Discovery Proceedings, Creditor’s Claims & Other Miscellaneous Proceedings

by Frank W. Streng on 06/09/1997

Westchester County Bar Association

Trusts & Estates Section

June 9, 1997

 

Discovery Proceedings, Creditor’s Claims and Other Miscellaneous Proceedings

 

 

Gary E. Bashian, Esq.

Smith, Ranscht, Connors, Mutino

Nordell & Sirignano, P.C.

235 Main Street

White Plains, NY  10601

Tel. No. 914-946-8800

 

Donald S. Klein, Esq.

7-11 South Broadway

White Plains, NY  10601

Tel. No. 914-686-6120

 

Frank W. Streng, Esq.

McCarthy, Fingar, Donovan,

Drazen & Smith, L.L.P.

11 Martine Avenue

White Plains, NY  10606

Tel. No. 914-946-3700

 

 

Outline

 

1.         Claims Against Estate: SCPA Article 18: Fiduciary’s Perspective v. Creditor’s

Perspective

 

• What is a creditor’s claim?
  • conventionally, a creditor’s claim is a claim that existed against the decedent during the decedent’s lifetime
  • to protect your client, construe the definition of a creditor’s claim liberally; do not make judgment calls as to whether any claim, including a specious claim, is valid
• Timing and form of Submission of Claim (SCPA 1803)
  • Format of claim
    • format is irrelevant; any notice is sufficient
    • but a fiduciary should be diligent in paying any claim; seek documentation and/or information before payment
  • Personal liability for fiduciary (SCPA 1802; see also SCPA 1807)
    • be very careful during the period of seven months from issuance of letters, or place fiduciary in position of personal liability
    • SCPA 1807 placed personal liability on fiduciary if there is “fraud, negligence or collusion”
    • As to tax matters, be very careful, as there may be a big picture to keep in mind and make application to abate penalties that may be assessed by taxing authorities; perfect excuse: decedent was ill and, in fact, is not dead and executor has insufficient information to support paying penalties
• Decision of Fiduciary to Reject or Accept Claim (SCPA 1806)
  • A claim is deemed rejected within 90 days of presentation
  • Always respond to claims; never ignore claimants; never permit your client to become a reactive executor/administrator
• Creditor’s Remedies on Rejection of Claim
  • Proceeding/Action to Determine Claim (SCPA 1810)
    • Claimant can seek forum outside of Surr. Ct. within 60 days of rejection (or deemed rejection)
    • If real estate is involved, SCPA 1812 required a creditor to obtain leave of Surr. Ct. before obtaining execution on judgment
    • if fiduciary believes that claim is correctly rejected, beat creditor to punch by proceeding under SCPA 1809 to determine claim
    • if fiduciary was active, he has asked creditor to supply substantial information and/or documentation as to claim
  • Proceeding to Compel Estate Accounting (SCPA 2205(a); SCPA 1808(5))
    • avoid scenario where creditor can coerce an accounting from fiduciary
• Executor’s Remedies/Duties on Rejection of Claim
  • Proceeding to Disallow Claim (SCPA 1809)
    • See above discussion
    • do not ignore conventional bars to claimant, such as statutes of limitation, etc.
    • consider operation of dead man statute (CPLR 4519)
  • Disclosure of Rejection in Accounting and Process Issued to Creditor (SCPA 1808)
    • Schedule D of accounting requires disclosure as to rejected claimaints and process must issue to permit creditor and opportunity to be heard
    • never permit beneficiaries of estate to encourage the fiduciary to ignore the creditor
• Old law-creditors’ rights
• Changes in statute
• Contingent claims
  • reserves for estate taxes; avoid the fiduciary having problems after distributions: you never get the money back
• Department of Social Services and liens
  • for purposes of the 7 month limitation period, there is presumed notice of Social Services liens if decedent was in nursing home
• Enforceability as to Nonprobate assets
  • Joint accounts, if “convenience” accounts
  • Totten trusts

 

 

