Matter of Egerer
Annotate this CaseDecided on February 2, 2006
Sur Ct, Suffolk County
In the Matter of Claudia Egerer for a Determination of the Invalidity of the In Terrorem Clause in the Will and Codicil of Karl A. Egerer, Deceased.
1281 P 2002
Pell & LeViness, P.C.
Attorneys for Petitioner
260 Madison Avenue, 18th Floor
New York, New York 10016
Cullen And Dykman, LLP
Attorneys for Fiduciaries
177 Montague Street
Brooklyn, New York 11201
John M. Czygier Jr., J.
Before the Court is a petition seeking a determination with respect to the validity of the in terrorem clause utilized by decedent's testamentary instruments. A "cross-petition," treated by the Court as objections has been presented by the co-executors of decedent's estate. The parties also seek additional relief concerning decedent's real property in Lloyd Harbor. On the original return date of these applications, counsel for the parties agreed to have the Court make a determination on the papers submitted, allowing for additional time to provide the Court with a memorandum of law. All papers have now been submitted and the matter is ready for a determination.
Jurisdiction has been obtained over those shown as necessary parties to these proceedings.
[*2]Background
Decedent's will and codicil dated July 14, 1998 and September 7, 2001, respectively, were admitted to probate on September 26, 2002 without contest. Decedent was predeceased by his spouse, Gabriele, and survived by three (3) children, Claudia, Petra and Carla. Effectively, the estate residue is distributable to Claudia (40%), Petra (50%) and granddaughter Christina (10%). There is a $100,000.00 bequest to Carla.
A compulsory accounting proceeding brought by this petitioner against the estate fiduciaries resulted in an order, dated December 5, 2005, directing said fiduciaries to account within thirty (30) days. A compulsory accounting proceeding brought by this petitioner against the trustee of a certain inter vivos trust established by Karl and Gabriele Egerer resulted in an order, dated January 23, 2006, directing the trustee to account within thirty (30) days.
The instant proceeding was filed, according to petitioner, as a result of her fear that the subject in terrorem clause would be used against her, if she asserted her rights in the context of an accounting proceeding concerning decedent's estate.
The relevant clause in the subject documents states as follows:
TWENTY-SECOND: To any devisee, legatee or other beneficiary, either direct or contingent, under this Will, who in any manner, directly or indirectly contests the probate or the execution of any of the provisions of this Will or who objects to any of its provisions or attempts in any manner, directly or indirectly, to thwart my intentions as this will set out, I give and bequeath the sum of one ($1) dollar and no more; and I hereby direct that, save and except the sum of one ($1) dollar, such devisee, legatee or beneficiary shall forfeit his or her interest under this Will and distribution of my estate will be made as though such person had predeceased me. It is expressly understood that any attempt by any beneficiary under this, my Last Will and Testament, to hinder or delay, either directly or indirectly, whether for probable cause or not, the probate or administration of my Estate, or who precipitates directly or indirectly any legal proceeding of any nature in any Court of competent jurisdiction by utilizing any pre-trial proceedings as defined under New York State Surrogate's Court Procedure Act or the Estates Powers and Trust Laws of New York State including, but not limited to, document production, objections to fiduciaries' conduct, bad faith or for any other basis whatsoever, I give, devise and bequeath the sum of one ($1) dollar as herein prescribed under this paragraph of this, my Last Will and Testament.
Arguments
Based upon certain representations made during conferences attendant to these matters, petitioner contends that the co-executors of decedent's estate intend to use this clause to argue that petitioner and her sister (Petra F. Egerer) forfeit their rights under the will if they object to, or otherwise question, the accounting(s) to be filed, pursuant to the compulsory accounting [*3]proceedings brought herein. Petitioner argues that the above-quoted language violates public policy and that it is void pursuant to EPTL 11-1.7. She also asks the Court to address whether title to decedent's residence in Lloyd Harbor vested in the names of Claudia Egerer, Petra F. Egerer and Christina Egerer Konigseder on decedent's death, thus preventing the fiduciaries from selling said property without their consent.
