HARD PROMISES – MULTI COURT CASES FOR TOM PETTY

In 1981, Tom Petty and the Heartbreakers released the album Hard Promises, containing the single:  The Waiting.  In it, Tom sings, “oh baby don’t it feel like heaven right now?  Don’t it feel like something from a dream?  Yeah, I’ve never known nothing quite like this”.

Tom’s lyrics uncannily describe an opposite reality of the evolution of what on its face appeared to have been careful and deliberative estate planning on his part.  The most recent turn in Tom’s estate plan is that his daughters (from marriage number one) have just filed their own lawsuit against his widow.  The fight continues for Tom’s valuable artistic catalogue.  We now have developing hard knuckles estate litigation.

It is increasingly common that a family’s estate litigation does not occur in a single court.  The trend is multiple legal disputes in more than one jurisdiction – sometimes at the same time.

In all of his work planning his estate, Tom likely never envisioned that his survivors would be fighting in court – let alone two courts at one time.  His wife Dana’s petition in probate court sought to have the court approve a professional manager to handle the catalogue of Tom’s legendary works.  In that probate court, his daughter Adria, filed another probate petition to wrestle control of the estate from Dana.  So, in Tom’s estate the initial battle line was formed by two applications for competing relief in the same court.  This is not all that uncommon.  Probate court is often confronted with dueling petitions competing for the same or similar relief.  The classic arguments are that one party or another is better suited or more fit to handle the fiduciary duties for the estate than another competing party.

Beyond dueling petitions (often termed “cross petitions”) in one court for the same relief, what prompts litigants in these cases to pursue more fights in various and different courts?  In many cases separate initiation of multiple suits by the same parties are driven by the nature of the relief available in a particular court.  In Tom’s case his daughters started their separate lawsuit in a state court in California.  That is not atypical in more complicated or asset laden estate disputes where the claims are directed by persons, seeking to gain benefit from the estate, against individuals who stand in their way or who have themselves allegedly benefitted to the detriment of the other party. 

While the Surrogate’s Court in New York has jurisdiction over the handling of the estate and many related proceedings, many estate disputes spawn and emanate satellite litigation in New York State Supreme Court.  Litigants start proceedings in that forum for injunctive (restraining orders) and other relief, including money damages.  Some litigants sue the other party for breach of a fiduciary duty in the other forum or sue to recover items of property (replevin) or money (conversion).  Sometimes the state court is called upon to address alleged breaches of contract or matters pertaining to administration of trusts related to the decedent’s estate.

In Tom’s case the claims seem to be less esoteric and more direct.  His daughters claim that his widow deprived them of their role in “equal participation” in determining how his works are released.  In short, their argument is that this phrase means that the two of them have a majority vote representing two thirds of the three ladies handling the decisions. 

That position and the argument is the same as that which they advanced in the probate court dispute.  What motivates advancing the same argument in another court?  Perhaps it is that his daughters are actually forum or judge shopping.  It could be that they sense that the probate court forum favors Dana.  Their logic may not be that far off.  It is often asserted that a probate or Surrogate’s Court is a friendly forum for the estate and the individuals designated by the decedent to handle the estate.  The thinking is that the probate court is overly protective of the estate and the decedent’s nominated fiduciary – often bending over backwards in deferential accommodation to the alleged talismanic “decedent’s intent”.  It is also possible that the daughters, after having filed their competing petition in the probate court, sense an unfavorable reception or perhaps even an imminent defeat.  In addition, the daughters have now upped the ante by seeking financial damages ($5.0M) from Dana in the state court case.  That claim is based on the contention that Dana usurped estate assets to the detriment of the daughters.

The daughters also made the classic move to justify activity in state court, getting around the probate court, by making Tom Petty Unlimited the plaintiff in the case they just started.  It is an LLC which was formed in March of 2018, to manage the assets after Tom’s death.  As we continue to learn more, it seems that this entity controls Tom’s rights as a recording artist and his memorabilia. In the suit the claim is advanced that Tom’s widow created another company, Tom Petty Legacy, to usurp the other LLC’s business and misappropriate its assets.

Tom is a classic rocker and despite his death his work is a staple for classic rock outlets.  It is widely enjoyed and listened to every day.  While his music plays, it certainly is becoming more apparent that his estate plan will unfold in the courts with the ultimate decisions pertinent to management and control being made by the courts rather than his family.

