Matter of Sofi

[*1] Matter of Sofi 2012 NY Slip Op 51458(U) Decided on August 3, 2012 Sur Ct, Bronx County Holzman, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on August 3, 2012
Sur Ct, Bronx County

In the Matter of the Intermediate Accounting of Vincent Charles Sofi and Lorraine Sofi Puca as Trustees of a Lifetime Trust Established by Edna Marie Sofi and Vincent Sofi, Deceased



2008-2740



Lloyd D. Feld, Esq., for Jennifer Giordano and Danielle Giordano, movants-granddaughters

Littman Krooks, LLP, (Elizabeth Valentin, Esq., of counsel) for Lorraine Sofi Puca and Vincent Charles Sofi, trustees

Lee L. Holzman, J.

In this intermediate trust accounting proceeding relating to lifetime trusts established by Vincent Sofi (Vincent) who died on June 19, 1992 and his wife, Edna Marie Sofi (Edna) who died on October 12, 2008, two granddaughters of the settlors move, pursuant to CPLR 3212, for summary judgment on their objections seeking to surcharge the accounting trustees (trustees) for payments to "unknown" payees, gifts of trust assets to the respondent trustees and their family members, and failure to account for proceeds of sales of certain trust properties. They also seek to void alleged wrongful transfers of trust properties from trusts in which they have a remainder interest to a trust in which they have no beneficial interest. The trusts at issue are: (1) "the Vincent Trust" established by Vincent on November 11, 1991 that was to convert to a Marital and "Bypass Trust" after Vincent's death; ( 2) "the Edna Trust," allegedly established by Edna at the same time as the Vincent Trust but remade and restated on June 29, 1999; and, (3) "the 2006 Trust," another trust established by Edna on October 31, 2006 into which certain assets originally in the Vincent and Edna trusts were ultimately transferred. The settlors had four children; namely, Vincent Charles Sofi (Vincent Charles), Lorraine Sofi Puca (Puca), Jane Stavola (Stavola), and Arlene Giordano (Giordano), the movants' mother, who died in 1996, after Vincent's death but before Edna died. Vincent Charles and Puca are the accounting trustees and the respondents on the instant motion.

The trustees filed their account only after compulsory accounting proceedings concluded with separate orders directing them to account for the trusts, followed by a decision and order holding the trustees in contempt but affording them the opportunity to purge themselves of contempt by accounting (see Matter of Sofi, NYLJ, Mar. 15, 2010, at 28, col 2). The account lumps all of the trusts together and, for no stated reason, covers the period from October 28, 1996 through September 25, 2009. The summary statement shows total charges of $726,496.10, which includes real property totaling $665,000 (a multifamily residence located in the Bronx [Blackrock]) valued at $400,000 and two New Hampshire properties with a total value of $265,000) and $61,496.10 in [*2]cash. No dates are given for the receipts of principal. Schedule B entitled "Distributions of Income/Realized Decreases" reflects a total of $292,903.03 in disbursements or distributions over the period from January 9, 1996 to the end of September 2008, close to the time of Edna's death, of which $170,000 is shown as paid to "unknown payees." In fact, the checking account showsonly unnamed payees for the period from January 16, 1996 until December of 1997. For the period from December 2, 1997 through October 24, 2008, in addition to many unknown payees, it appears from many of the payees listed that, during this period, the trust account was used, at least in part, to pay Edna's routine expenses such as utility bills, church contributions, doctor co-pays, AARP dues, and the like. All of the payments from the money market account in the name of the Edna Trust, covering the period from June 14, 1996 to October 5, 2005, are to "unknowns." The balance remaining on hand is shown as $665,534.11, of which only $534.11 is cash. Objections to the account were interposed by the movants herein and the settlors' daughter Stavola.

