Opinion
1987-1459/A.
Decided February 24, 2004.
Boylan, Brown, Code, Vigdor Wilson, LLP. (Mary V. Fisher, Esq., of Counsel) for the Co-Trustees.
Harris Beach LLP, (Barbara R.H. James, Esq., of Counsel) for Mark Epstein, Sharon Epstein and Clemens Epstein, potential remaindermen.
Office of the New York State Attorney General Eliot Spitzer (Mark D. Brody, Esq., Principal Attorney) for Commissioner of the New York State Office of Mental Health.
This decision is necessitated by a petition for the judicial settlement of the Account of the Co trustees filed with the Court on February 4, 2003. The Court appointed a Guardian Ad Litem to represent interests of unknown potential distributees and there are no objections to the Account of the Co-Trustees nor to the fees and commissions requested. As part of their petition, for judicial settlement their Account, the Co-Trustees also seek the direction of the Court as to the distribution of the remaining trust assets, which amount to approximately $229,000.
The testator, David Epstein died on May 17, 1987 and his Will was admitted to probate by a Decree of this Court dated June 19, 1987. Letters of Trusteeship were issued to Ruth Lempert, Margaret Gerby, and Justin Vigdor to administer the Trust created under Article "Fourth" of the Will for the benefit of Emmanuel Epstein, the testator's son and only child.
The Trust was funded and continued until March 5, 2000 when Emmanuel Epstein died. In Article "Fifth" of his Will, the testator directed the Trustees to make five disbursements totaling $500.00 upon the death of his son and that remainder of the Trust be distributed "to my issue, in equal shares per stirpes." It is clear that upon his death in 1987, David Epstein's only issue was his son Emmanuel.
How the remainder of the Trust is to be distributed is easily established as the remainder of a trust which cannot be disposed of under the terms of the testator's Will must pass by the laws of intestacy. Doane v. Merchantile Trust Co., 160 N.Y. 494 (1899); Matter of Kane, 161 Misc. 767 (N.Y. Surr. 1936), aff'd 251 App. Div. 710 (1st Dept. 1937). However, identifying those who are the intestate distributees of David Epstein is a more difficult issue.
Counsel for the potential remaindermen asserts the decedent's intestate distributees are ascertained at the date of death of the trust beneficiary, Emmanuel Epstein. This scenario would permit the remaining corpus to be distributed amongst Mark Epstein, Sharon Epstein and Clemens Epstein, the surviving niece and nephews of the testator. The Office of the Attorney General contends that David Epstein's intestate distributees are determined upon his death, in which case Emmanuel Epstein is his sole distributee and the remainder would pass to his estate.
As offered by the Office of the Attorney General, the seminal case on this issue of determining intestate distributees remains Clark v. Cammann, despite being over one hundred years old. Clark holds that a testator's intestate distributees are to be determined upon the testator's date of death. Clark v. Cammann, 160 N.Y. 315 (1899); see also Matter of Bump, 234 N.Y. 60 (1922); Matter of White, 213 App. Div. 82 (1st Dept. 1925). In Clark the Court of Appeals stated "the person and the only persons entitled to take by virtue of the [intestacy] statute are those who answer the legal definition of next of kin at the time of the death of the intestate." Clark at 329. This rule applies even under a scenario where the intestacy does not occur until sometime after the death of the testator. Preminger, Trusts and Estate Practice in New York § 7:38 (2002).
As enunciated in Clark, the law favors early vesting, but it is not permitted where the intention of the testator is expressed to the contrary. In re Wilson's Will, 53 N.Y.S. 2d 14 (2nd Dept. 1945); In re Bowers, 109 App. Div. 566 (1st Dept. 1905), aff'd 184 N.Y. 574 (1906). As such, the rule set forth in Clark must accede to any "clear direction to the contrary" expressed by the testator in the instrument. Matter of Herrick, 10 Misc. 2d 213 (New York Co. 1957).
