Practice and Procedure | Trusts and Estates Law

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

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.

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.

Estate Litigation Post-Divorce and Separation Agreements

Many trust, estate and probate litigation cases in New York are engendered by divorce. The great wealth transfer presumably will grow the trend of estate related disputes arising from circumstances of divorce. There are many reasons why the dissolution of a marital relationship can cause estate litigation. Wealth and emotion often are the primary drivers. This single case experience raises many common issues and reflects a litigated final outcome.

Facts
Mom and dad married in the 1960s. During the course of the marriage dad worked long hours and mom raised two children who were the product of the marriage. When the children were in high school mom and dad separated and then ultimately, became divorced, after about twenty years of marriage. Mom raised the two children and did not remarry. They got by on mom’s hard work and commitment to the children.

Mom was not happy about this outcome, as she had intended to remain married until she found out that dad had not been true to his vows. Mom, feeling scorned, set out to do the best that she could for herself and her children monetarily in the divorce proceedings. She retained counsel.

In the divorce proceedings dad offered present day, “price of freedom” assets like stocks and bonds and bank accounts. Mom accepted the offerings. The signed separation agreement also contained a provision that was not in focus at the time. It appeared natural and what was later described as some boilerplate language. The terms offered no present-day money or solace to the mom. When the division of the marital assets was finally determined by the separation agreement, it stated: mom and dad each agree to bequeath outright or in trust at least one – half of his or her adjusted gross estate to their children in equal shares, per stirpes.

The separation agreement defined “adjusted gross estate” as “the entire value of the decedent’s gross estate for federal estate tax purposes, less deductible funeral and administrative expenses, claims against the estate and a pro rata share of mortgages or indebtedness on property which is included in the gross estate, but not including any community property.” With respect to community property it stated that if either spouse owned any community property on death, “then the portion which is not vested in the spouse of either of them shall be bequeathed, either outright or in trust, to his or her children equally, per stirpes.”

Dad went on to marry his paramour, and they remained married for many years. They accumulated wealth and assets together. They commingled what they each brought into the marriage with the other’s assets. They had accounts set up that were titled in both of their names, as husband and wife, and they bought real property together and similarly titled it. They had a long marriage at Shangri- La, which brought no children, where they shared everything among themselves.

Years later, dad became ill. His two children were now independent adults living far away and with limited, if any, connections to him. He had a will prepared by an attorney that provided for all of his wealth to pass to his wife (number two). Wife number two fully participated in his planning process with his counsel. She was aware of his then stated intentions on death that everything they had went to her as well as the content of his will. She cared for him in his illness and until he died.

His will provided that on his death his wife would become the executrix of his estate. He left the residuary of his estate to her, in trust, and on her death the remainder of the trust was to be divided into two equal shares for his daughters.

After his death, his ex-wife remained mindful of their children. She produced the separation agreement anticipating that wife number two would comply in providing each of the children from the first marriage with their respective share of their father’s estate.

Dad’s wife refused to comply. His two children sued her and his estate. Their mother was not a party to the lawsuit. Wife number two advanced several reasons and justifications to the court for her position.

She made the classic estate litigation argument, that the outcome under the agreement was not the decedent’s intent. She argued that Dad intended for his second wife to receive everything.

Her position was that the decedent’s intent was manifest by his recent last will – not a separation agreement made with an ex-spouse five decades prior. Dad made a will and engaged in joint estate planning with wife number two, where the joint plan was for her to get it all. Her position was that the will controlled his estate over that old agreement.

She argued that she owned everything outright. Dad and wife number two had titled and retitled the marital assets in such a manner that they became hers on death by operation of law. Her counsel argued that the assets Dad owned at the time of this death were in his name jointly with his wife as tenants by the entirety. Thus, the assets were already hers.

Her further position was that there was no estate and that if there were, there were no assets in it. Since there was nothing in the estate as result of the retitling, wife number two, as his executrix, would not file a petition for probate of the will with the New York Surrogate’s Court. She argued that there was no need to probate the will.

Her attorneys also argued that since wife number two and the estate were not parties (did not sign) the separation agreement, therefore, it was not binding on them.

