Bankers Trust Co., In re

• Decision Date: 02 November 1972
• Citation: 31 N.Y.2d 322,338 N.Y.S.2d 895,291 N.E.2d 137
• Parties: , 291 N.E.2d 137 In the Matter of the Final Accounting of BANKERS TRUST COMPANY, as Trustee of the Trust Created by James H. Snowden, for the Benefit of Marian A. Snowden, also known as Marian A. Davidson. James SNOWDEN, III et al., Appellants, v. Marian S. BROTHERTON et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 895

338 N.Y.S.2d 895

31 N.Y.2d 322, 291 N.E.2d 137

In the Matter of the Final Accounting of BANKERS TRUST COMPANY, as Trustee of the Trust Created by James H. Snowden, for the Benefit of Marian A Snowden, also known as Marian A. Davidson James SNOWDEN, III et al., Appellants, v. Marian S. BROTHERTON et al., Respondents.

Court of Appeals of New York.

Nov. 2, 1972.

Gerard T. Shevlin, New York City, for appellants.

Allen S. Hubbard, Jr., and John M. Townsend, New York City, for Crocker-Citizens Nat. Bank and another, as trustees, respondents.

Chester Billings, Jr., New York City, for Marian Snowden Brotherton, respondent.

No appearance for remaining respondents.

FULD, Chief Judge.

In this proceeding to settle a trustee's account, the question posed is whether former section 114 of the Domestic Relations Law, Consol.Laws, c. 14, in effect when the trust was created, compels the adopted children of the settlor's deceased son to relinquish their father's share of the trust corpus in favor of the settlor's natural child and grandchildren.

James and Marian Snowden were married in 1909 and had three children, a son and two daughters. In 1922 they separated and executed a combined separation and trust agreement pursuant to which Mr. Snowden transferred assets worth $400,000 to a trust fund for the benefit of his wife and children. The wife received the income of the trust for life. Upon her death, the trust corpus was to be divided per stirpes among the surviving children and the 'issue'--living at her death--of any child who predeceased her. The share of each of Mrs. Snowden's children who survived her was to be held in trust, with partial distributions at 30 and 35, until the child reached 40 years of age. When he attained that age, he was to receive the balance of the fund remaining. If a child survived his mother but died before the termination of the trust, his share was to be 'paid over' (1) to such persons as he might direct and appoint by will; (2) in default of appointment, to his 'issue then living'; or (3), if no issue survived, to his 'next of kin then living'--and such 'next of kin,' the parties subsequently stipulated in a supplemental agreement, 'shall be deemed to mean 'next of kin' as determined by the intestate laws of the State of New York'. If no children, or issue of children, outlived Mrs. Snowden, then, upon her death, the trust was to be paid over to Mr. Snowden or to his estate.

Mr. Snowden, the settlor, died in 1930, his wife in 1969, and it is her death which gives rise to the present proceeding to settle the trust account. One daughter had died in 1943, survived by three natural children, the son in 1964, survived by two adopted children, and the other daughter, over the age of 40 and childless, outlived her mother. The respondents--the surviving daughter and the three children of the daughter who had died--rely upon former section 114 of the Domestic Relations Law to defeat the claim of the adopted children to their deceased father's share of the trust principal.

In 1922, section 114 provided that 'foster parent or parents and the person adopted sustain toward each other the legal relation of parent and child,' including the right of inheritance from each other. ¹ The statute further recited, however, that, 'as respects the passing and limitation over of real or personal property dependent under the provisions of any instrument on the foster parent dying without heirs, the person adopted is not deemed the child of the foster parent so as to defeat the rights of remaindermen.' ²

The respondents maintain that, in the provision for distribution of the trust corpus among the children surviving their mother and the 'issue' of any predeceased child, the word, 'issue,' by operation of section 114, does not include adopted children; accordingly, they continue, the fund should be divided into two parts and distributed per stirpes to the surviving daughter and the children of the deceased daughter. On the other hand, the appellants, the adopted children, contend that, since the settlor left his son and daughters free to transfer their respective shares of the corpus to persons other than his own descendants--that is, individuals outside of the bloodline--he evidenced an intention to include adopted children.

The court at Special Term decided in favor of the respondents, and a closely divided Appellate Division affirmed (38 A.D.2d 926, 330 N.Y.S.2d 1). The dissenting justices, noting that the only purpose of former section 114 was to preserve the intent of the creator of the trust to 'stay within (his own) bloodline,' reached the conclusion--with which we agree--that a reading of the trust agreement demonstrates that the settlor did not desire to exclude adopted children.

