Opinion
2007/490/A.
Decided September 21, 2009.
PHILLIPS LYTLE, LLP, Robert L. Lash, Esq., of Counsel, Attorney for Objectant Robert H. Jackson Center, Inc.
HALL PIAZZA, LLP, Charles T. Hall, Esq., of Counsel, Attorney for Objectant Robert H. Jackson Center, Inc.
PRICE, FLOWERS, MALIN WESTERBERG, Thomas I. Flowers, Esq., of Counsel, Attorney for Successor Trust.
FELDMAN, KIEFFER HERMAN, LLP, Andrew Feldman, Esq., of Counsel, Attorney for WCA Hospital.
STATE OF NEW YORK, OFFICE OF THE ATTORNEY GENERAL, William D. Maldovan, Esq., Assistant Attorney General.
On December 28, 1992, William A. Walrod executed a will that made specific bequests to his wife Ruth, son Robert, and other family members. The will also left $16,500 to three charities and created a trust for the benefit of his wife and son.
On December 17, 1997, Mr. Walrod executed a trust that, at the time of his death, made pre-residuary distributions to family members and left $16,500 to the same three charities. The residuary went into a marital trust for Ruth. It is claimed that at this time Mr. Walrod had assets of approximately $10,000,000.
On April 6, 2001, Mr. Walrod created a second trust that included pre-residuary dispositions to his son and a marital trust for his wife. Upon her death, the greater of $15,000,000 or 25% of the trust principal would go to his son Robert, with the remainder to two charitable lead trusts (CLTs) for the benefit of WCA Hospital, Jamestown Community College, and five public libraries. At that time, Mr. Walrod was worth approximately $19,000,000.
On February 13, 2002, Mr. Walrod executed a third trust that, upon his death, would leave $16,500 to the same three charities as the 1997 trust had done. The remainder went to his family, primarily a marital trust for his wife that went to Robert after Ruth died. At this point, Mr. Walrod's net worth had declined to approximately $3,000,000.
On September 1, 2006, Mr. Walrod signed the final version of the trust. This one provided for certain pre-residuary dispositions to Robert, other family members, and a local church. The residuary provided for a $3,000,000 charitable lead trust for the benefit of WCA Hospital and the Robert H. Jackson Center. Mr. Walrod had approximately $5,000,000 worth of assets then.
The 1992 will was drafted by the law firm of Perlee and Perlee and directed that all taxes be paid from the residuary estate "with no right of reimbursement from any recipient of any such property." The four trusts were all drafted by Dale C. Robbins of the Burgett Robbins law firm. The first three trusts directed that estate taxes and administrative expenses be paid from the trust principal before funding any residuary dispositions and gave the trustee complete discretion in this area. The final trust contained the same provision but also contained a second tax clause directing that taxes be paid from the residuary "with no right of reimbursement from any recipient or beneficiary."
William Walrod had owned a substantial amount of Enron stock which was worth about $25,000,000 at some point in 2001 but was nearly worthless a year later. When Mr. Walrod died in 2007, his estate had assets of approximately $5,100,000.
After William Walrod died, Robert became the executor under the will and successor trustee under the trust. He retained Mr. Robbins to represent him in these matters. At meetings with Mr. Robbins, Robert Walrod, and representatives from WCA and the Jackson Center, Mr. Robbins informed the charities that they were the recipients of a $3,000,000 CLT.
There is no evidence that William Walrod had any connection to the Jackson Center or to WCA. It has been alleged that Mr. Robbins' wife is Director of Development for the Jackson Center. It is further alleged that Mr. Robbins' partner's wife is a member of the Board of Directors of WCA. Of course, the decedent's intent controls, not that of the draftsman ( see Matter of Cord, 58 NY2d 539, 462 NYS2d 662 [1983] [superceded by statute in other respects]; Estate of Scale, 38 AD3d 983, 830 NYS2d 618 [3d Dept 2007]; In re Cole, 18 Misc 3d 1105 [A], 856 NYS2d 23 [Surr Ct, Nassau County 2007]).
