Estate of Goutmanovitch

• Court: New York Surrogate Court
• Citation: Estate of Goutmanovitch, 432 N.Y.S.2d 768, 105 Misc.2d 851 (N.Y. Surr. Ct. 1980)
• Decision Date: 25 September 1980
• Parties: ESTATE of Jacques GOUTMANOVITCH. Surrogate's Court, New York County

Page 768

432 N.Y.S.2d 768

105 Misc.2d 851

ESTATE of Jacques GOUTMANOVITCH.

Surrogate's Court, New York County.

Sept. 25, 1980.

Albert Heit, New York City (Monroe E. Stein, New York City, of counsel), for accountants.

Schlesinger & Jacoby, New York City (James J. Jacoby, New York City, of counsel), for objectant.

MILLARD L. MIDONICK, Surrogate.

These cross motions for summary judgment in a pending executors' accounting raise significant issues with respect to the operation and effect of an outright pecuniary marital deduction formula legacy. The decedent executed his will in 1976 and died in the same year. The two primary beneficiaries under the will are decedent's wife and his sister. The wife receives legacies of cash and tangibles and an outright marital deduction formula legacy in a form sometimes characterized as hybrid. The residuary estate goes to the sister. The wife filed a notice of election. In summary form, the issues are (1) whether the marital deduction formula's reduction of the widow's legacy by the value of the property passing to her outside of the will gives her a right to one-half of the estate's income and appreciation because it gives her a limited right of election. The limited right of election asserted arises from the exempt property which passes to the wife under EPTL 5-3.1 which the literal language of the formula appears to offset against her legacy, thereby giving her less than her elective share; and (2) whether the widow is entitled to appreciation on the marital deduction legacy.

1. The widow's claim to income and appreciation on one-half of the net estate by virtue of her right of election:

The decedent bequeathed to his wife all of his tangible personalty including household furnishings (Article THIRD), the sum of $10,000 (Article SIXTH) and

" * * * an amount equal to one-half (1/2) of the value of my adjusted gross estate as finally determined in the Federal estate tax proceeding in my estate, reduced, however, by the aggregate value of all other interests in property, if any, which pass or have passed to my said wife under other provisions of this Will, any Codicil hereto, or from me otherwise than under this will or any Codicil hereto, but only to the extent that such other interests are allowed as a marital deduction in the Federal estate tax proceeding in my estate, such values of my adjusted gross estate and of such other interests in property being those finally determined for Federal estate tax purposes." (Article EIGHTH, emphasis added)

In this estate the exempt property passing to the widow under EPTL 5-3.1 consists of $1,000 in cash and household furnishings valued at $5,000. These pass to the widow under the statute rather than by virtue of the bequests of cash and tangibles to her. The statute is clear that these assets are not a part of the estate for fiduciary accounting purposes and the executors concede that they must be deducted and set off to the widow before determining whether the testamentary dispositions satisfy the widow's right of election under EPTL 5-1.1. The widow's elective share here is one-half. (EPTL 5-1.1, subd. (c), par. (1), cl. (B)). There are apparently no non-testamentary transfers includible in this estate for Federal estate tax purports so that the gross taxable estate for estate tax and the gross estate for fiduciary accounting purposes coincide, with the exception of the widow's exempt property (EPTL 5-3.1), which is part of the taxable estate only.

The briefs of both parties read the underscored direction reducing the amount of the formula legacy by assets passing to the widow "from me otherwise than under this Will" as applicable to the widow's exempt property under EPTL 5-3.1. Both conclude that this reduction of the marital formula legacy gives rise to a limited right of election (EPTL 5-1.1, subd. (c), par. (1), cl. (H)). The executor allots to the widow one-half of the adjusted gross taxable estate plus an amount which his most recent memorandum estimates to be $5,000 as her limited right of election. His computation of the adjusted gross estate presumably included the exempt property which should be excluded in computing the net estate on which the elective share is based (EPTL 5-1.1, subd. (c), par. (1), cl. (B)). The correct starting point, the value of the estate for fiduciary accounting purposes, is a figure which excludes the $6,000 of exempt property. The executor's approach would give the widow the benefit of a larger estate on which to compute her fraction. (Matter of Taliento, 9 Misc.2d 167, 168 N.Y.S.2d 13; Matter of Miles, 131 N.Y.S.2d 328 (Sur.Ct., Westchester Co., 1954); Matter of Lorch, 33 N.Y.S.2d 157 (Sur.Ct., Queens Co., 1941)). In addition to this claim of a limited right of election arising out of the exempt property the widow claims that she is entitled to her one-half elective share of the estate's income and appreciation. The executors argue that she is entitled only to the income and gain attributable to the amount of her limited right of election.

