Smith's Will, In re
| Decision Date | 09 September 1974 |
| Citation | 79 Misc.2d 105,359 N.Y.S.2d 209 |
| Parties | In re WILL of Bernard H. SMITH, Deceased. In the Matter of the judicial settlement of the account of proceedings of Sybil Y. BARRINGER and Lloyd E. Smith as trustees, and Howard Smith as successor trustee, of the trust for Lilla J. Smith under Article Eighth of the will of Bernard H. Smith, Deceased. Surrogate's Court, Kings County |
| Court | New York Surrogate Court |
Fulton, Walter & Duncombe, New York City, for petitioner.
Edward B. Bermas, Brooklyn, guardian ad litem.
NATHAN R. SOBEL, Surrogate.
At issue in this proceeding is the right of the trustees of the estate of the donor of a power of appointment to commissions (SCPA 2308) for paying out the appointive property to trustees appointed under the will of the donee of such power.
Testator Bernard H. Smith died in 1952. His will admitted to probate in this Court created out of his residuary estate a marital deduction trust for his wife Lilla--one coupled with a general testamentary power of appointment. For later discussion, it is observed that under such a power Mrs. Smith could appoint to her estate or to her creditors or to creditors of her estate or to any other person she may wish (EPTL 10--3.2(b)). Under the express terms of the will she could also appoint outright or in further trust.
Mrs. Smith died on June 11, 1969, a resident of Connecticut. Her will has been admitted to probate in the Connecticut courts. By her will she expressly exercised her power of appointment. She first directed her Own trustees to pay out of the appointive property all estate taxes on both the appointive property and her own estate assets. She then directed her Own trustees to divide the remaining principal of the appointive property into four shares, each such share to be held in further trust for her four grandchildren with remainder over to her great grandchildren. There are ten such great grandchildren remaindermen represented in this proceeding by a guardian ad litem. Mrs. Smith appointed as her own trustees the same persons who were already acting as trustees under Mr. Smith's will.
For later discussion it is also mentioned that the trustees under Mrs. Smith's will originally obtained letters of trusteeship on each of the four trusts from the Connecticut court. Advised by their attorneys that Mrs. Smith's will did not 'merge' or 'blend' the appointive property with her own estate, her trustees applied for and were issued letters out of this Court. As noted, both sets of trustees are the same persons. As trustees appointed in 1952 under Mr. Smith's will they were required to account in this Court. In such account, they were required to turn over the principal of the widow's trust to themselves as trustees appointed in 1971 to administer in this Court, not the Connecticut court, the four grandchildren's trusts.
The donor's 1952 trustees have accounted in this Court to themselves as the donee's 1972 trustees. They have obeyed the directions of the donee Mrs. Smith by paying the estate taxes out of the appointive property and have transferred the remainder to themselves as 1972 trustees for the purpose of setting up under the jurisdiction of this Court the four grandchildren trusts.
The guardian ad litem has raised objections to the account in one respect--the request of the 1952 trustees to be allowed commissions under SCPA 2308 () for 'paying out' the principal of the widow's trust to themselves as the 1972 trustees under her will. The guardian ad litem in his memorandum of law relies on the doctrine of 'relation back' as applicable to further trusts created by the donee of a power of appointment.
Professor Glasser in his Commentary to EPTL 10--3.1 (McKinney's Supp. pp. 111--113) discusses adequately the doctrine of 'relation back' and the applicable decisions. As he notes the doctrine has spawned a variety of problems in areas other than commissions.
In the simplest of terms the doctrine is one of 'agency'. The theory is that a donor of the power appoints the donee as his agent to 'fill in' the provisions of his will, albeit long after his own death. When the donee appoints the appointive property in further trust, under the 'relation back' doctrine the donor's trust and the donee's trust are deemed a single continuing trust to be administered in the donor's estate (not the donee's) and all this though the income beneficiaries and the remainderman are different persons.
