Separation & Matrimonial Agreements & Implication in Estate Litigation

Westchester County Bar Association – Trusts & Estates Section

Introduction:

 

• 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. Probate Proceeding

 

 

 

 

 

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. Enforceability of Waivers of Spousal Rights

 

 

2. Waiver or release of right of election (EPTL 5-1.1-A(e))

    

   1. before marriage

    

    

   2. during marriage

    

    

   3. after marriage

    

    

   4. unilateral

    

    

   5. bilateral

    

    

   6. with consideration

    

    

   7. without consideration

    

    

   8. conditional or absolute

    

 

 

 

 

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

 

 

 

4. Statute contains no rules regarding disclosure requirements

    

   1. 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)

       

    

    

   2. 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.

          

       

    

 

 

 

 

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

    

   1. Estoppel and laches. Lemle v. Dreifus, 30 A.D.2d 785 (1^st Dep’t 1968);

    

    

   2. 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)

    

    

   3. But . . what if there’s

       

      1. fraud (begins on discovery. DPLR 213(8))

       

       

      2. “continuous duress or undue influence”

       

    

 

 

 

 

 

 

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

 

 

 

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

 

 

 

8. Timing and manner of submission (EPTL 5-1.1-A(d)(1))

    

   1. within 6 months of issuance of letters, but no later than 2 years after date of death

    

    

   2. written notice for service (by mail) upon fiduciary; file notice and proof of service with Surr. Ct. within same time period

    

    

   3. 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

    

    

   4. 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

    

    

   5. decedent must have domicile in NY – what if NY Elective share is better than another State’s Elective share?

    

    

   6. be cautious as to distributions from estate; consider elective share claimant to be in same category as a creditor

    

 

 

 

 

 

9. Calculation of maximum elective share (EPTL 5-1.1-A(a))

    

   1. 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

       

    

    

   2. pecuniary amount

    

    

   3. 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

       

    

 

 

 

 

10. Testamentary substitutes (EPTL 5-1.1-A(b))

     

    1. broad definitions of “inter vivos” disposition that are covered:

        

    2. gift causa mortis

     

     

    3. totten trusts

     

     

    4. joint accounts (deposits after 8/31/66)

     

     

    5. qualified plans (beneficiaries designated after 9/1/92)

     

     

    6. gifts within 1 year above annual gift tax exclusion $10,000 in 1998)

     

     

    7. trusts, if there are retained powers (revoke, income, principal invasion)

     

 

 

11. life insurance is not a testamentary substitute

 

 

12. fiduciary’s diligence in marshaling assets and preparing estate tax returns will serve to identify testamentary substitutes

 

 

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

 

 

 

 

4. Disqualification as Surviving Spouse under EPTL 5-1.2

    

   1. divorce or judgment of separation;

    

    

   2. incestuous, bigamous or prohibited marriage;

    

    

   3. 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;

          

       

    

    

   4. spouse failed or refused to support decedent, with spouse having means to provide such support, and such failure continued until testator’s death

    

 

 

 

 

5. 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

 

 

 

 

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

 

 

 

7. 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]

    

 

 

8. To contest, or not to contest, that is the question . . . [apologies to W. Shakespeare]

 

 

9. 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

    

 

 

10. Such third party agreements are strictly enforceable, but as a claim against estate [SCPA Article 18. See discussion below].

 

 

11. 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

     

 

 

12. 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

 

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.

Separation and Matrimonial Agreements and Implication in Estate Litigation `

April 18, 2005