In re Accounting Proceeding by Mfrs. & Traders Trust Co.

• Decision Date: 10 August 2016
• Docket Number: No. 72207/A.,72207/A.
• Citation: 43 N.Y.S.3d 767 (Table)
• Parties: In the Accounting Proceeding by MANUFACTURERS AND TRADERS TRUST COMPANY, Successor in interest to First National Bank of Rhinebeck, Successor Trustee to Dutchess Bank and Trust Company, as the Trustee of the Trust u/w/o Dorothy D. Wilkinson f/b/o Judith M. Nielsen a/k/a Judith Ann Nielsen a/k/a Judith M. Wilkinson.
• Court: New York Surrogate Court

43 N.Y.S.3d 767 (Table)

In the Accounting Proceeding by MANUFACTURERS AND TRADERS TRUST COMPANY, Successor in interest to First National Bank of Rhinebeck, Successor Trustee to Dutchess Bank and Trust Company, as the Trustee of the Trust u/w/o Dorothy D. Wilkinson f/b/o Judith M. Nielsen a/k/a Judith Ann Nielsen a/k/a Judith M. Wilkinson.

No. 72207/A.

Surrogate's Court, Dutchess County, New York.

Aug. 10, 2016.

Jeffrey S. Battistoni, Esq., Van Dewater & Van Dewater, LLP, Poughkeepsie, Attorneys for Petitioner.

Michael L. Fox, Esq., Catania, Mahon, Milligram & Rider, PLLC, Newburgh, Attorneys for Objectants.

JAMES D. PAGONES, J.

Petitioner moves for an order, pursuant to CPLR 3212, granting it summary judgment and dismissing the preliminary objections to the trust accounting of Edward P. Nielsen, III and Katharine M. Nielsen dated March 22, 2016. Objectants Edward P. Nielsen, II and Katharine M. Nielsen (hereinafter "Nielsen") cross-move for an order, pursuant to CPLR 3212, granting summary judgment in their favor.

The following papers were read:

Amended Notice of Motion–Affirmation–Affidavit–	1–12
Certification–Affidavit of Mailing–Exhibits	A–G
Notice of Cross–Motion–Affidavit–Affirmation–	13–20
Affidavit–Exhibits H–J–Affidavit of Service
Memorandum of Law–Affidavit of Service	21–22
Affirmation in Reply and Opposition–Memorandum of Law	23–24
Reply Memorandum of Law–Affidavit of Service	25–26

By way of background, the petitioner alleges the following:

The Last Will and Testament of Dorothy D. Wilkinson, dated June 15, 1973, created two testamentary trusts, one for the benefit of the testatrix's daughter, Judith M. Nielsen, and one for the benefit of her son, Robert D. Wilkinson. Both beneficiaries are deceased. Petitioner alleges that any issues related to the distribution of the principal and accumulated income for the testamentary trust which had been created for Robert's benefit were settled separately from the instant proceeding. The testamentary trust for the benefit of Judith M. Nielsen a/k/a Judith M. Wilkinson was subject to a "Release and Substitution Agreement" made on December 7, 1992 between Robert, Judith, the objectants Nielsen and the Trustee. Petitioner alleges that the "Release and Substitution Agreement" authorized the trustee to withdraw the sum of One Hundred Seventy Thousand Dollars ($170,000.00) from the testamentary trust created for the benefit of Judith. In substitution therefore, Judith was to obtain a convertible term life insurance policy upon her own life in the amount of Two Hundred Fifty Thousand Dollars ($250,000.00) for the benefit of the testamentary trust. In addition thereto, Robert was to obtain a convertible term life insurance policy in the amount of Three Hundred Seventy Thousand Dollars ($370,000.00) upon his life for the benefit of the testamentary trust.

The preliminary objections to the trust accounting dated March 22, 2016, state three (3) objections: (1)failure to act in accordance with EPTL § 11–1.7(a)(1) ; (2) failure to act in accordance with EPTL § 11–2.3 ; and, (3) failure to earn income.

On a motion for summary judgment, the test to be applied is whether triable issues of fact exist or whether on the proof submitted judgment can be granted to a party as a matter of law (see Andre v. Pomeroy, 35 N.Y.2d 361 [1974] ). The movant or movants must set forth a prima facie showing of entitlement to judgment as matter of law, tendering sufficient evidence to demonstrate the absence of any material issue of fact (see Alvarez v. Prospect Hospital, 68 N.Y.2d 320 [1986] ). Once the movant or movants set forth a prima facie case, the burden of going forward shifts to the opponents of the motion to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact (see Zuckerman v. City of New York, 49 N.Y.2d 557 [1980] ).

In the interest of judicial economy, both motions will be simultaneously addressed, focusing solely on the preliminary objections to the trust accounting.

EPTL § 11–1.7(a)(1) provides:

"(a) The attempted grant to an executor or testamentary trustee, or the successor of either, of any of the following enumerated powers or immunities is contrary to public policy:

(1) The exoneration of such fiduciary from liability for failure to exercise reasonable care, diligence and prudence."

Objectants allege that the December 7, 1992 Agreement, Article Fourth contained a "release" to the corporate trustee in connection with the substitution of assets within the testamentary trust. The objectants further argue that this attempt to release the corporate trustee should be found void as against public policy.

Article Fourth of the December 7, 1992 "Release and Substitution Agreement" states:

"The signators hereto, RELEASE AND DISCHARGE, the First National Bank of Rhinebeck in its capacity as Successor Trustee under the Last Will and Testament of Dorothy D. Wilkinson from all actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialities, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims, and demands whatsoever, in law, admiralty or equity, which may arise as a result of the substitution of property hereinabove set forth, and Edward Peter Nielsen III and Katharine M. Nielsen, herewith release Robert D. Wilkinson, Judith M. Wilkinson and the First National Bank of Rhinebeck in its capacity as Successor Trustee under the Last Will and Testament of Dorothy D. Wilkinson from all actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialities, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims, and demands whatsoever, in law, admiralty or equity, which may arise as a result of the substitution of property hereinabove set forth."

Article Second of the Agreement further provides that Robert D. Wilkinson was to solely bear the cost of maintaining the insurance policies for the benefit of the trust. Notwithstanding the foregoing, both insurance policies lapsed in December of 2004, as a result of Robert D. Wilkinson's failure to pay the policy premiums. Objectants maintain that the trustee could have sought reinstatement of the policy within five (5) years of the date of lapse, yet, failed to do so and never advised the objectants of the lapse.

Because freedom of testation is such a strong public policy, a testator or settlor of a trust can create the standard by which his or her fiduciary is to be judged (Margaret Valentine Turano, Practice Commentaries, McKinney's Cons Laws of NY, Book 17B, EPTL § 11–1.7 ). However, the legislature, seeing the danger in giving unfettered freedom to testamentary trustees and executors, enacted EPTL § 11–1.7 to delineate fiduciaries' non-waivable duties (id. ). The testator may not exonerate the executor or testamentary trustee from liability for failure to exercise reasonable care, diligence and prudence (see EPTL § 11–1.7(a)(1) ; Matter of Will of Allister, 144 Misc.2d 994 [Sur Ct, Nassau County 1989] ).

The facts herein do not simply plug in a statutory formula; rather, they provoke a need for further discussion from this Court. Initially it is interesting to note that the Court and the parties are not focusing their attention on the wording of the testamentary trust, rather the focus of the discussion turns to the "Release and Substitution Agreement" made on December 7, 1992. This Agreement essentially changed the terms of the testamentary trust of Dorothy D. Wilkinson into a new trust agreement conceptually funded, at least in part, by the life insurance proceeds of Robert and Judith....