What is the fiduciary tolling rule?

In Estate of Mathai Kolath George, the Appellate Division, Third Department applied the fiduciary tolling rule to a constructive trust claim in a case involving a fiduciary’s misconduct and her removal.  There, after the decedent passed away, the estate’s fiduciary terminated the decedent’s contract for the purchase of a mansion and entered into a new contract to purchase the property on behalf of an LLC, an entity in which she was the managing member, for the remaining purchase price left on the decedent’s contract.  The then-fiduciary also allegedly used estate funds to pay the remainder of the purchase price left on the contract.    

Several years later, following a trial, Surrogate’s Court removed the fiduciary from her position as executrix and revoked her letters testamentary, finding that she violated her fiduciary duty to the estate by, among other things, failing to identify or account for the estate’s assets, engaging in self-dealing, and commingling the estate’s assets with her personal assets.

A petition was later filed in the estate seeking, among other things, the imposition of a constructive trust on the mansion.   The LLC and another entity filed motions seeking to dismiss the case based on the statute of limitations defense. 

The court concluded that a constructive trust is subject to a six-year statute of limitations and accrued on the date on which the former fiduciary cancelled the decedent’s contract and entered into the contract to purchase the property on behalf of the LLC.

The Court held as follows:

“Under the fiduciary tolling rule, a claim alleging wrongful conduct by an individual in his or her fiduciary capacity does not accrue until there is an open repudiation of the fiduciary obligation or a judicial settlement of the fiduciary’s account ….  This rule tolls the statute of limitations for all misconduct committed by the fiduciary prior to repudiation of its obligation or termination of the fiduciary relationship ….  since, absent either repudiation or removal, the aggrieved parties were entitled to assume that the fiduciary would perform his or her fiduciary responsibilities …, and it is highly unlikely that a sitting fiduciary would assert a constructive trust claim against himself or herself” (internal punctuation marks omitted).

Under this rule, the toll continued until a successor fiduciary was appointed.  The Court found that the statute of limitations was tolled from the date the fiduciary received letters testamentary, until her removal and continuing until letters were granted to a successor fiduciary for the estate, a total toll of four years, five months and 14 days.  Taking this tolling into account, the Court concluded that Surrogate’s Court should not have dismissed the claim based on the statute of limitations defense.

Appellate Court Victory: Matter of James H. Supplemental Needs Trusts

In this Mental Hygiene Law article 81 proceeding, we successfully defended the petitioner/guardian on an appeal.  There, the petitioner was appointed as the guardian of James H.  After extensive litigation, the petitioner applied for and received an order awarding counsel fees and compensation for guardian services pursuant to Mental Hygiene Law § 81.28 (a).  In the same order, the petitioner also received authorization for those amounts to be paid from supplemental needs trusts (SNTs).  James H.’s brother, unsatisfied with the result, appealed. 

On the appeal, the appellate court affirmed.  Among other things, the appellate court concluded that the trial court provided a clear and concise explanation for its award in a written decision with reference to numerous factors, including the time and labor required, the attorney’s experience and ability, the benefit flowing to the incapacitated person as a result of the attorney’s services and the results obtained. 

In addition, the appellate court rejected James H.’s brother’s challenge to the trial court authorizing the payments from the SNTs or, in other words, approving the use of the SNTs for this purpose. The appellate considered the purpose of these trusts and the limitations imposed on them by law.  The appellate court also considered the specific provisions of the SNTs and the services provided by petitioner and her appellate counsel.

