Matter of Tillinger

[*1] Matter of Tillinger 2010 NY Slip Op 50303(U) [26 Misc 3d 1229(A)] Decided on March 2, 2010 Sur Ct, Bronx County Holzman, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through March 11, 2010; it will not be published in the printed Official Reports.

Decided on March 2, 2010
Sur Ct, Bronx County

ESTATE OF Keith Tillinger, Deceased



2828-A/2008



Drinker, Biddle & Reath, LLP, (Stephen R. Harris, Esq., of Counsel) for movant, Allstate Life Insurance Company of New York

Christopher Marengo, Esq., for movant, George Mahairis

Robin, Harris, King & Fodera, (Vincent A. Brescia, Esq., of Counsel) for Liberty lLife Assurance Company

Garry S. Basso, Esq., for Anna Bahan, administratrix

Lee L. Holzman, J.

In this SCPA 2103 discovery proceeding commenced by the co-administrators, one of whom is the decedent's maternal grandmother and sole distributee, the respondents Liberty Life Insurance Company of Boston (Liberty Life), Allstate Life Insurance Company of New York (Allstate Life), as well as George Mahairis, on behalf of himself and his two brothers John and Aristedes Mahairis, respectively seek to dismiss the petition for lack of subject matter jurisdiction. The primary issue presented is whether the estate, as the default beneficiary of any annuity payments payable after the decedent's death in the event that no other beneficiary was designated by the decedent to receive those payments, may pursue a claim for those payments where the decedent first designated his grandmother as the beneficiary and thereafter changed the designation to the Maharis brothers. The gravamen of the estate's claim is that the subsequent designation changing the beneficiary from the grandmother to the Mahairis brothers is invalid on the grounds of fraud and undue influence.

Following the commencement of this proceeding, and one day prior to its return date, Liberty Life commenced an interpleader action in the United States District Court for the Southern District of New York (09 Civ 4715) against the maternal grandmother and the Mahairis brothers seeking a declaratory judgment as to the proper party to whom payments are to be made and preliminary injunctive relief enjoining those defendants from seeking any other relief against Liberty Life [*2]pending a determination of its interpleader action. After the instant motions were submitted all of the parties in the interpleader action consented to an "Interpleader Order" dated January 5, 2010, which "enjoined and restrained" all of the defendants, including the decedent's grandmother, from prosecuting any proceeding against Liberty Life with regard to the annuity it issued pursuant to a personal injury settlement agreement. Consequently, the petitioners herein thereafter requested that the proceeding pending in this court against Liberty Life be dismissed. In light of the injunction, this request is granted. Nonetheless, the motion papers submitted by Liberty Life will be considered by the court because the other parties seeking similar relief adopted the contentions raised therein.

The decedent died on September 12, 2007 at the age of 41. His death certificate lists the cause of death as "Acute Cocaine Intoxication." Prior to his death, the decedent obtained the Liberty Life and Allstate Life annuities as part of a structured settlement recovery in a personal injury action. The Allstate Life annuity provides for, inter alia, a lump sum payment of $50,000 due on May 1, 2009, a lump sum payment of $75,000 due on May 1, 2014, and a lump sum payment of $23,227.72 due on May 1, 2019. It is undisputed that the decedent informed his maternal grandmother that, upon his death, she would be the beneficiary of the Allstate Life annuity and, in fact, she was the original beneficiary designee of the policy. Section 4 of the agreement settling the personal injury case provides that: "Any payments to be made after the death of [the decedent] pursuant to the terms of this Settlement Agreement shall be made to [the maternal grandmother], if living. If no person or entity is so designated by Claimant, or if the person designated is not living at the time of the [the decedent's] death, such payments shall be made to the estate of [the decedent] . . . "

On May 8, 2006, the decedent changed the beneficiary designation on the Allstate Life annuity from his maternal grandmother to George Mahairis and Aristedes Mahairis equally, and designated John Mahairas as the contingent beneficiary. Following the decedent's death, the first $50,000 periodic payment due May 1, 2009 was paid to George and Aristedes Mahairis, equally.

