Wills and Estates | Trust and Estates Attorney

Does Kapon authorize unlimited access to a party’s financial records?

In Matter of Kapon v Koch, 23 NY3d 32, 38 (2014), the Court of Appeals concluded that a party seeking disclosure from a nonparty is not required to show “special circumstances”. Rather, the Court held that the statute “allow[s] for the discovery of any person who possesses material and necessary evidence[.]”

Does this mean that a litigant is entitled to unlimited access to a party’s financial records? Not necessarily.

First, the information subpoenaed must be material and necessary, and “the subpoenaing party [must] state, either on the face of the subpoena or in a notice accompanying it, ‘the circumstances or reasons such disclosure is sought or required’” (id. at 39, citing CPLR 3101). If the subpoena requests irrelevant information, the Court will quash it. Similarly, if the subpoena served on a nonparty fails to set forth the circumstances or reason for the disclosure, a litigant may argue that the subpoena is non-compliant and should be quashed accordingly.

In addition, there are several related objections that are subparts of the material and necessary standard. A party for instance may object to a subpoena on grounds that it is overbroad or constitutes a fishing expedition (see e.g. Saratoga Harness Racing v Roemer, 274 AD2d 887, 889 [3d Dept 2000] [improper “demand for … all of defendant’s balance sheets, income statements, cash flow statements, general ledger statements, expense reports and bank account statements for a period of more than three years” (citation omitted)]; Matter of American Express Prop. Cas. Co. v Vinci, 63 AD3d 1055, 1056 [2d Dept 2009]).

The trial court also has “the authority to impose, in its discretion, appropriate restrictions on demands which are unduly burdensome . . . and to prevent abuse by issuing a protective order where the discovery request may cause unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts” (Rawlins v St. Joseph’s Hosp. Health Ctr., 108 AD3d 1191, 1192 [4th Dept 2013] [internal quotation marks and citation omitted]; see CPLR 3103).

A more aggressive litigant may further attempt to argue that the standard is or should be higher in cases involving sensitive information such as tax returns and personal financial records. The court in Reintsema v Johnson, 2018 NY Slip Op 33612(U) (Sup Ct, Saratoga County 2018), for instance, concluded that “the scope of discovery of personal financial records and specifically income tax returns, is narrow, and such records to be disclosed, must be found indispensable to a party’s claim and unavailable from other sources … [and that] [c]ourts do not allow an adversary to ‘freely roam’ through an opponent’s financial records, except in certain limited circumstances for example when income diversion is alleged and again the relevant information is not available from any other source” (citations omitted).

Does SCPA 2110 Authorize Payment of a Beneficiary’s Legal Fees from the Estate?

“Under the general rule, attorneys’ fees and disbursements are incidents of litigation and the prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties or by statute or court rule” (A. G. Ship Maintenance Corp. v Lezak, 69 NY2d 1, 5 [1986]). This rule limits this court’s discretion and authority to award fees to a beneficiary payable from an estate (see Matter of Urbach, 252 AD2d 318, 321 [3d Dept 1999] [“all parties to a controversy, the victors and the vanquished, [must] pay their own counsel fees”]; see also Matter of Rodken, 2 AD3d 1008, 1009 [3d Dept 2003] [“An attorney may be compensated from estate funds only for services that benefit the estate”]; Matter of Baxter [Gaynor], 196 AD2d 186, 190 [4th Dept 1994]).

To be compensated for legal fees from an estate, the “legal services [must] have been rendered for the benefit of the estate as a whole, resulting in the enlargement of all the shares of all the estate beneficiaries” (Matter of Burns, 126 AD2d 809, 812 [3d Dept 1987]; Matter of Wallace, 68 AD3d 679, 680 [1st Dept 2009]; Matter of Baxter [Gaynor], 196 AD2d at 190; see also Matter of Kinzler, 195 AD2d 464, 465 [1st Dept 1993]; Matter of Carver, 19 Misc 3d 1110[A], 1110A, 2008 NY Slip Op 50632[U], *3 [Sur Ct, Essex County 2008] [citing cases]).

On the other hand, “where the legal services rendered did not benefit the estate but benefitted only the individuals whom the attorney represented, the attorney must seek compensation from the clients individually” (Matter of Wallace, 68 AD3d at 680; see also Matter of Rodken, 2 AD3d at 1008; Matter of Baxter [Gaynor], 196 AD2d at 190).

