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PLAINTIFFS HAD STANDING TO CHALLENGE THE TRUST SET UP BY DECEDENT; PLAINITIFFS DID NOT STATE A CAUSE OF ACTION FOR FRAUD BECAUSE IT WAS ALLEGED THE DECEDENT (A THIRD PARTY), NOT THE PLAINTIFFS, RELIED ON THE ALLEGEDLY FALSE STATEMENT; THE COMPLAINT STATED A CAUSE OF ACTION ALLEGING DEFENDANTS EXERCISED UNDUE INFLUENCE OVER THE DECEDENT WHICH AFFECTED THE DECEDENT’S ESTATE-RELATED DECISIONS (THIRD DEPT).

The Third Department, reversing (modifying) Supreme Court, determined: (1) the complaint did not state a cause of action for fraud because it was alleged a third-party (the decedent), not plaintiffs, relied upon the alleged false statement; (2) the complaint stated a cause of action for “undue influence” on the decedent by the defendants; and (3), the plaintiffs had standing to challenge the validity of the trust set up by the decedent. It was alleged that the decedent made decisions about the disposition of his assets based upon the false assertion that his daughter-in-law killed his son:

Here, as the grandchildren were given specific bequests in decedent’s … last will and testament, and the instrument creating the trust … reserved to decedent a limited power of appointment to name his grandchildren as possible beneficiaries of trust assets upon his death, the grandchildren are interested persons within the meaning of the SCPA, so plaintiffs have capacity to challenge the validity of the trust … . …

… [P]laintiffs cannot state a cause of action for fraud because the Court of Appeals has expressly declined “to extend the reliance element of fraud to include a claim based on the reliance of a third party” … . … As to plaintiffs’ cause of action asserting undue influence, plaintiffs’ broadly-stated theory is that, upon the death of the deceased son, the previously absent defendants drove a wedge between the daughter-in-law and decedent, took control of decedent’s caretaking as he aged and grew infirm and then moved him into defendants’ home where decedent created the trust and conveyed into it his assets to benefit defendants and the son upon his death. … [A]ffording the plaintiffs the benefit of every favorable inference … , we find that such allegations are enough to assert a cause of action for undue influence … . Constantine v Lutz, 2022 NY Slip Op 02842, Third Dept 4-28-22

Practice Point: To state a cause of action for fraud, it must be alleged the plaintiff(s), not a third party (the decedent in this case), relied on the alleged false statement. Here plaintiffs alleged the decedent made estate-related decisions based upon the false statement that his daughter-in-law killed his son. Because of the absence of the “reliance” element of fraud, that cause of action was properly dismissed.

 

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PLAINTIFF COUNTY, ACTING ON BEHALF OF THE NURSING HOME WHERE DECEDENT WAS CARED FOR, WAS ENTITLED TO DISCLOSURE OF DECEDENT’S TAX RETURNS; THE RETURNS ARE RELEVANT TO WHETHER DECEDENT’S SON BREACHED THE “RESPONSIBLE PARTY AGREEMENT” WHICH REQUIRED HIM TO USE THE DECEDENT’S INCOME TO PAY THE NURSING HOME (THIRD DEPT).

The Third Department, reversing (modifying) Supreme Court, plaintiff county (on behalf of the nursing home where decedent was cared for) was entitled to disclosure of decedent’s tax returns in this action against decedent’s son. The action alleged the son breached the “responsible party agreement” in which the son agreed to pay the decedent’s nursing home costs from the decedent’s income and resources:

Unlike a typical action where the assets of a defendant are irrelevant unless and until a judgment is obtained, here … the existence and value of decedent’s assets are critical to the issue of whether Jeffrey Garry [decedent’s son] breached the agreement by failing to use such assets to pay for decedent’s care … . …

Although “tax returns are generally not discoverable unless the party seeking them shows that they are relevant to issues in the case, indispensable to the claim and unavailable from other sources” … , we are satisfied that plaintiff made the requisite showing here, particularly given defendants’ reluctance to produce responsive documents or interrogatory responses that may have otherwise provided information contained in decedent’s tax returns … . County of Warren v Swan, 2022 NY Slip Op 02169, Third Dept 3-31-22

Practice Point: Although tax returns are generally not discoverable until a judgment is obtained, here the decedent’s returns were deemed relevant to whether decedent’s son breached the “responsible party agreement” with the nursing home which cared for decedent. The agreement required decedent’s son to pay the nursing home from decedent’s income and resources.

