Matter of Zupa

[*1] Matter of Zupa 2006 NY Slip Op 52679(U) [22 Misc 3d 1104(A)] Decided on December 29, 2006 Sur Ct, Erie County Howe, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 29, 2006
Sur Ct, Erie County

In the Matter of the Estate of Rocco Zupa, Deceased.



2004-2226



KEVIN COX, ESQ.

Attorney for Petitioner Eleanor Zupa

MICHAEL J. FLAHERTY, ESQ.

Attorney for Respondent/Executor Lucille Christopher

Barbara Howe, J.

Eleanor Zupa ("petitioner") has sought a determination of the validity and effect of her right of election against the Will of her husband, Rocco Zupa. Lucille Christopher, sister of the decedent and Executor of his Will ("Christopher"), took issue with the amount sought by petitioner. A hearing was held before a Court Attorney-Referee duly designated by the Surrogate to hear the matter. After hearing the testimony and requesting written memoranda, this Court reserved decision.

At the hearing, petitioner herself testified at some length regarding her marriage to the decedent. Documentary evidence, including the marriage certificate, was offered. During her testimony, counsel for Christopher interjected to indicate that Christopher was not challenging either petitioner's status as surviving spouse or the validity of her election. Counsel then stipulated that petitioner was the surviving spouse of decedent and entitled to an elective share. Consequently, much of the testimony given up to that point, because it was offered to prove petitioner's status, need not be summarized or considered herein.

What remains at issue is the value of the elective share, petitioner asserting that two annuities should be included in the computation as testamentary substitutes and objecting to respondent's attribution of little or no value to decedent's interest in Transit Smith Corporation.

In the remainder of her testimony, petitioner enumerated what she believed to be her husband's assets, including various joint bank accounts, real property at 560 Fargo Avenue, shares of Transit Smith Corporation, and several AIG annuities. She noted that none of these assets passed [*2]to her under the Will, as surviving joint tenant, or by beneficiary designation. On cross-examination, she did concede that her sons, who were surviving joint tenants on several of decedent's joint bank accounts, turned over the proceeds to her so that she could meet her living expenses.

Petitioner offered as a witness regarding the valuation of Transit Smith, attorney Peter Costa, a 25% shareholder, director, and secretary-treasurer of the corporation. The other shareholders, according to Costa, are Richard Zupa, John Zupa, as representative of the late John Zupa, and decedent. Costa explained that Transit Smith had been a grocery and liquor store, which was later leased to Louis Sebastianie. Decedent rented a unit at 9950 Transit, where he lived with petitioner. Costa further explained that in April of 2000, the corporation sold 9950 Transit Road to Sebastianie. Exhibit A, the closing statement for the sale of the property, shows a net sale price of $176,770.70. The corporation took back a mortgage of $135,000, which is due to be paid off in 2010, and the balance on which, as of March 1, 2006, was $118,508.92. Costa said that as of March 2006, the corporation's only other assets included a Certificate of Deposit worth $40,721.29 and a checking account amounting to $32,108.08. Costa indicated that the corporation has obligations, including taxes and accountants' fees, which run no more than $2,500 per year.

Under cross examination, Costa said that he and counsel for petitioner had had some discussion regarding the value of decedent's share and that he had expressed interest in purchasing it. Exhibits 1 and 2 relate to a proposed sale of the estate's interest for $20,000. The witness explained, however, that he never heard any more from the estate and the agreement was never finalized. Costa emphasized that he was not qualified to calculate the value of the estate's share. He said that the share of the estate is something less than one-quarter of the total value of the corporation's underlying assets, and he could not say whether that is more or less than $20,000.

Matthew Zupa, son of the decedent, testified that the decedent had a Certificate of Deposit and a savings account joint with him at First Niagara Bank. He said that he was not sure of the balances. Any money that was left to him under this arrangement, he testified, he gave to his mother so that she would have something to live on.