In January of 2008, Mr. Robbins directed Robert Walrod to transfer $3,000,000 from the trust assets to Robert Black, who had been appointed trustee of the CLT. Robert Walrod then retained new counsel to handle the estate and trust. In May of 2008, Robert Walrod commenced a voluntary accounting proceeding which proposed to pay the pre-residuary bequests and taxes first. However, that would result in little or nothing to fund the CLT. WCA, the Jackson Center, and the Attorney General filed objections to the accounting. An amended petition was filed in February of this year and both charities again filed objections.
During these proceedings, a 1999 will was discovered. That will was not offered for probate and none of the parties have made an issue of the 1999 will. Thus, the court will address only the 1992 will.
Estate taxes, gift taxes and penalties consume approximately $1.5 million of the Walrod probate and trust assets, and the allocation of the taxes and penalties is the main issue in this case. While all parties agree that the taxes should be paid first from the residuary probate estate, as directed by the will, the $125,000 in the probate residuary, the entire amount that passes under the will, is clearly insufficient to pay those taxes.
Petitioner contends that the language of the will, the language of the trust, the intent of William Walrod, and EPTL 2-1.8 control how the rest of the taxes should be paid. Under this view, the pre-residuary dispositions are funded first, taxes come from the remaining assets, and the CLT is funded with whatever remains.
Objectants similarly contend that EPTL 2-1.8 controls but, under their view, taxes must be apportioned. Because the charities are exempt from taxes, the CLT receives the full $3,000,000, taxes are then paid, and any remainder goes to the family. Alternatively, objectants allow that a possible reading of the tax clause in the will could result in apportioning the taxes among all beneficiaries, including the charities. If neither of these claims is persuasive, the charities argue that the trust should be reformed to provide for Mr. Walrod's "charitable intent."
The will directs that taxes be paid from the residuary estate, "with no right of reimbursement from any recipient of any such property." The "no right of reimbursement" language has been construed to mean the same thing as "no right of apportionment" ( Application of Rhodes, 22 Misc 3d 766, 868 NYS2d 513 [Surr Ct, Westchester County 2008]). "No right of apportionment" means that all beneficiaries, even charities, must contribute to the tax burden ( Estate of Beebe, 268 AD2d 943, 702 NYS2d 683 [3d Dept 2000]; Will of Newell, 155 Misc 2d 985, 591 NYS2d 293 [Surr Ct, Westchester County 1992]).
Objectants cite several cases in support of their claim that when the will directs that taxes be paid from the residuary, and the residuary is insufficient, the other beneficiaries must share in the taxes ( see, e.g. Estate of Kramer, 78 Misc 2d 662 [Surr Ct, New York County 1974]; Estate of Hamilton, 69 Misc 2d 246 [Surr Ct, Orange County 1972]). The court has no disagreement with that assertion. However, in those cases, there were other beneficiaries under the will who could be looked to for taxes and they were properly charged with some of the tax burden. Here, there are no other probate assets so taxes must come from the trust.
Despite the fact that taxes must come from the trust, the charities ask the court to ignore the tax provisions contained in the trust and simply apply EPTL 2-1.8 (c). This would result in apportionment of the taxes among the trust beneficiaries with the charities being exempted from any of the taxes, notwithstanding the contrary directions in both the will and the trust. The court believes that would be an anomalous result and would also be contrary to Mr. Walrod's intent.
First, in Matter of Will of Collia ( 123 Misc 2d 1014, 475 NYS2d 327 [Surr Ct, Suffolk County 1984], affd 118 AD2d 778, 500 NYS2d 286 [2d Dept 1985]), a case similar to ours, the court held that the non-apportionment language in the will controlled, notwithstanding that the taxes had to come from a trust ( see also Estate of Wesey, 15 Misc 3d 1147 (A), 2007 WL 1702514 [Surr Ct, Nassau County 2007]). Collia binds this court in the absence of contrary authority in the Fourth Department and, at a minimum, the charities would have to contribute to the tax burden.
Further, EPTL 2-1.8 by its own terms does not compel the result sought by objectants. Subdivision (c) only applies if contrary directions are not "otherwise provided in the will or non-testamentary instrument." Here, both the will and the non-testamentary instrument provide directions for the payment of taxes. However, because the probate estate is insufficient, we turn to the trust provisions. Paragraph (V) (D) (2) of the trust provides in part:
All estate taxes, whether federal or estate, as well as any administration expenses shall be paid from the trust principal prior to the funding of any of the residuary dispositions. . . . The decision of the Trustee as to any such payments shall be conclusive and binding upon all parties interested in this Trust or such Estate.