At the threshold, the court rejects the parties' assumption that the widow has even a limited right of election. The Court of Appeals has held (Matter of Tisnower, 40 Misc.2d 778, 244 N.Y.S.2d 169, affd. 23 A.D.2d 535, 255 N.Y.S.2d 457 (1st Dept. 1965), revd. 16 N.Y.2d 906, 264 N.Y.S.2d 697, 212 N.E.2d 151), that a bequest to a widow which otherwise satisfied her statutory elective share did not give rise to a right of election in the amount of the exempt property where the will expressly provided:

"The foregoing provisions for the benefit of my said wife are, and are intended to be, in lieu of all claims which my said wife may have as surviving spouse, whether in the exercise of a right of election, exemption or otherwise". (40 Misc.2d 778, 779, 244 N.Y.S.2d 169) (Emphasis added)

In Tisnower, the court reversed the decisions of Surrogate Di Falco and the Appellate Division without opinion on the authority of Matter of Galewitz, 3 Misc.2d 197, 148 N.Y.S.2d 823, affd. without opinion 3 A.D.2d 736, 163 N.Y.S.2d 937 (1st Dept. 1957), affd. 5 N.Y.2d 725, 177 N.Y.S.2d 710, 152 N.E.2d 668). The Galewitz will did not expressly condition the wife's bequests on the surrender of the right to exempt property although it provided that they were:

" * * * in lieu of dower or of any other interest in my estate or in any property owned by me or in which I have an interest at the time of my death and in bar of her right of election * * * ". (3 Misc.2d 197, 200, 148 N.Y.S.2d 823).

The Surrogate interpreted the legacy as not conditioned on foregoing the exempt property and held that such property passed independently of the will. Even were we to construe the marital legacy at hand as so conditioned, Tisnower would render such a condition inoperative, apparently on the ground that exempt property passes to the widow outside the will whose terms should be read without reference to such property. Moreover, the language in the instant will is closer to the Galewitz provisions since the exempt property is not expressly offset. (See Matter of Berger, 22 Misc.2d 860, 195 N.Y.S.2d 913). As the court said in Galewitz, "(t)he will is a carefully planned instrument completely free of self-defeating errors so gross as that which the widow insists it contains." (3 Misc.2d 197, 201, 148 N.Y.S.2d 823).

In Matter of Hartzberg, Surrogate Di Falco did sustain a limited right of election (arising from a direction to offset the widow's legacy by property passing to her outside the will) based upon the exempt property (together with Totten trusts passing to the widow, at a time before the addition of testamentary substitutes to the right of election). (21 Misc.2d 1059, 194 N.Y.S.2d 549). That decision, however, antedates Tisnower.

This court holds that the widow's exempt property does not offset her marital deduction legacy of one-half of the adjusted gross estate. As a result, the widow reaps the benefit of this exempt property twice since it does form a part of the adjusted gross estate on which her legacy is computed.

If the court had accepted the parties' assumption that the exempt property occasioned a limited right of election, it would have been necessary to determine the extent of the widow's ensuing right to share in income and appreciation. The exercise of a limited right of election does raise this issue and there have been very few cases on point and no thorough analysis of the issue. In general, where a surviving spouse has an unlimited right of election to a one-third or one-half share of the decedent's net estate, the courts have treated that right as if it were a fractional share in intestacy, which does participate proportionately in the estate's appreciation, depreciation and income during the period of administration, rather than as a dollar legacy which does not. E. g., Matter of Goldsmith, 177 Misc. 298, 30 N.Y.S.2d 474; Matter of Oakley, 175 Misc. 463, 24 N.Y.S.2d 28; Matter of Byrnes, 149 Misc. 449, 267 N.Y.S. 627; Matter of Hubbell, 65 N.Y.S.2d 40 (Sur.Ct., Westchester Co., 1946). See Alexandria National Bank v. Thomas, 213 Va. 620, 191 S.E.2d 723 (1973); Annot. Surviving spouse who elects to take against will as entitled to increase or profit of estate accruing after testator's death, 50 A.L.R.2d 1253 (1956). There is a contrary decision in Matter of Spinelli, 86 Misc.2d 1039, 384 N.Y.S.2d 665, which is probably limited to elections against testamentary substitutes. The statute governing the right of election (EPTL 5-1.1) is silent on the question of the right of share in the estate's income and appreciation. Nor do the provisions of the principal and income statute (EPTL 11-2.1, subd. (d)) resolve this issue since they allocate income earned during administration as between classes of testamentary beneficiaries and the question here is one of classification-whether a limited right of election is to be treated as a fractional or as a pecuniary bequest. ...