Newlin, Application of

• Decision Date: 10 September 1980
• Citation: 119 Misc.2d 815,465 N.Y.S.2d 102
• Parties: In the Matter of the Application of James D. Dana, as Co-Conservator of the Property of A. Chauncey NEWLIN for Instructions with respect to a purported Agreement dated
• Court: New York Supreme Court

Page 102

465 N.Y.S.2d 102

119 Misc.2d 815

In the Matter of the Application of James D. Dana, as Co-Conservator of the Property of A. Chauncey NEWLIN for Instructions with respect to a purported Agreement dated September 10, 1980 made by A. Chauncey Newlin and Marcy C. Newlin.

Supreme Court, Special Term New York County, Part I.

Dec. 17, 1982.

Simpson, Thacher & Bartlett by Judson W. Pearl and Suzanne B. Schmitt, New York City, for petitioner James D. Dana.

Burns, Kennedy, Schilling & O'Shea by Edmund J. Burns and William A. Cahill, Jr., New York City, for respondent the Trustees of Columbia University in the City of New York.

Robert Abrams, Atty. Gen. of City of New York by John L. Moncrief, Jr., Asst. Atty. Gen., New York City, for Ultimate Charitable Beneficiaries.

Milbank, Tweed, Hadley & McCloy, New York City, for respondent Lincoln Center for the Performing Arts, Inc. EDWARD J. GREENFIELD, Justice:

Petitioner, co-conservator of the property of conservatee A. Chauncey Newlin ("ACN"), moves to invalidate a trust created by ACN and his wife.

On September 10, 1980, ACN, a former Senior partner and tax counsel at a major New York City lawfirm, and his wife, executed an agreement for the purpose of establishing a trust as defined in the Internal Revenue Code (I.R.C. § 664[d] ). ACN and his wife, as grantors appointed themselves as trustees. ACN and his wife, by instrument in letter form, formally "transferred" to themselves as trustees, certain enumerated and described assets including a town house in New York, New York, shares in a cooperative corporation and a proprietary lease for a designated apartment, shares of publicly owned corporations, art objects at specified locations, tangible personal property at the cooperative apartment and office equipment and furnishings at the respective offices of ACN and his wife. On November 21, 1981, the co-trustees sold the various assets of the trust listed in the September 10, 1980 Trust indenture to themselves for $2,000,000. Payment was made by a demand promissory note with interest at ten (10) percent per annum.

Prior to the sale of the trust assets, but subsequent to the creation of the trust, the sons of ACN petitioned to have a conservator appointed for him (Mental Hygiene Law § 77.07). The case was a hotly contested one in which ACN and his wife were each represented by counsel. The matter came on for hearing before this court on June 20, 1981 and after hearing the evidence, the court indicated that the petitioners had proved by clear and convincing evidence that ACN has " * * * suffered a substantial impairment and is unable to care for his property and that there is a need for the appointment of a conservator of the property of * * * " ACN. Thereafter, by order dated August 5, 1981, the court appointed petitioner, James Dana, and ACN's wife as co-conservators and further directed that Mr. Dana obtain a judicial determination as to the validity of the Charitable Remainder Uni-trust. Mr. Dana by moving to vacate the trust has thus complied with this court's direction.

Charitable trusts are governed by strict statutory rules set forth in the Internal Revenue Code and the regulations of the Commissioner of Internal Revenue. The rules must be observed if the individual who creates the trust hopes to gain all the possible deductions or other tax benefits which may be available. Among the permissible choices is the charitable remainder unitrust. Internal Revenue Code § 664(c) provides that:

"... a charitable remainder unitrust shall, for any taxable year, not be subject to any tax imposed by this subtitle, unless such trust, for such year, has unrelated business taxable income * * *."

§ 664(d)(2) of the Code defines a charitable remainder unitrust as a trust:

"(A) from which a fixed percentage (which is not less than 5 percent) of the net fair market value of its assets, valued annually, is to be paid, not less often than annually, to one or more persons * * * for the * * * lives of such * * * individuals,

(B) from which no amount other than the payments described in subparagraph (A) may be paid to or for the use of any person other than * * * [a charitable] organization * * * ;

(C) following the termination of the payments described in subparagraph (A), the remainder interest in the trust is to be transferred to, or for the use of" * * * [a charitable institution].