Renunciation Of An Inheritance Part 1

Most people welcome receiving an inheritance, but there are times when an inheritance causes problems for the beneficiary. Some beneficiaries want to avoid receiving their inheritance for tax purposes, while others may want to avoid paying a creditor. “Motives or reasons for the renunciation have no bearing on this statutory right, as long as no fraud or collusion is involved.” Matter of Oot, 95 Misc 2d 702, 705 (Sur Ct, Onondaga County 1978).    

Matter of Rosenberg, 2016 NY Misc LEXIS 261 (New York County, January 27, 2016) is an interesting case that involved renunciation for estate tax purposes. In this case, the decedent Paul Rosenberg, a Jewish art collector and dealer who lived in France, owned two paintings by Henri Matisse. In 1940, the Nazis confiscated the paintings. In 2012, the paintings were discovered and determined to belong to the Rosenberg’s who had immigrated to New York. The paintings were valued at over $12 million.

Paul Rosenberg died in 1959. Paul bequeathed half of his residuary estate to his son Alexandre or, in the event that Alexandre did not survive him, to Alexandre’s children. Alexandre died in 1987, survived by his wife and children. Alexandre bequeathed his residuary estate to his wife or, in the event that she disclaimed her interest, to a Marital Trust for her benefit. Alexandre’s wife did indeed disclaim, and as a result, his children were to receive any assets that pass as part of his residuary estate.

Alexandre’s wife petitioned the Surrogate’s Court to permit Alexandre’s estate to renounce an interest in the newly discovered paintings and any works of art discovered in the future that would be found to be assets of Paul’s estate. Her reason for the renunciation was to spare her children the cost of estate tax that would be payable otherwise. EPTL 2-1.11 (c)(2) gives the court discretion to extend the time to file and serve a renunciation upon a showing of reasonable cause. Here, the Court held that the extraordinary circumstances of this case warranted its allowance to extend the petitioner’s renunciation of assets found in the future.  

Subsequently, in 2014, after the Rosenberg family learned about the discovery of several stolen pieces of art held by a German citizen, the Court granted renunciation to the estate of Alexandre. 

Renouncing a property interest for purposes of avoiding creditors is also permissible. In Matter of Oot, Patricia Hoopingarner worked for William Prescott, the petitioner, as a receptionist-bookkeeper from 1972 to 1976. In 1976, the Prescott discovered that Hoopingarner had misappropriated over $40,000. Hoopingarner signed a confession of judgment which was filed in the Clerk’s office. In 1978, her mother, Marion Oot, died and Hoopingarner was named as a legatee under the will.

As long as the beneficiary has not accepted the disposition, a legatee has a statutory right to renounce any gift made by a will (EPTL 2-1.11). Hoopingarner filed a renunciation under the will to avoid paying the judgment against her. Prescott sought to set aside the renunciation as a fraudulent conveyance. The Court held that “the fact that the renunciation of a legacy might frustrate the claims of creditors is of no consequence if the statutory renunciation procedures have been meticulously followed.” Id. at 706.

By Jacque K. Vincent, JD

Renunciation Of An Inheritance Part 2

What happens when a person renounces a bequest?

Filing a renunciation has the same effect with respect to the renounced interest as though the renouncing person had predeceased the testator unless a provision relating to a possible renunciation is included in the will. In other words, if you decide to renounce your bequest, you will be treated as if you died before the grantor did, and your share is redistributed according to the terms of the will.

In Estate of Cooper, the decedent left residuary shares of his estate to his three daughters. He did not provide any provision relating to a possible renunciation of a bequest in his will. When one daughter renounced her bequest, that portion of the estate went to her children. Estate of Cooper, 73 Misc 2d 904, 906 (Sur Ct, Onondaga County 1973).

Because the daughter’s renunciation of the bequest was treated as if she had predeceased her father, the disposition vested in her surviving children, per stirpes, in accordance with the antilapse statute.

The antilapse statute provides that where a testator has made bequeaths to his issue or his siblings, and the beneficiary dies before the testator, the deceased beneficiary’s disposition vests in his surviving issue. EPT § 3-3.3.

