Estate of Smith v Commissioner of Taxation & Fin. of State of N.Y.
Annotate this CaseDecided on September 28, 2004
Surrogate's Court, Nassau County
Estate of BERNARD PARKER SMITH, JR., Petitioner,
against
Commissioner of Taxation & Finance of the State of New York, Respondent.
310370
John B. Riordan, J.
This is a miscellaneous proceeding in which petitioner seeks to enjoin TPS Abstract Corporation (TPS) from releasing escrow funds to the New York State Department of Taxation and Finance ("the Department") for sales tax assessed against the decedent and to have the assessment dismissed.
The decedent Bernard P. Smith a/k/a Bernard Parker Smith, Jr. died on October 26, 1999. The decedent's Last Will and Testament dated June 17, 1999 was admitted to probate by this court and letters testamentary were issued to petitioner Alec Wasilewicz. The Will provides that the entire estate pour over to the Bernard Parker Smith, Jr. Trust created under agreement dated June 2, 1997 as amended on June 28, 1999. In addition to being the executor of the decedent's estate, petitioner is the trustee and sole beneficiary of the trust. The decedent's gross taxable estate was valued at approximately $1,900,000. The probate assets amounted to $434,000.
The decedent owned and operated a nursery and garden center located in Glen Head, New York. On October 19, 1993, the Department issued an assessment of $10,000 against the decedent for operating a business without a certificate of authority to collect sales tax and for failure to pay sales tax for the period from December 1, 1986 through August 31, 1993. A tax warrant was issued and filed with the office of the County Clerk of Nassau County on May 19, 1994. Pursuant to the provisions of the Tax Law, upon docketing the warrant, a judgment was obtained against the decedent (Matter of Robbins, 74 Misc2d 793 [1973]). Thereafter, on May 25, 1994, the warrant was filed with the New York State Department of State thereby becoming a lien on the decedent's property (Tax Law §1141 [b]).
The Glen Head property, which had been transferred to the trust during the decedent's lifetime, was sold on June 23, 2000 for $445,000. The title report issued by TPS revealed the tax assessment and lien. In order to close title on the sale, TPS Abstract required an escrow deposit of $15,000. Although the sale occurred over four years ago, the escrow is still being held by TPS. The Department issued a tax compliance levy dated June 7, 2004 to TPS directing it to turn over to the Department $9,223.54, representing the outstanding amount of the assessment.
Petitioner seeks to have the assessment dismissed on the grounds that it is not valid because the decedent was not operating his business in 1993, the year the assessment was issued. The Department points out, however, that the assessment actually covers a seven-year period. The Department also argues that the decedent was operating his business in 1993 and thereafter, and in support of its argument, offers a copy of a contact report made by a Department investigator who met with the decedent in 1994.
The court notes that although a lien is extinguished after ten years, the ten-year period applies only to the term of the lien (1 Warren's Heaton on Surrogates' Courts, §10.16, 6th ed. rev'd). The judgment itself stands as a debt until twenty years after the docketing of the judgment, and the expiration of the lien does not render the judgment unenforceable (CPLR 211 [b]). The question of whether the lien still exists would be relevant were it necessary to decide the priority afforded the Department's claim. There is no allegation that decedent's probate estate [*2]was insufficient to pay all debts and expenses and, therefore, the question of the priority afforded by the lien is irrelevant. The court notes, however, that even if the lien expired, the judgment would still give the Department priority under SCPA 1811 (2)(c).
A fiduciary must proceed with diligence to pay the debts of the decedent (SCPA 1811 [2]; Matter of Levine, 191 Misc 284 [1947]). It is well-settled that a fiduciary has an obligation to act in good faith towards both the beneficiaries and the creditors of an estate (Matter of Robinson, 194 Misc2d 695 [2003]; Matter of Bailey, 147 Misc2d 46 [1990]; Matter of Weinberg, 162 Misc 867 [1937]; Matter of Lagow, NYLJ, Dec. 12, 2002, at 24; Matter of Kringas, NYLJ, Oct. 5, 2000, at 34; Matter of Brickell, NYLJ, Jan. 13, 1994, at 26).
