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In re Application of Knapp

Sur Ct, New York County

September 20, 2013

In the Matter of the Application of Josiah Knapp and Eric Gebaide, Co-Trustees, for Reformation and Equitable Deviation from Certain Terms of the Trust under Article FOURTH of the Last Will and Testament of Anna Knapp, Deceased.

Unpublished Opinion

For the Petitioners, Michelle Yu, Esq. and Brian A. Raphan, Esq. from the law firm of Brian A. Raphan, P.C.

Rita M. Mella, J.

It has long been understood that the clear expression of a testator's intent in his or her Last Will and Testament is to be given its effect unless there is strong evidence of some other intent. Wager v. Wager, 96 NY 164 [1884]. When the testator gives clear directions "courts are to carry out the directions, not add to, or take from them." Matter of Watson, 262 NY 284, 294 [1933]. Petitioners here, co-trustees of a testamentary trust, request that this court substantially reform the trust's terms. To grant their proposed relief, this court would be required to disregard the Testator's wishes for no greater reason than that the trustees and beneficiaries have agreed, and so the Petition must be denied.

The reforms Petitioners ask the court to effect would (1) allow the Trustees limited power to invade trust principal where now there is none; (2) reduce the age at which the current beneficiaries receive distribution of their shares of the trust, and thus accelerate the trust's termination; (3) dispense with the will's express requirement that one of the beneficiaries make certain visits to his grandmother, or face reductions in the value of his portion of the trust for failure to do so; [1] (4) create a mechanism for the appointment of successor trustees without need to resort to seeking relief from the court; and (5) establish that the Trustees are held to the prudent investor standard (EPTL § 11-2.3). Additionally, Petitioners seek permission to resign, and for the appointment of successor trustees.

Decedent's will, dated July 13, 2000, was admitted to probate in May of 2011, shortly after her death. The trust established therein was for the benefit of certain of her grandnieces and grandnephews, with a share to be given to each outright upon their reaching the age of twenty- five. At Decedent's death, the class of eligible grandnieces and grandnephews closed, with eleven total beneficiaries. Part IV(c) of the will, which establishes the trust at issue, explicitly denies trustees the authority to "invade or pay out the principal and or interest of the trust until the termination of such trust as set forth herein." In Part IV(d), Decedent further directed that if any beneficiary died before the age of twenty-five, that beneficiary's share was to be divided evenly among the other beneficiaries. Decedent devoted Part IV(e) of her will to describing the visits that her grandnephew, Matthew Gebaide, must make to his grandmother, Beatrice Denno, and the penalties should the visits not be made to the satisfaction of the trustees and Ms. Denno. Finally, Part IX provides that if one of the trustees nominated in the will ceases to act, "that the survivor(s) of them shall continue to act without filling the vacancy." [2]

This request for reformation and the terms to be reformed are the result of an agreement reached by the interested parties, including all 11 beneficiaries. Petitioners represent that this agreement arose in response to personal differences between the two trustees regarding management of trust assets, which have made it difficult for them to administer the trust jointly. Of the beneficiaries of this trust, only four have yet to reach twenty-five years of age: Matthew, who is twenty-three; Sophie, who is sixteen; Daniel, who is fourteen; and Isabelle, who is eleven. In making this agreement, the parents of the three minor beneficiaries purportedly represented those beneficiaries' interests. This Petition was before the court on May 28, 2013. At the court's suggestion, Petitioners submitted a supplementary memorandum of law in support of the relief sought, addressing in particular whether the court has the power to grant such relief.

In support of their request that this court disregard the testator's clear intent in approving these reforms, Petitioners rely on Matter of Kern (159 Misc. 682 [Sur Ct, New York County 1936]), for the proposition that agreements among the interested parties can serve as a basis for a court's reforming the terms of testamentary trusts. Kern, however, does not stand for that proposition. This is not to ignore that, as here, Kern involved agreements among all beneficiaries and fiduciaries of a trust under a will. But, unlike the present case, the Kern court was not asked to use its powers to reform the will's terms. The court was instead asked to determine, after the trust had terminated, whether the fiduciaries could be held harmless (as the beneficiaries had agreed to do) for having invested in ways that the will's terms prohibited. In ruling for the fiduciaries, the Kern court was neither altering nor ignoring the terms of the will. Instead, with the parties' contractual rights and obligations under the agreements the sole issue, the court was merely recognizing that the principle of estoppel equitably barred the beneficiaries from avoiding their promise to hold the fiduciaries harmless. See Matter of Pinney, 250 AD 60 [1st Dept 1937] (discussing Kern). The court in Kern never gave its blessing to an agreement that went against the interest of the testator. Nor will this court.

