A New York Family Lawyer said this is a proceeding wherein A and B, as parent and legal guardian of C, filed a petition for a compulsory accounting and related relief pursuant to Surrogate Court Procedure Act §2205 on 9 July 2012, against E, co-executor and co-trustee, of the estate of F. E filed a response to petition for compulsory accounting seeking dismissal of the petition to compel an accounting for lack of standing of petitioners.
A New York Child Custody Lawyer said in rendering this decision the court has considered the petition to compel an accounting filed on 9 July 2012, the response to petition for compulsory accounting by E acknowledged on 6 August 2012, Petitioner’s Memorandum of Law dated 10 September 2012, Memorandum by G, Esq. on behalf of E, dated 13 September 2012, petitioners’ responding memorandum dated 1 October 2012 and the accounting proceeding responding memorandum by G filed 1 October 2012.
A Suffolk County Family Lawyer said that F, the testator, died on 2 March 2000. He was survived by his wife, H; the respondent herein, E; and two sons, I and J. At the time of the death of F, K had two infant children and L had four infant children. Two of the then minor children of J, A and C, are petitioners herein. A is no longer a minor.
A Suffolk County Child Custody Lawyer said that on 10 April 2000, the decedent’s will was admitted to probate. On 10 April 2000, letters testamentary and letters of trusteeship were issued to E and H. The will created two marital trusts to be funded with the minimum amount that if left outright to the testator’s wife, would reduce the federal estate tax payable for his estate to the lowest possible amount.
In addition, the residuary was to be placed in a family trust. Income of the marital trusts was to be paid to H during her lifetime with discretion to the trustee to distribute principal to H for her health, support, maintenance, comfort and welfare. Income and principal of the family trust was to be paid to any one or more members of a class consisting of decedent’s wife and descendants for their health, support, maintenance or education.
Upon the death of decedent’s wife, all three trusts were to be distributed to decedent’s surviving descendants, per stirpes. The co-executors and co-trustees, E and H, attempted to informally settle the estate by the filing of releases and waivers of accounting and citation executed by I and J on 30 December 2002. The release by J was executed individually and as natural guardian of his minor children and the release by I was executed individually and as natural guardian for his minor children.
The court finds that the trusts were never funded. J passed away on 13 August 2003 and the co-executor and co-trustee, H, passed away on 11 January 2010. A and B, as parent and natural guardian of C, filed the instant petition to compel an accounting against E, as co-executor of the estate of F and co-trustee of the testamentary trusts created under the will of F.
E objects to the Petition to compel an accounting alleging petitioners have no standing to compel an accounting by virtue of the release and waiver of accounting and citation signed by the petitioners’ father, J back in December, 2002. Among other things, the release and waiver signed by J was a waiver of an accounting of the estate of F, consent to the payments of executor’s commissions, legal and accounting fees. Consent to the distribution of the balance of the estate assets remaining in the hands of the Executors after the foregoing payments have been made pursuant to the attached proposed distribution schedule and agree that such distribution is in full satisfaction of all monies and properties to which the marital trusts and the family trust are entitled to receive.
The court finds that the releases and waivers of accountings signed by J and I did not have attached to them a proposed distribution schedule. A petition to judicially settle the account of the estate was never filed.
It is, therefore, unknown to the court what the proposed distribution was that J consented to. E filed a petition sworn to on 29 December 2000, for advance payment of executors’ commissions, alleging that the executors had received in excess of $1,700,000 in estate assets which they were administering. An inventory of assets was filed with the Court approximately four years after the releases and waivers were signed, indicating a gross estate of $1,705,745.00. E, co-executor and co-trustee, asserts that the trust was never funded or it was illiquid.
E alleges that by the doctrine of virtual representation, petitioners are bound by the waiver and release signed by their father pursuant to Surrogate’s Court Procedure Act §315 (5). Pursuant to Surrogate Court Procedure Act § 315 (5), it is not necessary to serve an interested person with a disability if the will expressly provide that if a party to the proceeding has the same interest as a person with a disability, it is not necessary to serve the person with a disability.
In the case at bar, the Will has such a provision. It should be noted that in determining the applicability of virtual representation, these three criteria are considered: (1) whether the economic interests of the representor and representee are similar; (2) if there is any conflict of interest between the two; and (3) whether the representee would be adequately represented as held in In re Dickey, Matter of Holland and Matter of Putignano.