Appellate Court Victory: Matter of Gordon

In a 3-2 split decision, the Appellate Division, Third Department reversed an order of the Surrogate’s Court of Albany County (Maney, S.), which had denied our motion seeking to disqualify the other side’s counsel.

The appellate court agreed that opposing counsel was disqualified from representing the other side in the case based on opposing counsel’s prior participation in the same estate as a former judge. The full decision is available at, http://decisions.courts.state.ny.us/ad3/Decisions/2021/529943.pdf

What should you ask the drafting attorney during the SCPA 1404 Examination?

If you are considering objecting to a will, the Surrogate’s Court Procedure Act provides you with the right to question the drafting attorney. But what should you ask?

The questions for each specific case will vary. However, in most cases you should ask questions about the attorney’s background and qualifications, the attorney’s prior interactions with the decedent and beneficiaries, the attorney’s prior legal representation of the decedent and beneficiaries, the existence of prior wills, the names of the decedent’s prior attorneys, who referred the decedent to the drafting attorney, who initiated the first contact for the services, where they met, who was present, what was discussed, the extent to which decedent discussed his family members and assets, what occurred during the will ceremony, the contents of the attorney’s notes and billing entries, whether the decedent was driven to the appointments, whether the decedent explained why he/she wanted to change his/her will, and any subsequent interactions between the decedent and the drafting attorney.

Sample List of Questions

When were you admitted to practiced law in New York?

How long have you done estate planning?

When did you first meet the decedent?

When did you first perform any legal services for the decedent?

When did you first meet the beneficiary/named executor?

Have you ever performed any legal services for the beneficiary before?

Did the decedent have a prior will/estate plan?

How was it different than the will you drafted for him?

Do you know the name of the prior drafting attorney?

Did someone refer the decedent to you? Who?

Who arranged for the first meeting between you and the decedent?

How did the decedent get to your office?

Who was present?

What did the decedent tell you?

What did you discuss with the decedent?

What did you discuss with the beneficiaries?

Did the decedent say anything about his family/assets?

Did the decedent ever tell you why he/she wanted to make the change to the will?

What is the basis for your conclusion that the decedent was of sound mind?

Did you prepare an engagement letter for the services?

How much did you charge for your legal services?

Who paid?

Who signed check?

Who wrote out the check?

Do you have any (other) invoices or billing records to reflect the services performed?

Did you take any notes?

Do you have any other notes other than these?

Did you send the decedent any letters/correspondence?

Did the decedent give you any writings/letters?

Did you have any other/subsequent interactions with the decedent?

Do you know the names of the decedent’s banks? Medical providers? Pharmacy? Cell phone number and provider?

Do you know if the decedent made any beneficiary changes to any of his/her non-probate assets during such and such time period?

Do you know if the decedent had any Powers of Attorney? Who was named as the agent? Do you know if the decedent had any joint accounts with the beneficiaries?

Can a beneficiary recover the cost of attorney’s fees from estate litigation?

Generally, the fiduciary is entitled to recover the cost of attorney’s fees as a reasonable and necessary administration expense. However, SCPA 2110 also authorizes the court to award attorney’s fees for legal services rendered to a beneficiary. The court may direct payment directly from the estate generally or from certain funds in the hands of the fiduciary (SCPA 2110 [2]).

In Matter of Rose BB., 35 AD3d 1044, 1045 (3d Dept 2006), for example, the court reiterated the well-recognized rule that “Surrogate’s Court may award counsel fees in situations where the misconduct of a fiduciary brings about the expense.” There, the court affirmed the fee award, pointing to the other party’s “numerous instances of obstructing and prolonging an otherwise uncomplicated proceeding and his violation of his fiduciary duties.” The record evidence also supported Surrogate’s Court’s finding that “with the exception of the ordinary administration of decedent’s estate, the proceedings … were necessitated by and attributable to … improper conduct.”

Similarly, in Matter of Graves, 197 Misc 638, 639-640 (Sur Ct, Monroe County 1950), the court awarded fees out of the estate where, “without the performance of the services, the estate would have been charged additional commissions in the sum of $11,245.31.” The court held that “where legal services have been rendered for the benefit of the estate which result in enlargement of the distributive shares of the estate beneficiaries, reasonable compensation should be granted out of the estate for such services” (id.). “In such case the personal interests of the executors cause them and their counsel, in effect, to step aside and permit those whose interests are not inimical to the estate in general to protect the rights of the estate” (id.; see also Matter of Berg, 91 Misc 2d 939 [Sur Ct, New York County 1977] [awarding fees even though the court sustained only 3 of the objections and denied approximately $89,000 of the $100,000 surcharge requested]; Matter of Geller, 167 Misc 578, 578 [Sur Ct, Kings County 1938] [holding that the court may allow fees of an attorney for an interested party to be charged against the estate if the services were necessitated by the neglect of the fiduciary of his duties]).