By Jacque K. Vincent, JD

Renunciation Of An Inheritance Part 3

Unintended Consequences of Renunciation

One issue to note is that renunciation can negatively impact a distributee’s eligibility for Medicaid benefits or other public assistance. In assessing need and eligibility, the Department of Social Services will consider any financial asset or resource the applicant may immediately or potentially have available. Courts have held that a recipient of public assistance is obligated to utilize all available resources to eliminate or reduce the need for public assistance. Although when a distributee renounces his inheritance and the disposition never vests, the Courts still allow Social Services to consider the inheritance as a potential resource for the applicant when determining eligibility. Molly v Bane, 214 AD 2d 171, 176 (2d Dept 1995).

Something else to be aware of is that proceeds recovered from an action for wrongful death cannot be renounced. Renunciation is limited to the distribution of testamentary or administration assets. Since proceeds from a wrongful death action are not passed through a testamentary instrument, renunciation is not applicable. In re Estate of Summrall, 93 Misc 2d 420 (Sur Ct, Bronx County 1978).


By Jacque K. Vincent, JD

How the “Sole Benefit” Rule Frustrates Supplemental Needs Trusts

Floyd Brown was charged with murder in 1993. Found incompetent to stand trial, he was sentenced to a psychiatric institution. In 2007, after fourteen years of confinement, he was exonerated. The appellate judge held that the lone piece of evidence, an elaborate six-page confession, was entirely too sophisticated for Mr. Brown to have dictated. Mr. Brown is intellectually disabled; he has an IQ of less than sixty and the mental capacity of a seven-year old child.  

Following his release, Mr. Brown was awarded approximately nine million dollars for his wrongful confinement. The net settlement was put into a supplemental needs trust (“SNT”), a special kind of trust available for people with disabilities which allows the beneficiary to exclude the trust corpus from asset calculation when applying or recertifying for means-tested government programs. The trust was meant to enhance his quality of life. Yet, with millions of dollars accruing interest, Mr. Brown’s simple request for a bouquet of flowers for his mother’s grave was denied, and he was living below the poverty line. 

Why? Because the flowers and other items Mr. Brown requested were not strictly for his benefit. According to the Social Security Administration’s (“SSA”) interpretation of the statutory language, which established SNTs, the trust must be established for the “sole benefit” of the beneficiary.

Likewise, until very recently, the SSA required that all trust disbursements be made for the “sole benefit” of the beneficiary. On April 30, 2018, the SSA relaxed its interpretation of the “sole benefit” rule in limited circumstances: trust disbursements made to third-parties for certain goods or services may now be for the “primary benefit” of the beneficiary.

However, outside of this limited exception, any other disbursement that violates this stringent rule ensures that the beneficiary will lose eligibility for essential government benefit programs, including Medicaid and Supplemental Security Income (“SSI”).

Although Mr. Brown had millions of dollars, losing eligibility for public benefits meant the trust would likely be expended in a short time to provide medical care and necessities, and to repay state and federal programs for previous expenditures related to his cost of care.

To download the rest of the article, click here.

By: ELIZABETH A. WEIKEL

Ms. Weikel is a JD Candidate at Quinnipiac University School of Law.  She will be an associate here at Tabner, Ryan, & Keniry LLP in the late summer.

Damn the Torpedoes (40 Years Later) and Full Moon Fever (30 Years Later)

When Tom Petty tragically died of a drug overdose in 2017, he left a wife, Dana York Petty, and two daughters from his first marriage, Adria and Annakim. He also left a catalogue of music that his fans crave for, including the anticipated album “Wildflowers – All The Rest”, which was to feature unreleased tracks from the original “Wildflowers” recording session. The release was intended to coincide with the 25th year anniversary of the release of the Wildflowers album on November 1, 1994.

Tom Petty appears to have engaged in some substantial estate planning over the years. His trust named his second wife Dana as his sole successor trustee. Since his death, she served as trustee. His trust directed that Dana was empowered and directed to “create a California limited liability company (or such other entity as the Trustee deems appropriate) … to hold [Tom’s] Artistic Property”.

Tom gave Dana broad discretion in creating the entity, the execution of an operating agreement and establishing a governance structure. Tom provided only one caveat: that Dana, Adria and Annakim “shall be entitled to participate equally in management”.