The movants seek summary judgment: (1) surcharging the trustees in the sum of $185,000 as Schedule B of the account reports payments to unknown parties totaling $170,000 and $15,000 in gifts to the trustees and members of their families; (2) surcharging the trustees in the sum of $177,905, the amount that the Vincent Trust purportedly received after Vincent's death from the sale of two parcels of real property located in New Hampshire, which sales are reflected in the 1997 and 1998 tax returns of the trust obtained by the movant during discovery, without reporting the proceeds therefrom in the account (the movants' claim is actually $41,905 less than they allege because the movants mistakenly use the appraised value of $147,905 as the sale price, instead of the actual sale price of $106,000 listed in the 1998 tax return, and accordingly, their claim for these two parcels is only $136,000); and, (3) setting aside deeds for Blackrock and other parcels of real property located in New Hampshire which, in 2007, were either first transferred from the Vincent Trust to Edna and on the very same day transferred by Edna to the 2006 Trust or transferred directly from the Edna Trust to the 2006 Trust. During the pendency of this proceeding Blackrock was sold and the net proceeds of $500,000 are presently deposited in an escrow account pending a determination of the objections with regard to the transactions involving this parcel of real property.

Stavola did not move for summary judgment but filed an affidavit supporting the instant motion. Although she claims that Edna was not competent when the transfers were made to and from her in 2007, the motion for summary judgment is not predicated upon lack of capacity, but on the lack of authority of the trustees of the Vincent Bypass Trust or the Edna Trust or Edna herself to make such transfers in view of the language of the trust documents.

In response to the motion, the trustees filed only an attorney's affirmation alleging that the movants lack standing because they are not beneficiaries of the 2006 Trust and there are issues of fact for trial because the movants failed to establish that it was the trustees that made the withdrawals to which the movants object. In order to determine the issues presented, it is necessary to review the relevant portions of the documents that established the trusts.

THE VINCENT TRUST

On November 11, 1991 Vincent executed the Vincent Sofi Trust, naming himself and his son, Vincent Charles, as trustees. The Vincent Trust provides that during the life of the settlor, the trustees shall pay the settlor so much of the net income and principal as he requests (Part II, Sec. 1). In Part V, Sec. 1, the settlor retains the power to revoke the trust and remove property by written [*3]instrument delivered to the trustee with the trust becoming irrevocable on his death. In Part IV, Sec. 3 (c), in order to have two trustees at all times, upon the settlor's death, his daughter, Puca, is nominated as successor trustee to replace him in the event that the settlor did not designate a different person in writing. After the settlor's death, if Edna survived, the trust property is to be divided between a Bypass Trust comprised of property (excluding residential real estate to the extent possible) having a value equal to the amount of the federal marital estate tax deduction (Part III, Sec.3) and a Marital Trust consisting of the balance of the trust assets (Part III, Sec. 4). Edna was to receive all of the income from the Marital Trust and so much of the principal as the trustee, in his discretion, determines is "necessary or desirable for her support in reasonable comfort" and the trustee is directed to be generous in exercising such discretion. As to the Bypass Trust, both income and principal may be sprinkled among Edna and the settlor's descendants at the trustees' discretion with no duty to equalize the payments (Part III, Sec. 3 [B]). At Edna's death, the principal of both the Marital and Bypass trusts is to be disposed of as directed in Part III, Section 5, with residential real property to be sold, 20% of the proceeds immediately payable to Vincent Charles and the balance in further trusts. The remaining 80% of the proceeds from the sale of the residential real estate and all other property was to be divided into as many shares as the settlor had children surviving or who predeceased leaving issue surviving. These shares are to be held in further separate trusts for the benefit of the settlor's children or grandchildren depending upon the circumstances. The provisions in the trust with regard to real property do not have to be discussed herein as they were rendered academic by the passage of time and the disposition of realty during that period.

Schedule A lists the corpus of the Vincent Trust as all real property owned by Vincent; specifically, two parcels of wooded land located on Elm Street in Ossipee, New Hampshire, an acre of lake front property located at Duncan Lake, New Hampshire, 62 acres of wooded land located in Lebanon, New Hampshire and a one-half interest in Blackrock. After Vincent died on June 19, 1992, Puca, the nominated successor, replaced him as a co-trustee of the Vincent Trust. Income tax returns filed by the Vincent Trust indicate that on June 20, 1997, the trust sold one parcel located in Ossipee, New Hampshire for $30,000 and, on November 4, 1998, the trust sold a second parcel in Ossipee, New Hampshire for $106,000.

