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Petitioner Moves for Order Granting Judgment


In this proceeding, petitioner moves pursuant to CPLR 3212 for an order granting summary judgment: (1) converting the QTIP trust to a unitrust; (2) compelling the sale of the family business interests for fair market value; (3) removing the decedent’s sister as co-trustee and requiring her to file her account; and (4) disqualifying the decedent’s father as successor co-trustee and immediately appointing an independent corporate fiduciary to succeed as co-trustee. For the reasons that follow, the motion is denied, except to the extent that Deborah is directed to file an intermediate account of her acts as co-trustee of the QTIP trust as set forth below.

The decedent died testate on December 7, 2001, leaving his wife, who is now forty-six years old, and two children, who are now twenty and nineteen, respectively. Petitioner and the decedent’s sister are sisters-in-law, the latter having been decedent’s sister. Apparently, the close family relationship that existed between petitioner and the family while decedent was alive has deteriorated.

The decedent’s last will and testament dated October 28, 1998 was admitted to probate by this court in April 2002. Letters testamentary and letters of trusteeship for the QTIP trust established in the will were granted on the same date to the sister and the wife. They qualified as such and have acted and are still acting in those capacities.

The decedent’s estate consisted of four main assets: his personalty, which he bequeathed to Penny under Article SECOND of the will; his Old Westbury residence, which passed to Penny under Article THIRD; his interest in the family businesses; and an investment portfolio at UBS Paine Webber consisting mostly of tax-free municipal bonds. The business interests and bond portfolio passed under Article FIFTH, the residuary clause to two trusts. Article FIFTH A created a credit shelter trust and Article FIFTH B created a QTIP trust. Penny is the income beneficiary of the QTIP trust. She and the sister are the co-trustees, and the decedent’s father is named as successor co-trustee.

By its terms, during petitioner’s lifetime, the co-trustees are directed to “pay to petitioner or apply for her benefit the entire net income of this trust, in quarter-annual or more frequent installments as may be convenient to the trustees”. Additionally, the co-trustees have the discretion to pay to or apply for Penny’s benefit as much of the principal as they, in their discretion, “shall deem advisable in order to provide for emergency expenses relating to her health, support and maintenance. In determining the amounts of principal, if any, to be paid or applied for the benefit of petitioner, I request (but do not direct) that my trustees take into consideration any income or resources of my said wife apart from this trust. My wife shall have the right to require my trustees to make productive any unproductive property of this trust or to convert such property into productive property within a reasonable period of time.” (Will, Article FIFTH B[2])

The QTIP trust terminates upon petitioner’s death. At that time, any remaining principal is to be distributed in equal shares to Lee and Heather, if they are then living, and to any living issue per stirpes of her children if he or she is deceased when she dies, provided that any property distributable to either of them if they are younger than thirty-five-years old at the time is to be held by the co-trustees in a separate trust for that child’s benefit, in accordance with the terms and conditions set forth in Article SIXTH of the will, the terms of which are irrelevant to this motion.

Article SEVENTH of the will authorizes the trustee or the trustees, by unanimous agreement, to appoint “another individual, or successive individuals in a named order, or a qualified bank or trust company as co-trustee or as successor trustee” with respect to each trust created by the will (Will, Article SEVENTH C). If petitioner were to be the sole trustee of any trust created under the will, Article SEVENTH directs her to “appoint an individual or qualified bank or trust company to serve with her as co-trustee of such trust.”

According to decedent’s federal estate tax return, the QTIP trust was funded in the amount of $14,310,091.85, with $8,369,930 attributable to decedent’s interests in family businesses and the rest with assets from decedent’s UBS Paine Webber accounts. The credit shelter trust was funded with $675,000 from the UBS Paine Webber accounts.

According to schedule F of the decedent’s federal estate tax return, at his death, decedent owned interests in Kaplan family businesses, totaling $8,369,930, as follows: (1) one-third membership interest, valued at $2,416,667, in Brush Hollow Realty, LLC; (2) one-third membership interest, valued at $1,266,667, in Stewart Avenue Realty, LLC; (3) one-third membership interest, valued at $1,470,000, in Whitestone Expressway Realty, LLC; (4) one-third membership interest, valued at $150,000, in R.K. Associates, LLC, and $1,200,000 due on a loan he made to that entity; (5) one-third membership interest, valued at $1,393,333, in Golfers World, LLC; (6) one-third membership interest, valued at $86,232, in All-Care Pharmacy, Inc.; (7) one-third membership, valued at $0, in Westbury Seniors, Inc.; (8) twenty-five percent interest, valued at $298,028, in Nalpak, Inc.; (9) twenty-five percent interest, valued at $72,790, in Fona, Inc.; (10) twenty-five percent interest, valued at $14,751, in Storage Quarters, Inc; and (11) twenty-five percent interest, valued at $1,462, in Whitestone Storage Quarters, Inc.

