|
Frank W. Streng, Esq. McCarthy Fingar LLP 11 Martine Avenue White Plains, NY 10606-1934 914‑946‑0134
(fax) 914-946-3817 ext. 256
(voice) e‑mail: fstreng@mccarthyfingar.com |
|
|
|
|
Westchester County Bar Association – Trusts & Estates Section
Separation and Matrimonial Agreements and Implication
in Estate Litigation `
April 18, 2005
Introduction:
1.
Probate Proceeding
i.
Divorce
revokes designation as beneficiary and appointment as executor or trustee;
1.
Surr.
Ct. requires filing of copy of divorce decree;
2.
Divorce
decrees that were granted ex parte, say, in foreign jurisdiction can be subject
to collateral attach
ii.
But,
what if there is separation agreement but formal divorce had not yet been ordered. Then waiver of rights become a matter of
contract law. Divorced spouse’s status as an interested party
i.
divorce
or judgment of separation;
ii.
incestuous,
bigamous or prohibited marriage;
iii.
abandonment
1.
without
consent;
2.
no
intention to return;
3.
continuous
through testator’s death;
a.
consensual
separation is never enough;
b.
burden
of proving abandonment is upon person making claim;
iv.
spouse
failed or refused to support decedent, with spouse having means to provide such
support, and such failure continued until testator’s death
i.
Grounds
to object to probate to propounded Will under EPTL 3-2.1 are exclusive
1.
due
execution;
2.
lack
of testamentary capacity;
3.
undue
influence; and
4.
fraud
ii.
Such
third party agreements are strictly enforceable, but as a claim against estate
[SCPA Article 18. See discussion
below].
i.
Intestate
share more valuable than elective share right . . . unless Decedent made
lifetime transfers that are testamentary substitutes
1.
1/3
of net estate [elective share]
2.
$50,000
plus ½ of residue [intestacy]
ii.
To
contest, or not to contest, that is the question . . . [apologies to W.
Shakespeare]
2.
Enforceability of Claims Against Estate: Failure of
Decedent to Carry out His/Her Obligation under Separation or Other Agreement to
(a) make Will/Trust Provision and/or (b) Refrain from Making Gifts inconsistent
with Reciprocal or Joint Will
a.
To
establish third party beneficiary status sufficient to enforce a contract, the
third party must prove [Fenton v. Fenton,
253 A.D.2d 844, 678 N.Y.S.2d 358, 359 (2d Dep’t 1998)]:
i.
the
existence of a valid and binding contract between the contracting parties,
ii.
that
the contract was intended for its benefit, and
iii.
that
the benefit to the third party is sufficiently immediate, rather than
incidental, to indicate an assumption by the contracting parties of a duty to
compensate it if the benefit is lost.
iv.
The
burden of proof is on the party claiming rights as an intended third party
beneficiary, to prove each of the elements of its status. See
Strauss v. Belle Realty Co., 98 A.D.2d 424, 469 N.Y.S.2d 948, 950 (2d Dep't
1983), aff’d, 65 N.Y.2d 399, 492
N.Y.S.2d 555 (1984).
b.
Agreements
not to change will, but what about implied agreement not to make gift. The question: consistency with testamentary
plan?
i.
Rastetter v. Hoenninaer, 214 N.Y. 66, 73 (1915)
"Each was at liberty
during his lifetime to use his own as he saw fit, short of making a different
testamentary disposition or a gift to defeat the purpose of the agreement,
which was that upon his death each was to leave the property of which he was
then possessed in the manner agreed upon."
ii.
Blackmon v. Battcock, 78
N.Y.2d 735, 739-740 (1991
discourages what it has
termed "judicial alteration and addition to the settlement agreements of
the parties"
"But an agreement that
the survivor's entire estate will be left to certain beneficiaries does not
necessarily prevent a survivor from making a lifetime gift, since such a gift
would not necessarily defeat the purpose of the agreement." Id. at 741.
c.
Article
18 of the SCPA: Procedures for submitting claims against estate
i.
What
is a creditor’s claim?
ii.
Timing
and form of Submission of Claim (SCPA 1803)
iii.
Format
of claim
iv.
Personal
liability for fiduciary (SCPA 1802; see also SCPA 1807)
v.
Decision
of Fiduciary to Reject or Accept Claim (SCPA 1806)
vi.
Creditor’s
Remedies on Rejection of Claim
vii.
Proceeding/Action
to Determine Claim (SCPA 1810)
viii.
Proceeding
to Compel Estate Accounting (SCPA 2205(a); SCPA 1808(5))
ix.
Executor’s
Remedies/Duties on Rejection of Claim
x.
Proceeding
to Disallow Claim (SCPA 1809)
xi.
Disclosure
of Rejection in Accounting and Process Issued to Creditor (SCPA 1808)
xii.
Enforceability
as to Nonprobate assets
3.
Enforceability of Waivers of Spousal Rights
a.
Waiver
or release of right of election (EPTL 5-1.1-A(e))
i.
before
marriage
ii.
during
marriage
iii.
after
marriage
iv.
unilateral
v.
bilateral
vi.
with
consideration
vii.
without
consideration
viii.
conditional
or absolute
b.
Waiver
or release of right of election must be in writing and acknowledged;
c.
Statute
contains no rules regarding disclosure requirements
i.