Certainly no one questions the utility of powers of appointment as a tool of pre and post-mortem planning. But the corollary doctrine of 'relation back' can often lead to incongruous and even absurd results. It has long been criticized. (Chanler v. Kelsey, 205 U.S. 466, 474, 27 S.Ct. 550, 51 L.Ed. 882 (1907); Matter of Dows, 167 N.Y. 227, 231, 60 N.E. 439, 440 (1901); Simes 'Devolution of Title to Appointed Property', 22 Ill.L.Rev. 480, 518 (1928).)
The 'relation back' theory that the appointive property passes to the appointees from the donor of the power rather than from the donee, has a modicum of reality only insofar as a 'special' power (EPTL 10--3.2(c)) is concerned. It is then the donor who designates 'within such limits as he may prescribe' the appointees of his property. Particularly when the special power is non-exclusive (EPTL 10--3.2(e)) the donee may be said to act as agent for the donor.
However when the power is a general power, the 'relation back' doctrine is unsound. The owner of a general power possesses the equivalence of ownership. He can appoint to his estate his creditors or anyone else he may wish. He may appoint outright or in further trust. As a practical matter when a donee exercises a general power he is not acting as an agent of the donor; in truth and in fact the appointive property passes to the appointee from the donee and not from the donor of the power.
This distinction between the exercise by the donee of a general rather than a special power has long been recognized (Restatement Property, Chapter 25, p. 1812; 45A N.Y.Jur. 'Powers--Doctrine of Relation Back', § 62). It was expressed by Judge Fuld in his dissent in Matter of Bauer, 14 N.Y.2d 272, 278, 251 N.Y.S.2d 23, 27, 200 N.E.2d 207, 211--
The distinction between a general and a special power is also expressed in the statutes. The rights of creditors of the donee are made to turn on whether the power is 'special' (EPTL 10--7.1) or 'general' (EPTL 10--7.2; 10--7.1): so too the computation of the permissible period of the rule against perpetuities. (See EPTL 10--8.1 and Professor Glasser's Commentary (McKinney's Supp. pp. 140--141).)
As discussed, under the 'relation back' doctrine the trusts created by the donee are required to be administered in the donor's estate. As the cases establish it is not unusual to have the donee's own assets administered in the courts of one state and the primary trust administered in the courts of another. However, corollary to the 'relation back' doctrine are the doctrines of 'merger' and 'blending.' Here too the distinction between a general and special power exists. The donee of a general power may 'merge' the assets of the primary trust into his own estate by appointing to his executor. Or he may 'blend' such assets into his residuary disposition and therein appoint the combined assets outright or in further trust. Except in the rare circumstance that the donor's will so permits, the donee of a special power has no authority to 'merge' or 'blend' the appointive property with his own and so avoid administration in separate courts or different states. (Matter of Walbridge, 178 Misc. 32, 33 N.Y.S.2d 47.)
The complexities resulting from administration of the appointive property in one court and the donee's own property in another court are illustrated by a long series of cases. (See e.g. Matter of Simon, 75 Misc.2d 361, 348 N.Y.S.2d 462; Matter of Walbridge, 178 Misc. 32, 33 N.Y.S.2d 47 Supra; Matter of Rothfeld, Sup., 120 N.Y.S.2d 654; Matter of Camp, Sup., 64 N.Y.S.2d 755; also generally Matter of King, 22 N.Y.2d 456, 293 N.Y.S.2d 273, 239 N.E.2d 875; Matter of Burchell (Gardner), 278 App.Div. 450, 105 N.Y.S.2d 431; Matter of Wainwright, 248 App.Div. 336, 289 N.Y.S. 510.)
Our esteemed colleague Surrogate Jaeger in Matter of Shelham, 69 Misc.2d 860, 330 N.Y.S.2d 903 (1972) observing that the doctrine of 'relations back' had been eroding in the 'merger' area (as well as in the commission area Infra) ordered the transfer of the appointive property to the trustees appointed in the donee's estate without requiring them to qualify in the donor's estate although it was conceded that the donee's will had not effected a 'merger' with the donee's general estate. This is a practice which might very well be followed particularly where the estates are administered in different counties or different states and there is consent by the parties. Such a request would have been granted here on payment of the New York estate taxes.
As Surrogate Jaeger noted in Snelham, Supra, the doctrine of 'relation back' has been eroding in the commission area as well as...
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