The estate plan seems solid and simple enough. His fans eagerly await each release of subsequent Tom Petty compilations. Since his death in October of 2017, two complications have been released. Now the release intended for this coming November is in jeopardy and at risk and it seems that an unraveling of the planning of Tom’s estate is the heart of the problems.

The court filings and other reports indicate that Adria has apparently changed her mind on key decisions, including her stated intention to delete “and the Heartbreakers” off the artist name on one of the prior complications. She emailed two founding members of the Heartbreakers on that subject and stated: “what I don’t have the temperament for is having my entire life raped. Being disparaged. My dad being disgraced. And being surrounded by selfish, unreliable people and drug addicts.” Adria has stated an intention to delay and postpone release of “Wildflowers” and has gone further, stating to record executives that she will be taking over control of the estate in short order.

It all seemed so clear when Tom provided his lawyers with his instructions and they presumably wrote them into the documents correctly and clearly. Certainly there was no room for interpretation or ambiguity. Three people shall be entitled to participate equally in management.

According to Adria and Annakim, participation equally means just that. Each person has one vote in the management decision making. Adria has texted that all decisions shall be “majority rule” and that it will be smoothly run as a result. They argue that this was Tom’s intention and his words were clear.

On the other hand, Dana argues that Tom did not intend to give his daughters the right to rule by majority and he did not intend to disenfranchise Dana entirely. She argues in her petition filed with the court that “equal participation in management can only be ensured by requiring consensus for significant decisions; otherwise the opportunity of the majority – Tom’s daughters from his marriage to Jane- to abuse and exclude [Dana’s] minority position, which will inevitably lead to endless litigation, would be a virtual certainty”.

What happened here? Did the drafting attorney fail to consider the family dynamic of children from a prior marriage managing a business with the second spouse?

From a litigation standpoint, the LLC concept should be clearly defined in order to reduce the chances of what seems to be a highly likely dispute in a case like this. Second spouses and children from a first marriage are harbingers of estate litigation. Knowing this, the drafter could have specifically designated the second spouse and the two children from the prior marriage as the co-managers of the LLC and that each manager has one vote – if that was the intention. Otherwise, if the creator of the trust intended operations to be in perfect harmony, he could have said so. He could have specified that management decisions must be unanimous. While that seems a set up for paralysis, it could have been his intent that his highly valuable and substantial artistry collection be managed and operated in a holistic and collaborative fashion.

This type of estate plan could have also added a tie breaker and deadlock breaker provision. If desired, the creator of this type of plan could have included a dispute resolution provision with requirement first for a friendly mediation facilitated by a third party neutral and then for arbitration.

Who Will Take Care of Your Pet? A Pet Trust is the Answer

People love their pets. I know from my own experience that my dog Kirby is a very important member of my family. I believe most pet parents feel the same way. What happens when you die, and you leave your poor pet all alone? Are you confident that someone will step in and care for him and love him? Well, unless you have included a pet trust in your estate planning, there is no guarantee that he will be taken care of after you are gone. It is not unreasonable to believe that your pet may outlive you. Some animals have a long life span. For example, a tortoise’s average life span is 75 years, a parrot’s average life span is 22 years, and a horse’s average life span is 18 years.

It may be hard for an animal lover to fathom, but New York law considers animals as personal property. Because they are property, you cannot leave money directly to your pet through a will. However, New York’s Estates, Powers and Trust Law § 7-8.1 was specifically designed to allow a pet owner to set up a trust for the care of a pet. Under this statute, the pet becomes a beneficiary of a trust and a legally visible being who can claim equitable title in the income and assets of the trust. Of course, your pet cannot assert his rights on his own or hire an attorney, therefore the law allows the pet parent to designate an individual to enforce the trust, or if no one is designated, the court is authorized to appoint someone to enforce the trust.

A pet trust is a contract between the pet owner and a trustee. The pet owner agrees to fund the trust and specify its terms, and the trustee agrees to carry out those terms. Those terms may include:

• designating the animal(s) who are the beneficiaries of the trust, including a detailed description of the pet(s) – such as photos, microchips, and even DNA samples;
• designating a custodian to physically care for your pet;
• designating the trustee and successor trustee;
• designating an enforcer who can bring the custodian or trustee to court to force him to carry out the terms of the trust for the benefit of the pets;
• detailed instructions for the care of the pet, such as,
• name of the veterinarian to care for the pet
• any medical conditions or allergies
• specify in detail the standard of living and care to be given to your pet
 brand name of pet food and snacks
 grooming instructions
 boarding instructions;
• instructions for the final disposition of your pet (for example, burial or cremation); and
• how the unexpended trust property is to be distributed after the death of the pet.