Since 1887, our adoption statute (L.1887, ch. 703; cf. L.1873, ch. 830) has embodied 'the fundamental social concept that the relationship of parent and child, with all the personal property rights incident to it may be established, independently of blood ties, by operation of law'. (Matter of Upjohn, 304 N.Y. 366, 373, 107 N.E.2d 492, 494.) The 'precautionary addendum' contained in section 114 was an exception to the 'broad pattern of remedial legislation' enacted to effectuate that purpose and 'must be strictly construed in order that the major policy underlying the legislation itself is not defeated.' (Matter of Charles, 200 Misc. 452, 460--461, 102 N.Y.S.2d 497, 504 (per Frankenthaler, S.), affd. 279 App.Div. 741, 109 N.Y.S.2d 103, affd. 304 N.Y. 776, 109 N.E.2d 76). It did not apply, this court said in Matter of Rockefeller (Hubbard), 12 N.Y.2d 124, 134, 237 N.Y.S.2d 300, 306, 187 N.E.2d 764, 768, if it 'affirmatively' appeared from the context of the trust instrument or from extraneous facts 'that the grantor intended to include adopted children * * *, for they are not required to establish that they specifically were contemplated as objects of affection and bounty by the testator (Matter of Charles, 304 N.Y. 776, 109 N.E.2d 76; Matter of Ward, 9 N.Y.2d 722, 214 N.Y.S.2d 340, 174 N.E.2d 326).' (See, also, Matter of Upjohn, 304 N.Y. 366, 375, 107 N.E.2d 492, 495, Supra.)

In point of fact, the precautionary addendum was merely designed to prevent 'the perpetration of fraud on the rights of remaindermen 'through an adoption for the very purpose of cutting out a remainder. '' (Matter of Upjohn, 304 N.Y. 366, 378, 107 N.E.2d 492, 498, Supra.) That the danger of such fraud is minimal is confirmed by the Legislature's decision, reached in 1963, to delete the precautionary addendum and to provide expressly that adopted children are to be included in the generic terms 'issue' and the like, '(u)nless the will or other instrument specifically provides to the contrary' (former Decedent Estate Law, § 49, L.1963, ch. 310; see, also, EPTL 2--1.3). The legislative purpose sought to be achieved, the Note to chapter 406 of [31 N.Y.2d 328] the Laws of 1963 recites, is to 'carry out a public policy of placing the adopted child so far as possible within the bloodlines of his new family for inheritance purposes' (Laws of New York, 1963, vol. 1, p. 1788 n.; see, also, N.Y.Legis.Doc., 1963 No. 19, Appendix F, p. 175).

Even prior to the passage of this statute, however, adopted children were permitted to defeat the rights of contingent remaindermen where the grantor (1) knew and approved of the adoption of a child by a life beneficiary (Matter of Upjohn, 304 N.Y. 366, 107 N.E.2d 492, Supra); (2) advocated adoption in his family circle and evinced a desire to treat all his children alike (Matter of Ward, 9 N.Y.2d 722, 214 N.Y.S.2d 340, 174 N.E.2d 326, Supra); or (3) expressly provided that the trust principal might be divided among those not his descendants or within his bloodline (Matter of Charles, 304 N.Y. 776, 109 N.E.2d 76, affg. 279 App.Div. 741, 109 N.Y.S.2d 103, affg. 200 Misc. 452, 102 N.Y.S.2d 497, Supra).

The Charles case (304 N.Y. 776, 109 N.E.2d 76, affg. 279 App.Div. 741, 109 N.Y.S.2d 103, affg. 200 Misc. 452, 102 N.Y.S.2d 497, Supra) is not unlike the present. The testatrix had set up a trust for life for the benefit of her unmarried daughter, authorizing her, under a limited power of appointment by will, to distribute the corpus to, among others, her children, the issue of deceased children or her Husband. The daughter died at the age of 73, still unmarried, survived by two adopted children and a niece, among whom she distributed the trust principal. In a suit brought by the niece--who, in default of appointment, would have been the sole remainderman--to disqualify the adopted children from sharing in the estate, we upheld the decision of the courts below in favor of those children. It is clear--as Surrogate Frankenthaler put it (200 Misc. at p. 462, 102 N.Y.S.2d p. 506)--that, since the daughter was authorized to appoint her husband, she was, by that token, 'empowered to defeat completely' the interest of any remainderman 'by an act not involving a child or children. The remainders were thus dependent not upon death without children but upon the whim of (the) donee in making her selection. As under the terms of...