Opinion
No. 00–0193.
2012-10-10
In the Matter of the ESTATE OF William M. WELLS, Deceased.
Peter J. Martin, Esq., of Counsel, Bouvier Partnership LLP, Buffalo, NY, Attorney for Petitioners. Jeffrey G. Passafaro, Esq., Susan L. Wells Dunkirk, NY, Attorney for co-executor and co-trustee.
Peter J. Martin, Esq., of Counsel, Bouvier Partnership LLP, Buffalo, NY, Attorney for Petitioners. Jeffrey G. Passafaro, Esq., Susan L. Wells Dunkirk, NY, Attorney for co-executor and co-trustee.
STEPHEN W. CASS, J.
Zachary Wells and Susan Webb Wells, as parent and legal guardian of Rachael Wells, by and through their attorneys Bouvier Partnership, LLP, Peter J. Martin, Esq., of Counsel, filed a petition for a compulsory accounting and related relief pursuant to Surrogate Court Procedure Act § 2205 on July 9, 2012, against Susan L. Wells, co-executor and co-trustee, of the estate of William M. Wells. Susan L. Wells, by and through her attorneys, Foley, Foley & Passafaro, Jeffrey Passafaro, Esq., of counsel, filed a response to petition for compulsory accounting, seeking dismissal of the petition to compel an accounting for lack of standing of petitioners. In rendering this decision the Court has considered the petition to compel an accounting filed on July 9, 2012; the response to petition for compulsory accounting by Susan L. Wells acknowledged on August 6, 2012; Petitioner's Memorandum of Law dated September 10, 2012; Memorandum by Jeffrey G. Passafaro, Esq. on behalf of Susan L. Wells, dated September 13, 2012; petitioners' responding memorandum dated October 1, 2012.; and the accounting proceeding responding memorandum by Jeffrey G. Passafaro filed October 1, 2012.
The underlying facts in this case are not in dispute. Respondent, Susan L. Wells, is the daughter of the late William M. Wells, the testator. William M. Wells died on March 2, 2000. He was survived by his wife, Janet Wells; the respondent herein, Susan L. Wells; and two sons, William C. Wells and Robert M. Wells. At the time of the death of William M. Wells, William C. Wells had two infant children and Robert M. Wells had four infant children. Two of the then minor children of Robert M. Wells, Zachary Wells and Rachael Wells, are petitioners herein. Zachary Wells is no longer a minor. Decedent's Will was admitted to probate on April 10, 2000. Letters testamentary and letters of trusteeship were issued to Susan L. Wells and Janet Wells on April 10, 2000. The will created two marital trusts to be funded with the minimum amount that if left outright to the testator's wife, would reduce the federal estate tax payable for his estate to the lowest possible amount. In addition, the residuary was to be placed in a family trust. Income of the marital trusts was to be paid to Janet Wells during her lifetime with discretion to the trustee to distribute principal to Janet Wells for her health, support, maintenance, comfort and welfare. Income and principal of the family trust was to be paid to any one or more members of a class consisting of decedent's wife and descendants for their health, support, maintenance or education. Upon the death of decedent's wife, all three trusts were to be distributed to decedent's surviving descendants, per stirpes. The co-executors and co-trustees, Susan L. Wells and Janet Wells, attempted to informally settle the estate by the filing of releases and waivers of accounting and citation executed by Robert M. Wells and William C. Wells on December 30, 2002. The release by Robert M. Wells was executed individually and as natural guardian of his minor children and the release by Williams C. Wells was executed individually and as natural guardian for his minor children. It appears, the trusts were never funded. Robert M. Wells passed away on August 13, 2003 and the co-executor and co-trustee, Janet Wells, passed away on January 11, 2010. Zachary Wells and Susan Webb Wells, as parent and natural guardian of Rachelle Wells, filed the instant petition to compel an accounting against Susan L. Wells, as co-executor of the estate of William Wells and co-trustee of the testamentary trusts created under the will of William M. Wells.