Under the statute, the trust will terminate only when all the animal beneficiaries of the trust are no longer alive. This provision creates an exception to the rule against perpetuities which would have limited the life of the pet trust to 21 years. Upon termination of the trust, the trustee will be required to transfer the unexpended trust property as directed in the trust.

Now, pet parents can be assured that their pets are going to be well cared for even after they are gone by setting up a pet trust.

Contributed by Jacque K. Vincent, J.D.

Trust Funds for Pets: It’s Not All Doggie Bones and Biscuits

Estate and trust litigation can occur for a variety of reasons. A trust fund dog named ‘Winnie the Pooh’ experienced this first hand. There, the trust manager and the pet’s new caretaking fought over the frequency and amount of money distributed from the trust.

The dog’s owner had set up a trust for $100,000 for the dog with the remainder for an animal hospital. The dog’s caretaker reportedly ended up having to sue the estate’s executor after he allegedly failed to make trust payments for the dog’s care. The caretaker further alleged that the executor had refused to provide records relating to the trust and the pet’s medical history, and that the executor was favoring the remainder beneficiary. The executor denied the allegations and blamed the caretaker for the confusion.

The merits of a case like this will depend largely on the fiduciary’s legal obligations under the law and the specific terms of the trust. Of importance would be the degree of discretion afforded to the trustee in the trust instrument for making payments. The parties should retain records to support their position, including copies of letters, payments, receipts, demands, refusals, and bank records. Relying on ‘he said, she said’ evidence will end up costing both sides a lot in legal fees, and it may even significantly reduce the trust if the judge awards attorney’s fees out of it.

Family members or remainder beneficiaries may also attempt to challenge a pet trust that leaves a large sum of money to a pet. Leona Helmsley left twelve million dollars in trust to her “beloved Maltese, Trouble.” The court held that twelve million dollars was excessive and reduced the amount to only two million dollars.

Another owner reportedly left $4,761,346 in trust for two cats (see Matter of Abels, 44 Misc 3d 485 [Sur Ct, Westchester County 2014]). The executor of the will argued that based on the cats’ life expectancy and estimated costs, the amount of the trust should be reduced to $440,000. The executor also argued that by selling the mansion and relocating the cats to a smaller residence, the tax liability could be reduced and the charities could receive more.

The judge denied the executor’s request to reduce the trust. The judge held that the decedent’s intent was clear and should be followed. The judge reasoned that the pet owner wanted the cats to live in the house they were comfortable in and made specific arrangements for this.  The judge concluded that it was not the court’s place to “rewrite the decedent’s will” and to give more to the charities than the decedent intended. 

Luckily, justice prevailed for these cats. They were able to stay in their mansion and enjoy their lives in luxury.

Trust Funds for Pets – What’s Next? Dogs in Tuxedos?

Historically, New York hindered pet owners from providing for their pets after death. If money was left to a pet in a will or trust, the courts would simply ignore it. A pet owner could only request that the money be used for the pet’s care. The problem was that the person designated to help the pet could decide to disregard the decedent’s wishes and instead discard the animal.

In 1996, New York finally recognized pet trusts. This meant that a trust could now be used to protect a pet from being abandoned or left at a shelter. Better yet, a trust could be used to continue a pet’s standard of living and provide it with treats and toys for the rest of its life.

Pet trusts operate largely like any other trust. A person is named as a trustee to act as a manager and distribute the trust funds. The trust has a beneficiary. The trust also contains terms for the trustee to follow. Such terms may include the brand name of pet food, the type of snacks, a schedule for eating and grooming, the name of the boarding facility to place the pet if the custodian goes on vacation, pet medications, and end-of-life care.

There are however two unique components to pet trusts. First, unlike human beneficiaries, pets cannot assert their own rights or hire counsel. The pet trust law (NY EPTL § 7-8.1) therefore provides for an enforcer to enforce the trust terms. Second, the courts may reduce the size of the trust if it is excessive.