In their original and supplemental order to show cause and petition, the co-administrators allege that: (1) George Mahairis was made the designated beneficiary through fraud, undue influence or both, and arranged for himself and others to be the named beneficiaries; (2) the basis for their belief is that the decedent was a heroin and cocaine addict for years, was afflicted with cancer, could not swallow, was barely able to walk due to multiple back operations, and he relied on others to handle his financial affairs; (3) George Mahairis undertook to assist the decedent in handling his financial affairs to the exclusion of all others and had full control of all banking and other transactions; (4) from October, 2006 to February, 2007, while the decedent was hospitalized suffering from cancer, George Mahairis gave the decedent a power of attorney form and either signed the decedent's name or caused the decedent to unknowingly sign his own name to ensure that George Mahairis and others were designated the beneficiaries of the annuity; (5) George Mahairis took valuable items from the decedent's apartment and urged the maternal grandmother to sign a "clean out" agreement which was actually a release for items he took, he took $20,000 from the decedent's HSBC account and returned the money when confronted, and he caused the decedent to name him as beneficiary of other accounts and other financial instruments; and, (6) George Mahairis had a confidential or fiduciary relationship with the decedent requiring clear and convincing proof that the [*3]decedent knowingly and wilfully intended to name him and/or others as beneficiaries.

As a result, the co-administrators now seek a decree directing George Mahairis, Allstate Life and other respondents to turn over to the estate all annuity contracts, policies, correspondence, savings or checking accounts, powers of attorney and related items belonging to the decedent or naming them or the decedent as beneficiaries or account holders. In the alternative, the co-administrators request an order directing that an unspecified sum be deducted from any proceeds paid to George Mahairis, to ensure that estate taxes attributable to the annuity proceeds are paid.

In essence, the movants contend that the underlying dispute relating to the validity of the change of beneficiary designation made by the decedent in connection with structured settlement annuity, does not involve the affairs of the decedent or the administration of his estate. Instead, they assert that this is a dispute between living parties because the settlement agreement provides that the annuity payments are payable directly either to the decedent's grandmother, individually, in accord with the first beneficiary designation filed, or, in the event that the second beneficiary designation validly superceded that prior designation, the payments are to be made to those designated beneficiaries. Thus, in no event are the annuity payments payable to the estate as an estate asset. Allstate Life also contends that the petition against it should be dismissed based on the failure to join Allstate Assignment Company, the entity presently obligated to make periodic payments under the annuity. In opposition, the co-administrators contend that this court does have subject matter jurisdiction as, pursuant to Section 4 of the settlement agreement, all Allstate Life annuity proceeds should be paid to the estate because the maternal grandmother was removed as a designated beneficiary when the other beneficiaries were designated prior to the decedent's death and, in any event, an inquisitorial examination is necessary for estate tax purposes.

The surrogate's court is a court of limited jurisdiction and possesses only those powers conferred upon it by statute (see Matter of Wallace, 239 AD2d 14 [1998]; Matter of Lainez, 79 AD2d 78, 80 [1981], affd 55 NY2d 657 [1981]; see also SCPA 201). Although the jurisdiction of the surrogate's court is broad where the controversy relates to the affairs of decedents or the proceeding pertains to the administration of an estate (see Matter of Piccione, 57 NY2d 278 [1982]; NY Const, art VI, § 12 [d]; SCPA 201 [3], 202 and 209 [10]), its subject matter jurisdiction does not extend to independent matters involving controversies between living persons (see Matter of Deans, 68 AD3d 767 [2009]; Matter of Wallace, 239 AD2d at 15; Matter of Lupoli, 237 AD2d 440 [1997]; Matter of Lainez, 79 AD2d at 80).

The expansive jurisdiction of the surrogate's court in a proceeding pertaining to the administration of an estate extends to proceedings involving "nontestamentary assets" that "may have estate tax consequences in which the fiduciary must play a role" (Matter of London, 90 Misc 2d 351, 353 [1977]). Consequently, the court clearly has jurisdiction with respect to the inquisitorial examinations requested by the co-administrators for tax purposes. Nonetheless, there remains the issue of whether the estate is the proper party to pursue a claim to the annuity payments.

Here, it is undisputed that the maternal grandmother, individually, was the designated beneficiary of the Allstate Life annuity payments before the decedent changed the designation to the Mahairis brothers. EPTL 13-3.2 (a) provides, in pertinent part, that: "If a person is entitled to receive . . . (2) money payable by an insurance company . . . under an annuity . . . , or if a contract made by such an insurer relating to the payment of proceeds or avails of such insurance designates a payee or beneficiary to [*4]receive such payment upon the death of the person making the designation or another, the rights of persons so entitled or designated and the ownership of money, securities or other property thereby received shall not be impaired or defeated by any statute or rule of law governing the transfer of property by will, gift or intestacy."

