Estate of Gerard

• Decision Date: 18 November 1975
• Citation: 84 Misc.2d 213,377 N.Y.S.2d 394
• Parties: ESTATE of Jacques A. GERARD. Surrogate's Court, New York County
• Court: New York Surrogate Court

Page 394

377 N.Y.S.2d 394

84 Misc.2d 213

ESTATE of Jacques A. GERARD.

Surrogate's Court, New York County.

Nov. 18, 1975.

Frey & Christy, New York City (Robert S. Appel, John H. Frey, John Purcell, New York City, of counsel), for petitioners-executors.

Abbott & Morgan, New York City, for respondents, The Arthritis Foundation, George H. Gerard and Alexis Gerard.

Webster, Sheffield, Fleischman, Hitchcock & Brookfield, New York City (J. Dinsmore Adams, Jr., James F. Downey, Robert A. Kandel, New York City, of counsel), for respondents, New York Heart Assn. Inc. and Michael A. Gerard.

Dewey, Ballantine, Bushby, Palmer & Wood, New York City (Mark Rapaport, William B. Warren, Charles A. Severs, III, New York City, of counsel), for Sloan-Kettering Institute for Cancer Research.

Donovan, Leisure, Newton & Irvine, New York City, for respondent, American Cancer Society.

Mudge, Rose, Guthrie & Alexander, New York City, for respondent, Olga K. Gerard; (William J. Kramer, New York City, of counsel).

Louis J. Lefkowitz, Atty. Gen., New York City, for ultimate charitable beneficiaries, Trusts & Estates Bureau (Gustav J. Soderberg, Asst. Atty. Gen. of counsel).

S. SAMUEL DiFALCO, Surrogate.

The executors have brought this proceeding in order to determine the validity and effect of the election of Olga K. Gerard, the alleged widow of the decedent. The testator died on June 3, 1973 leaving a will dated January 11, 1973. His testamentary plan is expressed in his will and in an Inter vivos trust created on May 24, 1968.

Effective on Mr. Gerard's death, the trust agreement provides for the creation of five charitable remainder unitrusts, each having a five per cent annual payout. One of such trusts is for the life of Mrs. Gerard and is to consist of thirty-five percent of Mr. Gerard's net estate reduced by the value of all testamentary benefits to the widow.

A hearing was held on April 28, 1975 for the purpose of presenting evidence to the court as to Olga K. Gerard's status as surviving spouse and the anticipated income yield of the assets expected to be held in trust for the benefit of Olga K. Gerard.

The court must determine three basic issues:

(1) Does Olga Gerard have status as a widow to elect?

(2) If she does, is her election barred by the provisions of EPTL § 5--1.1, and what effect if any does Chapter 87 of the Laws of 1975, effective May 13, 1975, have on her election?

(3) If she is granted her right of election, what contributions from all interests involved must be made in order to satisfy her elective share?

At the hearing, without objection, the attorney for Mrs. Gerard offered into evidence his personal affidavit stating those facts known by him regarding the widow's status. Attached to the affidavit as Exhibit A is a Certificate of Marriage Registration issued in the Borough of Manhattan. The Certificate verifies that the decedent Jacques A. Gerard was married to the respondent Olga Gerard on May 3, 1966. It further states that it was the groom's second marriage, the first having terminated by death of the wife, and that it was the third marriage for the bride, her first two having terminated in divorce. In addition thereto, the court received into evidence copies of the divorce decrees terminating Olga Gerard's prior marriages.

No other evidence was offered at the hearing with respect to the widow's status.

Pursuant to Domestic Relations Law § 14--a(4): 'A copy of the record of marriage registration when properly certified . . . shall be prima facie evidence of the facts therein stated . . .'

I find that the uncontroverted evidence offered at the hearing establishes Olga K. Gerard as the decedent's widow.

The issue relating to the effectiveness of the widow's election is more perplexing.

IRC § 664 exempts a charitable remainder annuity trust and charitable remainder unitrust from income tax. Paragraph (2) of subdivision (d) of said section defines a unitrust as one from which a fixed percentage (which is not less than five per cent) of the net fair market value of its assets, valued annually, is to be paid to one or more persons not less often than annually. IRC Section 2055(e)(2) effected by the 1969 amendments to the Code provides an additional benefit when establishing a charitable remainder annuity trust or charitable remainder unitrust by permitting an estate tax deduction.

The dilemma, as pointed out by counsel for the New York Heart Association and respondent Michael A. Gerard, is that while a trust may qualify for a charitable deduction under the 1969 Tax Reform Act, it may not satisfy the widow's right of election under EPTL § 5--1.1.