So, now that pet trusts are valid, what’s next? Tax deductions for doggie day care? Hamsters with checking accounts? Turtles with charge cards? Cats on deeds? Marriage certificates? Well, that just sounds crazy! But only time will tell. Until then, we will have to settle for make-believe, dressing up our pets in silly little outfits like mini-tuxedos and treating them like children.

Sumner Redstone’s “Guardian”?

The WSJ headline this week read: Court to Appoint Guardian for Sumner Redstone. The headline on its face is clear in its implication that the controlling shareholder of CBS Corp., and Viacom Inc., will no longer be in control of his own affairs. The upshot is that he has lost it and lost control of his affairs. Could this be true? He is seeing little green men?

When a guardian is appointed, is all lost for the person?

There is much more to the story than the WSJ headline. There are more details relating to the recent outcome of the matter than suggested by the sensational headline.

The development of the appointment is part of a much larger legal dispute, a legal war, that has its genesis in Mr. Redstone’s past relationship with an old girlfriend who is in her early 50s. He is 95 years old. Her efforts have been a well-documented legal drama stemming from her having been removed from Mr. Redstone’s mansion in Beverly Hills. She contends, by direction of his daughter, who seized on his waning capacity to usurp control. The girlfriend was at one time his health care proxy and by accounts, she was included and provided for in his estate. After their relationship soured, she has persistently fought against his decisions by claiming that he lacked the mental capacity to make the decisions terminating her roles.

There is a significant amount at stake, and Mr. Redstone filed a subsequent lawsuit against her to recover $75 million in gifts that he gave her. His wealth is estimated to be $5 Billion. That trial will be next year, and she is pressing it. Adding to the proceedings are claims by Mr. Redstone’s daughter Shari Redstone and his grandson who will control his trust – when he is determined to be incompetent or on his death. Mr. Redstone was known to have spent the bulk of his adult life legally and generally feuding with his daughter and stated openly that he did not want her to be involved in corporate leadership. In an e-mail to her son she once said, “Your grandfather says I will be chair over his dead body”. The trust controls CBS and Viacom. His family contends that he has capacity.

This is all about money and control. They are common pursuits. But the legal wrangling is interesting and less common as the strategies are assessed and the case evolves.

Certainly, the attorneys for Mr. Redstone adopted the same defensive position present in virtually all these types of cases, where the guardianship is resisted: “he is fine”. That position can be very effective and persuasive where the individual is strong. But here, like in many cases Mr. Redstone was known to be failing and he was of advanced age. His public appearances were growing limited and his visible confidence seemed to diminish. Candor with the court in these circumstances becomes paramount and often a shifting strategy must be considered. Running a bluff, with a hope of settlement is typically a losing strategy. Practical concerns abound in that third parties who interact with the person may offer non-corroborating opinions. In fact, their recounts of interactions may contradict the position that he is fine. In some instances, depositions can blow the case wide open. Worse yet, if medical information is not managed correctly it can be very effectively used despite efforts to keep that proof out of the case. The court knows what inevitably happens to people when they age. It can be a mistake to stake out an impossible position on the proof when your client is declining. Competent counsel effectively identifies and assesses risks. Settlement may be impossible. The trial risk relative to an adverse finding, disclosures of highly sensitive personal and business information. Like in Redstone, an adviser finding can trigger collateral consequence relative to trust and estate planning. Often the finding of lack of capacity can be permanent. In the Redstone case there is plenty at risk at present and into the future.

Mr. Redstone’s lawyers, for many years adhered to the “he is fine” mantra. It staved off the appointment of a guardian and seemed quite effective. The adverse consequences of going forward were averted. However, the recent ruling while on its face may appear to be a big loss, may turn out to be a sizeable win for Mr. Redstone.

Of recent, Mr. Redstone’s attorneys appear to have softened on the “he was fine” position. Instead they shifted to a position of “deteriorating health conditions”. Was that a complete capitulation? Why? But is that enough for appointment of a guardian? It appears that Mr. Redstone’s girlfriend’s attorney thought so – as they have asserted this vindicates her position and further, shows that Mr. Redstone had no capacity when he sued her.

But not so fast. A closer look reveals that the shifting position may well have worked well. Although the headline suggests a whopper of a loss the result is not a complete wipe out for Mr. Redstone.