Moreover, the fiduciary may not resist payment of a claim that is just and valid (Matter of Murphy, 11 Misc2d 832 [1958]). If an estate is charged interest and penalties because the fiduciary wilfully or negligently failed to pay a just claim, the fiduciary may be liable for a surcharge (Matter of McIlwaine, 255 AD 978 [1938], affd 280 NY 775 [1939]; Matter of Tollner, NYLJ, June 7, 1995, at 30).
Generally, if a fiduciary is presented with a claim seven months after letters have issued and he has made distributions to the beneficiaries in good faith without knowledge of the claim, he will not be personally liable for the claim (SCPA 1802; EPTL 11-1.5; Matter of Kringas, NYLJ, Oct. 5, 2000, at 34). The seven-month period, however, is not a bar to the claim (Matter of Lent, 82 NYS2d 904 [1948]). Even if the seven months have elapsed, if there are assets on hand, those assets are available to pay a valid claim even if no notice of claim was filed (Matter of Lee, 107 Misc2d 928 [1981]). Moreover, where the fiduciary acted in good faith without knowledge of the claim and fully distributed the assets of the estate, a successful claimant may still proceed against the distributees of the assets (EPTL 12-2.1; Matter of Lagow, NYLJ, Dec. 12, 2002, at 24). However, where the fiduciary knows of the claim or should have known of the claim, he will be personally liable if he distributes the assets (Matter of Brickell, NYLJ, Jan.13, 1994, at 26). A fiduciary who has some knowledge of the claim must act in good faith and make an investigation into the claim. "The fiduciary cannot take an "ostrich" approach to the existence of creditors" (4 Warrens' Heaton on Surrogates' Courts, §71.02 [2], 6th ed. rev'd). Generally, the burden of proof, however, is on the claimant to establish the claim by clear and convincing evidence (Matter of Gorden, 8 NY2d 71 [1960]).
The warrant was docketed prior to the decedent's death and, therefore, became a judgment. Generally, courts are reluctant to question the validity of a judgment docketed prior to death (4 Warren's Heaton on Surrogates' Courts, §71.08 [5][I], 6th ed. rev'd). The decedent died in 1999, approximately six years after the notice of assessment. The decedent did not avail himself of any of the procedures under the Tax Law for review of the assessment. Since the decedent did not institute any proceeding to question the assessment, it is presumed that the assessment is correct and the burden is, therefore, upon the petitioner to show that the assessment is erroneous (Matter of Melcroft Corp. v Weise, 256 AD 291 [1939]; Matter of Nenno, 68 Misc2d 572 [1971]). Additionally, the Department points out the decedent actually made a payment on the assessed amount, reducing the balance from $10,000 to $9,223.54. This partial payment by the decedent constitutes an acknowledgment of the validity of the debt (Matter of McDonald, 79 AD2d 754 [1980]; Matter of Walsh, NYLJ, Oct. 22, 2002, at 23).
Petitioner had a duty to investigate the claim when he learned of it in June 2000 prior to the closing on the sale of the Glen Head property. The probate assets were more than sufficient to satisfy the claim at that time. Instead, petitioner chose to ignore the claim until June of 2004 when TPS was sent the tax compliance levy. The self-serving statements of petitioner and his counsel that the decedent did not operate the business in 1993 are insufficient to overcome the presumption that the assessment is valid and to dismiss the Department's claim.
The proceeds of sale of the nursery passed to the trust since the trust was the owner of the property. The trust instrument provides that the trustee shall pay the debts of the decedent which the trustee determines to be valid and enforceable. The probate assets poured over into the trust pursuant to the terms of the decedent's Will. Since the trust, by virtue of the pour over [*3]provisions, is the transferee of the probate assets, the claim is payable out of the trust assets (Matter of Granwell, 20 NY2d 91 [1967]). Accordingly, the court finds that the assessment is a valid and enforceable claim. TPS Abstract Corporation is ordered to pay the sum of $9,223.54 to the Department pursuant to the notice of levy and the balance of the escrow is to be paid to the trustee within thirty (30) days of service of the order to be entered.
Settle order on five days notice with five additional days if service is made by mail.
Dated: September 28, 2004
JOHN B. RIORDAN
Judge of the
Surrogate's Court
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