THE EDNA TRUST

Schedule A of the Edna Trust, as restated and renamed on June 29, 1999, lists the realty in the trust at that time as a 50% interest in Blackrock and two 200 acre parcels located in Wakefield, New Hampshire. The trustees are Edna and all three of her surviving children, including the objectant, Stavola. As in the Vincent Trust, the settlor was entitled to all of the net income and principal she requested (Part II, Sec. 1) and property could be added to the trust by any person with the consent of the trustees Part I, Sec.1).She also retained the right to revoke the trust by written instrument delivered to the trustee, and to remove property therefrom on notice to the trustees, but the trust became irrevocable on her death (Part V, Sec. 1). Not only does this trust differ from the Vincent Trust in directing the sale of residential and non-residential real property as soon as possible after the settlor's death, it provides for an adjustment adverse to the movants in that, because of stated advancements by Edna and Vincent to the movants' mother, each of the other three children (or their survivors) is to receive a sum equal to $130,000 "today," and a formula is set forth on which to compute this amount. Part IV, Section 4 directs the trustees, during the settlor's lifetime to consult [*4]with the settlor insofar as practicable regarding trust investments and act as directed by the settlor in respect thereto and provides "[T]he Trustee is hereby exonerated from any liability in connection with any action taken at the direction of the Settlor."

THE 2006 TRUST

On October 31, 2006, approximately two years prior to her death, Edna executed the 2006 Trust with Vincent Charles as its sole trustee. Edna was to receive lifetime distributions of income at least twice per year, and during her lifetime, the trustee had discretionary authority to sprinkle principal among the settlor's descendants in any degree, excluding the trustee and any person he had a legal duty to support. Pursuant to Article Fourth (c), the settlor, her creditors and creditors of her estate are expressly denied access to principal. Schedule A purportedly listing the trust assets is not attached, but Part III thereof provides that on the settlor's death, upon the default of the settlor's exercise of a testamentary power of appointment: (1) Puca is to receive the entire proceeds of sale of the realty at Duncan Lake, Ossipee, New Hampshire, originally in the Vincent Trust; (2) Puca and Vincent Charles are to share equally in the realty located in Wakefield, New Hampshire, formerly an asset of the restated Edna Trust; (3) Vincent Charles is to receive Blackrock; and, (4) any remaining income and principal are to be distributed 50% to Vincent Charles, 34% to Puca, and 16% to Stavola.

Due to the following transactions, most of the real property originally in the Vincent and Edna trusts ended up in the 2006 Trust: (1) on March 1, 2007, seven months prior to Edna's death at the age of 93, the Bypass Trust conveyed its one-half interest in Blackrock to Edna individually and, on the same day, she conveyed her interest in Blackrock to the 2006 Trust; (2) on May 11, 2007, Vincent Charles, as trustee of the Edna Trust, executed a deed transferring that trust's interest in Blackrock to the 2006 Trust; (3) also on May 11, 2007, Vincent Charles, as trustee of the Edna Trust, transferred property in Wakefield, New Hampshire to the 2006 Trust; and, (4) on May 11, 2007, the Bypass Trust transferred the property at Duncan Lake, New Hampshire to Edna who, on the same day, conveyed it to the 2006 Trust. The movants allege that the March 1, 2007 and May 11, 2007 deeds that resulted in property from the Bypass and Edna Trusts ending up in the 2006 Trust, a trust that benefitted the trustees and excluded the movants, should be voided because they were without consideration and were not authorized by the terms of any trust.

The only opposition to the summary judgment motion is an affirmation by counsel asserting that: (1) Edna, as settlor of the Edna Trust, had the right to revoke that trust; (2) in fact, she did revoke that trust and created the 2006 Trust, which does not name the movants as beneficiaries and, therefore, the movants lack standing to object to the account or to make this motion; and, (3) there are triable issues of fact as to which of the trustee(s) are responsible for any missing property, as Edna, who was an original trustee of her own trust, could have been responsible for the transfers of which the movants complain, and Stavola, who is also a trustee of the Edna Trust, may be responsible for some of the payments to unknown payees of which the movants complain. Stavola's affidavit expressly states that she never had access to the trust accounts.