The petitioner next called Christopher. Christopher testified that she could not remember what she had done as executor in ascertaining the assets of the estate, claiming that she had no access to decedent's papers or financial records. Though she recalled that the Fargo Avenue property had been sold in November of 2004, she could not remember the net sale price. Counsel then stipulated that the net sale price of Fargo Avenue was $25,536.11. Christopher said that there was one tenant living in the property prior to the sale who paid over $100 a month in rent, but denied that she had ever collected any rent. Questioned about Exhibit F, a Charter One Certificate of Deposit and a checking account, the witness indicated that she was not sure whether they were in decedent's name alone. She said she knew nothing of the First Niagara Certificate of Deposit. She said she did not give her attorney any records.

Christopher professed to be aware of the two annuities, on one of which she was beneficiary. She explained that the decedent had originally designated the beneficiaries in the year 2000, but then [*3]changed them two months before his death because his brother Carl had died. Christopher could not identify Exhibit G, First Sun America, and did not know whether decedent had any account with this bank. Questioned about Exhibit H, the check register, she admitted that the deposits were in her handwriting, but said that she was not sure what the various deposits represented. She said she had no involvement with Transit Smith Corporation and knew nothing about the amount of decedent's interest. She said she made no effort to ascertain the value of his shares because she has no interest in the property. She did say that she never signed an agreement to sell decedent's share for $20,000.

After indicating that commissions and attorney's fees had not yet been paid, Christopher noted that she had reimbursed Eleanor Zupa for the funeral expenses, which, including the breakfast, totaled $7,750. She said she knew of no other assets of her brother and had no idea whether he had made periodic withdrawals during his lifetime from the annuities.

Under cross-examination by her attorney, Christopher said that she had worked with him in collecting assets of her brother's estate and that all income and assets that came into her hands, or of which she was aware, are reflected in her informal accounting.

Richard Zupa, petitioner's next witness, was not available to testify, because, according to counsel for Christopher, he is 78 years old and under a doctor's care. Counsel then entered into a Stipulation that Richard received one-half of the $93,000 annuity and $5,000 from another annuity. They further stipulated that Emil Zupa, the 83 year old brother of decedent, who was also ill and unavailable to testify, received Veteran's Administration life insurance worth $2,525.65.

One of the most important duties of an executor is marshaling and valuing the assets of an estate. Christopher's complete lack of interest in preparing an accurate accounting and, in particular, in determining the valuation of decedent's share of Transit Smith, is disturbing. Christopher has listed the value of Transit Smith on the Inventory of Assets as "O" (with the further notation, "It is our belief, that there are no assets in this Corp.") and on the informal accounting submitted to petitioner as "unknown." According to her testimony, she made no effort to determine the value because, in her words, she had no interest in the corporation.

The corporation's secretary-treasurer, Peter Costa, did testify at the hearing that the corporation had assets totaling $191,338.29. Decedent's one-quarter share of this gross amount is $47,834.57. Costa explained, however, that the total assets are not equivalent to the corporation's value, since a valuation must be net of expenses, including taxes. Clearly, however, the value of decedent's share is neither "unknown" nor "zero", but is capable of being determined accurately once information on taxes and expenses is known. I note that because the alleged agreement to purchase decedent's interest for $20,000 was, by the testimony of Peter Costa and Christopher herself, shown never to have been completed, respondent cannot therefore rely on that amount as a valuation of decedent's share.

Accordingly, Christopher must obtain documentation of the value of the corporation's [*4]underlying assets, as well as documentation of expenses, including taxes, and list the net date of death value of decedent's share in Transit Smith on a formal accounting to be filed with the Court.

Decedent purchased during his lifetime what have been variously described as either two or three annuities. It appears that the larger annuity ($93,771.86), of which the beneficiaries are Christopher and Richard Zupa, may be two equal annuities of $46,885.93, one payable to each beneficiary. Richard Zupa is also beneficiary of a smaller annuity ($5,085.65). Petitioner argues that the annuities should be considered testamentary substitutes and, therefore, should be part of the calculation of the net estate for her elective share. Respondent argues to the contrary.