 

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PETITIONER STARTED PROCEEDINGS CONCERNING THE EXECUTOR’S HANDLING OF DECEDENT’S ASSETS IN SURROGATE’S COURT; AFTER RELIEF WAS DENIED WITHOUT PREJUDICE PETITIONER STARTED SIMILAR PROCEEDINGS IN SUPREME COURT, A COURT OF CONCURRENT JURISDICTION; THE EXECUTOR’S MOTION TO TRANSFER THAT PROCEEDING TO SURROGATE’S COURT SHOULD HAVE BEEN GRANTED (THIRD DEPT).

The Third Department, reversing Supreme Court, in a full-fledged opinion by Justice Garry, determined that Surrogate’s Court, not Supreme Court, was the proper forum for this proceeding concerning respondent-executor’s handling of decedent’s assets. Both respondent and petitioner are decedent’s children. Petitioner had commenced proceedings in Surrogate’s Court, and, after the requested relief was denied without prejudice, petitioner commenced a similar proceeding in Supreme Court:

“Supreme Court and . . . Surrogate’s Court have concurrent jurisdiction in matters involving decedents’ estates” … . Generally, where courts share concurrent jurisdiction, “it should continue to be exercised by that one whose process was first issued. Moreover, wherever possible, all litigation involving the property and funds of a decedent’s estate should be disposed of in . . . Surrogate’s Court” … . Supreme Court’s denial of a motion to transfer to Surrogate’s Court will not be disturbed absent an abuse of discretion … . * * *

Petitioner challenges the propriety of transactions allegedly made in breach of respondent’s fiduciary duty to decedent while decedent was alive, involving assets that would have become part of decedent’s estate. This matter falls squarely within the purview of Surrogate’s Court … . Since “all the relief requested may be obtained in . . . Surrogate’s Court and . . . Surrogate’s Court has already acted,” we find that Supreme Court should have granted respondent’s motion seeking to transfer the proceeding … . Matter of McNeil v McNeil, 2022 NY Slip Op 02173, Third Dept 3-31-22

Practice Point: Surrogate’s Court and Supreme Court have concurrent jurisdiction. Here a matter concerning the executor’s handling of decedent’s assets was commenced in Surrogate’s Court, and after relief was denied there, a second similar matter was commenced in Supreme Court. The executor’s motion to transfer the second proceeding to Surrogate’s Court should have been granted.

 

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THE PETITION BROUGHT BY THE EXECUTOR PURSUANT TO SCPA 2103 SOUGHT DISCOVERY AND THE TURNOVER OF ANNUITY FUNDS WHICH HAD BEEN TRANSFERRED TO APPELLANT; THE SCPA 21O3 ACTION IS LIKE AN ACTION FOR CONVERSION OR REPLEVIN AND HAS A THREE-YEAR STATUTE OF LIMITATIONS; HERE THE MOTIONS TO AMEND THE ANSWERS TO ASSERT THE STATUTE OF LIMITATIONS DEFENSE AND FOR SUMMARY JUDGMENT ON THAT GROUND SHOULD HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Surrogate’s Court, determined the appellant’s motion to amend their answers to assert the statute of limitations defense, and the summary judgment dismissing the petition on that ground should have been granted. The petition, brought by the executor pursuant to SCPA 2103, sought discovery and the turnover of funds from an annuity which had been distributed:

… [T]he Surrogate’s Court should have granted that branch of the appellants’ motion which was for leave to amend their answers to add the affirmative defense of the statute of limitations. The petitioner failed to demonstrate that she would be prejudiced or surprised by the proposed amendment. The petitioner also failed to demonstrate that the proposed amendment was palpably insufficient or patently devoid of merit.

“A discovery proceeding pursuant to SCPA article 21 has been likened to an action for conversion or replevin and a three-year statute of limitations has been applied” … . “A conversion cause of action accrues and the limitations period begins to run on the date the conversion allegedly occurred”… . Here, the appellants produced evidence … that the annuity funds at issue were withdrawn and deposited into a joint bank account … [and] then transferred into a personal account … on December 31, 2012, and January 3, 2013. Since the petition was not filed until June 23, 2016, the appellants demonstrated, prima facie, that the petitioner’s claim was time-barred.

… [T]he petition did not allege a cause of action sounding in fraud or breach of fiduciary duty. Moreover, even if the petition had alleged breach of fiduciary duty, the applicable statute of limitations would still be three years because the petition sought money damages only and fraud was not essential to the claim … . Matter of Chustckie, 2022 NY Slip Op 01452, Second Dept 3-9-22

Practice Point: An action by an executor of an estate pursuant to SCPA 2103 seeking the turnover of funds already distributed is in the nature of a conversion or replevin action and has a three-year statute of limitations.