Susan L. Wells, objects to the Petition to compel an accounting alleging Petitioners have no standing to compel an accounting by virtue of the release and waiver of accounting and citation signed by the petitioners' father, Robert M. Wells back in December, 2002. Among other things, the release and waiver signed by Robert M. Wells was a waiver of an accounting of the estate of William M. Wells, consent to the payments of executor's commissions, legal and accounting fees, and
“7.Consent to the distribution of the balance of the estate assets remaining in the hands of the Executors after the foregoing payments have been made pursuant to the attached proposed distribution schedule and agree that such distribution is in full satisfaction of all monies and properties to which the marital trusts and the family trust are entitled to receive. 8.Consent to the distribution of the assets allocated to the exempt and non-exempt marital trusts to Janet M. Wells;”
The releases and waivers of accountings signed by Robert M. Wells and William C. Wells did not have attached to them a “proposed distribution schedule,” as referred to in paragraph “7.” above. A petition to judicially settle the account of the estate was never filed. Therefore, it is unknown to this Court what the proposed distribution was that Robert M. Wells consented to. Susan L. Wells filed a petition sworn to on December 29, 2000, for advance payment of executors' commissions, alleging that the executors had received in excess of $1,700,000 in estate assets which they were administering.An inventory of assets was filed with the Court approximately four years after the releases and waivers were signed, indicating a gross estate of $1,705,745.00. Susan L. Wells, co-executor and co-trustee, asserts that the trust was never funded or it was illiquid.
VIRTUAL REPRESENTATION
Susan L. Wells alleges that by the doctrine of virtual representation, petitioners are bound by the waiver and release signed by their father pursuant to Surrogate's Court Procedure Act § 315(5). Pursuant to Surrogate Court Procedure Act § 315(5), it is not necessary to serve an interested person with a disability if the will expressly provides that if a party to the proceeding has the same interest as a person with a disability, it is not necessary to serve the person with a disability. In this case the Will has such a provision. In determining the applicability of virtual representation, courts consider three criteria: (1) whether the economic interests of the representor and representee are similar; (2) if there is any conflict of interest between the two; and (3) whether the representee would be adequately represented (In re Dickey, 195 Misc.2d 729 [Sur Ct, Nassau County 2003] citing Matter of Holland, 84 Misc.2d 922 [Sur Ct, Bronx County 1974; Matter of Putignano, 82 Misc.2d 389 [Sur Ct, Kings County 1975] ). Virtual representation is cautiously applied by the courts (Estate of Bingham, 97 Mis.2d 370, 371 [Sur Ct N.Y. County 1978]; In Re Will of Silver, 72 Misc.2d 963 [Sur Ct, Kings Cty 1973] ). “The court must be concerned with whether or not the representees are being actively represented and not with whether or not they could be represented” ( In re Estate of Sanders, 123 Misc.2d 424, 429 [Sur Ct, Nassau County 1984] citing Radigan, Virtual Representation, NYLJ, Dec. 30, 1981, P 1, col 2). It is for this reason, the Uniform Rules for Surrogate's Court (22 NYCRR) 207.18 require the appropriate affidavit be filed with the Court before virtual representation pursuant to SCPA 315(5) may be utilized (id ). An affidavit pursuant to the Uniform Rules for Surrogate's Court (22 NYCRR) 207.18, was never filed with the Court. For this reason alone, the Court could find the release and waivers are not binding on the minors herein.
The Court must determine not only if the minors are being adequately represented but whether there is a conflict between the two. The Will of William M. Wells created three trusts, the “exempt marital trust”, the “non-exempt marital trust” and the “family trust.” As to the marital trusts, income was to be paid monthly to Janet Wells, if necessary for her support and the trustees were given discretion to distribute principal to Janet Wells as determined by the trustees for her health support, maintenance, comfort and welfare. As to the family trust, the trustees were authorized to pay any part or all of the income and principal to any one or more members of a class consisting of the testator's wife, Janet Wells, and testator's descendants for health, support, maintenance or education. The beneficiaries of the family trust were not limited to the testator's wife and children, but included the testator's descendants which would include the minor grandchildren. Upon the death of Janet Wells, all three trusts were to be distributed in the same manner such that any remaining principal was to be distributed to the testator's surviving descendants, per stirpes. However, if any outright distribution to a child of decedent's could be exempt from the generation skipping transfer tax said child's share was to be held in a separate trust for such child. As such, at the time of death of the decedent, both Robert Wells and his children had a present interest in income and principal of the family trust and a contingent future interest as remaindermen of all three trusts.
