Sernau's Estate, In re

• Decision Date: 27 July 1962
• Citation: 36 Misc.2d 348,233 N.Y.S.2d 191
• Parties: In re SERNAU'S ESTATE. Surrogate's Court, New York County
• Court: New York Surrogate Court

Page 191

233 N.Y.S.2d 191

36 Misc.2d 348

In re SERNAU'S ESTATE.

Surrogate's Court, New York County.

July 27, 1962.

Jerome Teich, New York City, for Lotte G. Sernau, petitioner.

Milton Gelman, New York City, for Harris Cohen, respondent.

Aaron J. Funk, New York City, for Gerald E. Sernau, executor, Howard A. Lederer and Robert W. Sernau, respondents.

JOSEPH A. COX, Surrogate.

This is a construction proceeding to determine whether or not testator's widow may elect to take against the will because of its failure to comply with the provisions of the Decedent Estate Law, § 18. She asserts such right by reason of paragraph First of the will read in conjunction with paragraph Fourth (c). They provide as follows:

'FIRST

'If my wife, LOTTE G. SERNAU, survives me, then I give to my Trustee as much of my net estate as she would have the right to elect to take by virtue of the laws of the State of New York, or any other State in which I may die domiciled, TO HOLD IN TRUST and pay the income therefrom annually or oftener to her during her lifetime, and upon her death to pay the principal and any undistributed income into my residuary estate and to be disposed of as provided in paragraph THIRD hereof. * * *

'FOURTH

'I give and grant unto my Executor and Trustee, or substitute, the powers, authority and discretion, to: * * *

'c. Transfer to any beneficiary absolutely the whole or any part of the corpus of any trust fund as he, in his uncontrolled discretion, shall deem wise and proper, without being accountable to any Court or to any person for the exercise or non-exercise of these completely discretionary powers. * * *' It must be recognized that, if the widow does not have an absolute right of election, she at least has a limited election to demand the sum of $2,500 pursuant to subdivision 1(b) of section 18. However, she asserts the right of full election and contends (1) that the words 'any undistributed income' in paragraph First might permit the trustee to distribute less than the entire net income to her, (2) that the trustee may in his discretion, under paragraph Fourth, invade the corpus of her trust for other beneficiaries, and (3) that the nature of the main asset, stock in a closely held corporation, may permit manipulation of the corporate holdings in such a manner as to deprive her of her rightful intestate share.

An answer has been interposed by the executor and the residuary legatees, consisting of a general denial and an assertion that the provisions of paragraph Fourth do not permit an invasion of the corpus of the trust under paragraph First for the benefit of the beneficiary of the residuary trust under paragraph Third of the will .

With regard to the widow's contention that the will authorizes diminution of her trust for the benefit of other persons, it is clear to the court that the provisions of paragraph Fourth do not permit an invasion of the widow's trust for the benefit of any person other than the widow (Matter of Liberman, 6 Misc.2d 396, 162 N.Y.S.2d 62, rev'd 4 A.D.2d 512, 167 N.Y.S.2d 158, aff'd without opinion 5 N.Y.2d 719, 177 N.Y.S.2d 707, 152 N.E.2d 665). In the cited case the court distinguished Matter of Wittner, 301 N.Y. 461, 95 N.E.2d 798, where it was held that the unambiguous language of the will indicated testatrix' intention to permit invasion of the husband's trust for the benefit of his children. The court in Matter of Liberman held that in the will before it, similar to ours, no such intention was shown, and that the will properly construed did not authorize such an invasion. The court holds that a proper construction of the will in this respect is that testator intended to give his wife a trust of her intestate share without permitting invasion of the corpus for any other beneficiary.