The fiduciaries argue that petitioner's conduct may have already deprived her of standing to obstruct the sale of the Lloyd Harbor property, which they maintain is a financial drain on the estate, that petitioner has interfered with the estate tax audit to its detriment, that she has interfered with their efforts to ascertain decedent's European property, and that petitioner herself had previously urged the invocation of the in terrorem clause against another estate beneficiary. Finally, the fiduciaries argue that they never asserted that the subject clause would prevent petitioner from objecting to their accounting. In fact, the memorandum of law submitted on their behalf admits that it does not.
Discussion - In Terrorem Clause
In terrorem clauses are enforceable in New York under EPTL 3-3.5. In fact, certain permissible actions are included within the statute itself which may be pursued without incurring forfeit. They are, however, viewed with disfavor by the courts and are strictly construed (Matter of Robbins, 144 Misc 2d 510). On the other hand, any attempt by a testator to preclude a beneficiary from questioning the conduct of the fiduciaries, from demanding an accounting from said fiduciaries or from filing objections thereto will result in a finding that the pertinent language is void as contrary to public policy and the applicable statutes of the State of New York (Matter of Lang, 60 Misc 2d 232, 235).
To the extent that such "no contest" language in a will can be interpreted so as to exonerate fiduciaries from their duties of reasonable care, they have been deemed to violate public policy (See, EPTL 11-1.7; Matter of Stralem, 181 Misc 2d 715, 720, citing, Matter of Allister, 144 Misc 2d 510; Matter of Robbins, supra; Matter of Lang, supra; Matter of Lubin, 143 Misc 2d 121).
Accordingly, the Court construes that portion of Article Twenty-Second of decedent's will and codicil, to the extent it could be interpreted as preventing the estate beneficiaries from objecting to the fiduciaries' conduct, bad faith or the like, or prevent them from participating in pre-trial discovery attendant to such proceedings, to be void as against public policy. [*4]
Whether petitioner has already acted in such a manner so as to invoke the forfeiture provisions of the effective portions of the aforementioned in terrorem clause is a determination which cannot be made on the papers presented, but may be made in the context of the accounting(s) the fiduciaries are expected to file for judicial settlement, as previously ordered by this Court.
Discussion - Lloyd Harbor Realty
The other language with which the parties take issue is contained in Article Eighth(G), which states, in part, as follows:
Upon the death of my spouse...or upon my death if she predeceases me, my residuary estate shall be divided and distributed as follows: (i) Forty (40%) percent... to my daughter, CLAUDIA D. EGERER, absolutely and free of all trust, on a per stirpes basis. (ii) Fifty (50%) percent...to my daughter, PETRA F. EGERER, absolutely and free of all trust, on a per stirpes basis. (iii) Ten (10%) percent...to my granddaughter, CHRISTINA DONATA EGERER KOENIGSEDER, absolutely and free of all trust, on a per stirpes basis.
Under EPTL 11.1-1(b)(5)(B), every fiduciary has the power to sell decedent's real property "...on such terms as in the opinion of the fiduciary will be most advantageous to those interested therein," unless the property is specifically devised. In that case, application could be made to the Court for leave to do so. Distribution of the premises through the residuary, as here, is not a specific disposition (Matter of Borrometi, 238 AD2d 416, citations omitted). Therefore, the fiduciaries are empowered to dispose of what they consider to be a "wasting" asset, which they claim constitutes a drain on the estate. Given the allegations herein, and the fiduciaries' expressed willingness to do so, the proceeds of such sale shall not be encumbered, transferred, or otherwise disposed of for any reason without further order of this Court.
Accordingly, for the reasons stated herein, it is
ORDERED THAT petitioner's application is granted solely to the extent of finding that the portion of Article Twenty-Second of decedent's will and codicil, which may be interpreted as preventing the estate beneficiaries from objecting to the fiduciaries' conduct, bad faith or the like, or as preventing them from participating in pre-trial discovery attendant to such proceedings, is void as against public policy; and it is further
ORDERED THAT objectants' request for relief is granted solely to the extent of finding that the fiduciaries are empowered to sell the premises referenced in the pleadings which are located in Lloyd Harbor, New York, provided that the net proceeds of such sale shall not be distributed, encumbered, or otherwise disposed of for any reason without further order of this Court; and it is further
ORDERED THAT the foregoing is without prejudice to the parties filing the appropriate claims with respect to all other issues [*5]raised herein in the context of the accounting(s) to be submitted for judicial settlement, as previously ordered by this Court.
___________________________/S/
JOHN M. CZYGIER, JR., Surrogate
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