Seidman's Will, In re

• Decision Date: 01 November 1976
• Parties: In re WILL of Alvin SEIDMAN. Application of Rosalind SEIDMAN, for a determination as to the validity, construction and effect of the Last Will and Testament of Alvin Seidman, Deceased. Surrogate's Court, Kings County
• Court: New York Surrogate Court

Page 729

389 N.Y.S.2d 729

88 Misc.2d 462

In re WILL of Alvin SEIDMAN.

Application of Rosalind SEIDMAN, for a determination as to

the validity, construction and effect of the Last

Will and Testament of Alvin Seidman, Deceased.

Surrogate's Court, Kings County.

Nov. 1, 1976.

Irving L. Kalish and Robert L. Lewis, New York City, for executrix.

Irwin N. Wilpon, Brooklyn, guardian ad litem, for infant children.

NATHAN R. SOBEL, Surrogate.

This construction proceeding requires consideration of the doctrine of 'merger' in the law of trusts. The New York position, not held by a majority of the states, has been labelled backward and unsound by legal scholars (2 Scott on Trusts, (3d ed.) § 99.3).

Testator, Alvin Seidman, died October 22, 1975, leaving a wife, Rosalind, and four children, two of whom are infants. His will has been admitted to probate and letters testamentary issued to the widow. Although nominated also as trustee, the widow has not requested that letters of trusteeship issue.

As executrix, the widow petitions for construction contending that a residuary trust created by testator for her benefit, with remainder to his 'descendants,' is in law an outright disposition, since she is both sole income beneficiary and sole trustee. This contention rests on the frequently litigated doctrine of 'merger' of legal and beneficial interests in a trust.

Of course a true merger takes place when the entire interest (income and principal) becomes vested in a single beneficiary. (See e.g. Greene v. Greene, 125 N.Y. 506, 26 N.E. 739.) In that circumstance there can be no valid trust and the owner of the entire beneficial interest takes the principal outright free of trust. (2 Scott on Trusts (3rd ed.), § 99; 1 Restatement of Trusts 2d, §§ 5, 99). This is not the contention of this petitioner. Her contention rests on other grounds.

By virtue of EPTL 7--2.1, when an express trust is created in this State, it vests in the trustee (not the beneficiary) the entire Legal estate subject only to the execution of the trust. The income beneficiary takes solely an Equitable interest--the right to enforce the trust. However, when the same person holds both the legal estate and the equitable interest, there is said to be a 'merger' and no trust is created. There is ample authority that this consequence follows. (See Professor Paul J. Powers, Jr., 1973 Commentary to Book 58A McKinney's Cons.Laws, SCPA 1502 (1975--1976) Pocket Part at pp. 78--80.) But as discussed Infra this does not by any means result in the income beneficiary taking the principal outright and destroying as well the remainder interests of testator's 'descendants.'

As the Court understands the petitioner's contention, it rests not alone on the doctrine of 'merger' but also on the intention of this testator.

I

Mr. Seidman's will to assure the full marital deduction disposes of one-half of his substantial gross taxable estate outright to Mrs. Seidman.

It is contended by the petitioner, that with the primary motive and intention that the remaining half of his estate might escape taxation upon Mrs. Seidman's death, he created a trust for her benefit with a Nongeneral power of appointment, in the following relevant terms--

B1. My trustee shall pay the net income to my wife Rosalind Seidman, as long as she shall live . . . If while my wife is such beneficiary, my Trustee in her sole discretion shall deem the income insufficient to maintain and support my wife, my Trustee may devote to her relief such portion of the principal as she deems necessary and proper in the circumstances.

C. Upon my wife's death, there shall be distributed the remainder of my trust estate unto such of my descendants, in such manner and proportions, and upon such limitations and conditions as my wife shall appoint by her last will and testament.

The power of appointment given by testator to his wife Rosalind (par. C above) is indeed nongeneral and as such suffices to make the principal nontaxable in her estate. It is also observed, for later reference, that it is a 'special' power to appoint by will among testator's 'descendants.' The power is also 'imperative' since the word 'shall' is used but also because there is no alternative disposition should the donee, Mrs. Seidman, fail to exercise the power. Should a donee fail to exercise an 'imperative' power, the Court will do so. (EPTL 10--3.4; See Professor Glasser's Commentary to the cited section, Book 17B, McKinney's Cons.Laws, EPTL (1975--1976 Pocket Part, p. 132)). And, the power is as well 'exclusive' since the donee may select among the class of appointees ('descendants'). When a donee fails to exercise a power which is both 'imperative' and 'exclusive,' the Court will exercise such a power for the benefit of all appointees equally (EPTL 10--6.8). Therefore, nothing in the power of appointment created by Mr. Seidman can make the principal of Mrs. Seidman's trust potentially taxable in her estate.