With respect to the petitioner's reference to the peculiar nature of the assets and her fear that the fiduciary's action in regard thereto might redound to her detriment, the widow admits that testator left little personal property and that the corporate holding constitutes the main asset of the estate. As pointed out in Matter of Shupack, 1 N.Y.2d 482, at pages 488, 489, 154 N.Y.S.2d 441, at pages 445-446, 136 N.E.2d 513, at page 516:

'* * * Nor does our decision mean, or even remotely suggest, that the widow would lack a remedy if the designated trustee were to prove faithless to the trust or were so to conduct and manage its affairs as to prejudice or discriminate against her interests. See, e. g., Matter of Hubbell's Will, 302 N.Y 246, 97 N.E.2d 888, 47 A.L.R.2d 176. All we are now holding is that, where a testator has left to his spouse one third of all of his property, fairly and equitably divided, either outright or in trust in accordance with the provisions of the Decedent Estate Law, the fear or possibility of misconduct on the part of the trustee or of the corporate directors, managing the property, does not give rise to a right of election under section 18.'

The first point raised by petitioner, however, presents a more serious problem. The direction of the testator that upon his widow's death the trustee pay the principal 'and any undistributed income' into the residuary estate has been held to be a stipulation against apportionment of income pursuant to Surrogate's Court Act, § 204 (Matter of Gans, 7 Misc.2d 345, 160 N.Y.S.2d 121, 122 and cases cited).

In Matter of Gans, supra, the court stated at page 346, 160 N.Y.S .2d at page 122:

'* * * The will provision that upon the widow's death the trustee distribute the trust principal 'and any undistributed income' to remaindermen is an express stipulation against apportionment of all income in conformity with Surrogate's Court Act, § 204. Income actually received by the trustee during the trust period will not be payable to the remaindermen. Matter of Watson's Will, 262 N.Y. 284, 186 N.E. 787 but income accruing during the widow's lifetime and payable after her death will be distributable to the remaindermen by reason of the directions in the will. Matter of McManus' Will, 282 N.Y. 420, 26 N.E.2d 960; Matter of Krauthoff's Will, 265 N.Y. 477, 193 N.E. 278; Matter of Culver's Estate, Sur., 57 N.Y.S.2d 598, affirmed 268 App.Div. 972, 52 N.Y.S.2d 577, reversed on other grounds 294 N.Y. 321, 62 N.E.2d 213; Matter of Walbridge's Estate, 192 Misc. 746, 80 N.Y.S.2d 676; Matter of Lanier's Estate, 195 Misc. 457, 90 N.Y.S.2d 577; Matter of Cramer's Estate, N.Y.L.J. May 28, 1951, [p. 1971, col. 3].'

In Matter of McManus the expression was 'accrued income', in Matter of Krauthoff 'income not paid over', in Matter of Walbridge 'any undistributed income'. In Matter of Lanier where the phrase 'and any unexpended income thereof' was held to be a stipulation against apportionment, the surrogate, commenting on the cases, stated at 195 Misc. page 458, 90 N.Y.S.2d at page 578:

'* * * In Matter of Krauthoff's Will, 265 N.Y. 477, 193 N.E. 278, 279, a testamentary provision that the remaindermen be paid the trust estate 'including income therefrom not paid over to my said wife (the life tenant)' was held to constitute an express stipulation against apportionment of accrued income. In Matter of Walbridge's Will, 192 Misc. 746, 80 N.Y.S .2d 676, 678 a like determination was made in construing a direction that the remaindermen be paid the principal of the trust fund and 'any undistributed income.' The text in the will of decedent is but a paraphrase of the locutions employed in the wills under consideration in the cited cases.'

In Matter of Dreicer, 155 Misc. 817, 280 N.Y.S. 535, the testator created a trust for the life benefit of his mother, directing the trustees upon her death 'to hold and dispose of said fund, and any accrued income thereon, as part of my residuary estate.' On her death it was contended that income earned to that date but not then due and collectible should be paid to her estate. The court stated at pages 818, 819, 280 N.Y.S. at page 536:

'I hold that the direction to dispose of the fund 'and any accrued income thereon' as part of the residuary estate is a lawful stipulation against apportionment within the purview of section 204, Surrogate's Court Act. In re Juilliard's Will, 238 N.Y. 499, 144 N.E. 772; Matter of Dexter's Estate, 134 Misc. 195, 235 N.Y.S. 763. Practically identical language was similarly construed by me in Matter of Dexter's Estate, supra. In Matter of Watson's Estate, 144 Misc. 213, at p. 232, 258 N.Y.S. 755, Surrogate Slater pointed out the distinction between the phrases 'accrued income' and 'accumulated...