2.         Right of Election: EPTL 5-1.1-A: Fiduciary’s Perspective v. Spouse’s Perspective

• Timing and manner of submission of election (EPTL 5-1.1-A(d)(1))
  • six months from letters, but no later than two years from date of death
  • fiduciary should make sure that election was timely made; if not seek to vacate under SCPA 1421
  • be cautious as to distributions from estate; consider elective share claimant to be in same category as a creditor
  • the claim is personal, but can be made in representative capacity with court approval (EPTL 5-1.1-A(c)(3) 
• Calculation of maximum elective share (EPTL 5-1.1-A(a))
  • greater of $50,000 or one-third of estate, less properties passing to such spouse such as joint accounts, etc.
  • 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
• Testamentary substitutes (EPTL 5-1.1-A(b))
  • broad definitions of “inter vivos” disposition that are covered; however, insurance proceeds are still not covered
  • fiduciary’s diligence in marshaling assets and preparing estate tax returns will serve to identify test. Sub.
• Effect of elective share on Q-Tip trusts
  • old law permits elective share trust; new law requires outright elective share
  • spouse must choose between q-tip and outright elective share
  • make sure that you represent fiduciary and spouse has separate counsel
• Waiver or release of right of election (EPTL 5-1.1-A(e))
  • for planning purpose, despite broad language of statute (unilateral waivers without consideration are sufficient), encourage disclosure of information and careful discussion (and separate counsel) before execution of waivers,
• Validity of election and claimant’s qualification as “spouse” (see SCPA 1421)
  • abandonment

 

3.         Discovery Proceeding: SCPA 2103: Fiduciary’s Perspective v. Respondent’s

Perspective

• Options re difficulties in identifying or collecting assets
  • fiduciary charged with making a diligent search for assets
  • use all conventional means to identify assets (tax returns, safe deposit boxes  mail, etc.)
  • interview various people, including family members, with information as to assets
  • write letters to people who may have information
• Inquiry stage of proceeding (SCPA 2103(3))
  • if a person has information on assets (or asset itself), write to that person for information (or turnover)
  • typical scenarios: gifts, joint accounts, possession of cash or other estate assets
  • prepare petition describing information and supplement it with affidavit by executor or others
  • in inquiry stage, court exercises subpoena power; serve order with subpoena fee
• Turnover stage of proceeding (SCPA 2103 and SCPA 2104)
  • technically speaking, if, upon examination, there is an issue as to the respondent’s possession of property, then court directs answer
  • practically speaking, you so-called inquiry petition should pray for turnover if respondent has property
  • if respondent is out of state, then while you can get court to exercise subpoena power, it is expensive
• Interim relief, including restraining orders on property
  • court now requires a supporting affidavit to support tro and will deal with tro on separate track

 

4.         Reverse Discovery Proceeding: SCPA 2105: Petitioner’s Perspective v. Fiduciary’s

Perspective

• Example: fiduciary’s possession of tangible persoal property purportedly given away by decedent
• Consider dead man statute (CPLR 4519)

5.         Relief Against Fiduciary: SCPA 2102 & SCPA 2205: Fiduciary’s Perspective v.

Petitioner’s Perspective

• Proceeding to compel fiduciary to supply information on estate (SCPA 2102(1))
• a fiduciary should always respond to written requests for information and supply information on request, e.g., estate tax returns
• but . . . do not permit beneficiaries and fiduciary to run estate by committee
  • Proceeding to compel fiduciary to pay specific bequest, legacy, amongst others (SCPA 2102(4))
  • avoid scenario where this type of application is necessary
    • Proceeding to make advance payment to beneficiary of estate (SCPA 2102(5))
    • application in will contest; make sure that, when this is necessary, that you have a court order and that statute is met
      • Proceeding to pay interest on general dispositions (SCPA 2102(7))
      • avoid scenario where this is necessary
        • Proceeding to compel estate/trust accounting (SCPA 2205)
          • do not resist the court; but work with court to have appropriate date for filing

 

6.         Construction/Reformation Proceeding: SCPA 1420: Fiduciary’s Perspective v.

Beneficiary’s Perspective

• Construction/reformation proceedings pre-final accounting
  • Estate tax apportionment issues
  • Bequests that impact on estate tax returns
  • Generation-skipping tax issues
  • Other scenarios
• Construction/reformation proceedings as part of final accounting

 

 

7.         Proceedings for Advice and Direction: Fiduciary’s Perspective v. Respondent’s

Perspective

• Advice and direction as to real estate matters (SCPA 2107)
• Advice and direction arising out of conflict of interest scenarios
• Enlargement of fiduciary powers during will contest
• Other areas in which advice and direction is sought

 

 

8.         Proceedings for Continuation of Business: SCPA 2108: Fiduciary’s Perspective v.

Respondent’s Perspective

• Corporate ownership v. sole proprietor
• Need of estate to obtain loans for business
• Restructure of business for tax or other reasons