The power to invade principal, in the trustee's Discretion, contained in quoted paragraph B above, does not on its face make the trust taxable since the power appears to be limited to 'an ascertainable standard relating to health, education, support and maintenance' (IRC, 1954, U.S.Code, tit. 26, § 2041(b)(1) (A)). Such a standard for invasion does not ordinarily convert a non-taxable special power into a taxable general power.

Thus, the future tax problem which Mrs. Seidman envisions is created by Article Seventh of Mr. Seidman's will which nominates her as the sole trustee of her own trust. Presumably, her attorneys have given consideration to the simple expedient of her renunciation of her trusteeship (SCPA 1504) for they have deliberately refrained from requesting such letters on her behalf. If the sole purpose of Mr. Seidman in creating the trust in issue was to avoid taxation of the fund in Mrs. Seidman's estate perhaps that purpose might be effectuated by her renunciation.

Instead, it is contended in the petition, that Mr. Seidman having failed in his primary purpose to create a generation-skipping trust for Mrs. Seidman, his next intention would have been to give her the principal of the trust outright in order that she might engage in her own estate planning. (In the above regard, it is observed that the provisions of the 1976 Tax Reform Act applicable to generation-skipping trusts made effective as of April 1, 1976 imposes rather strict limitations on such future transfers).

The two adult sons of the decedent who are potential appointees (remaindermen) of Mrs. Seidman's trust have been cited and have neither appeared or objected. The two infant members of that class are represented by a guardian ad litem who opposes the granting of the relief requested.

As heretofore discussed, Mrs. Seidman is a donee of a power which is 'imperative' (EPTL 10--3.4) and which mandates her exercise among testator's 'descendants'. The term 'descendants' encompasses more than one generation and therefore connotes futurity requiring the class of 'descendants' to be living at her death. (Matter of Bogart (this Court), 62 Misc.2d 114, 119--120, 308 N.Y.S.2d 594, 600--601). While this Court is not adverse to Mrs. Seidman engaging in her own estate planning with the principal of her trust, it must be done within the confines of Mr. Seidman's will. If this Court grants the petition and gives her the principal of the trust outright she may make an Inter vivos gift to 'descendants' now living who may not be living at the time of her death. Of greater concern, she may make Inter vivos or testamentary dispositions among persons not 'descendants' of the testator e.g. a 'new' family.

That the disposition in issue was motivated solely by tax considerations which did not eventuate, does not appear on the face of the will and moreover cannot be established by either extrinsic proof or Mr. Seidman's declarations or oral instructions to his draftsman. (Matter of Rosenwasser (this Court), N.Y.L.J. 12/12/74, p. 17, col. 2; Matter of Deane, 4 N.Y.2d 326, 175 N.Y.S.2d 21, 151 N.E.2d 184; Matter of Smith, 254 N.Y. 283, 172 N.E. 499; Matter of Debout, 35 A.D.2d 1067, 316 N.Y.S.2d 500; Matter of Frederick, 41 Misc.2d 759, 246 N.Y.S.2d 320, affd., 22 A.D.2d 760, 253 N.Y.S.2d 525).

The branch of the petition which requests construction that Mrs. Seidman is entitled to the principal of the trust outright is denied.

II

We discuss next the problem of 'merger' mentioned at the outset of this discussion.

What is the result when a testator creates a trust with income for life for A (wife) remainder to B (children) and appoints A, the sole income beneficiary, as the sole trustee? (That in lieu of specifying the remainder interest, testator gives to A a testamentary power of appointment, should not change the legal consequences).

The question is posed in its simplest form. It is observed also that A may become the sole income beneficiary or sole trustee by operation of law, viz. death or renunciation of other income beneficiaries or trustees. And of course A may be the sole trustee of a trust in which she shares income with others. (See discussion 2 Scott on Trusts (3d ed.) §§ 99 to 99.5).

The decisions are illuminating but these do not articulate the reasons for the results. It will be helpful to do so, but briefly.

For the most part, the decisions rest upon the provisions of EPTL 7--1.1 (When right to possession creates legal ownership) and EPTL 7--1.2 (Trustee of passive trust not to take). These statutes are derived respectively from Real Property Law §§ 92 and 93 which in their earlier versions were applicable solely to land (real property) titles and constituted New York's version of the Statute of Uses (27 Henry VIII, ch. 10). It is not possible to discuss briefly the Statute of Uses. It suffices to note however that feudal titles to land descended to heirs. Except in limited circumstances, such titles could not be transferred by deed or will outside the line...