Draft - 5/29/02 11:32 PM

The Bank of New York – May 21, 2002 Ethics and Tactics in Surrogate’s Court Litigation

John Jeffrey ("John"), age 90, married his nurse, Mary Jones ("Mary"), age 60, on May 1, 1999. John, a divorcee, had 3 children from his first marriage, Steven, Jessica and Robert. Robert has Down’s Syndrome and lives in a group home. In 1992, John was diagnosed with Alzheimer’s, and Mary, a practical nurse, was hired by Steven Jeffrey to take care of his father in 1996 when John’s condition had begun to deteriorate. Steven handled his father’s finances pursuant to a Durable Power of Attorney signed by John in 1991 at the time that John last revised his Will. John also owns a business, Jeffrey Machine Parts, Inc. ("Jeffrey Machine"), that manufacturers machine components. Jeffrey Machine employs 60 people and has gross annual revenues of $8,000,000. Beginning in 1992, Steven is now running the business and makes a salary of $200,000. Jeffrey Machine experienced substantial losses after Steven took it over, and, beginning in 1997, exhausted its cash reserves and relied upon a credit facility given to the business by The Bank of New York in the total amount of $2,000,000, with a personal guaranty for such liability executed by John.

In 1997, Mary moved into John’s home against the wishes of Steven and Jessica, and began what Mary described as a "great romance" with John. At the same time, Mary assumed total control over John’s finances and arranged to have her personal lawyer, James Joseph, prepare and supervise the execution of a new Durable Power of Attorney form designating Mary as agent and authorizing Mary to exercise broad powers and specifically authorizing Mary to make gifts to herself and John’s children. Apparently, according to Mr. Joseph’s notes, John advised Mr. Joseph that his decision to permit Mary to move in with him has had a very negative effect on his relationship with his children, but John was still comfortable in permitting Steven to continue to run Jeffrey Machine. Mary announced plans for her marriage to John in mid-April, 1999, despite the fact that John had just commenced an aggressive chemotherapy and radiation treatment for his prostate cancer, which was diagnosed in February, 1999. The wedding ceremony took place at the hospital where John was undergoing treatment for his prostate cancer and was officiated by the pastor at Mary’s church, Reverend Eagle, with no other family members in attendance. At the time of their marriage, John had assets in the range of $4,700,000, including:

1. $1,500,000 in an IRA Rollover Account at The Bank of New York;
2. a house worth about $750,000;
3. Jeffrey Machine is considered to have a value of $900,000, but its market valuation is dependent upon solving liquidity problems with its lending bank, The Bank of New York, and having stable and effective management.;
4. antique furniture that has been in the Jeffrey family for 100 years and has a "liquidation" value of $200,000; and
5. an investment account at The Bank of New York with a date of death value of $1,350,000.

Mary had about $50,000 in assets and had stopped working in 1997 when she moved into John’s home.

Whether as a result of Alzheimer’s or his cancer treatments, John began suffering major mental lapses in early 2000. John was hospitalized at White Plains Hospital on February 17, 2000 as a result of complications from his prostate cancer, and he was on a breathing tube as a result of some respiratory problems. On May 1, 2000, Mary consulted with James Joseph about the possibility of Mr. Joseph preparing a new Will for her husband. In her discussions with Mr. Joseph, Mary advised Mr. Joseph that, in discussions with Mary, John told Mary that he wished to make a new Will in which John (a) gives his shares of stock in Jeffrey Machines, Inc. to Steven, based upon John’s understanding that the credit equivalent was $750,000; (b) gives the balance of the estate to Mary; and (c) appoints Mary and Mr. Joseph as executors. Mary also said that John wanted to name her as beneficiary of his $1,500,000 IRA Rollover Account. Mary also gave Mr. Joseph the original of John’s 1991 Will in which John distributed his estate in equal shares to his children and named Steven as executor, but created a Supplemental Needs Trust for Robert’s benefit in the amount of $750,000 in which Steven is trustee. Mr. Joseph said that he would need to talk to John before preparing a new Will for John, and Mr. Joseph and Mary agreed that Mr. Joseph, alone, would visit John in the hospital the following day in the afternoon. However, the following morning, May 2^nd, Mr. Joseph received a fax from White Plains Hospital signed by John in which John gave Mr. Joseph instructions for the preparation of his new will and change in beneficiary designation on his IRA Rollover Account that mirrored the discussion that Mr. Joseph had with Mary. Within minutes of his receipt of this fax, Mr. Joseph received a telephone call from John at White Plains Hospital in which John merely said to Mr. Joseph ,"prepare the legal documents that I asked you to", and he asked Mr. Joseph to bring the documents to the hospital the following morning.

Mr. Joseph obtained a Change of Beneficiary Designation form from The Bank of New York on John’s IRA Rollover Account and prepared a draft of a Will for John in accordance with the instructions given to him. Mr. Joseph also inserted an in terrorem clause in the Will. Mr. Joseph also prepared the Attorney Fiduciary disclosure document in strict accordance with SCPA 2307-a. On May 3, 2000, Mr. Joseph then send the draft documents to John at the hospital by messenger together with a brief letter of transmittal which invited John to call him if he had changes he desired in the documents and confirmed that he would come by at 2:00 p.m. that day to supervise the execution of the documents. When Mr. Joseph arrived at John’s hospital room at 2:00 p.m., Mary and Reverend Eagle were already there. Mr. Joseph then showed John the original of the new Will, Change of Beneficiary Designation form and Attorney Fiduciary statement. With Mary and Reverend Eagle present, John nodded in response to Mr. Joseph’s query to John whether John was "ready to sign the legal documents" Mr. Joseph then attempted to have John initial each page of the 10 page will, but John threw the pen on the floor after he initialed page 2 of the Will. Nevertheless, John signed all three documents with Reverend Eagle and Mr. Joseph acting as witnesses. Reverend Eagle and Mr. Joseph also signed a self-proving affidavit, and the affidavit was notarized by Mr. Joseph’s secretary at Mr. Joseph’s office. Mr. Joseph brought the originals of the documents back to his office and sent to The Bank of New York the Change of Beneficiary Designation form.

Later on in the same day, May 3, 2000, Steven learned about some "legal" documents that were brought to his father through a nurse. As evidenced by the medical notes, this same nurse had mentioned to Steve that his father was experiencing mental lapses and was occasionally incoherent. On the same day, Steven then talked to his father, who told Steven that he did sign some documents, that he did not know what he signed and that he only signed them because he was afraid that if he did not sign them Mary would disconnect his breathing tube.

In early June, 2000, Mary delivered to The Bank of New York the Durable Power of Attorney form. A week later, she withdrew $1,000,000 from John’s IRA Rollover Account and deposited the funds in a joint and survivor account that she opened with John in January, 2000, to increase the balance in the bank account to $1,100,000. John died on July 4, 2000.

The players:

• Gary Bashian represents Mary and Mr. Joseph as co-executors.
• Frank Streng represents Steven and Jessica Jeffrey.
• Bob Kurzman is the Guardian ad Litem for his ward, Robert Jeffrey.
• Joe Accetta is the Law Assistant at the Surrogate’s Court assigned to the matter.