Paragraph (V) (D) (10) provides in part:
All . . . taxes . . . shall be paid entirely out of my residuary estate as part of the expense of administration thereof, with no right of reimbursement from any recipient or beneficiary of any such property.
If, as objectants contend, (V) (D) (10) requires taxes to be paid from the residuary probate estate, we have already seen that that is impossible. Thus, the only tax clause in the trust that could be applied is (V) (D) (2).
The charities first contend that neither of these provisions applies and the court should simply apply EPTL 2-1.8. The court declines to arbitrarily write out of the trust the instructions of William Walrod ( see Matter of Estate of Patouillet, 158 Misc 2d 473, 601 NYS2d 385 [Surr Ct, Onondaga County 1993], affd 207 AD2d 1043, 617 NYS2d 614 [4th Dept 1994], lv denied 1994 WL 712770 [4th Dept]). In Patouillet, the court found the language in a later trust controlling, notwithstanding the failure to specifically mention the previous will ( see EPTL 2-1.8 [a] [2]).
Alternatively, objectants contend that these two provisions are inconsistent and therefore the latter clause controls, citing Van Nostrand v. Moore ( 52 NY 12). There, the court held that when clauses in a will are "so radically repugnant", or so irreconcilable "that they cannot possibly stand together, the one which is posterior in position shall be considered as indicating a subsequent intention, and prevail, unless the general scope of the will leads to a contrary conclusion" ( Id., at 20 [emphasis supplied]). This rule is used only as a last resort, "to be availed of when all efforts to reconcile the inconsistency by construction have failed" ( Id., at 20-21; see also In re Dimet's Estate, 76 Misc 2d 500, 351 NYS1d 117 [Surr Ct, Erie County 1973]). Here, the general scope of the will and trusts leads inexorably to the conclusion that Mr. Walrod intended to favor his family first. Therefore, even if the clauses were repugnant, the first is much more consistent with the general scope of the will and trust ( see Matter of Estate of Fuchs, 212 AD2d 612, 622 NYS2d 541 [2d Dept 1995]).
Further, when a specific clause in a document conflicts with a general clause, the specific clause prevails ( DeWitt v. DeWitt , 62 AD3d 744 , 879 NYS2d 516 [3d Dept 2009]; Caba v. Rai , 63 AD3d 578 , 882 NYS2d 56 [1st Dept 2009]). The court believes that paragraph (V) (D) (2) is far more specific than (V) (D) (10) and the court has little difficulty construing the trust to direct payment of taxes and pre-residuary bequests before the CLT is funded ( see Estate of Herz, 85 NY2d 715, 628 NYS2d 232).
Additionally, the fact that (V) (D) (2) appears in all four trusts and (V) (D) (10) appears only in the last one supports the estate's position that (V) (D) (10) was simply a drafting error.
Indeed, during his deposition, Mr. Robbins had no recollection of paragraph 10 and could offer no insight into why this paragraph was added.
Construing the trust as objectants propose would be contrary to the wishes of William Walrod as expressed throughout the wills and trusts he executed since 1992. In all of these, he provided for his family above all else. It is elementary that the intent of the testator must be a court's "absolute guide" in construing a will ( Matter of Bieley, 91 NY2d 520, 673 NYS2d 38, quoting from Hang v. Schumacher, 166 NY 506, 513, 60 NE 245; Matter of Estate of Carmer, 71 NY2d 781, 530 NYS2d 88; Estate of Reynolds, 40 AD3d 320, 836 NYS2d 97 [1st Dept 2007]). "This task is not furthered by rote ascription of technical meanings of terms regardless of context" ( Carmer, 71 NY2d at 785, 530 NYS2d 90). Rather, "a sympathetic reading of the will as an entirety' is required" ( Id., quoting from Matter of Fabrini, 2 NY2d 236, 159 NYS2d 184; In re D'Agostino, 284 AD2d 857, 728 NYS2d 234 [3d Dept 2001]; Estate of Gallucci, 143 AD2d 1015, 533 NYS2d 758 [2d Dept 1988]). Further, in difficult cases, the Court of Appeals has "employed a presumption in favor of the testator's relatives as against unrelated persons" ( Carmer, quoting from Matter of Gulbenkian, 9 NY2d 363, 371, 214 NYS2d 379; see also Matter of Larkin, 9 NY2d 88, 92, 211 NYS2d 175).
