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As we conclude the winter season and enter the year’s half-way mark, we note several decisions rendered by the Surrogate’s and Appellate courts affecting the field of trusts and estates. Consider the following opinions of interest.
Appellate Division Affirms Fiduciary Suspension
In re Cozzoli, the Appellate Division affirmed an order of the Surrogate’s Court suspending the authority of the co-trustee of a GRAT until further order of the court. In the underlying proceeding, the preliminary executors of the decedent’s estate filed a petition to compel the release of funds from the GRAT for payment of New York state estate taxes owed, or in the alternative, to suspend or remove the co-trustee thereof. At a conference of the matter, the petitioners’ attorney made an oral application to immediately suspend the co-trustee of the GRAT. The application was granted, and the co-trustee appealed.
In affirming the Surrogate’s order, the court noted that the removal of a fiduciary pursuant to SCPA 711 and 719 may only be decreed when the grounds set forth in those statutes have been clearly established. Moreover, 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 amendment of letters are presented to the court during a related evidentiary proceeding.
Based on the record, the court found there was no dispute that the GRAT was responsible to pay its portion of the New York state estate taxes due on the decedent’s estate and that the co-trustee of the GRAT refused to consent to the release of the funds from the GRAT to pay that tax liability, thereby causing penalties and interest to accrue. In view of the co-trustee’s uncontroverted refusal to cooperate in paying the GRAT’s taxes, even at the cost of paying penalties and interest, the court held that the Surrogate’s Court did not improvidently exercise its discretion in suspending her as fiduciary.
In re Cozzoli, 224 AD3d 747 (2d Dep’t 2024).
Motion To Dismiss Denied
In In re Bismout (Mosheyev), the court was confronted with a motion to dismiss a proceeding to remove the co-trustees of an inter vivos trust on the grounds of documentary evidence, lack of subject matter jurisdiction, lack of standing and failure to state a cause of action. The trust was executed in Pennsylvania and contained a
Based on the record, the court found there was no dispute that the GRAT was responsible to pay its portion of the New York state estate taxes due on the decedent’s estate.
choice of law provision that requires the instrument to be construed in accordance with the laws of Pennsylvania. The court noted that while the choice of law provisions required the court to apply the substantive laws of Pennsylvania to the pending issues, the laws of New York would apply to procedural issues. Within this context, the court denied the respondents motion to dismiss for lack of subject matter jurisdiction, finding that inasmuch as the trust owned assets in New York, and the co-trustees resided in New York, the court had jurisdiction to entertain the proceedings pursuant to the provisions of SCPA 207(1).
The respondents’ motion to dismiss for lack of standing was also rejected on the grounds that as guardian of the property of the infant beneficiary, the petitioner had standing to seek the trustees’ removal.
With respect to the request for dismissal based on the alleged failure of the petition to state a cause of action, the court observed that under Pennsylvania law, the court may remove a trustee if it finds, inter alia, that removal best serves the interests of the beneficiaries and the trustee has committed a serious breach of trust, or the trustee has not effectively administered the trust because of the trustee’s unfitness, unwillingness or persistent failures.
In view thereof, the court held a review of the petition demonstrated that although sparse, the claims alleging misappropriation of funds, self-dealing, withholding distributions, and failing to account sufficiently set forth grounds for removal of the respondents. In reaching this result, the court was particularly persuaded by the allegations of the guardian-ad-litem, who buttressed the petitioner’s contentions with supporting documents.
Finally, the court denied respondents’ motion for dismissal based on documentary evidence, holding that the trust documents submitted in support of the request failed to conclusively establish a defense as a matter of law to the petitioner’s claims.
In re Bismout (Mosheyev), 2024 N.Y. Misc. LEXIS 1817 (Sur. Ct. Queens County 2024).
Objections to Accounting Dismissed for Failure to Sufficiently Plead
Before the court in In re Clifford was a motion, pursuant to CPLR 3211 (a)(7), by the petitioner-trustee of a testamentary trust to dismiss the objections filed to his accounting by the trust beneficiary on the grounds that they were not sufficiently detailed as required by the provisions of SCPA 302. The court observed that in an accounting proceeding, the pleadings must be particularized to the extent of giving the court and parties notice of the claim, objection or defense. That is, an objection must relate to a specific act of wrongdoing which has resulted in identified damage to some individual asset item in which the objectant has an interest.
Thus, a request for a surcharge must be traceable to the omission or defect in the account. An allegation of “general negligence” in the executor’s account of the affairs of the estate is “legally meaningless” and subject to dismissal (In re Clifford, id., citing In re McCafferty, 147 Misc 179 (Sur. Ct. Kings County 1933)). So too would objections to an accounting that did not single out any particular entry or refer to any particular action of the trustee.
