Home » Speaking Engagements » Frank W. Streng, White Plains lawyer, Separation & Matrimonial Agreements & Implication in Estate Litigation

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 web: http://www.mccarthyfingar.com                                                       www.mfdds.com

 

 

Westchester County Bar Association – Trusts & Estates Section

 

Separation and Matrimonial Agreements and Implication in Estate Litigation                                                             `                 

April 18, 2005

 

Introduction:

 

• Surrogate’s Court as a court of special proceedings
  • The ground rules:
    • SCPA;
    • Uniform Rules for Surrogate’s Court; and
    • Local court’s practice and procedure

 

• The “one estate” concept: the authority and discretion of Surrogates to refuse to “entertain” proceedings because, at another stage of the estate [e.g., final accounting], an issue can be better dealt with;

 

• Multiplicity of procedural and substantive options to deal with litigation arising from prenuptial, postnuptial and other marital agreements; and

 

• This program will provide some illustrations on different litigation scenarios.

 

 

1. 1.                  Probate Proceeding 

 

1.  
   1. EPTL 5-1.4: legal effect of divorce or separation

 

                                                               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

 

1.  
   1. Disqualification as Surviving Spouse under EPTL 5-1.2

 

                                                               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;
   1. consensual separation is never enough;
   2. 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

 

1.  
   1. Rights of third party beneficiary – former spouse of decedent or child of decedent – to enforce decedent’s obligation to make provision in Will for such third party

 

                                                               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].

 

1.  
   1. Will contest/intestacy scenarios v. elective share options

 

                                                               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]

 

1. 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                                                    

 

1. 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).

 

1. 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.

 

 

 

1. 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

 

 

1. 3.                 Enforceability of Waivers of Spousal Rights 

 

1. 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

 

1. Waiver or release of right of election must be in writing and acknowledged;

 

1. 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 (1^st 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)]:
   1. Detrimental reliance by poorer spouse;
   2. Relative financial position of the parties;
   3. Formality of execution ceremony;
   4. Full disclosure of assets;
   5. Physical or mental condition of objecting spouse;
   6. “superior knowledge” or “overmastering influence” of proponent;
   7. Separate, independent counsel;
   8. Circumstances in which proposal made;
   9. Reasonable of waiver on its face;
   10. Provision for poorer spouse in will.

 

1. Estoppel/laches/statute of limitations as affirmative defenses.

 

                                                               i.      Estoppel and laches.  Lemle v. Dreifus, 30 A.D.2d 785 (1^st 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”

 

 

1. 4.                 Spouse’s Right of Election under EPTL 5-1.1A

 

1. Introduction: Complex, with about 200 pages of annotations in McKinney’s;

 

1. 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

 

1. 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

 

1. 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

 

1. 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

 

1. See discussion of enforceability of waivers above

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