In Matter of Kornrich
Decision Date | 19 March 2008 |
Docket Number | 4554/04 |
Citation | 2008 NY Slip Op 28102,854 N.Y.S.2d 293,19 Misc.3d 663 |
Parties | In the Matter of the Petition of EVAN K. KORNRICH, as Guardian ad Litem for PHILIP J. SHORE, an Allegedly Incapacitated Person, to Compel GEORGINA VASSILIOU, as Trustee, to Account in the Inter Vivos Trust for the Benefit of PHILIP J. SHORE, Grantor. |
Court | New York Surrogate Court |
RENEE R. ROTH, S.
The guardian ad litem for Philip J. Shore, the beneficiary of an inter vivos trust, asks that the trustee be removed for her failure to account as directed by the court (Matter of Vassiliou [sub nom. Vassilou], NYLJ, June 28, 2005, at 24, col 2). The trustee, an attorney who drafted the trust instrument which names herself as "grantor" and trustee, contends, however, that the terms of such instrument exempt her from the duty to account to anyone during the beneficiary's lifetime. Such contention raises a question as to whether language in an inter vivos trust relieving the trustee of the obligation to account during the lifetime of the trust is unenforceable as "contrary to public policy" as expressed in both the statutory (EPTL 11-1.7 [a]) and common law of this state.
The undisputed facts are as follows. About 15 years ago, a personal injury action brought by Shore was settled on condition that the net proceeds of the settlement (approximately $260,000) would be held in trust for his benefit. Shore's attorney retained Georgina Vassiliou, Esq. to prepare a trust instrument. Vassiliou drafted a trust "agreement" (between herself as "grantor" [sic] and herself as trustee) under which she gave herself as fiduciary "sole and absolute discretion" to make, or withhold, distributions of net income and principal to Shore, with the remainder at his death (after payment of funeral expenses, debts and taxes) to be distributed to his distributees.
From the inception of her tenure as trustee, Vassiliou gave Shore only a few hundred dollars per month. After she failed to give him a satisfactory answer to his repeated questions as to why he was receiving so little compared with his needs, Shore commenced a proceeding in this court, pro se, to compel her to account.
Shore's petition was granted by order dated June 17, 2005, which directed Vassiliou to account by July 30, 2005 (Matter of Vassiliou, supra). Although such order was properly served on her, Vassiliou failed to account as directed. Subsequently, during a conference before a court attorney, Vassiliou promised to file an accounting immediately, but failed to do so. Another conference was scheduled, but only Shore and his social worker appeared. The social worker reported that her telephone calls and correspondence to Vassiliou were never answered.
Thereafter, Shore wrote to the court asking that a guardian ad litem be appointed to protect his interests as a person under disability. A temporary guardian ad litem was appointed to investigate Shore's capacity and subsequently reported that Shore was indeed incapable of representing himself. The guardian thereafter brought this application seeking Vassiliou's removal as trustee and permission to take and state her account (SCPA 711, 2205).
In turn, Vassiliou moved to dismiss the guardian's petition and sought leave to reargue or renew this court's prior decision (Matter of Vassiliou, supra). In the alternative, Vassiliou has requested that she not be required to use the official forms for her accounting (SCPA 106; 22 NYCRR 207.4 [b], [c]), that the court appoint a disinterested person to review her freestyle version of an accounting or that an in camera examination of such account be conducted by the court.
Even assuming arguendo that the trust instrument can be read as Vassiliou claims, i.e., that she is excused from accounting during Shore's lifetime, there is a basic reason that such a provision cannot be enforced, namely, that accountability is an essential element of all fiduciary relationships which cannot be waived. (See EPTL 11-1.7; Matter of Malasky, 290 AD2d 631 [2002]; Bauer v Bauernschmidt, 187 AD2d 477 [1992]; Matter of Central Hanover Bank & Trust Co. [Momand], 176 Misc 183 [1941], aff'd 288 NY 608 [1942].)
This public policy against exonerating testamentary fiduciaries from any and all accountability is equally applicable with respect to inter vivos trusts where, as is the case here, there is no one in a position to protect the beneficiaries' interests during the existence of the trust. Although some decisions might appear to hold that the references to testamentary fiduciaries in EPTL 11-1.7 signify that exoneration clauses in inter vivos trusts are not similarly forbidden (Matter of Kassover, 124 Misc 2d 630 [1984]; Matter of Brush, 46 Misc 2d 277), such a conclusion is not supportable. According to such decisions, the statute's prohibition was intended to apply to a decedent's estate and testamentary trust because the beneficiaries of such an entity were in special need of protection given the fact that a decedent was not able to hold the fiduciary accountable. Such reasoning, however, is equally applicable to inter vivos trusts when the language of the trust attempts to relieve the trustee from any and all accountability during the trust's existence.
Moreover, nothing in the legislative history of the statute suggests otherwise (see 4th Rep of Temp St Commn on Estates, 1965 NY Legis Doc No. 19 [May 31, 1965]). Thus, it is concluded that the public policy in EPTL 11-1.7 against exonerating a fiduciary from liability for the failure to exercise reasonable care, diligence and prudence applies equally to inter vivos trusts where by its terms there is no one in a position to protect the beneficiaries from the actions of the trustee.
It is noted that greater latitude may be more appropriate to the trustee of an inter vivos trust than to an executor or testamentary trustee where the grantor himself is a beneficiary and also serves as trustee ...
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