The movants reply that: (1) the claim that they lack standing because Edna disinherited them by revoking her trust is unavailing, as they are remaindermen of the Vincent Trust; (2) the Vincent Trust established two trusts upon Vincent's death, a Bypass Trust and a Marital Trust (Part III Secs. 3 and 4), pursuant to which, upon Edna's death, the principal was to be distributed to Vincent's children or grandchildren (Part III Sec. 5); (3) the Vincent Trust was funded with properties located [*5]in New Hampshire of which he was the sole owner, as well as a one-half interest in Blackrock owned as tenant in common with the Edna Trust; (4) the movants retained a vested remainder interest in the Vincent Trust, irrespective of any purported revocation of Edna's Trust; (5) the trustees fail to explain the conveyance of property by the Vincent Bypass Trust to Edna and from her to the 2006 Trust, of which both trustees were the main beneficiaries, and from which the movants were excluded; (6) those conveyances were inexcusable misappropriations from the Bypass Trust in derogation of the movants' remainder interests; (7) the production of four checks signed by Edna totaling less than $7,000 in response to discovery demands does not support an inference that Edna signed the balance of the checks made out to unknown payees; (8) in any event, the respondents on the motion were the only trustees of the Vincent Trust after Vincent's death, Edna was not a signatory to this trust's bank accounts, and the trustees are not excused from properly accounting for distributions from the Vincent Trust, or for commingling those trust funds with those of the Edna Trust and allowing Edna or others to make distributions from the commingled funds without accounting for those funds; and, (9) insofar as the trustees failed to account for the proceeds of the sale of two New Hampshire properties by the Vincent Trust in 1997 and 1998, an inference of misappropriation may be made.

Summary judgment cannot be granted unless it clearly appears that no material issues of fact exist (see Phillips v Joseph Kantor & Co., 31 NY2d 307 [1972]; Glick & Dolleck, Inc. v Tri-Pac Export Corp., 22 NY2d 439 [1968]). The movants must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence in admissible form to demonstrate the absence of any material issue of fact (see Alvarez v Prospect Hosp., 68 NY2d 320 [1986]; Friends of Animals, Inc. v Associated Fur Mfrs. Inc., 46 NY2d 1065 [1979]). When the movants make out a prima facie case, the burden shifts to the party opposing the motion to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact (see Zuckerman v City of New York, 49 NY2d 557 [1980]). Summary judgment is a drastic remedy which requires that the party opposing the motion be accorded every favorable inference and issues of credibility may not be determined on the motion but must await the trial (see F. Garofalo Elec. Co. v New York Univ., 300 AD2d 186 [2002]).

As a general rule where the settlor of a lifetime revocable trust is the only person who has an interest in the income and principal of the trust during his or her life, the remaindermen have no interest in the trust until the settlor dies and the trust becomes irrevocable; consequently, the remaindermen lack standing to object to any trust transaction that occurred during the settlor's life (see Matter of Malasky, 290 AD2d 631 [2002], citing Matter of Central Hanover Bank & Trust Co., 176 Misc 183, affd 263 App Div 801 [1941], affd 288 NY 608 [1942]; see also Matter of Shay, 33 Misc 3d 1230 [A], 2011 NY Slip Op 52165 [U] [2011]). One possible exception to this rule is where a person with a remainder interest establishes that a trustee other than the settlor made an improper withdrawal from the trust without the settlor's approval or ratification (see Siegel v Novack, 920 So 2d 89 [Fla Dist Ct App 4th Dist 2006]; Matter of Shay, 2011 NY Slip Op 52165 [U]).

Accordingly, as the movants have a remainder interest only in the lifetime revocable trusts, they are not entitled to summary judgment with regard to any transaction that occurred in either of those trusts while the settlor of either trust was alive. Specifically, the movants have not established that the settlor did not know about or approve of the $185,000 that was withdrawn from a trust during the lifetime of that settlor. Furthermore, as Edna had the right to revoke the Edna Trust [*6]and it has not been established that she did not know that the real property she placed in the Edna Trust was conveyed by that trust to the 2006 Trust, the movants are not entitled to summary judgment setting aside the deed with regard to any such real property; i.e., Edna's one-half interest in Blackrock and the Wakefield, New Hampshire property.

