Matter of Appleby
Annotate this CaseDecided on December 22, 2006
Sur Ct, Nassau County
In the Matter of the Application of Paula Appleby and JPMorgan Chase Bank, N.A., as Trustees of The Edgar O. Appleby 2002 Revocable Trust dated September 26, 2002, Petitioners, For Adjudication that all proceeds of certain life insurance policies issued by Mass Mutual Life Insurance Company insuring the life of Edgar O. Appleby, deceased, pass to the Edgar O. Appleby 2002 Revocable Trust.
343333
Ackerman Levine Cullen & Brickman
175 Great Neck Road
Great Neck, NY 11021
(Attorneys for Petitioners)
John B. Riordan, J.
This is a miscellaneous proceeding commenced by the co-trustees of two revocable trusts created by the decedent in 1993 and 2002, respectively. The petitioners have denominated their requested relief as one for reformation of the trust. The court notes, however, that the prayer for relief is more properly a request for a direction regarding the payment of insurance policies since the petitioners seek an order declaring that certain life insurance policies pass to the 2002 trust.
The decedent created The Edgar O. Appleby 1993 Revocable Trust by instrument dated December 21, 1993 between himself, as settlor, and his wife, Paula V. Appleby, and JPMorgan Chase Bank, N.A. as co-trustees (hereinafter "the 1993 trust"). The decedent amended the 1993 trust by instrument dated January 18, 2002. In addition, the decedent created The Edgar O. Appleby 2002 Revocable Trust between himself, as settlor, and his wife, Paula V. Appleby, and JPMorgan Chase Bank, N.A. as trustees by agreement dated September 26, 2002 (hereinafter "the 2002 trust").
Edgar died on May 9, 2005. Letters of Administration c.t.a. issued to his wife, Paula. Prior to his death, the decedent had purchased from Mass Mutual Life Insurance Company four life insurance policies insuring his life. The total face amount of the policies was $3,500,000.00. The decedent named the 1993 trust as the beneficiary of each policy, and the 1993 trust remained the beneficiary at the time of the decedent's death.
Petitioners contend that by creating the 2002 trust, the decedent intended to revoke the 1993 trust and have all assets over which he had dispositive control at his death, including the proceeds of the Mass Mutual policies, pass to the 2002 trust. In support of their application, petitioners attach a copy of a handwritten document entitled "Life Insurance Summary" prepared by the decedent in which he analyzed the face amounts of the four Mass Mutual policies. The decedent indicated that all four of the policies were payable to "Trust dated 9/26/02." In addition, the decedent's will dated February 10, 2005 directs that his residuary estate be paid to the trustees of the 2002 trust. The petitioners have also annexed to the petition a copy of a document prepared by the decedent entitled "General Comments and Last Words" dated April 1, 2005 wherein he states that "Paula's Trust" is the beneficiary of the Mass Mutual policies. Petitioners have also submitted the affidavit of the attorney who drafted the 2002 trust and the [*2]decedent's will. According to the attorney-draftsman, it was the decedent's intention to revoke the 1993 trust by signing the 2002 trust. However, there is no indication that the decedent complied with either the statutory requirements for revocation of the trust (EPTL 7-1.17) or those of the 1993 trust instrument itself.
The major difference between the 1993 trust and the 2002 trust is contained in the dispositive provisions effective upon Paula's death. The 1993 trust directs that the principal remaining at Paula's death shall pass in equal shares to Sophia Duboug, Diego Verstraeten, Guido Verstraeten, Xavier Verstraeten, Juan Verstraeten and Fernando Sanjuljo, all of whom are related to Paula, or to the issue of any of them who may not then be living. The 2002 trust, however, directs that, upon her death, Paula may appoint the remaining trust principal by her will to any person or corporation, except to herself, her estate, her creditors or the creditors of her estate. In default of Paula's exercise of her limited testamentary power of appointment, the remaining principal is payable in equal shares to the same individuals named in the 1993 trust, or to the issue of any of them who may not then be living. The individuals named in the 1993 trust as presumptive remaindermen and in the 2002 trust as takers in default of the exercise of the limited testamentary power of appointment have consented to the application.
There is a threshold issue of jurisdiction to be addressed arising from petitioners' request that this court dispense with service of process on otherwise interested parties by virtue of SCPA 315. The criteria employed by the courts in applying virtual representation are: 1) similarity of economic interest between representor and representee; 2) the absence of a conflict of interest; and 3) the adequacy of representation (Matter of Dickey, 195 Misc 2d 729 [2003]; Matter of Putignano, 82 Misc 2d 389 [1975]; Matter of Holland, 84 Misc 2d 922 [1974]). The representation of class interests (SCPA 315 [2] [ii]) and contingent interests (SCPA 315 [3]) are typical examples of the utility of virtual representation.
In this case, the interests of the presumptive remaindermen and the contingent remaindermen are similar. While it appears that the use of virtual representation might be appropriate under the circumstances, the court is mindful of its obligation to be vigilant in the protection of the interests of persons under a disability (Matter of Dickey, 195 Misc 2d 729 [2003]). While the decision of the presumptive remaindermen to consent to the application and, thereby, relinquish their interest as presumptive remaindermen may be laudable, the court is not convinced that it is a decision a guardian ad litem could or should make on behalf of his or her wards (Matter of Dickey, 195 Misc 2d 729 [2003]; Matter of Sanders, 123 Misc 2d 424 [1984]). The court is not satisfied that the minor contingent remaindermen will be adequately represented by the proposed representors under the statute on the papers now before the court and accordingly declines the request for an application of virtual representation without prejudice to renew.
