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In re Leonard's Will

Supreme Court of New York, Appellate Division

March 9, 1955

In re Leonard's Will

APPEAL from a decree of the Surrogate's Court of Tioga County (CLOHESSY, S.), entered August 27, 1954, which dismissed the objections of appellant to the final accounting filed by respondent in the estate of Laura A. Leonard, deceased. APPEAL from a decree of the same court (CLOHESSY, S.), entered August 27, 1954, which dismissed the objections of appellant to the final accounting filed by respondent in the estate of Emily C. Leonard, deceased.

COUNSEL

Page 531

Neil G. Harrison for appellant.

Lewis B. Parmerton and James S. Truman, in person, for James S. Truman, as sole surviving substituted trustee, respondent.

BERGAN, J.

The central legal personality in this attenuated controversy is Esther H. L. Winter, who died in 1953. The problems posed in the case must be viewed in the relation of her two sisters and her two sons. By their respective wills her sisters created testamentary life trusts for her benefit; both sons were equal remaindermen; and one of the sons was designated as trustee in each trust. The two wills were alike in these respects.

The will of one sister, Laura A. Leonard, was admitted to probate in Tioga County in 1922; the will of the other sister, Emily C. Leonard, who died three years later, was admitted to probate in 1925 in the same county.

One of the sons, John G. Underhill, had become heavily indebted on bank loans. The mother was liable on this indebtedness. She was a comaker on some of the paper held by banks; an indorser on other paper. This son died August 3, 1929. His estate was not able to pay the bank indebtedness then amounting to $32,000. The banks sought payment from Mrs. Winter who gave her own notes in substitution of those of her son. She made some payments on this indebtedness.

The other son, Hermon L. Underhill, was the trustee for the two trusts. For the year 1929, in which John G. Underhill died, the account filed by Hermon showed a principal in the Laura A. Leonard estate of $136,679.06; and in the Emily C. Leonard estate of $180,269.79. Over half of this ($167,000) on December 31, 1929, was in cash or securities in the possession of the trustee.

It was established in an earlier proceeding (Matter of Leonard, 151 Misc. 558), and abundantly demonstrated in this record, that during 1931 Hermon L. Underhill had lost nearly all the money and securities under his control in both trusts by speculation or by conversion to his own use. An account filed by him in 1934 showed that instead of $167,000 in his possession he had left only $28,213.51.

The estate of John G. Underhill, of course, had an interest in what had happened, since it would have a one-half interest in the remainder at Mrs. Winter's death; Hermon, the trustee who had diverted the trust property, had a similar and equal interest in it as a remainderman; and Mrs. Winter had an

Page 532

interest, since the ability of the trusts to pay the benefits provided had thus been vitally impaired.

Upon this situation arising in 1931 all the interested parties took steps to prevent further losses in the trusts. The attorney for Mrs. Winter, William G. Ellis, and James S. Truman, as executor and the attorney for the John G. Underhill estate, received from the trustee in 1932 all the securities he then had left--in the value of $28,213.51. These securities were kept by the attorneys in a safe-deposit box until 1933, when upon consent of Mrs. Winter, they were turned over to the estate of John G. Underhill.

It is helpful in understanding this controversy to place oneself back in a situation to look at things as these lawyers might have done in 1932 when they received the securities from the trustee; that in transferring this property to the John G. Underhill estate they felt they were accelerating by agreement with the life beneficiary payment of a portion of the residuary to the John G. Underhill estate which Hermon L. Underhill had been able to accelerate for himself by diverting to his own uses the property of which he was trustee.

It would seem normal to think the beneficiary who had obligated herself to pay the bank indebtedness of the John G. Underhill estate would agree to this, since her personal liability to banks would begin at the point at which the capacity of her son's estate to pay ended.

These informal arrangements were irregular and impaired the trust structure; but they were not shocking. They constituted a pragmatic attempt at salvaging some of the corpus of the trusts already grossly deteriorated by the activities of the trustee.

When the trustee filed his final account in 1934 and asked permission to resign his office, the Surrogate had some decided views about what should be done. (Matter of Leonard, 151 Misc. 558, supra.) The arrangements for the transfer of property to the John G. Underhill estate were characterized as an attempt to terminate the trusts which the Surrogate regarded as invalid and beyond the power or right of the life beneficiary and the remainderman, acting together, to bring about (pp. 560, 562). The acts of the trustee, who had diverted the property to his ...


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