The charities contend that construing the will and trust in the manner sought by petitioner would be senseless because the CLT would be self-defeating. However, Mr. Walrod may have expected his assets to increase, as they had done before. Further, Mr. Walrod previously created self-defeating CLTs in the 2001 trust. When Mr. Walrod executed the 2001 trust, his net worth was about $19,000,000. That trust made pre-residuary dispositions before giving $15,000,000 to Robert. Taxes and expenses would not only have reduced the $15,000,000 to Robert but also would have left nothing to fund the CLTs.
Finally, it is likely that William Walrod did not fully appreciate the extent of the taxes he would owe. For example, it appears that he was unaware of the considerable gift taxes and penalties his estate would have to pay because he did not address the gift taxes when they accrued during his lifetime. The court does not believe that Mr. Walrod deliberately and knowingly created a self-defeating trust.
The charities further argue that the trust should be "equitably reformed" to provide for Mr. Walrod's charitable intent. They claim that Mr. Walrod cared more about minimizing taxes than benefitting his family and point to very innocuous matters to support their contention. The court disagrees. If limiting taxes was Mr. Walrod's only concern, he would simply have left everything to charity. The fact that Robert Walrod testified that his father wanted to lessen the impact of taxes on his estate does not equate to disfavoring his family. Moreover, Robert also testified that his father's lawyer suggested the CLT.
Further, courts are hesitant to reform wills unless the reformation "effectuates the testator's intent" ( In re Rappaport, 21 Misc 3d 919, 866 NYS2d 483 [Surr Ct, Nassau County 2008]). For example, In Matter of Snide ( 52 NY2d 193, 437 NYS2d 63), all parties agreed that the decedent and his wife mistakenly executed the other's will. Under those circumstances, reformation was permitted.
Wills or trusts may also be reformed to provide for a supplemental needs trust for a person under a disability pursuant to EPTL 7-1.12 ( see Estate of Newman, 18 Misc 3d 1118 [A], 856 NYS2d 500 [Table] [Surr Ct, Bronx County 2008]; Rappaport, 21 Misc 3d 919, 866 NYS2d 483 [Surr Ct, Nassau County 2008]; Estate of Hyman, 14 Misc 3d 1232 [A], 836 NYS2d 493 [Table] [Surr Ct, Nassau County 2007]). However, that is not the situation presented here and there is no compelling reason to reform the trust to favor the charities over Mr. Walrod's family.
The cases cited by objectants do not appear to support their position. For example, Matter of Siegel ( 174 Misc 2d 698, 665 NYS2d 813 [Surr Ct, New York County 1997]) was simply an uncontested application to modify investment restrictions. In Estate of Smathers ( 19 Misc 3d 337, 852 NYS2d 718 [Surr Ct, Westchester County 2008]), all parties agreed to allow the trustee to transfer assets to a limited liability company in order to avoid double taxation. All the cases cited by objectants involve how trust assets should be invested; none of them support the assertion that the trust here should be re-written by the court to provide for the charities.
The charities also raised a number of other objections with respect to the accounting, e.g., administration expenses, penalties and attorneys' fees. However, they did not address them in their memorandum. The court has reviewed the objections and agrees with petitioner that the payment of administration expenses, estate and gift taxes, and legal fees were appropriate expenses. The court sees no reason to surcharge petitioner for any of them.
Accordingly, petitioner's motion for summary judgment is granted and the objections are denied. The objectants' cross-motion for summary judgment is denied. Costs are awarded to petitioner. The court adds only that it questions whether Justice Jackson would want the charity that bears his name to take the position that the Jackson Center did, i.e., William Walrod's will or trust should be reformed so that his only child receives relatively little and the lion's share goes to charities that were closely affiliated with decedent's attorneys but not decedent himself.
Submit order on notice.