Concerning petitioner's request for an order directing the payment of the life insurance proceeds, this court addressed an issue similar to the instant case in Matter of Wolfe, (47 Misc 2d 124 [1965]). The decedent in that case died leaving an insurance policy dated August 10, 1927, bearing several indorsements changing the beneficiary. The last-named beneficiary was a bank as a trustee under the decedent's will dated December 6, 1940. Thereafter, the decedent executed a new will which revoked the 1940 will. The decedent's spouse claimed that the decedent intended that she was to be the beneficiary, and the undisputed facts of the case were that the decedent always thought of his wife as the beneficiary and believed that steps had been taken by [*3]the bank to change the beneficiary. In that case, this court held as follows:
"When an insurance carrier withdraws after depositing proceeds of an insurance policy leaving the contest as to distribution solely between the interested claimants, the court will exercise equity and seek to do what the insured apparently intended and award the fund to the claimant having the strongest claim under existing conditions . . . The provisions regarding the changing of the beneficiaries are solely for the benefit of the insurer, and when they are waived by the carrier's withdrawing from the proceedings for the distribution of the proceeds, the insured's failure to comply with such provisions is not controlling and the rights and equities of plaintiffs and named beneficiaries must be left to the court's determination regardless of such failure, especially where the insured clearly expresses a desire to designate a new beneficiary and takes positive action evidencing such intent." (citations omitted)
(Matter of Wolfe, 47 Misc 2d 124, 125).
This court went on to hold that the decedent intended his spouse to be the beneficiary of the policy and directed that the insurance proceeds be distributed to her regardless of the decedent's failure to change the beneficiary in accordance with the policy contract.
Similarly, in Kane v Union Mut. Life Ins. Co. (84 AD2d 148 [1981]), the Second Department held that an insurance company may waive the strict requirements of its contract. In that case, after the testator had designated his sons as beneficiaries of an insurance policy, he executed a will naming his wife as beneficiary of the same policy. The court held that where the insurer becomes a mere stakeholder, it waives its right to compliance and the court will exercise equity to carry out the decedent's apparent intent.
In Matter of Morse, (150 Misc 2d 415 [1991]), Surrogate Roth, based on the Second Department's holding in Kane v Union Mut. Life Ins. Co. (84 AD2d 148 [1981]), extended the waiver doctrine to brokerage houses and individual retirement accounts. There, the court held that, since the brokerage houses had voluntarily paid the funds to the executor under the decedent's will to be distributed to the beneficiary named in the will rather than the designated beneficiaries on the accounts, the brokerage houses had clearly waived the strict requirement of their contracts for changing the beneficiary. The court held that, under such circumstances, the decedent's intent was the paramount factor to be ascertained and directed that the retirement accounts be paid to the beneficiary named in the will.
In 1998, the Court of Appeals in McCarthy v Aetna Life Ins. Co., (92 NY2d 436 [1998]) analyzed the question of whether an insured could effect a change of beneficiary on a life insurance policy by means of a testamentary disposition where the policy sets forth a specific procedure for changing beneficiaries. The Court of Appeals held that as a general rule, under New York law, the method prescribed by the insurance contract must be followed in order to effect a change of beneficiary. Nevertheless, the court recognized that strict compliance is not always required. The Court of Appeals stated that, although the paramount factor is the intent of the insured, mere intent is not enough. The test is one of substantial compliance. Indeed, there must be some affirmative act or acts taken for the purpose of making the change. The Court of Appeals found that there was no evidence to suggest that the insured made any attempt to change the beneficiary in accordance with the procedure set forth in the policy nor was there any evidence to suggest that he was incapable of doing so. Significantly, the Court of Appeals held that the requirement of substantial compliance is not waived where the insurance company [*4]becomes a mere stakeholder by depositing the proceeds into court.
In Lincoln Life and Annuity Co. of New York v Caswell (31 AD3d 1 [2006]), the First Department addressed the impact of the Court of Appeals decision in McCarthy. The First Department opined that the reasoning of pre-McCarthy decisions such as Matter of Morse (150 Misc 2d 415 [1991]) may no longer be tenable in light of McCarthy. According to the First Department, under McCarthy the question is whether there has been substantial compliance with the policy requirements for changing a beneficiary regardless of whether the insurance company is a mere stakeholder.
Here, the record is devoid of any evidence that the decedent made any attempt to change the beneficiary of the policies from the 1993 trust to the 2002 trust. The evidence submitted supports the conclusion only that the decedent thought the 2002 trust was the beneficiary of the policies. The life insurance summary prepared by the decedent in 2005 indicates that he thought the policies were payable to the 2002 trust. The document entitled "General Comments and Last Words" is not persuasive as it indicates only that the proceeds are payable to "Paula's Trust." Both the 1993 trust and the 2002 trust benefit Paula. Accordingly, under the McCarthy standard, the petitioners' application must be denied. The denial is without prejudice to renew upon a showing of substantial compliance by the decedent with the Mass Mutual contract provisions for a change of beneficiary. Upon renewal, the petitioners are directed to submit affidavits in order for the court to determine the adequacy of representation (22 NYCRR §207.18)
This constitutes the decision and order of the court.
Dated: December 22, 2006
JOHN B. RIORDAN
Judge of the
Surrogate's Court
The appearance of counsel is as follows:
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