The trustees are in a much weaker position with regard to all transactions involving the Vincent Trust which took place after Vincent's death. There is an absolute prohibition against a fiduciary's self dealing, in that a fiduciary owes a duty of undivided and undiluted loyalty to those whose interests the fiduciary is to protect (see Birnbaum v Birnbaum, 73 NY2d 461, 466 [1989]; Meinhard v Salmon, 249 NY 458 [1928]). A trustee is required to administer the trust solely in the interests of the beneficiaries and cannot compete with the them for the benefits of the trust corpus (see Matter of Wallens, 9 NY3d 117 [2007]; Aspro Mech. Contr., Inc. v Fleet Bank, N.A., 1 NY3d 324 [2004]). Information that is missing from an account due to the fiduciary's failure to preserve it will be resolved against the fiduciary (see Matter of Schnare, 191 AD2d 859 [1993] lv denied 82 NY2d 653 [1993]; Vinlis Constr. Co. v Roreck, 30 AD2d 668 [1968], modified on other grounds 27 NY2d 687[1970]). Here, the failure of the account to reflect that the trustees received $30,000 on behalf of the trust from the June 20, 1997 sale of trust real property located in Ossipee, New Hampshire and $106,000 from the November 4, 1998 sale of another parcel of trust realty located in the same area gives rise to an inference that the trustees received these proceeds solely for themselves and against the interest of the other trust beneficiaries (see Matter of Gershenoff, 17 AD3d 243 [2005]). As a result, the court finds that the uncontroverted evidence establishes that these two parcels of real property originally in the Vincent Trust were sold after his death and the trustees failed to account for the proceeds. Accordingly, the motion for summary judgment with regard to those two parcels is granted to the extent that the trustees are surcharged the sum of $30,000, with interest at 8% per annum from June 20, 1997 to the settlement date of the order to be settled hereon and the sum of $106,000, with interest at the rate of 8% per annum from November 4, 1998 to the settlement date of the order to be settled hereon. Although this surcharge is for the benefit of the Vincent Trust and is to be administered as provided in said trust to the extent that such provisions are permissible and feasible, at present, the court lacks sufficient information to reach a conclusion with regard to both what assets may presently be distributed to a designated beneficiary and who should be the trustee for any assets that are still subject to trust administration. Consequently, in the interim, the trustees shall deposit the amount of the surcharge in the same escrow account in which the Blackrock proceeds are held or in any other prudent manner that is agreed upon by the interested parties.

The movants had a vested interest in the Vincent Trust after his death and the trustees cannot terminate that vested interest by transferring real property from that trust to the 2006 Trust in which the movants have no interest. Thus, the trustees had no right in 2007 to transfer two parcels of realty from the Vincent Trust to Edna, who in turn on the very same day, transferred the property to the 2006 trust. Although the trustees had discretion to invade principal for Edna's benefit so she could live in comfort, neither the trustees nor Edna had the authority to change the remaindermen of the Vincent Trust by, in effect, transferring property from his trust to a newly created trust established by Edna in which the movants have no interest. As the Vincent Trust held a one-half interest in Blackrock as a tenant in common, and that interest was sold with the proceeds placed in an escrow account, summary judgment with regard to that parcel of realty is granted to the extent that 50% of [*7]the net proceeds from that sale shall be distributed pursuant to the terms of the Vincent Trust. As the real property located at Duncan Lake, New Hampshire owned by the Vincent Trust should not have been conveyed to the 2006 Trust, summary judgment is granted with respect to that parcel by directing the trustees of the 2006 Trust to convey the property back to the Vincent Trust.

Accordingly, summary judgment in favor of the movants is granted to the extent herein indicated and, otherwise, is denied. The issues arising from the remaining objections will appear upon the ready for trial calendar of the court upon compliance with Uniform Rules for Surrogate's Court (22 NYCRR) §§ 207.29 and 207.30.

Settle order.

SURROGATE