All of these arguments are common in these cases (See, e.g., Estate of Coffed, 59 AD2d 297 [4th Dept 1977], affd 46 NY2d 514 [1979]; Rubenstein v Mueller, 19 NY2d 228 [1967], and Matter of Shvachko, 2016 NY Misc LEXIS 3742 [Sur Ct New York County, October 14, 2016]). They are losers. In 2008, the New York State Legislature enacted EPTL 5-1.4 that provides for the automatic revocation of the fiduciary on divorce (see Matter of Sugg, 49 Misc 3d 455 [Sur Ct Erie County, June 29, 2015][holding former spouse’s designation as beneficiary to insurance policy is ineffective unless expressly provided otherwise]). The old rule made no such provisions and allowed for some awkward administrations of estates. Smart divorce lawyers counsel their clients to obtain strong and competent estate planning advice at the outset, during and post-divorce proceedings. It seems that in many cases they counsel their clients to change their wills at the outset, in recognition of the New York’s rule that one cannot entirely disinherit one’s spouse. Instead, by EPTL 5-1-1-A the legislature enacted a law whereby a spouse may elect a one third share of the other spouse’s estate regardless of what the will says. Further, where there is no will, the spouse of the decedent is provided for under the rules of intestacy EPTL 4-1.1.

This is a thumbnail sketch of the issues in one case. the ultimate outcome here was that the two daughters received their fair shares of their father’s estate in the end.

Inheritance By Non-Marital Children

I recently read an article on People.com about a poor young man who became “Lord of the Manor” after DNA proved he was the heir of a wealthy British aristocrat (https://people.com/human-interest/care-worker-inherits-60-million-english-estate-dna-test/). This got me wondering what happens in New York when a non-marital child shows up after the parent is deceased and demands his inheritance. Does he have a right to inherit Mom or Dad’s estate? How do the marital children, if any, respond to his demands?

New York Estates, Powers and Trust Law Section 4-1.2 specifically addresses the question of inheritance by non-marital children. In New York, a non-marital child is the legitimate child of his mother and can inherit from his mother and from her family unless specifically excluded.

But, the rules are different for a non-marital child to inherit from his father’s estate. Before a non-marital child can inherit from his father, paternity must first be established. Section 4-1.2 sets out three methods to establish paternity: (i) an order of filiation issued by a court during the lifetime of the father; (ii) a signed acknowledgement of paternity by the father; or (iii) clear and convincing evidence of paternity, which may include, but is not limited to, DNA evidence or evidence that the father openly and notoriously acknowledged the child as his own.

In some situations, the father either did not know about the child, or he kept the existence of his secret love-child from his family. One way an unknown or secret non-marital child can establish paternity would be through DNA evidence. The burden is on the non-marital child to prove he is the decedent’s child with clear and convincing evidence. First, the non-marital child must commence a Surrogate’s Court proceeding to establish inheritance rights to the father’s estate. A pre-trial motion can then be made for an order to posthumously perform a DNA test.

A court may grant a motion for posthumous DNA testing where the non-marital child provides some evidence that the decedent openly and notoriously acknowledged paternity and establishes that the testing is practicable and reasonable under the totality of the circumstances. (Matter of Poldrugovaz, 50 AD3d 117, 129 [2d Dept 2008].) Factors that courts consider include (i) whether evidence presented demonstrates a reasonable possibility that the testing will establish a match; (ii) the practicability of obtaining the tissue sample for the purpose of conducting the test, including whether it is readily available; (iii) whether there is a need to exhume the decedent’s body or obtain the sample from a nonparty; (iv) whether appropriate safeguards were, or will be, taken to insure the reliability of the genetic material to be tested; and (v) the privacy and religious concerns of the decedent and or his family members. (Matter of Betz, 74 AD3d 1459, 1463 [3d Dept 2010].) The rule is to safeguard the estates of decedents from fraudulent claims. The last thing grieving families need is to have someone show up claiming to be their father’s child and demanding his inheritance without any evidence to back up his claim.

Contribution by Jacque K. Vincent, J.D.

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