It was held in Estate of Bingham that virtual representation is cautiously applied by the courts. In the matter of In Re Will of Silver, it was held that the court must be concerned with whether or not the representees are being actively represented and not with whether or not they could be represented. In In re Estate of Sanders, it was held that it is for this reason, the Uniform Rules for Surrogate’s Court require the appropriate affidavit be filed with the Court before virtual representation pursuant to SCPA 315(5) may be utilized. An affidavit pursuant to the Uniform Rules for Surrogate’s Court 207.18, was never filed with the Court. For this reason alone, the court could find the release and waivers are not binding on the minors herein.
The court must determine not only if the minors are being adequately represented but whether there is a conflict between the two. The Will of F created three trusts, the “exempt marital trust”, the “non-exempt marital trust” and the “family trust.”
With regard to the marital trusts, income was to be paid monthly to H, if necessary for her support and the trustees were given discretion to distribute principal to H as determined by the trustees for her health support, maintenance, comfort and welfare.
With regard to the family trust, the trustees were authorized to pay any part or all of the income and principal to any one or more members of a class consisting of the testator’s wife, H, and testator’s descendants for health, support, maintenance or education. The beneficiaries of the family trust were not limited to the testator’s wife and children, but included the testator’s descendants which would include the minor grandchildren. Upon the death of H, all three trusts were to be distributed in the same manner such that any remaining principal was to be distributed to the testator’s surviving descendants, per stirpes. However, if any outright distribution to a child of decedent’s could be exempt from the generation skipping transfer tax said child’s share was to be held in a separate trust for such child. As such, at the time of death of the decedent, both J and his children had a present interest in income and principal of the family trust and a contingent future interest as remaindermen of all three trusts.
In determining the necessary criteria for the application of virtual representation as set forth above, the Court must consider the nature of the proceeding akin to In re Silver. At the time the release and waiver was executed by J, either an accounting or summary accounting were filed with the court or attached to the release and waiver. It should be noted that the release and waiver contains a provision to the effect that J consented to the distribution of assets allocated to the exempt and non-exempt marital trusts. However, the co-executor and co-trustee, E, now represents to the court that the trusts were never funded or were illiquid.
Upon review of the release and waiver filed with the court it is unclear what distribution J was consenting to. Was he consenting to a termination of the trust or consenting to the trustees and executors not funding the trust? Did J receive a distribution of the assets in lieu of funding the trust? The release and waiver signed by J consents to specific payments in the sum of $95,000. What was to happen to the remaining assets of the estate valued at over $1,700,000? Since these questions remain unanswered but the co-executor and co-trustee has admitted to the court that the trust was never funded, the court must assume J was consenting to a termination of the trust or an outright distribution of the estate assets without funding the trust.
Virtual representation in a trust accounting has been permitted when the common interest of the representee and the representor is to fund the trust to the fullest extent possible. In that case it can be found that their interests are the same and virtual representation is appropriate akin to In Re Putignano. In this case, if the trust was never funded and the entire estate was distributed to H, such a disposition would be contrary to the economic interests of J. Akin to In Re Dickey, how could it be found that the minors were being adequately represented by their father when their father was consenting to a disposition against his own economic interests since that would mean the disposition is against the economic interests of the minors?. If the trust was never funded and the estate assets were distributed to H and the testator’s children, how could it be found the minors had the same interest as their father and their interests were being adequately represented by their father when he was consenting to a disposition in his own favor and against the interests of the minor children. The court finds that there would be a conflict between the interests of the two. The interests of the minor children were not adequately represented by their father, the interests of the minors were not the same as their father and a conflict existed between the two interests.
The interests of the beneficiaries of the trust created under the Will of F are inalienable in accordance with EPTL 7-1.5. To the extent F was consenting to the termination of the trust or the failure to fund the trust by the co-executors and co-trustees, such an act would be beyond the scope of the authority of the co-executors and co-trustees unless approved by order of the court akin to In Re Shea.
Noteworthy is the fact that it was not until the enactment of Estates Powers and Trust Law §7-1.19 in 2004 that courts were even given the statutory authority to approve the termination of even an uneconomical trust. Therefore, even if virtual representation were appropriate in this case, the waiver of J could not bind the minors to a disposition that could only be done by approval of the court.
Accordingly, the court finds the waiver and release signed by J dated December 30, 2002, is not binding on petitioners, A and C, and said petitioners have standing to compel an accounting. The petition to compel an accounting is granted and E, as co-executor and co-trustee, of the estate of F, is directed to file an accounting as co-executor of the estate of F and as co-trustee of the testamentary trusts created by F.
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