Matter of Manufacturers & Traders Trust Co.
Annotate this CaseDecided on August 10, 2016
Surrogate's Court, Dutchess County
In the ACCOUNTING PROCEEDING by Manufacturers and Traders Trust Company, Successor in interest to First National Bank of Rhinebeck, Successor Trustee to Dutchess Bank and Trust Company, as the Trustee of the Trust U/W/O Dorothy D. Wilkinson F/B/O Judith M. Nielsen a/k/a Judith Ann Nielsen a/k/a Judith M. Wilkinson.
72207/A
JEFFREY S. BATTISTONI, ESQ.
VAN DEWATER & VAN DEWATER, LLP
Attorneys for Petitioner
85 Civic Center Plaza, Suite 101
P.O. Box 112
Poughkeepsie, New York 12601
MICHAEL L. FOX, ESQ.
CATANIA, MAHON, MILLIGRAM & RIDER, PLLC
Attorneys for Objectants
One Corwin Court
Newburgh, New York 12550
James D. Pagones, J.
Petitioner moves for an order, pursuant to CPLR 3212, granting it summary judgment and dismissing the preliminary objections to the trust accounting of Edward P. Nielsen, III and Katharine M. Nielsen dated March 22, 2016. Objectants Edward P. Nielsen, II and Katharine M. Nielsen (hereinafter "Nielsen") cross-move for an order, pursuant to CPLR 3212, granting summary judgment in their favor.
The following papers were read:
Amended Notice of Motion-Affirmation-Affidavit- 1-12
Certification-Affidavit of Mailing-Exhibits A-G
Notice of Cross-Motion-Affidavit-Affirmation- 13-20
Affidavit-Exhibits H-J-Affidavit of Service
Memorandum of Law-Affidavit of Service 21-22
Affirmation in Reply and Opposition-Memorandum of Law 23-24
Reply Memorandum of Law-Affidavit of Service 25-26
By way of background, the petitioner alleges the following:
The Last Will and Testament of Dorothy D. Wilkinson, dated June 15, 1973, created two testamentary trusts, one for the benefit of the testatrix's daughter, Judith M. Nielsen, and one for the benefit of her son, Robert D. Wilkinson. Both beneficiaries are deceased. Petitioner alleges that any issues related to the distribution of the principal and accumulated income for the testamentary trust which had been created for Robert's benefit were settled separately from the instant proceeding. The testamentary trust for the benefit of Judith M. Nielsen a/k/a Judith M. Wilkinson was subject to a "Release and Substitution Agreement" made on December 7, 1992 between Robert, Judith, the objectants Nielsen and the Trustee. Petitioner alleges that the "Release and Substitution Agreement" authorized the trustee to withdraw the sum of One Hundred Seventy Thousand Dollars ($170,000.00) from the testamentary trust created for the benefit of Judith. In substitution therefore, Judith was to obtain a convertible term life insurance policy upon her own life in the amount of Two Hundred Fifty Thousand Dollars ($250,000.00) for the benefit of the testamentary trust. In addition thereto, Robert was to obtain a convertible term life insurance policy in the amount of Three Hundred Seventy Thousand Dollars ($370,000.00) upon his life for the benefit of the testamentary trust.
The preliminary objections to the trust accounting dated March 22, 2016, state three (3) objections: (1)failure to act in accordance with EPTL §11-1.7(a)(1); (2) failure to act in accordance with EPTL §11-2.3; and, (3) failure to earn income.
On a motion for summary judgment, the test to be applied is whether triable issues of fact exist or whether on the proof submitted judgment can be granted to a party as a matter of law (see Andre v. Pomeroy, 35 NY2d 361 [1974]). The movant or movants must set forth a prima facie showing of entitlement to judgment as matter of law, tendering sufficient evidence to demonstrate the absence of any material issue of fact (see Alvarez v. Prospect Hospital, 68 NY2d 320 [1986]). Once the movant or movants set forth a prima facie case, the burden of going forward shifts to the opponents of 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]).
In the interest of judicial economy, both motions will be simultaneously addressed, focusing solely on the preliminary objections to the trust accounting.