Petitioners are correct that when there is "inapt, or careless, use of language by the testator" this court must "discern a dominant plan of distribution" to effectuate the decedent's intent. Matter of Fabbri, 2 N.Y.2d 236 [1957]; see also Tilden v. Green, 130 NY 29, 52 [1891] (allowing subtle changes, "but only in aid of the testator's intent and purpose. Never to devise a new scheme or to make a new will."). But the court need not resort to principles of interpretation when the testator's intentions are clearly expressed in the will. Matter of Bisconti, 306 NY 442, 445 [1954] ("If intention of a will-maker is to be found in the words used in the will and these are clear and definite there is no power to change them."). Decedent's will was clear and explicit as to the terms of the trust established therein and her intent guides the court's decision. Petitioners fail to provide any basis in law or judicial precedent for the court's authority to so broadly disregard the clear terms of the will and approve the requested reformation, or any equitable principle that would justify doing so.

Specific Reforms Requested Invasion Powers

Petitioners request that the trust be modified so that trustees be granted the power to invade trust principal under specific circumstances, such as when beneficiaries face expenses for higher education or medical treatment. Their argument that the Decedent merely "sought to limit beneficiaries' direct access to funds" is an understatement, at best. Part IV(c) of the will bars any invasion of the trust principal and Part VIII further evidences the Testator's intent that the trust remain intact, as it precludes beneficiaries from borrowing against their interests prior to receiving their share at age twenty-five. The Testator clearly desired that the trust not be accessed by or for the beneficiaries in any way until the designated age has been reached, at which point beneficiaries are to receive their share outright. Accordingly, the request for permission to reform the trust to allow trustees even limited discretion to invade the trust principal is denied.

Age Requirements

Petitioners also request that the age when a beneficiary receives their share of the trust, and hence when the trust ultimately terminates, be lowered from the age of twenty-five to twenty-one. Decedent's will mentions the twenty-five year age requirement four times. It thus appears that Decedent clearly intended that any and all distributions occur at the age of twenty-five, and not before. Petitioners' arguments that Decedent could not have contemplated the maturity of the beneficiaries at the time she wrote her will in the year 2000, and that there is no difference between distribution at age twenty-five versus age twenty-one are unpersuasive. Therefore, the request to change the age when a beneficiary receives their share of the trust is also denied. [3]

Specific Equitable Deviation Requested [4] Successor Trustees

As aforementioned, the will directs that if any trustee resigns or is unable to serve, the remaining trustee(s) should continue to act without filling a vacancy. Contrary to those instructions, it appears that Petitioners seek to split management of the trust between two sets of successor co-trustees, and request court approval of a complicated succession plan involving multiple family members. [5] The end result would essentially leave Josiah Knapp as a co-trustee for a portion of the trust and replace Eric Gebaide with three new co-trustees. The very creation of, and the specifics within, the succession plan the parties have agreed to are contrary to the Testator's intent. For example, the agreement dictates that there will always be a minimum of two co-trustees and specifically forbids certain persons from ever acting as sole trustee. The request to approve this plan nominating future successor trustees is thus denied, as is the request for appointment of successor trustees at this time. The court is unable to consider the specific nominations as they are part of a larger scheme that cannot be approved in any part.

Certainly, as the Testator did not specify how successors should be chosen when no trustee is serving, it is the duty of this court to review and approve or deny nominated successors, as well as resignation by trustees when a current trustee cannot continue to serve, pursuant to certain statutory requirements. See e.g., SPCA § 707. If both trustees are unable or unwilling to continue serving as trustees, then by petition to this court, they can seek to resign in unison, and the appointment of a nominated successor would be considered at that time.

Investment Standards

The request to hold trustees to a prudent investor standard and thus to bar self-dealing is a moot point as fiduciaries already have such obligations under EPTL § 11-2.3, enacted by the New York State Legislature in 1995.

Accordingly, the Petition is denied, without prejudice to Petitioners' renewing their application to resign as trustees and for the appointment of successors.

This decision constitutes the order of the court.

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