The charitable remainder unitrust created by ACN and his wife on September 10, 1980, in form contains nothing that offends the law. The charitable institutions which are to equally share in the remainder of the trust following the death of the survivor of ACN and his wife are 16 educational, religious and eleemosynary institutions. The Trustees of Columbia University and Lincoln Center for the Performing Arts, Inc. two of the charitable remainders have appeared in opposition to the petition. The State Attorney General, notified of the pendency of this proceeding in accordance with EPTL § 8-1.4(e)(1) has appeared in opposition for the remaining 14 institutions.

The petition seeks to invalidate the declaration of trust described in the September 10, 1980 agreement and letter upon the ground that there was no delivery of the property from ACN and his wife as grantors to ACN and his wife as trustees.

Under the circumstances here presented, actual delivery of such property is inappropriate and unnecessary and a valid trust of such property for the benefit of the charitable cestuis must be deemed to have been created (see, Scott on Trusts, §§ 31.1, at p. 259, sub par. (4); 24.2, at p. 201; 32.2 at pp. 267-268, and 32.5; Matter of Brown, 252 N.Y. 366, 169 N.E. 612; Matter of Sweeney, 155 Misc. 461, 279 N.Y.S. 927; Matter of Brunswick, 154 Misc. 573, 256 N.Y.S. 879; Matter of Liebowitz, 144 Misc. 611, 258 N.Y.S. 832; Matter of Naylor, 195 Misc. 775, 88 N.Y.S.2d 336; Matter of Smith, 144 Pa. 428, 22 A. 916). Where a chattel does not admit of physical delivery, a symbolic delivery is sufficient (Scott on Trusts § 31 at p. 245; Matter of Kelsey, 26 N.Y.2d 792, 309 N.Y.S.2d 219, 257 N.E.2d 663; EPTL § 13-2.1). Moreover, even where the trust property consists of registered bonds or stock certificates which, by their terms, are transferable only on the books of the corporation, such a transfer is not essential to the completion of the gift in trust (see, Fehder v. Furman, 54 N.Y.S.2d 820; Matter of Kelsey, 26 N.Y.2d 792, 309 N.Y.S.2d 219, 257 N.E.2d 663; Matter of Nabif, 69 A.D.2d 905, 415 N.Y.S.2d 901; Scott on Trusts, § 31, at pp. 246-248).

The cases of Brown v. Spohr, 180 N.Y. 201, 73 N.E. 14; Matter of Fontanella, 33 A.D.2d 29, 304 N.Y.S.2d 829 and Sussman v. Sussman, 61 A.D.2d 838, 402 N.Y.S.2d 421, aff'd. 47 N.Y.2d 849, 418 N.Y.S.2d 768, 392 N.E.2d 881 cited by the petitioner-conservator are all clearly distinguishable from the facts here. Brown v. Spohr, supra, involved a transfer to third persons as trustees. Matter of Fontanella, supra, also involved a transfer to a third person but there the evidence indicated that the transferor did not intend such third person to be a trustee, but merely an agent, so that, in effect, there was no intention to make a transfer in trust at all. Here the instrument clearly indicates an intention to create a trust.

Sussman v. Sussman, supra, also involved a transfer to a third person, but the tax free bonds there involved were clearly never transferred to the third person, so it was held that since there was no effective transfer of such bonds to the third person, no valid trust with respect to them was ever created. Although the plaintiffs (the beneficiaries of the alleged trust) in Sussman attempted to claim that a letter of the alleged settlor was a declaration by him that he was holding such bonds himself as trustee for them, the opinion of the Court of Appeals, citing Farmers' Loan & Trust Co. v. Winthrop, 238 N.Y. 477, 487, 144 N.E. 686, clearly indicates that such letter failed to indicate an intention on the part of the author to become a trustee himself. It was further noted by the Court of Appeals that the alleged trust corpus was not adequately designated or...