EPTL §11-1.7(a)(1) provides:
"(a) The attempted grant to an executor or testamentary trustee, or the successor of either, of any of the following enumerated powers or immunities is contrary to public policy:(1) The exoneration of such fiduciary from liability for failure to exercise reasonable care, diligence and prudence."Objectants allege that the December 7, 1992 Agreement, Article Fourth contained a "release" to the corporate trustee in connection with the substitution of assets within the testamentary trust. The objectants further argue that this attempt to release the corporate trustee should be found void as against public policy.
Article Fourth of the December 7, 1992 "Release and Substitution Agreement" states:
"The signators hereto, RELEASE AND DISCHARGE, the First National Bank of Rhinebeck in its capacity as Successor Trustee under the Last Will and Testament of Dorothy D. Wilkinson from all actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialities, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims, and demands whatsoever, in law, admiralty or equity, which may arise as a result of the substitution of property hereinabove set forth, and Edward Peter Nielsen III and Katharine M. Nielsen, herewith release Robert D. Wilkinson, Judith M. Wilkinson and the First National Bank of Rhinebeck in its capacity as Successor Trustee under the Last Will and Testament of Dorothy D. Wilkinson from all actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialities, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims, and demands whatsoever, in law, admiralty or equity, which may arise as a result of the substitution of property hereinabove set forth."Article Second of the Agreement further provides that Robert D. Wilkinson was to solely bear the cost of maintaining the insurance policies for the benefit of the trust. Notwithstanding the foregoing, both insurance policies lapsed in December of 2004, as a result of Robert D. Wilkinson's failure to pay the policy premiums. Objectants maintain that the trustee could have sought reinstatement of the policy within five (5) years of the date of lapse, yet, failed to do so and never advised the objectants of the lapse.
Because freedom of testation is such a strong public policy, a testator or settlor of a trust can create the standard by which his or her fiduciary is to be judged (Margaret Valentine Turano, Practice Commentaries, McKinney's Cons Laws of NY, Book 17B, EPTL §11-1.7). However, the legislature, seeing the danger in giving unfettered freedom to testamentary trustees and executors, enacted EPTL §11-1.7 to delineate fiduciaries' non-waivable duties (id.). The testator may not exonerate the executor or testamentary trustee from liability for failure to exercise reasonable care, diligence and prudence (see EPTL §11-1.7(a)(1); Matter of Will of Allister, 144 Misc 2d 994 [Sur Ct, Nassau County 1989]).
The facts herein do not simply plug in a statutory formula; rather, they provoke a need for further discussion from this Court. Initially it is interesting to note that the Court and the parties are not focusing their attention on the wording of the testamentary trust, rather the focus of the discussion turns to the "Release and Substitution Agreement" made on December 7, 1992. This Agreement essentially changed the terms of the testamentary trust of Dorothy D. Wilkinson into a new trust agreement conceptually funded, at least in part, by the life insurance proceeds of Robert and Judith. Under the traditional principles of contract law, parties to a contract are free [*2]to make their own bargain (see Hollander v. Lipman, 65 AD3d 1086 [2nd Dept 2009]). Here, Robert and Judith as grantors/beneficiaries, the Nielsen objectants as releasor/successor beneficiaries and petitioner herein as successor trustee chose to make their own bargain via the Release and Substitution Agreement dated December 7, 1992. The parties chose to amend the financing of the testamentary trust of Dorothy D. Wilkinson. Robert was assigned to solely bear the cost of the insurance policies. They further delineated that in the event that Robert failed or refused to make these payments, the sole remedy was for Robert to convey his property to Judith in fee simple absolute for One Dollar ($1.00). Thus, any obligation to perform to the releasor/successor beneficiaries pursuant to this agreement was that of Robert. Lastly, the Court would note that there is absolutely no indication that an exoneration clause was made part of the trust created under the Will of Dorothy D. Wilkinson.
Accordingly, petitioner establishes its prima facie entitlement to judgment as a matter of law by submitting documentary evidence establishing that the provisions of EPTL §11-1.7(a) do not govern the subsequent agreement. In opposition and in support of its cross-motion, the objectants fail to rebut this prima facie showing and therefore, dismissal of the first objection is warranted.
The Court must next address the second objection; the alleged failure of the petitioner to act in accordance with EPTL §11-2.3.
The Prudent Investor Act contained in EPTL §11-2.3 requires a trustee who holds property in a fiduciary capacity to exercise reasonable care, skill and caution to make and implement investment and management decisions as a prudent investor would for the entire portfolio, taking into account the purposes and terms and provisions of the governing instrument (see EPTL §11-2.3[b][2]; In re Garrasi, 33 Misc 3d 1224[A] [Sur Ct, Schenectady County 2011]).