In determining the necessary criteria for the application of virtual representation as set forth above, the Court must consider the nature of the proceeding (In re Silver, 72 Misc.2d 963 [Sur Ct, Kings County 1973] ). At the time the release and waiver was executed by Robert M. Wells, neither an accounting nor summary accounting were filed with the Court or attached to the release and waiver.The release and waiver contains a provision to the effect that Robert M. Wells consented to the distribution of assets allocated to the exempt and non exempt marital trusts. However, the co-executor and co-trustee, Susan L. Wells, now represents to the Court that the trusts were never funded or were illiquid. Upon review of the release and waiver filed with the Court it is unclear to the Court what distribution Robert M. Wells was consenting to. Was he consenting to a termination of the trust or consenting to the trustees and executors not funding the trust? Did Robert M. Wells receive a distribution of the assets in lieu of funding the trust? The release and waiver signed by Robert M. Wells consents to specific payments in the sum of $95,000. What was to happen to the remaining assets of the estate valued at over $1,700,000? Since these questions remain unanswered but the co-executor and co-trustee has admitted to the Court that the trust was never funded, the Court must assume Robert Wells was consenting to a termination of the trust or an outright distribution of the estate assets without funding the trust. Virtual representation in a trust accounting has been permitted when the common interest of the representee and the representor is to fund the trust to the fullest extent possible. In that case it can be found that their interests are the same and virtual representation is appropriate (In Re Putignano, 82 Misc.2d 389 (Sur Ct, Kings County 1975). In this case, if the trust was never funded and the entire estate was distributed to Janet Wells, such a disposition would be contrary to the economic interests of Robert Wells. How could it be found that the minors were being adequately represented by their father when their father was consenting to a disposition against his own economic interests since that would mean the disposition is against the economic interests of the minors (In Re Dickey, 195 Misc.2d 729 (Sur Ct, Nassau County 2003). If the trust was never funded and the estate assets were distributed to Janet Wells and the testator's children, how could it be found the minors had the same interest as their father and their interests were being adequately represented by their father when he was consenting to a disposition in his own favor and against the interests of the minor children. Clearly, there would be a conflict between the interests of the two. The court finds the interests of the minor children were not adequately represented by their father, the interests of the minors were not the same as their father, and a conflict existed between the two interests.
VALIDITY OF THE WAIVER AND CONSENT
The interests of the beneficiaries of the trust created under the Will of William M. Wells are inalienable (EPTL 7–1.5). To the extent Robert M. Wells was consenting to the termination of the trust or the failure to fund the trust by the co-executors and co-trustees, such an act would be beyond the scope of the authority of the co-executors and co-trustees unless approved by order of the Court. (In Re Shea, 157 Misc.2d 23 [Sur Ct, N.Y. County 1993]. In fact, it was not until the enactment of Estates Powers and Trust Law § 7–1.19 in 2004 that Courts were even given the statutory authority to approve the termination of even an uneconomical trust. Therefore, even if virtual representation were appropriate in this case, the waiver of Robert M. Wells could not bind the minors to a disposition that could only be done by approval of the Court.
For the reasons set forth above, the Court finds the waiver and release signed by Robert M. Wells dated December 30, 2002, is not binding on petitioners, Zachary Wells and Rachael Wells, and said petitioners have standing to compel an accounting. The petition to compel an accounting is granted and Susan L. Wells, as co-executor and co-trustee, of the estate of William Wells, is directed to file an accounting as co-executor of the estate of William M. Wells and as co-trustee of the testamentary trusts created by William M. Wells within 30 days of the date of this decision.