The appellate court found that the services benefitted James H. and were the types of services authorized to be paid for by the SNTs.  Among other things, the appellate court concluded that the petitioner’s services as guardian and the legal services provided by petitioner and her appellate counsel successfully resulted in the removal of James’ H.’s brother as trustee of James H.’s SNTs, and that James H.’s brother had been incredibly litigious, obstinate and consistently reluctant to pay James H.’s medical bills and expenses. In finding that the services benefitted James H., the court further concluded as follows:

“Upon [James H.’s brother’s] removal, petitioner was better able to ensure that James H.’s weekly needs were met, resulting in the timely and efficient payment of bills and coordination and receipt of services benefiting him, thus reducing James H.’s anxiety. More importantly, [James H.’s brother] was also the executor of their mother’s estate and, despite the fact that two years had elapsed since their mother’s death, [James H.’s brother] had not transferred James H.’s inheritance into his SNTs, leaving two of the SNTs unfunded. [The] removal further led to the subsequent significant funding of the SNTs, resulting in greater availability of funds for the payment of James H.’s necessities, such as health care, transportation and groceries, as well as personal items to enhance his lifestyle.”

As with any SNT, the appellate court recognized a chief concern was whether payment to a third party from the SNTs would render James H. ineligible for receipt of government benefits or assistance. The appellate court looked to Social Security Administration, Program Operations Manual System (POMS) as guidance and found that the payment from the SNTs would not render James H. ineligible for government benefits.

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])

Does the Surrogate’s Court Have Jurisdiction Over Lifetime Trusts after the Grantor’s Death?

A decedent may create a trust during his or her lifetime.  What happens after the decedent dies?  Does the Surrogate’s Court have jurisdiction to compel a trustee to account to a beneficiary or determine other matters relating to the trust?   

      SCPA § 207 provides two separate grounds upon which the Surrogate’s Court may exercise jurisdiction over lifetime trusts after the grantor’s death.  Under SCPA § 207, the Surrogate’s Court “has jurisdiction over the estate of any lifetime trust which has assets in the state … or of which a trustee then acting resides in the state or, if other than a natural person, has its principal office in the state.” 

      It is therefore important to determine whether trust assets exist in New York and whether the trustee resides in New York.  If either one of these two grounds exist, SCPA § 207 provides the Surrogate’s Court with jurisdiction to entertain the proceeding.  See SCPA § 207(1); see e.g. Matter of Srozenski v Porcelli, 78 AD3d 1596 (4th Dept 2010); Matter of Jensen, 39 AD3d 1136 (3d Dept 2007).

Can I object to the estate paying the fiduciary’s legal fees?

There are several grounds to object to the estate paying the fiduciary’s legal fees.  One of the most basic objections is to challenge the reasonableness and necessity of the legal services performed (see Matter of Bradley, 128 Misc 2d 240, 241 [Sur Ct, Nassau County 1985] [reducing the attorney’s fee because “some of the work performed was totally unnecessary and the time spent on the balance excessive and unjustified”]; Matter of Bloomingdale, 172 Misc 218, 228 [Sur Ct, New York County 1939] [reducing the attorney’s fee for charges where most of the work of the attorney “involved was unnecessary and of no advantage to the estate and was a duplication of the work of the attorneys who had represented both the executor and executrix in prior years”]; see also JK Two LLC v Garber, 171 AD3d 496, 496-497 [1st Dept 2019] [reduction of the amount requested to eliminate work that was duplicative or was unnecessarily performed; holding that the determination of a reasonable attorney’s fee can take into account whether a party has engaged in conduct or taken positions resulting in delay or unnecessary litigation]; Matter of Rose BB., 35 AD3d 1044, 1045 [3d Dept 2006]). 

            This may be accomplished by reviewing the billing invoices and considering each time entry individually and collectively.  Also review the attorney affidavit discussing the services performed and consider the following:  the time and labor required, the difficulty of the questions involved, and the skill required to handle the problems presented; the lawyer’s experience, ability and reputation; the amount involved and benefit resulting to the client from the services; the customary fee charged by the Bar for similar services; the contingency or certainty of compensation; the results obtained; and the responsibility involved. 