The disputed accounting period before this Court is subject to two different legal standards with respect to the administration of the trust. Those actions complained of during the period prior to January 1, 1995 are governed by the standards set forth in EPTL §11-2.2, the so-called "Prudent Man Rule", whereas after January 1, 1995, EPTL §11-2.3, the Prudent Investor Act, is applicable (see In re Manufacturers and Traders Trust Co., 19 Misc 3d 1135[A] [Sur Ct, Onondaga County 2008]).
The Court In re Manufacturers and Traders Trust Co., supra, found as follows:
"It is important to note at the outset that EPTL § 11—2.2(a)(1) provides: ... nothing in this subparagraph shall limit the effect of any will, agreement, court order or other instrument creating or defining the investment powers of a fiduciary ....' (emphasis added). Similarly EPTL §11—2.3(a) states: [a] trustee has a duty to invest and manage property held in a fiduciary capacity in accordance with the prudent investor standard defined by this section, except as otherwise provided by the express terms and provisions of a governing instrument ....' (emphasis added). The highlighted language in both statutes makes it abundantly clear that these statutes set forth default standards which are subordinate to the terms of the governing instrument. Thus as this Court has previously noted in a conflict between the governing instrument and [the statute], the governing instrument reigns supreme'".This well reasoned logic resonates with this Court. Here, the parties, by Release and [*3]Substitution Agreement dated December 7, 1992 wholly placed the onus of obtaining and maintaining insurance policies on Robert D. Wilkinson. As stated above, the sole remedy for his failure was the exchange of his property for One Dollar ($1.00). The parties' governing agreement contains no language expressing the desire that the trustee maintain a state of hyper-vigilance concerning the payment of insurance policy proceeds or that the trustee was to ensure payment thereof, nor does it define the trustee's role in the event of default. Rather, the beneficiaries and objectants chose to release the trustee from any promises relating to the substitution of property.
Accordingly, petitioner has established its prima facie entitlement to summary judgment as to objectants' second objection. Objectants fail to rebut said prima facie showing and thus, dismissal of the second objection is warranted.
The third and last objection states that the Nielsen's object to the accounting based upon a failure to earn income. The crux of this objection is that the trustee created a fiduciary responsibility to monitor the investment owned by the trust and to preserve the asset by insuring payment of the premiums. Additionally, and in the alternative, the objectants allege that the trustee could and should have ensured the re-conveyance of the property. As stated above, the petitioner has established prima facie, that the Release and Substitution Agreement dated December 7, 1992 relieved them of liability to monitor the investment owed to the trust, except as to the extent delineated by said agreement. Further, the objectants signed a written agreement releasing the petitioner herein as successor trustee from any future lawsuit. Written releases are contracts and their interpretation is governed by the principles of contract law (see In re Jacker, 105 AD3d 1048 [2nd Dept 2013] leave to appeal denied by 21 NY3d 862). Where the language in a release is clear and free from ambiguity, as it is here, effect must be given to the intent of the parties as reflected in the writing alone, without resort to extrinsic evidence (id.). The petitioner has offered affirmative evidence that no deception was practiced, no undue influence used and that all was fair open, voluntary and well understood (id.). The objectants have failed to rebut this showing.
As to the alleged duty of the trustee to re-convey the property to the trust upon Robert's default, this duty to re-convey the property was that of Robert. Further, to the extent argued that the successor trustee was obliged to do so given its fiduciary relationship to the trust, the aforementioned Release and Substitution Agreement provided no such duty and in fact released the petitioner from any inherent fiduciary duty to do so.
Accordingly, petitioner has sustained its burden of establishing its prima facie entitlement to judgment as a matter of law as to objectants' third objection. The objectants, again, fail to raise an issue of fact necessitating a trial as to the third objection. Thus, dismissal of the third objection is justified.
Based upon the foregoing, the petitioner's motion for summary judgment is granted in its entirety. The objectants' cross-motion is denied in its entirety. Petitioner is directed to submit a decree and bring the account down to date on ten (10) days notice within thirty (30) days hereof.
The foregoing constitutes the decision of the Court.
Dated: August 10, 2016
Poughkeepsie, New York
ENTER
[*4]
HON. JAMES D. PAGONES, S.C.J.
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