Although annuities have become increasingly popular and are frequently the subject of post-death controversies, there is a dearth of case law dealing with the issue before me: whether annuities constitute testamentary substitutes for the purpose of calculating a spouse's elective share. Some of the confusion about the status of annuities can be attributed to their similarity to insurance products. In the instant case, the insurer, AIG, issued the annuity contracts. Life insurance can be said technically to fit into the definition of testamentary substitutes pursuant to EPTL 5-1.1-A(b)(1)(F):

"Any disposition of property or contractual arrangement made by the decedent, in trust or otherwise, to the extent that the decedent (i) after August thirty-first, nineteen hundred ninety-two, retained for his or her life, or for any period not ascertainable without reference to his or her death, or for any period which does not, in fact, end before his or her death, the possession or enjoyment of, or the right to income from, the property except to the extent to such disposition or contractual arrangement was for an adequate consideration in money or money's worth; or (ii) at the date of his or her death, retained either alone or in conjunction with any other person who does not have a substantial adverse interest, by the express provisions of the disposing instrument, a power to revoke such disposition or a power to consume, invade or dispose of the principle thereof. The provisions of this sub-paragraph shall not affect the right of any income beneficiary to the income undistributed or accrued at the date of death nor shall they impair or defeat any right which has vested on or before August thirty-first, nineteen hundred ninety-two."

Legislative history makes amply clear that life insurance was not, however, intended to be a testamentary substitute under the statute (see, Matter of Boyd, 161 Misc 2d 191). But there is no legislative history regarding annuities as testamentary substitutes.

Indeed, though, significant differences between annuities and life insurance argue for the inclusion of annuities among testamentary substitutes. "The great weight of authority in this country views an annuity as an investment and not a contract of insurance" (New York State Association of Life Underwriters, Inc. v. New York State Banking Department, 190 AD2d 338, 343, citing, among others, Helvering v. Le Gierse, 312 US 531). As the Appellate Division, Third Department further [*5]explained in New York State Association, "the definitions involving insurance clearly contemplate payment as the result of loss, ie., loss of life, loss of property, loss of health. No such contemplation exists with annuities. Rather, annuities contemplate long-term streams of income to annuitants during their lifetimes based upon an initial lump-sum payment" (at 343). And, as the Court noted, the insurance law defines an annuity as an agreement "to make periodical payments" where the continuance of such payments "depends upon the continuance of human life" (New York State Association, supra, at 343; Insurance Law §1113[a][2]).

As a contractual arrangement pursuant to which a decedent, immediately before his death, was receiving or entitled to receive for his lifetime payments which were to continue after his death to a designated beneficiary, an annuity fits the definition of testamentary substitute under EPTL 5-1.1A(b)(1)(F), supra. An analysis of the other testamentary substitutes listed in the statute suggests that the retention by a decedent of powers over an asset (such as, for instance, the ability, in a joint account, to obtain the monies during his lifetime, the power to regain the assets of a Totten trust, the power to obtain income from an inter vivos trust, or the power to appoint the assets) is the characteristic that renders such assets testamentary substitutes and thus part of the net estate for calculation of the elective share. These are the same kinds of powers over assets that require the inclusion of these assets in a decedent's taxable estate and thus subject to estate tax at death. Because decedent in the instant case had, pursuant to the annuity contracts, the right to receive payments thereunder and was, in fact, receiving such payments, the annuities fall within the definition of testamentary substitutes and are accordingly to be added to the calculation of the net estate, against which petitioner's elective share is to be determined.

Petitioner makes a brief argument in her Memorandum of Law that some of the expenses to be used in calculating the net estate are unreasonable: specifically, she takes issue with the funeral expenses and with Christopher's right to executor's commissions. Since the proceeding she initiated was to determine the validity and effect of the right of election and there was little or no reference in the petition or in the hearing testimony concerning funeral or administration expenses, these issues are not procedurally before the Court now. Resolution of these issues can await the judicial settlement of the estate.

Accordingly, I hereby direct that Christopher prepare and file a formal accounting as part of a judicial settlement proceeding within 60 days of the date of this decision. Such account shall contain a valuation as of decedent's date of death of his share of Transit Smith Corporation, appropriately documented.

I further direct that decedent's annuities are testamentary substitutes which shall be taken into account in determining the elective share of petitioner. Such annuities shall be listed as testamentary substitutes on the formal accounting to be filed with this Court and served on all interested parties. All issues regarding the precise amount of petitioner's elective share must abide the judicial settlement.

This decision shall constitute the Order of the Court in this matter and no other or further order shall be required. [*6]

Dated:Buffalo, New York

December 29, 2006



BARBARA HOWE, Surrogate Judge