 

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WHEN THE PROPERTY OWNER DIED INTESTATE, THE DECEDENT’S INTEREST IN THE PROPERTY PASSED OUTSIDE THE ESTATE TO THE DISTRIBUTEES AS TENANTS IN COMMON; THEREFORE, THE PARTITION ACTION BY ONE OF THE TENANTS IN COMMON SHOULD NOT HAVE BEEN DISMISED ON THE GROUND AN ADMINISTRATOR OF THE ESTATE HAD BEEN APPOINTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the partition action by a party holding 50% ownership of real property formerly owned by decedent should not have been dismissed based on the appointment of an administrator for decedent’s estate. Decedent died intestate. His interest in the real property passed to the distributees upon his death and is therefore not part of the estate:

… [T]he decedent died intestate, possessed of the subject property, and leaving six distributees who became owners of the subject property as tenants in common at the time of the decedent’s death. In its complaint, LCD Holdings alleged that it had acquired a 50% interest in the subject property from deeds given by and through certain of those distributees, with the defendants—the decedent’s remaining distributees—holding the other 50% interest. Consequently, the subject property is not part of the administrable estate … . Under such circumstances, LCD Holding, as the alleged holder of a 50% interest in the subject property as a tenant in common with the defendants, had the right to maintain this action for the partition and sale of the subject property in the Supreme Court, Kings County (see RPAPL 901[1] … ). Accordingly, the court erred in, sua sponte, directing dismissal of the action without prejudice to the commencement of a proceeding for the same relief in the in Surrogate’s Court … . LCD Holding Corp. v Powell-Allen, 2022 NY Slip Op 01447, Second Dept 3-9-22

Practice Point: When a real-property owner dies intestate, the decedent’s interest in the property immediately passes outside the estate to the distributees as tenants in common. Here the partition action by one of the tenants in common should not have been dismissed when an administrator of the estate was appointed because the real property was not part of the administrable estate.

 

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IT WAS ALLEGED DEFENDANTS-ATTORNEYS DID NOT INSTRUCT THE DECEDENT TO REVOKE THE TOTTEN TRUSTS SO THE FUNDS WOULD BE DISTRIBUTED IN ACCORDANCE WITH HER WISHES AS SET OUT IN THE WILL AND TRUST DRAFTED BY DEFENDANTS; DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendants-attorneys should not have been granted summary judgment in this legal malpractice action brought by the executor of the estate of attorneys’ client. It was alleged two bank accounts were Totten Trusts which passed outside of the will and therefore were not distributed as decedent wished (as was set out in the will and trust drafted by defendants). As a result one of decedent’s sons, whom decedent intended to disinherit, received half of the Totten Trusts:

The Supreme Court should have denied that branch of the defendants’ motion which was for summary judgment dismissing the amended complaint. The defendants failed to submit sufficient evidence establishing … that they exercised the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession. In addition, the court erred in determining that the defendants established, prima facie, that the decedent’s estate did not sustain actual and ascertainable damage as a result of the defendants’ alleged negligence in failing to advise the decedent to revoke the Totten Trusts prior to her death. Schmidt v Burner, 2022 NY Slip Op 01191, Second Dept 2-23-22

 

PETITION TO REMOVE A TRUSTEE SHOULD HAVE BEEN GRANTED, CRITERIA EXPLAINED (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined the petition by one of decedent’s daughter, Eckhouse, to remove the other daughter, Taormina, as trustee of the generation skipping transfer (GST) trusts should have been granted. The decision includes a comprehensive discussion of the criteria for removing a trustee:

… [T]he record clearly demonstrates that, in contrast with the high duty of loyalty owed by a fiduciary, Taormina placed her own interest in a greater share of the estate above her fiduciary duty to act in the best interests of the GST trusts and their beneficiaries. Even accepting Taormina’s rather strained protestations that her only goal was to “fund these trusts properly and pay the proper taxes” in accordance with the decedent’s will, as a fiduciary, she was required to pursue those goals in a manner consistent with the protection of the beneficiaries’ interests. Matter of Epstein, 2022 NY Slip Op 00658, Second Dept 2-2-22

 

EVEN THOUGH THE PROCEEDS OF A TRUST HAD BEEN DISTRIBUTED TO DECEDENT BEFORE HIS DEATH, THERE WAS A QUESTION OF FACT WHETHER DECEDENT RETAINED THE PROCEEDS AT THE TIME OF DEATH; IF SO, PURSUANT TO THE WILL, THE BEQUEST DID NOT LAPSE AND THE PROCEEDS WOULD BE DISTRIBUTED TO THE NAMED BENEFICIARIES (SECOND DEPT).