Enforceability
by courts as a contract depend upon
1.
whether
it was made fairly, without fraud, and if the terms are unconscionable. Christian
v. Christian, 42 N.Y.2d 63 (1977);
2.
whether
there was fraud or a lack of understanding.
Matter of Phillips, 293 N.Y.
483 (1944)
3.
the
intelligence and business experience of the contesting spouse. See,
e.g., Hoffman v. Hoffman, 100 A.D.2d 704 (3d Dep’t 1984)
ii.
Burden
of proof:
1.
on
the party attacking, if each party represented by separate counsel. Matter
of Sunshine, 51 A.D.2d 326 (1st Dep’t 1976), aff’d, 40 N.Y.2d 875.
2.
But,
in Matter of Greiff, 92 N.Y.2d 341
(1998), the Court of Appeals held that “exceptional circumstances”, such as
“superior knowledge” or “overmastering influence” can “shift the burden to the
proponents of the agreement to prove freedom from fraud, deception or undue
influence.”
3.
The
courts’ analyses of various factors result in a conclusion as to the shifting
of the burden. Factors considered [see,
e.g., Matter of Buzen, NYLJ, 4/2/99, p. 35 (Surr. Ct., Nassau)]:
a.
Detrimental
reliance by poorer spouse;
b.
Relative
financial position of the parties;
c.
Formality
of execution ceremony;
d.
Full
disclosure of assets;
e.
Physical
or mental condition of objecting spouse;
f.
“superior
knowledge” or “overmastering influence” of proponent;
g.
Separate,
independent counsel;
h.
Circumstances
in which proposal made;
i.
Reasonable
of waiver on its face;
j.
Provision
for poorer spouse in will.
d.
Estoppel/laches/statute
of limitations as affirmative defenses.
i.
Estoppel
and laches. Lemle v. Dreifus, 30 A.D.2d 785 (1st Dep’t 1968);
ii.
Six
year [contract] statute of limitations under CPLR 213(2). E.g., Pacchiana
v. Pacchiana, 94 A.D.2d 721 (2d Dep’t 1983); Rubin v. Rubin, 275 A.D.2d 404 (2d Dep’t
2000)
iii.
But
. . what if there’s
1.
fraud
(begins on discovery. DPLR 213(8))
2.
“continuous
duress or undue influence”
4.
Spouse’s Right of Election under EPTL 5-1.1A
a.
Introduction:
Complex, with about 200 pages of annotations in McKinney’s;
b.
Timing
and manner of submission (EPTL 5-1.1-A(d)(1))
i.
within
6 months of issuance of letters, but no later than 2 years after date of death
ii.
written
notice for service (by mail) upon fiduciary; file notice and proof of service
with Surr. Ct. within same time period
iii.
can
get additional time from court; and can even get relief from court from default,
upon showing of reasonable cause and if no accounting decree and less than 12
months since issuance of letters
iv.
right
to elect is personal, but can be authorized by court to be made by Article 81
guardian, GAL, committee, conservator, infant’s spouse’s guardian
v.
decedent
must have domicile in NY - what if NY Elective share is better than another
State’s Elective share?
vi.
be
cautious as to distributions from estate; consider elective share claimant to
be in same category as a creditor
c.
Calculation
of maximum elective share (EPTL 5-1.1-A(a))
i.
greater
of $50,000 or 1/3 of capital value of net estate less value of property passing
to spouse through other Will dispositions or outside of probate
1.
net
estate = probate estate plus testamentary substitutes less debts, expenses and
funeral expenses
ii.
pecuniary
amount
iii.
keep
in mind that elective share is eligible for estate tax marital deduction and
should, in the case of a valid election, be so claimed on Schedule M of estate
tax return
1.
Example:
$600,000 probate estate, with $20,000 in JTWROS to daughter and $20,000 to
JTWROS to wife; $40,000 in debts and expenses.
$600,000 net estate: 1/3 ($200,000) less property passing to spouse
($20,000), or $180,000 as elective share
d.
Testamentary
substitutes (EPTL 5-1.1-A(b))
i.
broad
definitions of “inter vivos” disposition that are covered:
1.
gift
causa mortis
2.
totten
trusts
3.
joint
accounts (deposits after 8/31/66)
4.
qualified
plans (beneficiaries designated after 9/1/92)
5.
gifts
within 1 year above annual gift tax exclusion $10,000 in 1998)
6.
trusts,
if there are retained powers (revoke, income, principal invasion)
ii.
life
insurance is not a testamentary substitute
iii.
fiduciary’s
diligence in marshaling assets and preparing estate tax returns will serve to
identify testamentary substitutes
e.
Effect
of elective share on Q-Tip or Credit Shelter Trusts (EPTL 5-1.1-A(a)(4)(A))
i.
Election
means spouse is deemed to predecease testator
1.
Thus,
spouse must choose between outright elective share and beneficial interests in
trusts
ii.
Old
law: elective share could be satisfied in trust
iii.
Elective
share accelerates trust remainder
iv.
Ethical
considerations: representation of spouse, in individual capacity and in
fiduciary capacity; sometimes spouse must have separate representation
1.
consider
effect on estate plan
2.
consider
effect on estate taxes
3.
from
planning point of view, consider use of disclaimers as an alternative to using
elective share
f.
See
discussion of enforceability of waivers above