The cases provided by counsel for the niece and nephews of the testator recount instances where courts identified intestate heirs at the time the trust was terminated. In each of these cases, the testamentary language used sets forth a contingency to provide for their descendants in the event they were survived without issue. The common thread in the cases cited is a clear indication in testamentary language that the testator intended to defer the vesting of a remainder beyond the date of his death. In each of the cases cited "futurity was the essence of the gift." Matter of Wells, 246 A.D.192 (4th Dept. 1935). That is not the situation herein as the Will does not indicate any intention by the testator to postpone the vesting of the remainder. Matter of the Estate of Thomas, 128 Misc. 260 (Surrogate's Ct. New York Co. 1926); Matter of White, 213 App. Div. 82 (1st Dept. 1925).
The guiding principle in a construction proceeding is divining the testator's intent through a sympathetic reading of the will in its entirety. Matter of Fabbri, 2 NY2d 236 (1957). A complete reading of the decedent's Will brings the Court no closer than before as the language does not lend any insight to the notion that the testator would have his intestate distributees determined at any time other than upon his passing. The gift of the trust remainder to his issue, without more, suggests David Epstein, at the time he executed the Will, presently contemplated his issue when he made the gift and did not desire the gift to hinge on a future event.
It is not lost on the Court that the testator could have easily directed the remainder to be distributed amongst Emmanuel's issue upon his death through the use of specific language. Furthermore, after directing the Trustees to make payments to each of his nephews, which he identifies by name in Article Fifth(A) of his Will, he mentions neither of them in Article Fifth (B). The nominal gifts to each of the nephews also suggest that the testator did not wish to have collateral heirs share in the trust remainder.
The apparent incongruity of having the estate of a life beneficiary receive the corpus of the Trust upon his death is diffused by the decisions of the First Department in Matter of Roth and United States Trust Co. v. Perry. In Perry, the Court stated that the rule which determines a testator's intestate distributees at the time of his death is not changed by the fact that a life estate may be the recipient of the remainder. United States Trust Co. v. Perry, 193 App. Div. 153 (1st Dept. 1920) aff'd 232 NY 609 (1922). Here, the Trust was established to provide for his son Emmanuel and once that was accomplished "all was done that he desired to do", as to the remainder, "let it go as the law directs." Matter of Roth, 234 App. Div. 474 (1st Dept. 1932). Based upon the foregoing, Emmanuel Epstein is the sole intestate distributee of the testator and the remainder of the Trust shall be distributed to his estate.
As a separate issue, the Attorney General's Office maintain that the remainder interest of the Trust must be paid to the New York State Office of Mental Health. Emmanuel Epstein was admitted to the Rockland Psychiatric Center on February 25, 1986 and remained a patient there until his death on March 5, 2000. The fee for the services and care provided to Emmanuel by the Office of Mental Health amounts to $1,325,114.01 and the $229,285.94 that is the remainder of the Trust will partially satisfy this debt.
In its Verified Answer and Memorandum of Law, the Attorney General asserts the Trustees are statutorily obligated to pay the Office of Mental Health and the direct distribution of the remainder to the Office of Mental Health instead having those funds pass through the estate of Emmanuel Epstein.
The argument is couched in § 43.03(a) of the Mental Hygiene Law which provides in pertinent part: the "patient, his estate . . . and any fiduciary of representative payee holding assets for him or on his behalf are jointly and severally liable for the fees for services rendered to the patient." MHL § 43.03(a). However, where the trust is a supplemental needs trust, neither the trustee nor the trust shall be liable for the fees for services rendered to the patient. MHL § 43.03(d). Whether the Office of Mental Health can be paid directly turns on whether the Trust created under the Will is in fact a supplemental needs trust.
The testamentary language establishing the Trust is simple and straightforward as it directs the Trustees to hold the residue of the decedent's estate in trust and to apply all of the net income to Emmanuel in quarterly or other convenient installments. The testator also provided the Trustees with sole discretion to apply the Trust principal as necessary for Emmanuel's "health, support and maintenance" in the event the income payments alone were insufficient. The Will does not expressly nor implicitly refer to any mental illness suffered by Emmanuel.