“The theory which justifies payment by the estate to the attorney of a beneficiary is that the attorney has represented the fiduciary who has defaulted in protecting or collecting the assets of the estate and, therefore, what would have been a proper charge for legal fees if the executor had acted, is a proper charge when the executor fails to act because of an adverse interest, disinclination or neglect” (Matter of Bellinger, 55 AD2d 448, 449-454 [4th Dept 1977]; see e.g. Matter of Berg, 91 Misc 2d at 939 [awarding fees even though the court sustained only 3 objections and denied approximately $89,000 of the $100,000 surcharge requested]; see also e.g. Matter of Del Monte, 37 AD2d 827, 827 [1st Dept 1971] [benefit to the estate for saving the estate disallowed commissions])

How Does the Estate Recover Property Wrongfully Taken from the Decedent and Who Has the Burden of Proof?

SCPA Article 21 provides a procedural vehicle for the Estate to recover assets wrongfully obtained from a decedent. The Estate’s fiduciary may file a petition under these provisions to identify and recover estate assets held by a third party.

“The fiduciary bears the burden to prove that property held by a respondent is an estate asset” (Dwyer v Valachovic, 137 AD3d 1369, 1370 [3d Dept 2016]; Matter of Elam, 140 AD3d 754, 755-756 [2d Dept 2016]). Where the respondent alleges that the property was lawfully gifted to him or her, however, the respondent has the burden of proving, by clear and convincing evidence, the elements of a valid gift (see Matter of Lang, 53 AD2d 836 [1st Dept 1976]; Matter of Flamenbaum, 6 Misc 2d 122 [Sur Ct, Westchester County 1957]; Estate of Daly, 2 Misc. 2d 570 [Surrogate’s Ct, New York County 1955]).

It is well settled that “to make a valid inter vivos gift there must exist the intent on the part of the donor to make a present transfer; delivery of the gift, either actual or constructive to the donee; and acceptance by the donee” (Matter of Fenlon, 95 AD3d 1406, 1407 [3d Dept 2012] [internal quotation marks and citation omitted]). The person claiming a gift “has the burden of proving each of these elements by clear and convincing evidence” (id.; see Roberts v Jossen, 99 AD2d 1002 [1st Dept 1984]; see generally Turano, Practice Commentaries, McKinney’s Cons Laws of NY, Book 58A, SCPA 2104, at 415).

“He who attempts to establish title to property through a gift inter vivos as against the estate of a decedent takes upon himself a heavy burden which he must support by evidence of great probative force, which clearly establishes every element of a valid gift” (Matter of Conners, 24 AD2d 681, 682 [3d Dept 1965] [internal quotation marks and citation omitted]). “[A] gift is never presumed, and the evidence must be inconsistent with any other intention or purpose” (Matter of Kelligrew, 19 Misc 3d 1135[A], 1135A, 2008 NY Slip Op 51010[U], *9 [Sur Ct, Westchester County 2008]).

The Top 5 Types Of Documents to Request Prior to the SCPA 1404 Examination

When representing clients looking to challenge a will, we like to take full advantage of pre-objection discovery. It is particularly helpful to review as much information about the decedent as possible prior to conducting the SCPA 1404 examination. We like to request and review the following types of documents:

Drafting Attorney’s Case File. The best source for cross examination will be the drafting attorney’s case file. We are particularly interested in the billing records, the attorney notes, and the correspondence.

Medical Records. If we have the medical and financial records, we will use them to test the witnesses’ knowledge of the decedent’s health. We will ask the drafting attorney and the attesting witnesses about their interactions with the decedent and whether they were aware of any physical or mental conditions suffered by the decedent. Often, these witnesses may have been completely ignorant of significant underlying conditions, thereby calling into question the reliability of their opinions about the decedent’s capacity and the lack of undue influence.

If we do not have medical records in time for the exam, however, we may still proceed without the medical records to avoid delay. To account for this, we will ask the witnesses about their knowledge of the decedent’s health and what the decedent told them about it. We will then later compare the answers to the records we later obtain to see if the answers are accurate.

