Matter of Dauman
Annotate this CaseDecided on June 26, 2006
Sur Ct, Nassau County
In the Matter of the Estate of Arthur H. Dauman, Deceased.
223747
L'Abbate, Balkan, Colavita & Contini, LLP
1050 Franklin Avenue
Garden City, NY 11530
(Attorney for Petitioners)
John B. Riordan, J.
This is a miscellaneous proceeding for authorization to terminate a trust. For the reasons that follow, the application is denied.
The decedent's Will was admitted to probate by decree dated March 3, 1983. Pursuant to Article FOURTH of the Will, the decedent created a trust for the benefit of his wife, Elaine B. Dauman. Letters of trusteeship issued to the decedent's wife and to his attorney, the petitioners herein.
Pursuant to the terms of the Will, the decedent directed that his residuary estate be held in trust, with all of the net income to be paid to the decedent's wife in annual or more frequent installments during her lifetime. The trust also provides as follows:
"In the sole discretion of my Trustee, other than my wife, if the income of the trust shall not be sufficient to enable my said wife to maintain substantially the same standard of living to which she was accustomed at the time of my death or if my said wife should require additional funds for her reasonable support or comfort, I authorize my Trustee, other than my wife, to pay or apply for the use and benefit of my said wife so much of the principal of the trust as my Trustee shall from time to time deem requisite or desirable for any of the said purposes, even to the full extent of the entire principal of this Trust. It shall be unnecessary for my said Trustee to inquire as to any other income or property of my said wife. Any decision of my Trustee with respect to the exercise of the discretionary powers herein contained, made in good faith, shall fully protect my Trustee and shall be binding and conclusive upon all persons interested in my estate."
Upon the death of the decedent's wife, the remaining principal is to be distributed to the decedent's issue per stirpes. The presumptive remaindermen of the trust are the decedent's three adult children, Scott M. Dauman, Meredith Dauman Nuccio and Patricia E. Dauman.
Additionally, paragraph O of Article TWELFTH of the Will provides as follows: "O. Anything in of [sic] this Will to the contrary notwithstanding, my Trustee may at any time terminate any trust hereunder and transfer, pay over and deliver all of the then remaining principal and income thereof to the person or persons then entitled to the income from such trust, free of trust, if in his judgment the principal thereof is so small that it would be inadvisable to continue the trust."[*2]
The assets in the trust are approximately $300,000. Petitioners contend that given the size of the trust it would be in the best interest of the income beneficiary to terminate the trust and distribute outright to her the entire trust assets. The income beneficiary then intends to make gifts of the trust assets for purposes of Medicaid and elder law planning. The income beneficiary is currently 80 years old and suffers from emphysema, chronic obstructive pulmonary disorder and has only one functioning kidney. Additionally, independent trustee/petitioner has submitted an affidavit in which he avers that he was the attorney-draftsman of the decedent's Will and that the decedent's sole purpose in leaving his estate in trust for his wife as opposed to outright was to avoid estate taxes. Petitioners argue that, given the increase in the Federal estate tax exemption since the time of the decedent's death, the proposed termination would not defeat the estate tax benefits which the decedent sought to achieve. They also argue in support of their application that the independent trustee anticipates resigning in the near future and it would be difficult to find a successor given the size of the trust.
Two of the presumptive remaindermen, Patricia E. Dauman and Meredith Dauman Nuccio, have consented to the termination of the trust. Substituted service of the citation was made on Scott M. Dauman and he failed to appear on the return date.
EPTL 7-1.19, which became effective on August 10, 2004, provides the statutory authority for the early termination of a trust on the grounds of economic unfeasibility. EPTL 7-1.19 permits the trustee or beneficiary of a lifetime or testamentary trust (other than a wholly charitable trust) to petition the court for an early termination of the trust on the grounds that the continued administration of the trust is uneconomical. The court may grant the application if it finds that: (I) continuation of the trust is economically impracticable; (ii) early termination of the trust is not prohibited by the express terms of the trust; (iii) early termination would not defeat the specified purposes of the trust; and (iv) early termination would be in the best interests of the beneficiaries. Upon termination, the court will order distribution of the income and principal to the beneficiaries in the manner that will effectuate the testator's intent.
Even prior to the enactment of EPTL 7-1.19, the courts, under certain circumstances, would occasionally permit termination where the trust was so small as to be economically unsound to administer (Matter of Walter, NYLJ, Dec. 18, 2003, at 29, col. 6; Matter of Bethune, NYLJ, Sept. 13, 2002, at 20, col. 6; Matter of Nedlin, NYLJ, Jan. 21, 2000, at 28, col. 2; Matter of Linsky, NYLJ, Dec. 22, 1998, at 26, col. 4; Matter of Bartell, NYLJ, July 9, 1997, at 34, col. 6; Matter of Shipley, July 7, 1997, at 32, col. 2; Matter of Mehler, NYLJ, July 2, 1996, at 28, col. 4). In deciding whether to allow early termination, the courts took into consideration whether all of the interested parties had consented to the proposed early termination (Matter of Bethune, NYLJ, Sept. 13, 2002, at 20, col. 6; Matter of Shipley, NYLJ, July 7, 1997, at 32, col. 2) and whether the proposed termination would contravene the testator's intent (Matter of Nedlin, NYLJ, Jan. 21, 2000, at 28, col. 2).
Here, the petitioners have not sufficiently demonstrated that the continued expense of administering the trust would be uneconomical. Petitioners correctly assert that the costs of trustee commissions will be saved if the trust assets are distributed outright. The administration costs, however, are not so burdensome nor are the trust assets so minimal as to render the continuation of the trust economically impracticable. In those cases where early termination has been permitted, the size of the trust has been minimal. For example, in Matter of Walter, [*3](NYLJ, Dec. 18, 2003, at 29, col. 6), the trust fund in question was only $10,000. Similarly, in Matter of Mehler, (NYLJ, July 2, 1996, at 28, col. 4), the trust was valued at $26,000 and in Matter of Bartell, (NYLJ, July 9, 1997, at 34, col. 6), the trust was less than $46,000.
Moreover, although early termination of the trust is not expressly prohibited by the terms of the decedent's Will, it appears that the proposed early termination would defeat the trust purposes notwithstanding the attorney-draftsman's assertion that the testator's sole purpose in setting up the trust was to avoid estate taxes. Although saving estate taxes might have been the testator's primary purpose for establishing the trust, the language limiting the trustee's power to invade principal indicates that the testator was also concerned with having a fund available for his spouse during her lifetime. The testator limited the trustee's power to invade principal to a support and comfort standard rather than providing for unlimited discretion to invade principal. The spouse's expressed intention to use the trust funds to make gifts to other persons if early termination is allowed is contrary to such purposes. Moreover, petitioners have not shown any benefit which would inure to the remaindermen by early termination.
For all of the foregoing reasons, the application is denied.
This constitutes the decision and order of the court.
Dated: June 26, 2006JOHN B. RIORDAN
Judge of the Surrogate's Court
The appearance of counsel is as follows:
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