            You may also challenge the fiduciary’s fee request based on the lack of supporting documentation.  The courts have reduced fees, for example, where the fee request is based upon generalized descriptions of the legal services rendered rather than contemporaneously recorded time charges for the work (see Matter of Phelan, 173 AD2d 621, 621-622 [2d Dept 1991]; Matter of Kelly, 187 AD2d 718, 718-719 [2d Dept 1992] [“We have repeatedly emphasized the importance of contemporaneously-maintained time records as a key component of an attorney’s affirmation of legal services”]; Matter of Quade, 121 AD2d 780, 782 [3d Dept 1986] [acknowledging the importance of time records and holding that the Surrogate’s Court is not obligated to accept unsupported testimony regarding the amount of time claimed to be compensable”]; 22 NYCRR § 207.45 [a] [requiring information regarding “the services rendered, in detail; the time spent; and the method or basis by which the requested compensation was determined”]). 

            Where the fiduciary is guilty of a breach of fiduciary duty or self-dealing, object.  In such cases, the attorney’s fee incurred in defending the illegal acts should not be charged to the estate (see Matter of Hildreth’s Will, 274 AD 611, 615-616 [2d Dept 1949], affd 301 NY 705 [1950]; Matter of Kenney, 64 Misc 3d 1232[A], 2019 NY Slip Op 51389[U], *9 [Sur Ct, Albany County 2019] [holding that inasmuch as the legal fees were incurred to defend petitioner for his wrongdoing, and the associated legal services benefitted him and not the estate, the legal fees were the responsibility of petitioner personally, and not the estate]; see also Matter of Newhoff, 107 AD2d 417, 423 [2d Dept 1985]; Chiesa v Keogh, 23 AD2d 562, 562 [2d Dept 1965] [“the services of counsel to represent an executor against a charge of self-dealing may not be charged to the estate”]).

            Similarly, consider objecting to the payment of attorney’s fees for legal services which were necessitated by the mistake, neglect, and/or misconduct of the fiduciary (see e.g. Matter of Newhoff, 107 AD2d at 423; Chiesa, 23 AD2d at 562 [“Although the erroneous computation of commissions by the executors was the result of an honest mistake, the beneficiaries of the estate should not be penalized by the payment of legal services for defending the executors with respect to such mistake”]; Matter of Hildreth, 274 App Div at 611; Matter of Terranova, NYLJ, July 11, 2012, at 25, col 5 [Sur Ct, Queens County] [denying fee application where found the need for the fiduciary to retain new counsel resulted solely from his own misconduct and holding that the trust should not have to pay for incoming counsel’s learning curve]; 8 Warren’s Heaton on Surrogate’s Court Practice § 106.04 [1] [a] [LexisNexis 2020]). 

            In addition, where the services benefitted only the fiduciary, you may object to them being recoverable against the estate (see Matter of Shambo, 169 AD3d 1201, 1207-1208 [3d Dept 2019] [“Given the minimal, if any, benefit to the estate derived from the years of legal representation …Surrogate’s Court did not abuse its discretion when it denied the payment of counsel fees from the estate”]; 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, 196 AD2d 186, 186 [4th Dept 1994] [reversing attorney’s fee award where the legal services did not benefit the estate but only benefitted the individuals whom the attorney represented];  Matter of Klenk, 151 Misc 2d 863, 863 [Sur Ct, Suffolk County 1991], affd 204 AD2d 640 [2d Dept 1994] [holding that the attorneys who represented the co-fiduciaries in a contested accounting proceeding were not entitled to be paid from the estate since their services were rendered to support the co-fiduciaries in litigation regarding commissions and not to further the interest of the estate]; see also Matter of Gutchess, 117 AD2d 852, 855[3d Dept 1986] [reducing the attorney’s fee and holding that “the evidence does not support the conclusion that petitioner’s representation on [a particular claim] produced significantly favorable results”]; Matter of Schwartz, N.Y.L.J., Oct. 17, 2017, at 22, col. 5, 2017 NY Misc. LEXIS 3890 [Sur Ct, New York County] [holding that the attorney failed to show that the time purportedly spent by him benefited the estate in any way]).

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.