Phone Records. If we have the phone records, we can determine how many times the decedent called the law office, the beneficiaries, and anyone else. We may compare the records to the witnesses’ answers about durations of calls and the number of calls. If the decedent told the witness that he or she did not have communications with our clients, we will check the phone records to see if the statement was accurate.

Prior Estate Planning Documents. We look to prior estate planning documents to see if there was a deviation in the decedent’s estate plan and how long the prior plan existed. We often ask the witnesses about their knowledge of a deviation and the reason given by the decedent for it.

Financial Records and Credit Card Statements. We look to financial records and beneficiary change forms to see if the decedent gifted any funds to the beneficiaries and if any power of attorney was used to transfer funds on the decedent’s behalf. Again, we ask the witnesses if they were aware of any of these circumstances when the will was executed.

We also look to credit card statements to see where the decedent was at or around the time of the will execution and who the decedent may have been communicating with. We also try to compare this information to other sources, such as the decedent’s emails, appointment book, calendar, and contact lists.

Case Study No. 2: The Discovery Process in Surrogate’s Court

We received a call one day from two brothers complaining of their sister. Their father had a long term, prior estate plan providing for his children equally. Right before his death, the plan changed, and their father cut them down and provided a much larger portion of his estate to their sister.

Around the time of the change, their father had experienced significant tragedy in his life. His wife had passed away, his dog had died, and he was in and out of the hospital. The daughter and her husband had also driven him to the attorney appointments to make the change to the will.

In this type of case, the clients want to know what happened and why the decedent decided to suddenly change his estate plan. As with a lot of probate disputes, the first step is therefore to ascertain what occurred. To accomplish this, we generally appear on the citation date and request a scheduling order to obtain document discovery prior to the 1404 examination.

After obtaining the scheduling order, we served an extensive document demand on the estate. We requested items such as the estate’s case file, the father’s medical records, financial information, phone records, and written communications and emails. As in every case, we were particularly interested in communications between the decedent and the key players – the drafting attorney, the fiduciary, and the beneficiaries.

The estate in this case did not timely serve responses to our document demands. It sought to delay and ask for several adjournments. To address this problem, we could have gotten the court involved. The problem was that it could take several months for the court to resolve the issue.

We elected instead to go around the estate for much of the information requested by engaging in third-party discovery. So instead of waiting for the estate’s production, which could have taken months and which would likely produce only some of the documents, we simply obtained the estate file from the drafting attorney and served third party subpoenas to get the rest of the information we wanted. As a result, we obtained much more information from the third parties in a much shorter period of time.

When we finally received the estate’s document response, we noticed that certain documents were unsigned, incomplete, or missing. We made follow up requests with the estate and after several attempts to obtain the missing information and an office visit by me to inspect the original file, we ended up obtaining additional records and electronic data that had been omitted from the earlier production. That information included important attorney records and notes, making them highly relevant and useful for cross examination.

So, to sum up the two main lessons from this case study, 1. we insist on receiving the complete estate case file from the drafting attorney prior to the exam, and 2. we go on a scavenger hunt for as much information as possible.

FIDUCIARY COMPENSATION

“We don’t pay taxes, only the little people pay taxes.” Leona Helmsley

This is what Leona Helmsley’s summer house keeper testified that Mrs. Helmsley had previously said, during a 1989 tax evasion trial that resulted in Mrs. Helmsley serving 19 months in jail. At trial, her own lawyer described her as a “tough bitch”. Leona Helmsley was known as the “Queen of Mean” for her heaping cruelty meted out toward her employees in her real estate empire worth billions. She was legendary in penny pinching her employees, returning used shoes to stores for refund and gipping contractors that worked on her properties. When her only child died she served his widow with an eviction notice shortly after the funeral and took judgment against his estate for a debt and property that she claimed he had borrowed from her. It seems that while she was alive she paid no one fairly.

Mrs. Helmsley died in 2007. Her husband (number three) Harry, predeceased her in 1997. Fortunately for Mrs. Helmsley, she got what she wanted: he left her his entire estate estimated to be well over $5 billion.

Her estate plan was what one would expect under the circumstances. It cut out certain family members and manifest some rough edges. Mrs. Helmsley’s estate in large part was left to a charitable trust. Her Maltese dog, Trouble, was benefitted by a $12 million trust fund. It was reduced by the court as excessive based upon litigation and alleged lack of capacity. The court determination included providing benefit for some relatives.

In August 2019, the New York County Surrogate made a final determination on the application for judicial settlement of the final account of Mrs. Helmsley’s executors (See In re Judicial Settlement of the Final Account of Proceedings of Panzirer, 2019 N.Y. Misc. Lexis 4512). Ironically, the focus of the court’s attention was the matter of determining reasonable compensation for the fiduciaries.