Assessed within this context, the court found that a number of objections to the accounting were too vague, failed to identify any specific improper conduct engaged in by the fiduciary that could be the result of a surcharge, or to state a claim that could be litigated. Accordingly, as to these objections, petitioner’s motion to dismiss was granted. The motion was denied in all other respects, the court finding that the remaining objections stated sufficient facts with particularity, which, if established, would result in damage to the trust and be the subject of a surcharge.
In re Clifford, 2024 NY Misc LEXIS 1458 (Sur. Ct. Monroe County 2024).
Partial Summary Relief Granted in Inter Vivos Trust Accounting
Before the court in In re Lipson, was a contested inter vivos trust accounting instituted by the deceased grantor’s third wife, in which the objectants, the decedent’s daughters, moved for partial summary judgment seeking to hold the trustee liable for breach of fiduciary duty and directing her to reimburse the trust in the amount of $2,314,149.19. In pertinent part, the objectants alleged that following her appointment, and at a time when the decedent was incapacitated, and then after his death, the trustee substantially depleted the assets of the trust so that there were no funds with which to pay specific and residuary dispositions to the objectants and others.
The record reflected that prior to the grantor’s death and incapacity, payments were made by the trustee to several charitable institutions to
The record reflected that prior to the grantor’s death and incapacity, payments were made by the trustee to several charitable institutions to fulfill charitable pledges the decedent had made prior to his incapacity.
fulfill charitable pledges the decedent had made prior to his incapacity. All pledges were made and paid out in the name of the grantor and his wife/trustee, as joint donors. Following the decedent’s incapacity, the trustee made additional joint pledges to many other charitable institutions and satisfied those pledges with trust funds. Additionally, trust assets were used to pay household expenses, which the trustee claimed were to the benefit of the decedent. After the decedent’s death, trust distributions were made by the trustee to herself, a community foundation, and two other individuals, after which time, no other funds remained in the trust to fund the remaining distributions.
With respect to the trustee’s payment of joint pledges made by the decedent prior to his incapacity, the objectants argued that the trustee was obligated to use her own money to satisfy one-half of the pledges. The court opined that the determination of whether a trustee’s distribution of trust assets was proper required an analysis of the settlor’s intent. To this extent, review of the trust provisions indicated that the clear and unambiguous intent of the grantor during the period of his incapacity, was primarily to have trust assets preserved for his care and comfort. Secondarily, the trustee was directed to give concern to the welfare of the grantor’s lineal descendants.
On the other hand, the court found that no language in the instrument gave the trustee the discretion to pay jointly made promises out of the trust money, especially when the trustee had access to joint accounts containing several million dollars. The court thus found that objectants were entitled to judgment as a matter of law with respect to the disbursements made after the decedent’s incapacity to cover charitable pledges he made before he became incapacitated, reasoning that in using trust funds to cover her one-half share of the obligations, she was depleting trust monies to the detriment of the decedent, contravening his intent to provide for the welfare of his lineal descendants, and exercising discretion outside the scope of her authority. The court found petitioner’s contentions to the contrary to be self-serving, unsupported by documentary evidence and barred by the Dead Man’s Statute.
Similarly, the court granted summary judgment on the issue of income taxes paid from the trust that were attributable to the trustee’s one-half share of the liability.
On the other hand, with respect to the objections to disbursements made for personal and household expenses, the court held that objectants were not entitled to judgment as a matter of law. Specifically, the court found that every expense related to the maintenance of the marital residence, which was owned by the decedent and thereafter the trust, was a valid obligation of the trust. The same was true for automobile expenditures, as well as country club expenses, to the extent that objectants failed to refute the petitioner’s contention that, despite his failing health, he continued to use and enjoy visits there. However, the court determined that the expenditure of trust funds for the addition of a sunroom to the marital residence was not authorized by the trust either as a valid obligation, or to provide for the decedent’s welfare and comfort.
Additionally, the court granted judgment to the objectants on the issue of disbursements for charitable pledges made after the decedent’s incapacity, holding that the trust agreement only provided for gift-giving by the trustee in favor of lineal descendants for estate and tax planning purposes. Further, the court held that the trustee breached her fiduciary duty in failing to satisfy the legally enforceable claim of the decedent’s daughters based on the separation agreement the decedent had entered with his first wife, and in favoring some beneficiaries over others in making distributions particularly when there were insufficient funds available to fully satisfy all legacies.
Finally, summary judgment was denied on the issue regarding the failure of the petitioner to timely distribute two time- shares owned by the trust to the objectants, which caused them to lapse. The objectants conceded a question of fact existed given the petitioner’s claim that they had told her they were not interested in the shares.
In re Lipson, 81 Misc3d 1230(A) (Sur. Ct. MonroeCounty 2024).
Reprinted with permission from the May 31, 2024 edition of The New York Law Journal © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.