The Second Department, reversing Surrogate’s Court, determined there was a question of fact whether the decedent possessed the proceeds of a trust at the time of his death. If so, pursuant to the will, those proceeds would pass to the named beneficiaries:

“A specific disposition is a disposition of a specified or identified item of the testator’s property” (EPTL 1-2.17). “[U]nless the subject of a specific legacy exists, unchanged in substance, at the date of the will, there results an ademption, complete or partial according to the facts” … . A specific bequest fails if the article specifically bequeathed has been given away, lost or destroyed during the testator’s lifetime … . “A conveyance, settlement or other act of a testator by which an estate in his property, previously disposed of by will, is altered but not wholly divested does not revoke such disposition, but the estate in the property that remains in the testator passes to the beneficiaries pursuant to the disposition. However, any such conveyance, settlement or other act of the testator which is wholly inconsistent with such previous testamentary disposition revokes it” (EPTL 3-4.3).

Here, the subject bequest to the objectants, namely, the net proceeds received by the decedent under the trust, was a specific disposition … , subject to whole or partial ademption … . However, questions of fact exist, inter alia, as to whether at the time of his death the decedent retained the property distributed to him upon the termination of the trust, such that it passes to the objectants pursuant to Paragraph THIRD of the will. Matter of Johnson, 2022 NY Slip Op 00425, Second Dept 1-26-22

 

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PLAINTIFF’S MOTION TO COMPEL THE DEFENDANT ESTATE TO HIRE AN ATTORNEY OR BE DEEMED IN DEFAULT SHOULD HAVE BEEN GRANTED; WHERE THERE ARE CLAIMS AGAINST AN ESTATE, THE ESTATE CANNOT REPRESENT ITSELF (FIRST DEPT).

The First Department, reversing Supreme Court, determined the plaintiff’s motion to require the defendant executor of the estate to hire an attorney for the estate or be deemed in default should have been granted. An estate cannot represent itself:

… [T]he motion court should have granted plaintiffs’ motion seeking to require Madden to retain licensed counsel to represent the estate. Although CPLR 321(a) does not address whether an estate is permitted to represent itself, courts have concluded that, in matters involving claims brought against an estate, estate representatives cannot act pro se because their own individual liberty or property interests are not involved. Rather, the interests belong to the estate beneficiaries … . Alaina Simone Inc. v Madden, 2021 NY Slip Op 07497, First Dept 12-28-21

 

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THE “PRECAUTIONARY ADDENDUM,” ALTHOUGH REPEALED, STILL MAY BE APPLIED TO WILLS OF PERSONS WHO DIED BEFORE MARCH 1, 1964, TO PRECLUDE INHERITANCE BY ADOPTED CHILDREN IF THE ACT OF ADOPTION WAS DESIGNED TO CUT OFF OTHER BENEFICIARIES; HERE THE SHARES OF THE OTHER BENEFICIARIES WERE DIMINISHED BUT NOT CUT OFF BY THE INCLUSION OF THE ADOPTED CHILDREN; THEREFORE THE PRECAUTIONARY ADDENDUM DID NOT APPLY (THIRD DEPT).

The Third Department determined the statutory (former Domestic Relations Law 117) “cautionary addendum” did not apply to exclude the adopted children of the decedent’s daughter as beneficiaries of a trust. The cautionary addendum (which, although repealed, can apply to the will of a person who died before March 1, 1964) applies only where the act of adoption cuts off a remainder interest that would have existed but for the adoption. Here the adopted children merely expanded the pool of beneficiaries, which diminished the shares of the other beneficiaries, but did not cut anyone off anyone’s interest:

“[T]he precautionary addendum was . . . designed to prevent the perpetration of fraud on the rights of remaindermen through an adoption for the very purpose of cutting out a remainder” … . …

… “[T]he precautionary addendum has not precluded an adopted child’s inheritance in cases where the adoption simply has brought a child within an existing class.” That said, the reduction of a beneficiary’s respective interest is necessarily reduced when the existing class of beneficiaries is expanded— i.e., a situation to which the precautionary addendum does not apply … . Accordingly, contrary to respondents’ view, a diminished share of an interest does not mean that the interest has been cut off so as to make the precautionary addendum applicable … . Matter of Falck, 2021 NY Slip Op 07342, Third Dept 12-23-21

 

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