Mrs. Helmsley’s will stated that her executors were not to receive statutory commissions. Instead, her will stated:

“Any one or more executors…may render services to the Estate…as an officer, manager or employee of the Estate…, or in any other capacity, notwithstanding the fact that they may appoint themselves to serve in such capacities, and they shall be entitled to receive reasonable compensation for such services. No such person shall be required to furnish any bond in connection with such employment.”

The executors commenced a proceeding to be paid and filed their account. The executors asserted that the estate was mammoth and highly complex and that they were responsible for enormous risk and potentially exposed to personal liability. Thus, they sought $100 million ($25 million each). This was based on well settled law in New York, concerning established factors on which reasonable compensation is to be determined (See In re Estate of Freeman, 34 N.Y.2d 1, 311 N.E.2d 480, 355 N.Y.S.2d 336 [1974]; In re Potts’ Estate, 213 A.D. 59, 209 N.Y.S. 655 [4^thDept 1925], affd 241 NY 593, 150 N.E. 568 [1925]).

The Attorney General objected. The Attorney General did not allege impropriety, but instead claimed that the amount sought was not “reasonable compensation.”

The argument made was that a proposed methodology akin to quantum meruit should apply. Only time spent should be considered, rather than the long standing law favoring multi factor analysis. According to the Attorney General, her theoretical time and rate based formula should determine the result.

In a well reasoned and thoughtful determination the Surrogate crushed the opposition of the Attorney General, rejecting it entirely, as “misguided at best” and “simply wrong.” The Attorney General argued that the compensation “should be based on a simple arithmetic formula which considers only the reasonable amount of time spent multiplied by an appropriate hourly rate.” Incredibly, the Attorney General further argued that the court should appoint an expert to advise on the reasonable value of each executor’s contribution to the estate, based upon services actually rendered and based on the individual knowledge of and skills of each.

The position taken by the Attorney General was baseless and incredibly wrong. The determination of the court reflects a displeasure with the arguments lacking any legal support. The court stated that the Attorney General herself, self promulgated certain “guidelines” that the court found to simply be “unworkable”, and “which would foist an unwieldly time consuming and costly process onto the parties and the estate.” Further, rejecting the notion of appointment of an expert, the court found that would involve the retention of additional professionals to help the expert, necessitate more discovery, and possibly a hearing – all at the additional expense of the estate. Finally, the court reminded the Attorney General that the Surrogate is uniquely qualified to determine fiduciary compensation based upon the reasonable compensation standard. The court does that routinely in these cases. The Legislature conferred that authority to the court (see SCPA 1412(7) re preliminary executors, 2312 re corporate trustees, and 2110 re attorneys).

Despite the efforts of the Attorney General, Leona Helmsley’s fiduciaries will be fairly compensated after all.

Preparing for the SCPA 1404 Exam: Case Study

Prior to filing objections to the validity of a decedent’s will, we conduct a thorough investigation into the facts of the case. This requires us to examine the estate case file, the fiduciary’s records, and the decedent’s personal papers and communications. We review the drafting attorney’s work product, criticize it, and try to tear it apart. At the end of the day, our goal is to provide our clients with answers and advice about whether to file objections.

In one particular case, we were confronted with a situation where the decedent disinherited his family members and left the bulk of his estate to someone he had met on the internet and knew for a very short period of time. Sadly, the decedent ended up committing suicide shortly after.

We conducted a very thorough investigation into the facts of this case to prepare for the 1404 exam. We first served an extensive document demand on the estate. We requested items such as the estate’s case file and the decedent’s medical records, financial information, and written communications. As in every case, we were particularly interested in communications between and among the decedent, the drafting attorney, the fiduciary, and the beneficiaries.

We also served subpoenas on third party entities to obtain records, including the decedent’s phone records, emails, internet dating messages, and social media communications. We were also able to obtain the case file of the police investigation into the decedent’s suicide.

In this case, we went a step further than we normally do. We hired a computer forensic examiner to examine the decedent’s computer. As a result, we were able to view snapshots of emails and messages, as well as numerous word documents, PDFs and photographs that were located on the computer. We were also able to view a list of the internet sites the decedent visited, the internet searches he conducted, and the places he may have driven based the addresses he typed into Google maps.

By the time we got to the 1404 exam, we had a wealth of information to use for cross examination.