The Will was executed in 1982 and pre-dates the enactment of EPTL § 7-1.12, therefore the model language of that statute, that the trust assets be used to "supplement, not supplant, impair or diminish any benefits or assistance of . . . governmental entity", is absent from the Will. EPTL § 7-1.12(2). Prior to the enactment of EPTL § 7-1.12, the principles of a supplemental needs trust were set forth in Matter of Escher in which the court, upon consideration of testamentary language and the testator's intent, did not require the invasion of trust principal to pay for public benefits provided to the trust beneficiary. Matter of Escher 94 Misc. 2d 952 (Surr.Ct. Bronx Co.) aff'd 75 A.D. 2d 531, aff'd 52 N.Y. 2d 1006); Matter of Maul v. Fitzgerald, 78 A.D.2d 706 (3rd Dept. 1980); Matter of Damon, 71 A.D. 2d 916 (2nd Dept. 1979).
In Escher, the court reviewed the Will to determine whether the testator, in light of the testator's obvious knowledge at the time of execution of the income beneficiary's disabilities, would desire to pay the costs of the beneficiary's care or instead prefer to have society share that burden. Matter of Escher 94 Misc. 2d 952 (Surr.Ct. Bronx Co.) aff'd 75 A.D. 2d 531, aff'd 52 N.Y. 2d 1006). Hoelzer v. Blum, 93 A.D. 2d 605 (2nd Dept. 1983).
Additionally the courts in Escher and Damon found in each case the testator placed restrictions on the invasion of the corpus for "emergency" circumstances or only in the event of "critical illness, operation or need for an operation or other emergency." Escher at 958; Matter of Damon, 71 A.D. 2d 916 (2nd Dept. 1979). Another example of the restrictions on the invasion of trust principle reflecting an intent of creating a supplemental needs trust can be found in the case In reDaubney, where the testator permitted the trustee to expend principal only in case of illness or emergency effecting the beneficiary, but then qualified the term emergency to exclude placement of the beneficiary in an institution. In re Daubney, 153 Misc. 2d 580 (Surr.Ct. Nassau Co. 1992). The testator further limited the authority of the trustee by stating "my trustee shall have no authority to invade principal for the payment of living expenses or other routine costs for residence in such a facility." Daubney at 841.
David Epstein executed his Will on November 17, 1982, some five years after the rendering of the Escher decision. His son Emmanuel was institutionalized four years later in 1986 and the testator passed away a year later in 1987. Between 1986 and 1987 the Court can deduce that the decedent knew of his son's mental condition and hospitalization, yet the language of his Will remained unaltered and the Will placed no such restrictions upon the Trustees. Had the decedent fully intended to shield the Trust's assets from a claim by the Office of Mental Health, he could have, in light of Escher and its progeny, taken an affirmative step in having a new will drafted using specific language similar to that found in Escher, Daubney, Hoelzer or Damon to demonstrate a desire to not have the Trust bear the cost of Emmanuel's care. Therefore, it cannot be said that the Trust created under the Will of David Epstein is a supplemental needs trust in the spirit of Escher.
The objective of MHL § 43.03(a) and its predecessor is directness and so the remainder of the Trust shall be paid directly to the Office of Mental Health to avoid the circuity and delay of having the Trust remainder pass through Emmanuel's estate. Matter of Cooke, 181 Misc. 748 (Surr.Ct. New York Co. 1944); Matter of Reuff, 3 Misc. 2d 211 (Sur.Ct. Nassau Co. 1956); Matter of Surbeck, 185 Misc. 635 (Surr.Ct. Oneida Co. 1944).
The Account of the Trustees is hereby judicially settled with counsel fees and commissions approved as requested. The fee for the Guardian Ad Litem is set at $2000.00.
This Decision shall constitute an Order of this Court.