Where a person is validly designated to receive payments pursuant to an annuity, EPTL 13-3.2 prohibits the estate from impairing the right of the designated beneficiary to receive payment and those proceeds may not be paid into the estate for any purpose (see American Intl. Life Assur. Co. v McGillicuddy, 307 AD2d 228 [2003]). Thus, for the estate to prevail as the default beneficiary under the circumstances of this case, the court would have to hold that the decedent's subsequent designation of the Mahairis brothers as beneficiaries indelibly removed the grandmother as a beneficiary and precluded her from being the designated beneficiary in the event that the designation of the Mahairis brothers is ultimately adjudicated to be invalid.

Notwithstanding that the grandmother as the sole distributee would ultimately receive the annuity payments should they pass through the estate, this might not be beneficial to the grandmother because if the annuity payments were paid to the estate as an estate asset, they would be subject to the claims of creditors of the estate (see Matter of Clotworthy, 294 AD2d 720, 722-723 [2002]). Furthermore, it appears that this estate was not named as a party to the interpleader action commenced by Liberty Life and that the co-administrators have not moved to intervene in that action. This could be construed as a concession by the co-administrators that the grandmother, and not the estate, is the party entitled to the annuity payments in the event that the subsequent designation is adjudicated to be invalid. In any event, a review of cases involving similar circumstances reveals that, without the estate being joined as a party, competing claims arising from first and subsequent designations of beneficiaries of life insurance or annuity payments were adjudicated solely between the competing designees based upon allegations that the last designation was invalid as a result of undue influence or fraud (see Shallow v Carballal, 278 App Div 328 [1951], affd 303 NY 827 [1952]; Mederios v John Alden Life Ins Co.,1990 WL 115606, 1990 US Dist LEXIS 10393 [SD NY 1990]). In short, the court finds that if the only impediment to paying the annuity benefits to the first designated beneficiary is the existence of a subsequent designation changing the beneficiary, that impediment is removed upon an adjudication that the subsequent designation is invalid, regardless of whether such adjudication is based upon undue influence, fraud or some other ground.

Accordingly, it is clear that if the subsequent designation of the Mahairis brothers, which purportedly superceded the designation of the grandmother, is invalid on the ground of fraud or undue influence, the net effect is the same as if there never was any such subsequent designation, and the grandmother, individually, and not the estate, would be entitled to the annuity benefits as the designated beneficiary (see American Intl. Life Assur. Co. v McGillicuddy, 307 AD2d at 228; EPTL 13-3.2).

For the reasons stated above, the court concludes that the annuity payments at issue are not estate assets and may not be paid to the estate. Accordingly, this decision constitutes the order of the court granting the applications to dismiss that portion of the amended petition requesting the relief that any of the annuity payments at issue be paid to the estate. Nonetheless, the co-administrators may proceed with the balance of relief requested in this proceeding, including the [*5]inquisitorial examination of any party over whom jurisdiction has been obtained. In the event that the parties need the assistance of the court in conducting those examinations, they shall settle an order hereon providing that such examinations will be conducted at the courthouse at a time and date selected by the court. Should the co-administrators request a hearing on the merits with respect to any of the remaining issues, they should advise the court in writing with a copy to the party against whom the relief is requested.

In conclusion, the court realizes that its dismissal of a portion of the petition is on the narrow ground that the annuity payments at issue must be paid to a living party; to wit, the designee under either the first or second beneficiary designation, and not to the petitioners in their capacity as the co-fiduciaries of the estate as requested in their petition. Therefore, the court declines to rule upon the following academic issues: (1) whether, in a proceeding in which all of the necessary parties were before the court, the surrogate's court would have subject matter jurisdiction over this dispute because the issue of the validity of a designation of benefits payable after the decedent's death relates "to the affairs" of the decedent notwithstanding that the payments cannot be made to the decedent's estate (compare NY Const, art VI, § 12 [d], and SCPA 201, with Matter of Lainez, 79 AD2d at 80 and its progeny); and, (2) assuming, arguendo, that this court has subject matter jurisdiction, whether, in the exercise of its discretion, it should decline to entertain such a miscellaneous proceeding (see SCPA 202 and 2101 [1] [b]).Proceed accordingly.



SURROGATE