Summary judgment may be granted only when it is clear that no triable issue of fact exists. The court’s function on a motion for summary judgment is “issue finding” rather than issue determination, because issues of fact require a hearing for determination. Consequently, it is incumbent upon the moving party to make a prima facie showing that he or she is entitled to summary judgment as a matter of law. The papers submitted in connection with a motion for summary judgment are always reviewed in a light most favorable to the nonmoving party. If there is any doubt as to the existence of a triable issue, the motion must be denied.

If the moving party meets his or her burden, the party opposing the motion must produce evidentiary proof in admissible form sufficient to establish the existence of a material issue of fact that would require a trial. In doing so, the party opposing the motion must lay bare his proof.

Decedent’s federal estate tax return reflects $14,310,091.85 as the value of the assets in the QTIP trust, including the interests in the various family businesses of $8,369,930. During her deposition, the sister admitted that the assets listed on schedule F have not paid any money to the QTIP trust. She claims that the reason is that no income has been produced is because the entities have had “only losses. These are all new business.” However, she claims that, since decedent died, petitioner has received substantial amounts of income from the QTIP trust, of approximately $360,000 annually, primarily in tax-free income from the estate accounts. The sister asserts that “this represents a tax-free return in excess of five percent per year on the cash invested in the UBS account, which conservatively translates into a pre-tax return in excess of seven percent per year.” She also asserts that petitioner has benefitted to the detriment of the credit shelter trust by withdrawing, with her “reluctant consent,” all of the previously unswept interest, dividends and realized capital gains from the inception of the estate UBS account to the May 2004 inception of the segregated QTIP and credit shelter UBS accounts.

Petitioner asserts that the admitted failure of the business assets in the QTIP trust to pay any income to the trust since decedent died in 2001 necessitates the conversion of the QTIP trust pursuant to EPTL11-2.4.

EPTL 11-2.4[e][2][B] provides that a court having jurisdiction over a trust to which EPTL 11-2.4 “otherwise would not apply, upon the petition of the trustee or any beneficiary of a trust, and upon notice to all persons interested in the trust, may direct that this section shall apply to the trust.” In this instance, jurisdiction has been obtained all over interested parties. In turn, EPTL 11-2.4[e][5][B] states that “in any proceeding brought pursuant to subparagraph (e)(2), there shall be a rebuttable presumption that this section should apply to the trust.”

That does not mean, however, that the court must grant the petition to convert to unitrust, even in the absence of rebuttal evidence. Because the statute provides that the court “may” direct that the trust be administered as unitrust, the decision to grant a petition seeking an order converting a trust to a unitrust rests in the discretion of the court. As Surrogate held in Matter of Ives (192 Misc 2d 479 [Sur Ct Broome County 2002]), an uncontested application to convert to unitrust, the court’s inquiry does not end with the presumption.

Thus, neither petitioner nor the court can rely solely on the presumption afforded by the statute without considering the other statutory criteria. Furthermore, this is a motion for summary judgment; to prevail the movant must establish her right to judgment as a matter of law. The failure to make such a showing requires denial of the motion, regardless of the sufficiency of the opposing papers. Here, petitioner has not established her right to judgment as a matter of law on the statutory criteria which the court must consider. Even if she had, the opposing papers raise triable issues of fact regarding, among other things, the decedent’s intent with regard to the trust; the need for liquidity and the preservation and appreciation of capital; and the likelihood of the assets soon becoming income producing.

Accordingly, that branch of the motion for summary judgment on the conversion of the trust to unitrust is denied.

Viewing the record in the light most favorable to the sister and the father of the decedent, as this court must the court finds that petitioner has failed to establish her right to judgment as a matter of law. Although the court does not take these allegations lightly, they are insufficient to remove her as co-trustee or disqualify the father as successor co-trustee without the benefit of a fact-finding hearing. Further, even if she had, the opposing papers raise material issues of fact, including whether the Maple Avenue property should be included as an asset of the QTIP trust and whether the sister has engaged in self-dealing. Accordingly, petitioner’s motion for summary judgment on the issues of removal and disqualification is denied.

The court does find that petitioner is entitled to an intermediate account of the sister’s acts as co-trustee of the QTIP trust under SCPA 2205 and directs the sister to commence an accounting proceeding within sixty date after notice of entry of the order to be settled.

For the reasons set forth above, petitioner’s motion for summary judgment is denied, except to the extent that the sister is directed to file an intermediate account of her acts as co-trustee of the QTIP trust. The court notes that the proceeding is scheduled for trial commencing on March 26, 2007, at 9:30 a.m., with the pre-trial conference on March 19, 2007, at 10:00 a.m.

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