an attorney who died just before the statute of limitations expired:

That a cause of action might accrue when the plaintiff actually sustains a loss, however, does not require the conclusion that an attorney is absolved of responsibility for any and all consequences of his neglect of the matter simply because it occurred prior to accrual of an actionable claim. Giving plaintiff the benefit of every possible favorable inference that can reasonably be drawn from the pleadings … , as we must on a pre-answer motion to dismiss … it appears that the inaction of counsel rendered the lapse of plaintiff’s cause of action not merely possible—or even probable—but inevitable. On a motion directed at the sufficiency of the pleadings, the issue is whether the facts alleged fit within any cognizable theory of recovery, not whether the complaint is artfully pleaded …, and the circumstances of this matter do not warrant dismissal of the action, at this juncture, as against the … defendants. Cabrera v Collazo, 2014 NY Slip Op 00622, 1st Dept 2-4-14

 

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