EPTL 5--1.1(c)(1)(D) provides that a trust for a surviving spouse having a corpus equal to or greater than the elective share, with income therefrom payable to the surviving spouse for life, satisfies the elective share. The substance of EPTL 5--1.1(c)(1)(J) is a carryover of DEL 18--b(1)(j) enacted in 1965 which allowed an absolute right of election whenever the trust instrument permitted:

i) the reduction of any such trust by invasion of principal in favor of someone other than the surviving spouse;

ii) the termination of the trust before the death of surviving spouse;

iii) the trustee to apply less than All the net income for the benefit of the surviving spouse.

DEL § 18--b(1)(j) is a codification of prior case law wherein the widow was permitted to maintain her right of election where the trust contained any of the preceding directions. (See Matter of Byrnes, 260 N.Y. 465, 184 N.E. 56; Matter of Matthews, 255 App.Div. 80, 5 N.Y.S.2d 707; Matter of Sernau, 36 Misc.2d 348, 233 N.Y.S.2d 191.) In revising Section 18, it was the purpose of the Legislature to give practical effect to the rights of a surviving spouse in the property of the deceased, and at that time the statute was construed in the best interest of the surviving spouse (Matter of Aaronson, 20 A.D.2d 133, 246 N.Y.S.2d 61).

However, shortly thereafter the Legislature revised DEL section 18--b by enacting section 5--1.1(c)(1)(J)(iii) of the EPTL which entitles the surviving spouse to an elective share only when the trustee is authorized to pay or apply to such spouse less than Substantially all of the net income from such trust. (Session Laws of New York 1966.) The enactment of this amendment was made in reaction to cases in which the surviving spouse received an absolute right of election for relatively minor invasions of the trust income. (Fifth Report of th Temporary State Commission on the Modernization, Revision and Simplification of the Law of Estates, March 31, 1966, p. 50.)

In Matter of Brettschneider, 1968, 30 A.D.2d 59, 289 N.Y.S.2d 661, a statutory trust was created for the widow in an amount equivalent to her intestate share. Upon termination of the trust, the trustees were directed to pay over the then principal and any unpaid income to the testator's children. Surrogate McGrath held that the fact that the remaindermen have a right to unpaid income is only a minor deviation from the right of election statutes and therefore the surviving spouse is not entitled to an absolute right of election. (Matter of Baileson, 16 N.Y.2d 757, 262 N.Y.S.2d 487, 209 N.E.2d 810; other citations omitted.) In Matter of Best, 62 Misc.2d 535, 536, 308 N.Y.S.2d 930, 931--932, the testator died in 1968 and pursuant to his will dated August 14, 1964, he left his residuary estate in trust for the widow, with direction to his trustees to apply so much of income and principal for support and welfare of the widow 'as in their discretion they may deem proper.' The court noted that where trustees are directed to pay principal charges out of income or pay part of the income to another Or pay a stated sum which may or may not equal the net income, courts have held that the surviving spouse has an absolute right of election. Where the powers of the trustees are not mandatory or directive but discretionary, courts have exercised their power of supervision over the trust so as to guarantee a widow All of the net income of the trust.

During the 1975 session, the Legislature of this state enacted Chapter 87, L.1975, in an attempt to bring the New York right of election statute within the provisions of the 1969 Tax Reform Act as it pertains to charitable remainder trusts.

Chapter 87, as reported in McKinney's Sessions Laws of New York (No. 4, June 10, 1975) reads as follows:

'Section 1. Subparagraph (I) of paragraph one of subdivision (c) of section 5--1.1 of the estates, powers and trusts law, as amended by chapter six hundred eighty-six of the laws of nineteen hundred sixty-seven, is hereby amended to read as follows:

(1) The provisions of this paragraph with respect to trusts for the life of the surviving spouse also apply to a legal life estate, to an annuity for the life of the surviving spouse, to an annuity trust and a unitrust as provided in subparagraph (K) of paragraph one of this subdivision or to any other testamentary provision by which income is payable for the life of the surviving spouse. In computing the value of the testamentary provisions the capital value of the fund or other property producing the income shall be taken and not the value of the life estate.

Sec. 2. Paragraph one of subdivision (c) of section 5--1.1 of such law is hereby amended by adding thereto a new subparagraph, to be subparagraph (K), to read as follows:

(K) If any testamentary provision for the surviving spouse provides that such spouse shall receive, for life and not less often than annually, from...